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Market Bides Time Ahead of More Fed Twaddle

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DaBoyz have been artfully rotating money between a handful of high-profile stocks in order to keep this distributive rally going for as long as possible. On Monday, although the broad averages seemed leaden all day, the Dow still eked out a 65-point gain while AMZN, AAPL and MSFT rose, respectively, 1.75%, 1.08% and 1.48%. This was despite the fact that shares of Boeing, the 800-pound gorilla of late (click on inset to see how Kong has been soothed), was off $7, or 1.65%, Tesla was getting sacked for 2.4%, and Facebook was down 2.24%.

It feels as though for each marquee stock that is falling on a given day, there’s a corresponding biggie that is rising. This suggests that the Masters of the Universe have been systematically going about their business — i.e., unloading as much stock as they can on widows and pensioners while conditions are favorable  — with relatively little firepower at their disposal. As we know, the only buyers voracious enough to generate headline rallies and push stocks above previous peaks are short-covering bears. Unfortunately for Wall Street, there has been insufficient “good” news to goad them into the kind of mini-buying-panics that worked so well in January/February.

Very Stale News

The smart money undoubtedly is waiting for “news” from this week’s FOMC meeting to help trigger a short squeeze worthy of the name. However, the requisite but increasingly moronic-sounding story — that the Fed sees “no strong reason” to tighten “right away” — has been rehashed so many times over the last couple of months that it has become as stale as a sitcom laugh track. Each time this supposed news is rehashed, the wording is adjusted slightly so that it sounds as though the Fed has budged another millimeter or two in the direction of easing (or, perhaps, of ‘not-tightening’). This diminuendo of twaddle has left the door open to news that the Fed, a step behind its Brussels counterpart, is ready to start easing again. That’s guaranteed to lift the markets and could do so for a period of weeks, even as the “easing” story is modified, restaged and diddled in countless ways. Whether the stock market is at new record highs when the dog-and-pony show ends is unpredictable at the moment, but we do not regard a new round of easy credit at this stage of the economic cycle as being even remotely sufficient to resurrect the bull market.

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$FB – Facebook (Last:160.44)

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$TSLA – Tesla Motors (Last:290.25)

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The drumbeat is quickening ahead of TSLA’s impending fall.  Bears who believe it will be easy to profit from this should think twice after Friday’s experience. Although I’d recommended buying some out-of-the-money puts a day earlier, the company’s shares were among the session’s biggest gainers in the institutionally-worshiped-sector. The rally was pure short-squeeze, announcing very clearly that everyone is short the stock, or wants to be. Whenever that is the case, bears should fasten their seat belts and prepare for an extremely rocky ride.

It is not unknown for shares of a company to rise even with news stories of criminality swirling around them. The Equity Funding scandal was a notorious example.  Although the stock fell steeply on most days, there were moments when it rallied ferociously on short-covering. Inevitably, these rallies were ascribed to the possibility that maybe, just maybe, the most salacious things being reported about Equity Funding were untrue. Unfortunately, this proved not to be the case. But that didn’t stop some of the smartest investors on Wall Street from buying stock up until the moment the SEC halted trading for good.

Shades of DeLorean

I don’t mean to suggest that Tesla CEO Elon Musk is a crook. In fact, he is one of my heroes. But it appears that in shifting money between various Musk enterprises, including SpaceX, and in booking car sales aggressively, he may have pushed the boundaries of accounting beyond their conventional limits.  Read the stories linked here, here and here and you will find it hard to disagree, even if you are as big a fan of Musk as I am.

The chart (click on inset) shows what could happen to the stock when its institutional supporters begin to jump ship.  This grave turn of events will seem to happen overnight, sending the stock spiraling into the $150-$200 range where it consolidated for 2017’s spectacular push to $400.  No matter how scandalous the reports, the stock will have its good days. Whenever that happens, do not doubt that the company is headed toward the same, tragic end as DeLorean Motor Company. Unlike the DeLorean, however, the car will become an albatross for owners rather than a collectible._______ UPDATE (Mar 11, 9:50 p.m.): The stock had one of those ‘good’ days mentioned above, rallying sharply along with the broad averages. It is clearly benefiting from the eagerness of every trader on the planet to be short it. Regardless, look for a Hidden Pivot resistance at 293.81 to show some potentially tradeable stopping power. You can use that number as a minimum upside projection for the near term. _______ UPDATE (Mar 17, 6:30 p.m.): It took a ratcheting short-squeeze to 295.39 that lasted two weeks to burn out the very last bear. And now, we needn’t guess about where the stock is headed as it falls anew: 251.28Here’s the chart.

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$ESM19 – June E-Mini S&P (Last:2830.25)

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Face it, this monster could veer wildly in either direction right now and even an Einstein could not confidently predict which. My heart’s desire is to see the S&Ps plunge into the molten pit of hell by summer. The 2313.00 target shown suggests that, at least from a technical standpoint, this is possible. Presumably, the years-overdue collapse would drive out the crooks who have rigged shares while leaving the virtuous, widows and pensioners untouched. Thus cleansed in fire, Wall Street and the banking system would regenerate themselves and return to health; investors would enter a new era where accounting methods are honest, the behavior of stocks reasonably predictable, our economic and political lives guided by plain sense.

In the meantime, a trader could get his ass kicked, as your editor did Thursday, betting that the scenario above will commence within the week. The E-Mini S&Ps are positioned precariously enough (click on chart inset) so that it’s not such a bad gamble. The ‘CI’ stands for a ‘counterintuitive’ trade intended to flout the raucously bullish mood of the day. But the futures have been so squirrelly lately that one can only infer many traders have flocked to the ‘Don’t pass’ line, eager for the broad averages to seven-out. Is there a less stressful way to do this? Check out my strategy in VXXB, which tracks short-term S&P 500 volatility. It is close to a possible turning point, and although call options are not cheap, owning a few of them beats getting flogged all day long by S&P futures in rabid-badger mode. If you don’t subscribe, click here for a free two-week trial that will give you access to everything. And please do stop by the Trading Room to say hello. _______ UPDATE (Mar 17, 6:30 p.m. EDT): Each sharp upthrust has given way to a two-day correction, but there is little doubt where the futures are headed. Use the 2866.25 Hidden Pivot as a target and short there with a tight stop-loss if you’ve made at least 6-8 points along the way. 

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$+VXXB – S&P Short-Term Volatility (Last:28.72)

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$BA – Boeing Co. (Last:378.90)

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Boeing has bounced very precisely from the 363.20 midpoint pivot shown, validating the pattern and its very bearish ‘D’ target at 323.72. This means that if and when the bounce from today’s low sputters out and the stock relapses beneath 363.20, it could fall all the way to 323.72, or 14%, in search of traction. The secondary pivot at 343.46 would become our minimum downside objective at that point.

The FAA fell in line with regulators in other countries on Wednesday when it grounded all U.S. flights of the 737 Max. This developing story is not going to blow over any time soon, even if the aircraft manufacturer is able to isolate the source of the problem that has caused two fatal 737 crashes in the last five months. Under the circumstances, the 363.33 low seems unlikely to hold.

Puts Went from 0.11 to 6.50

For your interest, as the stock has fallen from a high just two weeks ago of $445, the March 360-strike puts expiring this Friday have traced out several huge swings between 0.50 to and 6.50. They could have been bought for as little as 0.11 last week. Here’s a graph that shows their histrionics. _______ UPDATE (Mar 15, 5:10 p.m. EDT): The stock is not going lower without a fight, and putting it back on track is Wall Street’s #1 priority right now. DaBoyz will literally stop at nothing to achieve this goal, and it seems possible they’ll succeed even before the last of the 157 who died in last week’s crash is buried.

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$AAPL – Apple Computer (Last:180.91)

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Buyers blew past a ‘midpoint Hidden Pivot’ near 179 Tuesday, leaving no doubt about their ability to push the stock to at least 190.33 in the days ahead (or 192.99 if any higher). It seems like only yesterday that AAPL was mucking around as analysts wrung their hands over sluggish iPhone sales in Asia. These days, however, a CEO need only say the company plans to do better and the shares rocket 20% in a couple of weeks, propelled by short-covering, hubris and some cheerleading from the usual places. We’re not sure whether the Cupertino giant has regained its spot as the most valuable publicly traded company in the world, but the steep pitch of the rally is most surely having its effect on the broad averages and the FAANGs in particular. They seem not only inured to bad news, but are rising exuberantly on earnings expectations that would have seemed far too optimistic just a few weeks ago. It is all hype, of course, but there’s no gain in fighting the tape. Traders please note that a pullback to 173.90 from current levels, however unlikely, would trigger a ‘mechanical’ buy signal.

This is a free forecast (Tout) by Rick. Get a free trial of Rick’s Picks to see full member content.

$DXY – NYBOT Dollar Index (Last:97.32)

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The U.S. dollar has been slow to challenge the 97.87 peak from last June (see inset), even if its buoyancy has gone more or less according to our forecast. Our long-term outlook for the greenback remains very bullish — so bullish, in fact, that we see the uptrend culminating in a short squeeze that wrecks the global financial system and reduces most commerce to a state of barter.  The initial phase of this scenario would feature a rally in the Dollar Index that tests and then breaches highs near 120 recorded nearly two decades ago. Well before then, however, every profligate dollar-borrower on earth — you know who you are — would be crushed by the burden of having to pay off debts in a super-hard currency. The list of potential losers stretches on and would include, for one, virtually all of the players in a derivatives markets currently valued at more than a quadrillion dollars. You should view every dime of this as ‘unactualized’ deflation in order to understand why the puny central central banks are powerless to prevent it.

Not that they would even try. For, any attempt by the banksters to monetize this black hole of debt when it begins to implode would be tantamount to hyperinflating. And that would be worse than doing nothing at all.  When the crisis hits, perhaps with a few banks failing to open some Monday morning, it will be impossible to roll short-term loans. This will force debtors to settle up in cash, creating a desperate need for dollars. The resulting short squeeze is why deflation rather than hyperinflation is the more likely of the two scenarios to produce a financial day of reckoning.

Bicycling to Soup Kitchens

In a debt deflation those who owe would be liquidated into bankruptcy, pushing their creditors into the same straits. This is computationally unavoidable, since, as the late C.V. Myers once wrote, every penny of every debt must ultimately be paid — if not by the borrower, then by the lender. Although the dire implications of this truism apparently have not registered even dimly on the brains of economists or politicians, you can bet that at least a few banksters can do the math. They will think twice about riding to soup kitchens on motorized, $10,000 trail bikes.

Hyperinflation could conceivably follow deflation, but only after the assets and liabilities on the global ledger have been deflated to zero by waves of bankruptcies. To those who would argue that “the Government” would simply bail out credit markets via monetization, I’ll recommend Adam Fergusson’s When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. As you will come to understand, this cannot happen to the world’s reserve currency, the dollar — at least not immediately and through willful acts of the government, as occurred in Germany in 1921-23.

When the Trumpets Sound

In the meantime, the laborious consolidation that has taken place on the dollar’s charts for the last seven months suggests that the impending breakout above 97.97 will not be strong enough to signal the climactic phase of the dollar’s bull market. This will happen eventually, but not before the trumpets sound from on high. As individuals, we have time to prepare for the worst by paying down our debts. But this opportunity will exist only as long as a feisty stock market affords us the illusion of a healthy economy. Once the inevitable bear market begins, it will be far more difficult and costly to get out of jeopardy. Enjoy the rally while it lasts.

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AMZN – Amazon (Last:1621.97)

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$SIK19 – May Silver (Last:15.185)

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$GCJ19 – April Gold (Last:1296.10)

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$GDXJ – Junior Gold Miner ETF (Last:30.64)

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Tuesday, April 23, 2019

The consistent accuracy of Rick Ackerman’s forecasts is well known in the trading world, where his Hidden Pivot Method has achieved cult status. Rick’s proprietary trading/forecasting system is easy to learn, probably because he majored in English, not rocket science. Just one simple but powerful trick -- managing the risk of an ongoing trade with stop-losses based on ‘impulse legs’ – can be grasped in three minutes and put to profitable use immediately. Quite a few of his students will tell you that using ‘impulsive stops’ has paid for the course many times over.

Another secret Rick will share with you, “camouflage trading,” takes more time to master, but once you get the hang of it trading will never be the same. The technique entails identifying ultra-low-risk trade set-ups on, say, the one-minute bar chart, and then initiating trades in places where competition tends to be thin.

Most important of all, Rick will teach you how to develop market instincts (aka “horse sense”) by observing the markets each day from the fixed vantage point that only a rigorously disciplined trading system can provide.

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