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The Morning Line

Traders Jump on Bet that LePen Will Lose

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DaBoyz have goosed stocks punitively to start the new week, emboldened by LePen’s failure to win France’s presidential election in the first round. Although we usually prefer to fade extreme price moves when they are driven by news, in this case the bulls may have it right if LePen loses the May 7 run-off to centrist Macron. We’ll get a confident read on whether this is likely to happen if the E-Mini S&Ps decisively exceed the 2378.38 midpoint Hidden Pivot shown, since that would put the futures on track to hit the 2439.00 target shown. Such a powerful rally seems likely to occur only if France averts the epic disaster predicted by the new media and elites should ‘Trump candidate’ Marine LePen, who favors pulling out of the EU, become France’s new president.

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$ESM17 – June E-Mini S&P (Last:2368.25)

EST

The futures have been churning for a month, unable to muster the gumption for a run at new record highs.  The last one, recorded on March 1, occurred a millimeter from a Hidden Pivot target that had been 13 months in coming. Small wonder, then, that buyers would need a rest. But seven weeks’ worth? What are they waiting for? If it’s sunny economic news, traders may have to bide their time for a year or two while the U.S. economy weathers a recession. We’ve been writing about this prospect for quite a while, since it’s seemed obvious that rising interest rates would eventually kill the housing and auto sectors. This appears to be happening right now, even if it will be another six to nine months before the Commerce Department figures it out.  The foregoing should tell you why the E-Mini S&Ps seem in no great hurry to test the old high. If and when they do, however, it will not be because of bullish buying power, but because of short-covering by bears too agitated to simply let stocks fall. That is sufficient reason for us to give the 2439.00 rally target the benefit of the doubt for now. But if the futures should pleasantly surprise by getting the crap kicked out of them next week, the fun would begin with a breach of the 2304.25 downside target shown. That target is not new, just neglected and forgotten in the throes of last week’s excruciating scuddle. _______ UPDATE (Apr 23, 7:40 p.m. ET): DaBoyz have squeezed the futures sharply higher Sunday evening, exuberantly over-celebrating LePen’s failure to capture the French presidency on the first ballot. We should pay attention not to the election, but to whether this short-squeeze pushes the June contract through the 22378.38 midpoint Hidden Pivot resistance shown in the chart. If so, bears should consider hedging their short stock positions by betting on LePen’s opponent, centrist Macron. 

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GCM17 – June Gold (Last:1281.00)

EST

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$SIK17 – May Silver (Last:17.795)

EST

May Silver is correcting a rally to an 18.665 target that took ten weeks to reach, so we should expect the futures to take more than a few days to recoup their strength.  If not and they come bounding back to make new recovery highs this week or early next, that would bolster the odds that bulls are bound for the 22.644 target introduced here yesterday. In the meantime, we can use the pattern shown to project a 17.775 target for the retracement. If the futures instead were to turn higher without having gone below the 18.070 midpoint Hidden Pivot, and then rally to exceed 18.365, that would be extremely bullish.  I’ve sketched this hypothetically on the chart. _______ UPDATE (Apr 20, 10:47 p.m. ET):  Check my 00:28 post in the chat room for guidance on setting up a ‘counterintuitive’ trigger to get long. Ideally, it would come off a point ‘C’ low  in the range 17.750 – 17.765. _______ UPDATE (Apr 23, 7:56 p.m.): The correction continues with May Silver’s engineered plunge tonight on news that LePen had failed to capture the French presidency on the first ballot.  The Republic has been saved, at least for the time being but don’t think the clowns who have pulled the rug out from under bullion know any more than we do.

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TLT – Lehman Bond ETF (Last:124.70)

EST

Today’s ballistic move left our stingy bid choking on dust. It also tripped a theoretical ‘buy’ signal for the very major bullish pattern shown. With the steep rally of the last two weeks, a midpoint Hidden Pivot resistance at 130.61 has become an even-odds bet as a minimum upside projection. We’ll be following the move closely, looking for low-risk entry opportunities, since there’s a lot of room to the upside before this vehicle hits anything solid. For now, however, we won’t chase it, since a pullback when it comes is likely to be punitive. I’ve flagged the rally in today’s ‘Morning Line’ as signaling a possible end to the reflation trade.

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$VXX – S&P VIX Short-Term (Last:17.36)

EST

We’ll continue to shadow VXX, waiting for the perfect opportunity, since there’s a juicy payoff in this vehicle if you get the timing right. We did that the last time out, buying call options pennies from their low before they doubled later that day, then quadrupled a few days later.  The trick is to line up a lowball bid in options that coincides with a targeted top or bottom in VXX. The options themselves are targetable, and the fact that they rarely overshoot a target by much makes the bet a relatively low-risk one. The more difficult trick is making a timely exit, since price spikes are fleeting, often narrowing the profit-taking window to minutes or less.  This was the case when we cashed out the calls mentioned above. Fortunately, we were able to offer them ahead of the move by using a rally target for VXX that nailed the intraday high. Looking just ahead, we’ll let VXX cool off a little more before we look for an entry spot. If you’re keen on participating, stay tuned to the chat room — and be sure to check ‘Email Notifications’ on your account page to receive timely alerts.

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$TNX.X – Ten-Year Note Rate (Last:2.37%)

EST

Although interest rates on the 10-Year Note have receded sharply over the last two weeks, from 2.62% to 2.35%,  the chart makes clear that the pullback is merely corrective. That is not to say yields could not continue to fall significantly in the weeks ahead, perhaps by enough to bring mortgage rates down from the killer zone. I won’t make any immediate predictions because it will take at least four to six weeks before we can know with any confidence whether the upward skew in yields across the curve since last July, along with the reflation trade, is about to succumb to gravity. What kind of ‘gravity’?  Here I am referring to the drag of an economy that has almost surely seen a peak in real estate and auto sales. And we needn’t even consider the Fed’s rosy employment picture, since it is based on statistical fraud. As for the Trump rally, it took a potentially fatal body blow with Congress’ failure last week to repeal Obamacare. Bottom line: Expect the downward correction in long-term rates to continue well into April.

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Tuesday, April 25, 2017

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