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THE MORNING LINE
An Ounce of Good News Fuels a Rally
Investors seem to imagine that slightly encouraging pandemic news will somehow beget improved economic news. Shares rallied for a third straight day, evidently because the deadly tide of contagion appeared to be receding somewhat in Italy and China. Even that story was a bit muddled, since there were reports that a second wave of Covid-19 was rolling through Wuhan. Regardless, the small businesses that are the backbone of the American economy face a long, difficult slog toward normalcy, assuming anything approaching it ever returns. The Fed has made a mighty effort to ameliorate the pain in the meantime, providing a credit lifeline to tens of thousands of businesses that are not generating any cash.
Far more daunting than their cash-flow problems, however, are the challenges of staying solvent. My colleague James A. Kostohryz has some sobering thoughts on this subject in an article he posted at Seeking Alpha, How The Intrinsic Value Of Common Equity Shares Will Be Destroyed In This Crisis. The discussion that follows is worth a read as well, since it suggests there are still plenty of investors who expect a v-shaped bottom and who are ready to pounce on stocks at the first encouraging sign. This is in stark contrast to my prediction that the Dow Industrials will trade well below 10,000 before the bear market has run its course. You can read Kostohyrz’s essay by clicking here.
$DIA – Dow Industrials ETF (Last:234.33)
My forecast zigged and DIA zagged. Oh well. Now DIA is about to probe the 228.77 midpoint resistance shown in the chart. An easy move through it should be taken as a sign that more upside to at least p2=239.56 remains. The outlandish D target at 250.35 would somewhat exceed a corresponding target at 2881 that I’ve proffered for the E-Mini S&Ps, but we’ll trade each as though the other did not exist. If both vehicles were to reach their respective D targets, it would be as though there had been no bear market at all, just a garden-variety 15%
$AAPL – Apple Computer (Last:262.29)
AAPL looks like it will need to go lower for a running start to help Buffett and DaBoyz trigger off the next short-squeeze. If so, the 228.11 midpoint support shown in the chart will be an opportunity to try bottom-fishing. The pattern is too gnarly to attract the attention of the rabble, and the red-line support is nicely in the middle of nowhere. Accordingly, we’ll look to buy Apr 9 calls for under 1.00 if the stock gets within 0.15 of the target. This may require going as high as the 250 or 252.5 strike. Keep in mind that the
$TNX.X – Ten-Year Note Rate (Last:1.26%)
I’ve revised downward to 0.26% my forecast for interest rates on the Ten-Year Note. A 0.30% target given here earlier was based on an erroneously drawn pattern discovered by a subscriber. But could the so-far low at 0.39% have been the bottom, especially considering the power of the subsequent rally to 0.98%? It’s possible, but I doubt it. The pattern itself is sufficiently clear and compelling to suggest that the Hidden Pivot target will not merely be closely approached, but actually touched. This revised forecast will have no bearing on my forecast for a drop to 0.73% on the 30-Year
DXY – NYBOT Dollar Index (Last:97.48)
The dollar’s steep rally this month is close to generating a powerful impulse leg on the daily chart. Just another 0.15 points (see inset) and DXY will exceed an external peak at 99.25 recorded back in early October. That would refresh the bullish energy of the chart while increasing the odds that any weakness, unless severe, would be corrective and therefore a buying opportunity. This scenario is congruent with my bullish outlook for T-Bonds, but it would also keep gold under pressure. This could turn out to be less threatening than it sounds, since precious metals have held up well
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