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Uh-oh. Dovish Talk from the Fed Lays an Egg

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Stocks whoopee-cushioned (click on inset) on word from the Fed that tightening is unlikely for the remainder of the year. “Interest rate increases could be on hold indefinitely,” Powell said. “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy.” Although the stock market’s obligatory headless-chicken dance ended with the broad averages largely unchanged, it’s surprising and not a little disappointing that shares didn’t get more lift from the announcement. Some observers had expected the central bank to feint toward tightening, however cryptically, and so Powell’s latest utterance should have produced a reaction of at least mild relief.

At the same time the Fed Chairman was deftly managing our expectations — the job for which he was hired — the news media was doing its part to spin some front-page headlines in Wall Street’s favor. A trade deal with China by “late April” was reported to be in the works, but this was just the administration’s way of softening expectations and bending our patience toward a haphazardly uncertain time horizon. And lest Boeing continue to drag on stocks, the fatal propensity of the 737 Max 8 to plummet to the ground was being ascribed to a mere onboard-computer glitch.  There’s nothing to see here, folks — just a few lines of bad code. Southwest, United and American have decided to keep flying the plane in any event, but we doubt that passengers would be so gutsy if they could choose their aircraft. A market solution would call for carriers to implement a $100 surcharge for travelers who’d rather avoid the Max 8. My money is on Frontier to lead the way on this.

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GCJ19 – April Gold (Last:1318.20)

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ESM19 – June E-Mini S&P (Last:2832.25)

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If you’ve been waiting for Mr. Market to spring the Mother of All Bull Traps, check out today’s chart. What a beauty this picture would be if Tuesday’s sharp reversal turns out to be the start of The Big One.  Granted, odds of getting the timing of so important a peak exactly right will always be against technical swamis. But the chart has enough going for it that permabears could be forgiven for thinking they might finally be right.

For starters, notice how the C-D leg of the bull cycle begun in December topped today at exactly 2858.75, a target sent out to subscribers in early February. The ensuing, 30-point plunge tells us that for some reason, sellers were spooked. If the intraday high turns out to be the bull’s last gasp, it picked an interesting place to occur — i.e., just above three important peaks labeled Curly, Larry and Moe in the chart. They were recorded, respectively, in October, November and December, and any rally that surpassed them, especially without correcting, was bound to get the attention of bulls who have been sitting on the fence. The three-peak breakout also would have spooked more than a few bears into covering short positions.

A ‘Perfect Storm’ of Deceptions

Add in the fact that the Fed on Wednesday is expected to mumble something dovish, and you have a perfect storm of potential bullish deceptions. If you’re a contrarian and a pessimist, the set-up looks irresistible. However, a very important caveat must be added: If the futures blow past the 2858.75 target in just a few days after having taken ten weeks to reach it, bears had better dive for cover, since that would be signaling more upside to at least 3,000 for the S&Ps and a further thousand-point rally in the Dow.

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FB – Facebook (Last:165.44)

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

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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.

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

AMZN – Amazon (Last:1621.97)

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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.

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