Friday, June 22               Published daily Receive a free trade each day
The Morning Line

What AMZN Can Tell Us

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Earlier, I’d promoted AMZN as the only stock we need watch in order to get the stock market right. As long as it’s moving higher, the theory went, it would be difficult for the broad averages to fall.  And yet, that is exactly what has occurred in recent weeks: The retailing giant’s shares have gone parabolic, hitting new all-time highs almost daily over the last two months, while the broad averages have struggled to recoup even half of their losses from early February. Now that divergence seems likely to widen, assuming the very bullish targets I’ve just published for AMZN are fulfilled.

The most logical way for me to reconcile this seeming contradiction is to trust my charts and stick with the trend in AMZN, but to expect little more from the Dow and the S&Ps than a weak reversal of their respective downtrends. That is what I am predicting, and it is easier for me to believe than that AMZN is about to plummet from the sky. It is inevitable that this will occur eventually, but only after portfolio managers wake up one morning with an urgent desire to dump Amazon shares. We can only guess as to the possible cause of such a precipitous change of heart, but given the sunny technical picture, their epiphany would not appear to be imminent.

Another Possibility…

There is another possibility that can be inferred from today’s chart (click on inset).  Notice that AMZN came visually within a hair of the 1769.10 Hidden Pivot target shown.  In theory, that could have been the bull market’s last gasp. We simply don’t know, not yet. However, odds that it will turn out to be a very important top will shorten if the downtrend starts breaching lows recorded on the chart over the last month or so. In the meantime, we’ll treat Thursday’s high as a potentially major one.  This is far from an even-money bet, considering that the bull market has been chugging along since 2009. But from a practical standpoint — i.e., the way we trade the stock — the assumption will cost us little or nothing. For in fact, as long as we continue to monitor the lesser  charts diligently, AMZN cannot possible reverse higher without telegraphing the bullish intentions of its institutional sponsors from the get-go.

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$GCQ18 – August Gold (Last:1269.70)

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$AMZN – Amazon (Last:1730.22)

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$ESU18 – Sep E-Mini S&P (Last:2765.50)

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$NFLX – Netflix (Last:415.43)

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Netflix is my least favorite stock: overrated, overpriced, and over-owned by money managers who seem to think every person on Earth will eventually subscribe.  That may be true for Facebook, but Netflix is a different animal.  In the beginning, the company succeeded with an ingenious business model that required intensive use of the Postal Service to ship DVD movies back and forth. Their secret sauce was a vaunted algorithm that told customers which movies they would most enjoy. Netflix deserves credit not only for surviving the transition to streaming entertainment, but for remaining a dominant purveyor of it. But the algorithm?  It stinks. Like a trading-system algorithm, its performance has inexorably deteriorated over time. The result is that the choices it serves up are akin to cream of wheat vs. oatmeal vs. grits.

Embarrassingly Bad Movies

Even if the algorithm were doing its job, Netflix’s catalogue of movie and TV entertainment is so uninspired that it barely improves on basic cable’s 99-channel swill. Their inventory of movies in particular is an embarrassment — hundreds and hundreds of them with no-name actors and straight-to-TV production values. Nor has Netflix produced a series remotely in the same league as Fox’s 24 or some of HBO’s best, including Deadwood, Boardwalk Empire and The Sopranos. House of Cards may have won awards, but only judged by the standards of a mostly-millennials audience that regards Lena Dunham as a genius.

None of this seems to matter to the one-decision, institutional bozos who earn princely sums throwing OPM at the stock. It has risen vertically for the last two days even though the Dow and the S&Ps have gone nowhere. Now is the time to short NFLX, however, since it is closing fast on an important Hidden Pivot target that looks likely to show precise stopping power. I have posted a strategy for doing so in the chat room. If you’d like to be in on this but don’t subscribe, just click here for a free two-week trial subscription. It will give you instant access not only to the chat room, but to actionable ‘touts’, intraday alerts, ‘jackpot’ bets using super-leveraged options and impromptu ‘requests’ sessions online. _______ UPDATE (June 21, 5:26 p.m. EDT): The stock was all over the place today, but it fell shy of our target on the opening-bar gap (which has become almost obligatory lately). We’ll stick to our game plan, bidding for puts as detailed in the chat room. I’ll refresh my guidance via a post there this evening

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$TNX.X – Ten-Year Note Rate (Last:2.924%)

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Because mid-May’s multiyear high at 3.11% precisely matched a target I’d sent out to subscribers five months earlier when rates were around 2.35%, I was open to the possibility that yields had made a major top.  This seemed even more likely when the Ten-Year Note plunged to 2.76% over the next 12 days. Now, however, a strong recovery rally has shortened the odds of a move to new highs.  is a  If it is coming, it would generate headwinds above 3.25% sufficient to slow the U.S. economy or even suffocate it, since rates for mortgages and car leases would rise as well. At the very least, based on the chart shown, Ten-Year Note yields look very likely to challenge the May high, since the target is actually 0.04 points above it. The rally could turn out to be a bull trap, either by forming a double top or, less likely, an upthrust to new heights that reverses precipitously. A third possibility is that, once above May’s highs, rates will continue to rise. Whatever the case, I will be monitoring this vehicle closely, since a move into the 3.25%-3.50% range would significantly reduce the flow of oxygen to the U.S. economy’s heart and lungs — i.e., housing and autos. ______ UPDATE (June 14, 9:14 p.m. EDT): Check out the $TYX.X tout above, since it recalibrates my thinking about where long-term rates may be headed. ______ UPDATE (June 17, 5:10 p.m.): Rates on the Ten-Year now look primed for a fall to at least 2.831, a compelling midpoint Hidden Pivot support shown in this chart.  However, if the support is breached decisively (i.e. 28.00 or lower), look for yields to fall to as low as 2.653 over the near term.

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$TYX.X – 30-Year T-Bond Rate (Last:3.067%)

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In the tout above, I wax mildly bullish on $TNX.X, a vehicle that tracks interest rates on the U.S. Ten-Year Note. This implies that I am bullish on rates and believe they will rise, but bearish on the Note itself, because its price would fall.  Now, with an insightful nudge from my friend Doug Behnfield, a Boulder-based financial adviser whose thoughts have been featured here many times, I am persuaded to take a closer look at both vehicles. Lo, the chart of $TYX.X, which tracks rates on the U.S. 30-Year Bond, reinforces a somewhat different conclusion — i.e., that long-term rates are headed lower, perhaps significantly so. (To embrace this point of view would make me a bond bull, since bond prices would rise rise as yields fell.) From a technical standpoint, the crucial number here is 2.994%. Rates look very likely to fall at least to this level. But if they easily trounce that ‘Hidden Pivot’ support, trading 2.970% or lower intraday, or if rates close for two consecutive days beneath the pivot, I’d infer that they are headed  down to at least 2.847%. At that level, the same observations would obtain: a quick and decisive breach would portend still-lower rates. I’ve set an alert and will keep you closely apprised, so stay tuned to this tout if you care.

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$AG – First Majestic Silver (Last:7.34)

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$FB – Facebook (Last:202.08)

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