Buyers fell 11 points shy of surpassing late February’s key recovery high, an achievement that would have generated an impressive ‘impulse leg’ on the daily chart. The earlier peak lay at 25,800 versus Monday’s intraday high at 25790. My hunch is that they will get past it on Tuesday, or at least within the week. But as a practical matter, and to be very cautious, I will treat a marginal breakout as a possible shorting opportunity via a ‘counterintuitive’ pattern. Assuming the Indoos do not first exceed 25790, a signal to get short, using DIA puts, would trigger on a drop to 25,176. Stay tuned to the chat room for guidance in real time if you care.
Buyers Chicken Out at a Crucial ThresholdPosted Monday, August 20 0 comments
$TSLA – Tesla Motors (Last:308.44)Posted August 20, 2018, 9:11 pm
My gut feeling is that Tesla shares have seen their highs for a long while. Usually I let the charts do the talking, but in this case I’ve jumped the gun to sketch out a bearish head-and-shoulders pattern as it might develop over the next 15-20 months (see inset). This is just speculation, of course, but it’s not farfetched to “see” a left shoulder and head already in place on the weekly chart. Although the SEC is likely to rough up CEO Elon Musk for his ill-considered tweet about taking the company private, legal troubles will probably be the least of his problems. He has flatly asserted the company will be profitable from this point forward, but it’s hard to take him seriously, since there are reportedly serious design flaws and manufacturing problems besetting Model 3.
The Upside of Failure
Tesla sales are down in Europe and likely to fall further as formidable marques such as Jaguar, Mercedes Benz and BMW enter the market. Musk could pull a rabbit out of the hat with some startling development in battery storage, but that is not an odds-on bet either. It doesn’t help that, from a financial perspective, the automaker has been skirting bankruptcy.
If the head-and-shoulders pattern plays out as sketched, the stock is headed below $200, well beneath the recently revised price targets of some high-profile analysts. Tesla fans shouldn’t despair, however, since a collapse in the share price would force Musk to get his formidable mind back on the basics rather than on the stock’s ups and downs. Somewhat removed from the limelight, he would have the breathing room to do what he had started out to do — i.e., sell enough expensive cars to generate the cash needed to produce a true mass-market vehicle.
$TYX.X – 30-Year T-Bond Rate (Last:30.29)Posted August 19, 2018, 5:08 pm
$TNX.X – 10-Year Note Rate (Last:2.87%)Posted August 19, 2018, 5:05 pm
J.P. Morgan Chase CEO Jamie Dimon recently raised his forecast for rates on the Ten-Year Note, currently trading just below 3%, to 5%. He’d predicted a rally to 4% back in May but now thinks the bull market in stocks could run for another two or three years, putting additional upward pressure on long-term yields. For its part, Rick’s Picks has told subscribers to expect a push soon above the 3.11% peak recorded back in May — a peak we had foreseen five months earlier when the Ten-Year Note was paying around 2.35%. We offered no specific target at the time but will now: 3.32%, as shown in today’s chart (see inset).
It’s hard to square Dimon’s interest-rate forecast with the notion that the bull market in stocks has a few more years to run. Our gut feeling is that anything above 3.25% will asphyxiate the U.S. economy and send it into recession. The housing sector is already in a sharp downturn as reported here last week., and even a small turn of the interest-rate screw could asphyxiate it, along with auto leases. This would be a double whammy for the stock market, since mortgage rates have been held for a long time at levels that allow Americans to buy more home than they can afford. Similarly, car leases are structured so that we can drive more car than we can afford. The silver lining here turns out to be an unappealing scenario: rates go no higher than 3.50-4.00, but only because the U.S. economy has nosedived. _______ UPDATE (August 19, 5:07 p.m.): The uptrend stalled at 3.106% and in the three weeks since has receded to the middle of the 2.72% – 3.11% range in which rates have fluctuated for the last six months. My bias is neutral for now. Here’s an updated chart.
$ESU18 – Sep E-Mini S&P (Last:28532.25)Posted August 19, 2018, 4:59 pm
$NGD – New Gold (Last:0.98)Posted August 16, 2018, 5:34 pm
As my friend the late Malcolm Watts used to say, if you’re going to try to catch a falling piano, wait until it has bounced three times. This glue-horse-of-a-stock hasn’t bounced in a year-and-a-half, and there’s no particular reason to think it will do so from the 0.94 bid we patiently entered weeks ago. Accordingly, I will suggest canceling the trade and waiting until the stock falls to the 0.50 midpoint Hidden Pivot shown (see inset) before we step in. Granted, at 0.94 we’d have sidestepped a bloodbath that has cut the stock in half in just the last month. But that would be nothing to gloat over if NGD turns out to be on its way down to 0.50. At that level it would be either a decent buy — “A bargain!” — or a good bet to fall to zero. Accordingly, I’ll recommend bidding 0.52 for as many shares as you can afford to see become worthless.
No Mere ‘Hole in the Ground’
New Gold is a company with substantial assets in the Western Hemisphere and Australia, so it’s not as though we’d be buying the proverbial hole in the ground with a liar standing above it. On the other hand, bullion and precious metal assets are currently being valued by most investors as though they were garbage. Why reward them for this egregious misjudgment? There is no urgency here, nor should we feel remorseful if the stock reverses from somewhere above our lowered bid and heads for the ozone. That is sufficiently unlikely, in my view, to warrant taking a shot from these levels.
$+AG – First Majestic Silver (Last:5.13)Posted August 15, 2018, 9:12 pm
$SIU18 – September Silver (Last:14.355)Posted August 15, 2018, 8:50 pm
$GCZ18 – December Gold (Last:1182.20)Posted August 15, 2018, 12:48 pm
$USU18 – Sep T-Bond (Last:2.857%)Posted August 12, 2018, 3:07 pm
I’ve been predicting higher interest rates on T-Bonds and T-Notes, but a dissenting post by ‘Oldman’ in the Rick’s Picks chat room sent me to my charts for a closer look. Bottom line: Based on the technical evidence, I still expect long-term rates to rise. I’ll explain why shortly, but first let me present Oldman’s argument, since he makes some excellent points. He posted Friday afternoon as follows:
“According to Sentimentrader.com, 1) 0% of the market is bullish on T-Note prices (i.e., 100% are expecting higher rates); 2) only 17% of the market is bullish on T-Bonds (i.e., 83% expect higher long-term rates); 3) commercials have NEVER been longer in T-Notes than they are now, and 4) Large Specs have NEVER been shorter in T-Notes than they are now. Four good reasons for a trade, so I went long Ten-Year Notes at 119^24 (stop 118^24), targeting 122^24 & 124^00. There is heavy resistance at 122^24, so I may go short thereabouts with 110^20 target. Ten -Year Notes (December) were up ^23 earlier today but closed ^17.5 at 120^02.5. They are up 1^07 since August 1st. Have a nice weekend everyone.”
Hidden Pivots Say ‘Higher’
While Oldman’s figures are sufficient to raise doubts in the minds of Bond bears — of which I am one, albeit only mildly so — a strict technical interpretation of the charts leads me to believe that the rise in long-term rates begun a little more than two years ago will continue, at least for a while. Based on the Hidden Pivot Analysis I rely on to determine such things, I see two details that portend a further rise in yields. The chart itself shows interest rates on the Ten-Year Note. Notice that the first time the uptrend encountered resistance at the red line, a ‘midpoint Hidden Pivot’ at 2.677%, it smashed through it. Such price action at ‘p’ usually indicates that the ‘D’ target with which it is associated — in this case 3.319% — will be reached. Another telling detail is that the most recent rally leg, from just above the red line to a mid-May high at 3.115%, exceeded an ‘external’ peak at 3.036% recorded back in January 2014. That ‘refreshed’ the bullish impulsiveness of the weekly chart, implying that the pullback since then has been merely corrective rather than the beginning of a major bear leg.
Let me also reiterate a point I made here earlier — that I doubt rates can go much higher than the 3.319% target in the chart. At that level I would expect increased borrowing costs to choke off economic activity to the extent that upward pressure on rates would ease. But we’re not there yet, and that’s why I am suggesting that bond bulls save some ammo in order to jump aboard when rates are topping and T-Bond prices are bottoming.
$AAPL – Apple Computer (Last:213.48)Posted August 5, 2018, 5:05 pm
Although this latest buying binge is unwarranted, ill-considered and reckless, it’s hard for me to imagine AAPL not reaching the 214.30 target shown. That’s slightly lower than the one at 214.58 given here earlier, and it can serve as a minimum upside objective for the very near-term. However, we should be prepared to get short via put options if and when the stock gets there, since the Hidden Pivot looks sufficiently clear to repel a charge. ______ UPDATE (August 13, 7:14 p.m.): The engineered short-squeeze on the opening bar died a hair short of 211.00, a new all-time high. Subscribers who have ridden this rally with my 214.30 target in mind should be using a ‘dynamic’ trailing stop to keep risk/reward in a 1:3 relationship. That means with AAPL peaking today at 210.95, a 209.83 trailing stop would have been in effect. The target remains valid nonetheless, although we’ll put it out of mind if the stock drops to 204.51. ______ UPDATE (August 16, 5:58 p.m.): Today’s short-squeeze pushed the stock to within 49 cents of the rally target we’ve been using for the last couple of weeks. (With the stock trading $15 lower, I wrote as follows: ‘It’s hard for me to imagine AAPL not reaching [this] target’.) I hope subscribers made hay on the way there. And now, here’s a chart that shows why I’m not very eager to short AAPL at these levels. The 226.26 target looks like an easy winner to me.
$AMZN – Amazon (Last:1896.20)Posted August 5, 2018, 5:04 pm
$TNX.X – Ten-Year Note Rate (Last:2.975)Posted July 26, 2018, 6:44 pm
A 3.11% rate ceiling on the Ten-Year Note that has held for two months looks likely to be challenged in the weeks ahead. A forecast I put out in December, when rates were around 2.34%, caught the May high almost to-the-tick, raising the odds that the peak would prove to be an important one. Now, however, it’s time to prepare for the possibility that yields are headed still higher — presumably to levels investors will not be able to shrug off as easily as they have a protracted period of Fed tightening and ‘tapering’ of its balance sheet. The 3.15% target shown may not be quite enough to throttle the economy, but it will bring Ten-Year rates close to a threshold of around 3.25% where the risk of a small turn of the interest-rate screw could prove fatal — not only to growth, but to the Fed’s goal of ‘normalizing’ rates.
DXY – NYBOT Dollar Index (Last:95.08)Posted July 18, 2018, 4:54 pm
The Dollar Index, currently trading for around 95, is poised for a breakout that seems likely to hit the century mark within the next 12-24 months if not sooner. This is going to put added pressure on foreign earnings of U.S. multinationals as well as increasing the already ponderous weight on bullion. My long-term forecast for the Dollar Index calls for a test of highs near 120 that were made more than 17 years ago. If so, the implication is that February’s 88.25 low marked the beginning of a monster rally like the one that took DXY from 79 to 100 in 2014-15. There’s no way the dollar could reach 120 in a normal economy. The forecast implies that at some point, the U.S. will experience a catastrophic deflation that makes dollars scarce. A wave of bankruptcies could cause this, and the most logical place for it to start would be in the collapse of a public-employee pension system that is already a sinkhole waiting to happen. This is a liability that cannot be monetized — at least not without touching off hyperinflation. For reasons that I have written about for more than a decade, it is all but certain to occur. For further discussion of this, click here to access an interview I did on Wednesday with Cory Fleck of Korelin Economics Report and National Investors‘ Chris Temple.
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