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The Morning Line

How Bull-Market Swings Challenge the Risk-Averse

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Today’s chart shows why it can be so difficult to make money in a bull market, even when one “knows” how high a stock is headed.  We’ve been confident that Facebook (click on inset) will eventually hit 190, a Hidden Pivot target first aired here more than three weeks ago when the stock was trading around 167.  We still think it’ll get there, come hell or high water. But what an agony it has been to simply go with the flow!

As the chart shows, the stock has made a series of marginal new highs, each followed by a relatively stiff pullback. If you’d been long the stock at April 3’s 177.96 peak, you’d have needed to weather a $5 swing against you just to net a four-cent gain at the next peak.  The 179.19 peak that  followed that one, making you $119 richer on 100 shares, required sitting tight on a dive that at its low would have made you $373 poorer.

Rewarding the Faithful

Although Rick’s Picks tries to keep risk/reward in a 1:3 ratio at all times, a buy-and hold strategy in Facebook, as you can see, subjects one to an effective risk:reward greater than 3:1. Risking $3 to make $1 is no way for a trader to make a living. Tesla shares, incidentally, come out far worse on the risk:reward scale. If you’d held a single share from the September 2017 record high at 389, you’re out $118 at the moment and would need a 43% rally just to break even. Ultimately, it is only the enduringly faithful — in this case, institutional geniuses who have held just a handful of one-decision FAANG stocks for years — who can withstand such horrendous short-term odds.

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ESM19 – June E-Mini S&P (Last:2901.50)

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$LYFT – Lyft Inc. (Last:56.32)

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Lyft is all but guaranteed to fall a further 5% to the 53.60 target shown if Hidden Pivot analysis has got it right. A telltale sign that more weakness was coming was the way sellers sliced through the 64.85 ‘midpoint support’ last week. Scalpers can bottom-fish with a 53.62 bid, stop 53.54. Although there is not much price history on the stock, the pattern is still clear, clean and compelling, implying odds are good for a bounce from very near 53.60. The extent of it is unpredictable, but I would expect the stock eventually to continue down into the teens, since the company is unlikely in my opinion to make money. Ditto for Uber, which is hoping to go public at a $100 billion valuation equating to roughly $95/share. However, it seems probable that LYFT’s discouraging performance will keep a lid on the Uber IPO.  If the stock performs similarly to LYFT, falling in the first week or two by 39.5%, that would yield a share price of 57.47.  You read it here first.

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$BA – Boeing Co. (Last:381.78)

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$AAPL – Apple Computer (Last:199.25)

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$GCM19 – June Gold (Last:1279.50)

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$GDXJ – Junior Gold Miner ETF (Last:30.29)

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$TSLA – Tesla Motors (Last:273.31)

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$FB – Facebook (Last:173.53)

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The Wall Street artistes who have helped propel Facebook shares steeply higher despite an onslaught of negative news were temporarily stymied Wednesday when a damaging story broke around noon. Just when investors were starting to forget why Facebook was in danger of becoming a pariah for abusing users’ privacy, out pops this headline: Millions of Facebook Records Found on Amazon Cloud Servers.  How bad is it?  “In one instance,” reported Bloomberg, “Mexico City-based digital platform Cultura Colectiva openly stored 540 million records on Facebook users, including identification numbers, comments, reactions and account names. The records were accessible and downloadable for anyone who could find them online.” A nearby headline framed the coming response from D.C. legislators: Facebook Crackdown Options Abound as Washington Weighs Next Move.

I’d warned here recently that Facebook’s virtual empire could implode overnight if users’ tastes suddenly change and they abandon the social-media platform en masse. Even the rabid weasels who drive the company’s shares wildly up and down for fun and profit must be sensing by now that Facebook is no longer cool (think AOL) and that the company has seriously depleted its store of good will. A sharp, downward adjustment in the stock seems likely, and they will do everything they can in the meantime to distribute their holdings to the rubes. However, there is a lot of ruin in an empire, as the saying goes, and so we shouldn’t expect the stock to sink toward oblivion without a fight. Indeed, DaBoyz deftly put it in a holding pattern at 30,000 feet for two months while they waited for the most recent spate of bad news to blow over.

Shameless Puffery

FB appeared headed to the moon on Wednesday, but the news concerning this latest privacy breach quickly knocked it down by $5, about 3.25%. Ironically, The Wall Street Journal was out with a pro-Facebook story that amounted to shameless puffery. It reported dubious new “research” that would purport to elevate Facebook, a glorified ad agency, to the economic status of companies that actually make things. Using poll data, the researchers determined that the benefits consumers derive from the social-media platform would add up to “tens of billions of dollars” if included in GDP calculations. This PR twaddle is based on a finding that consumers would need to be paid $42.17 to give up Facebook for a month.

If you are keen to short the stock, as you should be, be prepared for planted stories like this one to knock you off your game. That’s how DaBoyz work, deftly seeding and harvesting “news” so that they can synchronize their trades profitably with the stock’s ups and downs and use short-covering to promote powerful rallies even in the complete absence of bullish buyers. We’ll note with a dollop of cynicism that a 190.00 price target flagged here earlier is still in play. It lies 10% above current levels.

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$AMZN – Amazon (Last:1780.87)

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$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.


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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.

Most important of all, Rick will teach you how to develop market instincts (aka “horse sense”) by observing the markets each day from the fixed vantage point that only a rigorously disciplined trading system can provide.

The three-hour Hidden Pivot Course is offered live each month. If it’s more convenient, you can take it in recorded form at your leisure, as many times as you like. The course fee includes “live” trading sessions (as opposed to hypothetical ‘chalk-talk’) every Wednesday morning, access to hundreds of recorded hours of tutorial sessions, and access to an online library that will help you achieve black-belt mastery of Hidden Pivot trading techniques.

The next webinar will be held on Tuesday, April 23. Click below to register or get more information.

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