March 2005

Bullion had its best day in a while, spurred by a dollar that couldn't stand up to firming oil quotes. Comex April Gold settled at 441.00 after spiking to an intraday high just below our minimum target at 441.60, a hidden pivot. In night trading the futures were moving still higher and had touched 442.00 at press time. This should all but clinch a run-up at least to the next minor pivot, 445.80. The bullish action was corroborated by movement in the XAU, which created a new and robustly bullish impulse leg on its daily chart by surpassing a plainly visible peak made in mid-December. Breadth was impressive too, with mining stocks rallying across-the-board. We hold profitable positions in several of them, including Bema and Goldcorp, but yesterday's rally was so strong that even our laggard, Kinross, went solidly in-the-black. The stock was up 38 cents on the day, a strong percentage gain for a $7 stock. Newmont, a bellwether stock and key player in the bullion sector, rose $1.42 to close at 45.91. This wasn't quite sufficient to get it past a watershed peak at 46.40 recorded in mid-December, but it left NEM in good shape to challenge that high over the next few days. If the stock surpasses it, that would create a powerfully bullish impulse leg on the daily chart. It would also open up a low-risk opportunity for us to open a long position in the stock, since we missed doing so with a bid for June 50 calls when NEM took off nearly a month ago. Impulse Leg-o-Rama Overall, the signs are most encouraging ' not merely because the rally in precious metals issues has been strong and steady, but because it has pushed many mining-related stocks and indexes above prior peaks on their respective

So far so good, but it's still way too early to be patting ourselves on the back. Yesterday we shorted the E-mini S&P contract at 1229.50, a single tick beneath what turned out to be the intraday high. In my commentary I had referred to the target as a 'groundhog pivot,' since I believe it is capable of telling us whether the stock market is about to enter a bullish, spring-like phase, or alternatively, to resume the secular bear begun in 2000. If the former, then the bull should make short work of the pivot, surpassing it decisively either today or tomorrow. However, if the pivot continues to act as a cap on the rally as it has so far, then we could conceivably be witnessing the end of the cyclical bull market begun more than two years ago. (Click on image to enlarge) In any event, I offered the rally target as an opportune place to get short. My goal is not to secure bragging rights for having predicted a major top to within a tick, but rather to provide a low-risk entry point to those of you who believe, as I do, that the stock market is long overdue for a selloff, perhaps a very severe one. However, I must caution those of you who seem elated by yesterday's paper profits not to get your expectations too high; for long experience has taught me that the louder a guru's prediction, and the more specific it is, the less chance it has of being right. By those criteria, odds are still remote that 1229.50 will prove to be a bull-market top. A Parlor Trick That evidently hasn't stopped some of you from counting your chickens. I received a few e-mails yesterday from subscribers who are feeling ebullient about, if somewhat

We should prepare for a potentially important market top today or tomorrow, since the S&P futures are stealing up on a crucial hidden-pivot target at 1231.75 that I first identified here in mid-February. You may recall that I subsequently adjusted the target downward to 1230.50, a hidden pivot that has served as our minimum objective since February 25. Now, as the new weeks begins, I have one more, small change to make ' a further downward revision, to 1229.50. This is what I shall call a 'Groundhog Pivot,' after the Punxsutawney rodent who, according to local myth, has predicted six more weeks of winter if he fails to see his shadow upon emerging from his lair on February 2, Groundhog Day. (Click on image to enlarge) For our purposes, the pivot at 1229.50 will work as a kind of seasonal indicator in reverse, to wit: If the mini-S&P pokes its insistent little snout above that number by more than 2.50 points intraday -- or even better, closes above it -- that would imply spring has arrived and that the uptrend will enjoy felicitous breezes and sunny days for at least six more weeks. Conversely, if 1229.50 noticeably impedes the rally, it would imply that a top of at least middling importance is in, and perhaps one of much greater significance. Juicy Odds for Bears I've included instructions to get short in today's Inside Edition, since, at the very least, the mini-S&P is likely to stall intraday at or very near our target. As always, there are no guarantees. (In fact, the futures would be signaling additional upside potential to as high as 1295.25 if they blow through the pivot at 1229.50.) But if you've been looking for a logical and precise spot for the cyclical bull market begun in 2002

May crude exploded yesterday, blowing past the 53.96 target we first advertised here on February 22. How high now? My new target is 59.72, an important hidden pivot that would complete a bull cycle begun nearly ten months ago. This means that although $60 oil appears to be no worse than an even-money bet at this time, prices are likely to stall there for a while ' probably for at least 3-5 weeks, but perhaps significantly longer. As you may know, predictions have been all over the board, ranging from $30 or so on the low end to $100 or more on the high. I side with the bulls, although I'm reluctant to tease your imagination with an off-the-charts number. For now, I'll stick with 59.72, basis May, since it is a target that I am confident will be achieved. A price of $100/barrel is certainly possible over the next several years, but only if there's a severe disruption in supply ' brought on, perhaps, by the closing of the Suez canal, or the bombing of Saudi Arabia's oilfields. (Click on image to enlarge) I'll leave it to Lundberg and other oil experts to speculate on what $60 crude would mean at the pump. I saw a prediction the other day that regular gas would peak at $2.06 this spring, but whoever came up with that number was just playing pin-the-tail-on-the-donkey. If a price peak is a betting proposition for you, trust my $59.72 target before you wager a dime on someone else's $2.06. Regardless, $60 oil isn't going to sit well with the airlines, or with any other sector of the economy that consumes energy. That would seem to leave just a handful of bull plays for those of you who would deign to make money on the proposition

When I say 'the little sonofabitch,' you all know by now which stock I'm referring to: Beazer Homes USA. We've tried several times to short BZH shares, and each time, we've been stopped out when the stock subsequently rampaged higher. Our losses have been negligible, though, because we've employed a very conservative strategy. The last time we tried to short the little s.o.b., we caught a cyclical peak within a dime. This allowed us to take partial profits on the pullback and to apply our gains to a relatively wide stop-loss for our remaining shorts. Beazer ejected us soon thereafter, and we've been waiting ever since for a new opportunity. My guess is that we'll see one soon. The stock appears to be consolidating for a rally of about 5 percent that could mark the finale of the powerful bull cycle begun just before Halloween. Beazer is currently trading around 173, but if it pops as expected, the stock would encounter formidable hidden-pivot resistance at exactly 184.47. We should be prepared to buy some near-the-money puts if that happens. To that end, I've done some calculations that are on view inside Rick's Picks. I doubt Beazer will hit our target in time to give the March 180 or 185 puts a play, so I've focused on the Aprils. (Click on image to enlarge) Freakish U.S. 'Recovery' I've long considered Beazer -- along with Citigroup -- a bellwether for a freakish economic 'recovery' that has produced zero income growth. When the stock finally falls it's going to fall hard, making the relative nickels and dimes we've risked shorting it seem inconsequential in comparison with the profits that it will be possible to rack up in just a few short days (hours?). Lest we forget how ripe the homebuilders' shares are for

So dispiriting was yesterday's economic news that perhaps we should view the Dow's niggling 75-point loss as a harbinger of strength. New home sales fell 9.2% in January, personal income declined 2.3%, and auto sales went in the dumper. Despite all this, however, and even with the shares of Ford and GM off sharply, the blue chip average was never down more than about a hundred points intraday. Has the relentless attrition of the U.S. auto industry finally exceeded the limits of despair and therefore ceased to be a concern to investors? Certainly it has a bright side for consumers, with GM now offering incentives of as much as $8,500 to anyone willing to take a Chevy SUV off their hands. But with so many unsold 2004 models still cluttering the lots, we shouldn't be too terribly surprised if incentives eventually hit $10,000 per car. For me, that would be pretty tempting. I haven't owned an American car since college, when I drove a well-used '65 Pontiac Tempest. But if dealers reach the point where they'll throw in, oh, a Buick for every purchase of a Suburban SUV, I might come around. How Did We Do It? But until then, we can breathe a sigh of relief knowing that Wall Street apparently isn't obsessed with America's declining manufacturing base. Nor, evidently, is anyone much concerned about the equally dismal shrinkage in personal income. The market seems to have taken this in stride, in a contrarian sort of way. Personal income may have been down 2.3 percent in January, but what's so bad about that when you consider that December's figure was goosed by the huge dividend paid by Microsoft to a zillion shareholders? And lest anyone think a little negative income growth is going to crimp the American consumer's style,