May 2005

Let's you and I wake up this morning and break some mirrors, just to show the Karma who's boss, okay? We'll lean ladders against our houses and exercise beneath them at hourly intervals. And keep salt shakers at our desks to freshen the luck o' the devil. And spray-paint our cats black, just to screw with our neighbors' heads. And then, we'll place our bets. But first the bad news: When the opening bell sounds Friday morning, the most promising bet we could make will be the 'Don't Pass' line in gold. Yesterday's defenestration of bullion and mining shares caused certain vehicles that we track to transform what might have been a exhilarating turnaround day into a bloody rout. Specifically, the HUI 'Gold Bugs Index' exceeded an important hidden pivot 172.69 by 1.15 points, and June Comex gold exceeded an analogous downside target at 421.40 by 60 cents. That might not sound like much, but in hidden-pivote-ese it amounts to wholesale carnage. (Click on image for good luck) The fact that neither hidden-pivot support evinced even the slightest presence of strong hands implies that bullion quotes are almost certainly fated to continue lower. The good news is that June Gold will have another chance to turn around not terribly far below Thursday's bottom. In fact, the prospect looks sufficiently promising that I've provided a strategy in today's Rick's Picks designed to help you try bottom-fishing next week with a stop-loss of less than a single point. The pivot is about as confidence-inspiring as they get, and so has the potential to provide us with a rare trading opportunity in a favorite vehicle. The support looks like it will work very precisely, meaning that any over- or undershoot should amount to no more than two or three ticks, tops. But keep in mind

The skies around Washington D.C. buzzed with urgent activity yesterday, matched by a crisis alert on the ground that sent the news media into a tizzy for several hours. Good thing the small plane that strayed within three miles of the White House was piloted by two guys named Troy and Jim rather than by Hassan and Abdul. With Washington's air space on a hair-trigger alert that has persisted since 9/11, the names 'Troy Martin' and 'Jim Shaeffer' must have brought a sigh of relief from anyone following news of the incident closely. Neither man will face criminal charges for what was evidently an accident, although it's possible they could be fined and have their licenses suspended for a while. Some on Wall Street would probably like to buy Jim and Troy a shot and a beer and a good Cuban cigar, since the two bumblers triggered a brief avalanche of shares at relative bargain prices. Initially I thought the swoon was just a bad tick or two on TradeStation. But when I saw that virtually all of the major indexes had recorded the same five-minute dive, I tuned to the news to find out what was going on. In retrospect, this little episode provided an insight into the stock market's behavior, which was manifestly bullish. In fact, buyers took a breather that lasted only a few minutes before stocks were off and running again into the close. (Click on adventure to enlarge) Those who stood their ground and accumulated shares during the panic were amply rewarded by the steep rally that ensued. Rick's Picks subscribers may have caught the bottom themselves, since the downside targets I'd provided before the opening for the mini-Dow and the Mini-S&P -- 10183 and 1157.00 ' were respectively just two ticks, and 1.00 point, from the

Rick's Picks subscribers who kept their Bulletin Launchers open yesterday received a timely morning update for the S&P futures that could have made one's day. The mini-contract had just breached a hidden-pivot support at 1168.50, and although the low then was just a single point beneath the pivot, the slight breach of the pivot tipped us off that even lower prices were imminent. Here's the actual bulletin: The S&P futures have exceeded by a single point a minor hidden-pivot support at 1168.50, implying that still lower prices lie ahead. A rally to as high as 1174.75 is possible first, and you can short it with an 1174.75 offer, stop 1176.25. The stop is wider than we usually use, but I cannot improve on it since we are effectively trying to short a topping range near a pivot, rather than the pivot (1174.63) itself. Mark this order good till 1 p.m. EDT. In the actual event, the mini-contract rallied to exactly 1174.75, where it made its intraday high before taking the 9-point drop that occupied traders for the remainder of the session. One Tough Market The foregoing illustrates how difficult it is for traders to make money in what has been an increasingly tedious and range bound market. For even if you'd had absolute faith in my swing points and caught the day's two most important moves perfectly, you still would have made only $750. That's not a bad day's work, I grant you, but considering that it would have required perfect executions at precisely predicted turning points, it's asking a bit much. Anyone who can pick the horses that accurately ' I surely can't, as you learned on Saturday ' probably works only one or two days a week at most; and not at a desk like you and I,

A week ago gold looked as though it needed just a little more weakness to set the stage for a potentially powerful rally. At the time, I specifically identified a promising hidden-pivot support in the Gold Bugs Index (HUI), and said it would have to be touched before bullion took off. The pivot lies at 172.69, but what we got instead was a so-far pathetic bounce from 175.32. This is not a healthy sign. Although it would be bullish as all get-out if this uptrend appeared capable of surpassing the 203.69 high recorded on April 1, the rally instead looks like it's about to roll over without having exceeded a single prior peak on the daily chart. Bottom line, if a buying opportunity still awaits, we will have to be patient to take advantage of it. Gold may eke out a little more upside in the meantime, but if so it won't be a rally we should trust. In any event, let's keep an eye on a hidden-pivot resistance at 186.94, since that's where the trend is likely to fizzle if it's going to. I'll also stipulate that a two-day close above it would portend additional upside to at least 192.24 (a hidden pivot). I'd be tempted to try shorting there, albeit with a very tight stop. The rally could end at that price, but even if not, it represents a swing-trade opportunity that we could ill afford to miss in a market as turgid as this one.

Pack journalism found the easy story in Friday's Labor Department announcement -- that U.S. job growth was gangbusters in April. Since good news is bad news these days, this was as about as bad as it gets. As everyone knows, evidence of such robust payroll growth will all but clinch another interest rate hike in June. In case there were any doubts about this, figures for February and March were revised upward to reflect purportedly significant gains in those months as well. Here's the way the Wall Street Journal wrote it up: 'The American job market may finally be catching up with the economy's growth. The evidence early Friday sparked hopes among investors that recent signs of a 'soft patch' were overblown, before fears of more aggressive interest-rate increase kicked in by day's end.' We've come to expect better from the Journal, which may be the only big-circulation daily in America that has deigned to tune out Paris Hilton, celebritydom's reigning Antichrist. Be that as it may, we searched the paper's online round-up in vain for Friday's real story -- that Uncle Sam's spinmeisters have resorted to a statistical full-court press to condition the American public for more credit tightening. As evidence, consider the following. Non-farm payrolls were said to have grown by 274,000 jobs in April, nearly 100,000 more than 'expected.' But according to a source I deem more trustworthy than Labor's public relations department, 250,000 of the supposed jobs came from a statistical sleight of hand called the Birth/Death Adjustment. Here's how it works: As companies are born and others die, jobs are created and lost. But because not all such activity is measured by surveys, the government's statisticians simply try to guess how many jobs they should add or subtract in a given month to account for

You know it was a weird day when Michael Jackson's stock rose while nearly everyone else's fell. His lawyers put a 22-year-old on the witness stand who swore Jackson had not molested him as a child. You read that right. This was one of five witnesses the prosecutor had identified as a victim of Jackson; but if not, yesterday may have been the former pop star's best day in court in a long while. Even so, it would take quite a few more days like it to salvage a big chunk of Jackon's net worth reportedly tied up in rights to most of the Beatles' hits and to his own catalog of musical blockbusters. A huge loan financed the deal, but it was sold by B of A to a hedge fund that could take over the portfolio at distress prices if Jackson defaults. While the erstwhile moon walker's defense was enjoying a rebound in the courtroom, Tony Blair's Labour majority was getting whacked in British elections; Blockbuster was barreling down the road to ruin, Carl Icahn in tow; and the debt of GM and Ford was getting downgraded to instant junk status by Standard & Poor's. S&P's action triggered a rule requiring that all of the automakers' bonds be removed from the market for a month while they are re-evaluated by other rating agencies. At the end of this period the bonds must be sold, so there is going to be a huge flood of corporate paper at that time. Because GM and Ford are 30 times the size of Enron, this will cause more than mere ripples in the world of stocks and bonds. It is also likely to be bullish for Treasurys, since they constitute the only market liquid enough to absorb the kind of money that

Readers will already know that I'm no big fan of General Motors or its cars, but you've got to hand it to Kirk Kerkorian for seeing great value in a company that many of us believe could not be jump-started with a nitro methane enema. Kerkorian has offered a very substantial premium to buy up to 28 million shares of the automaker's stock, notwithstanding the fact that Wall Street has treated them like plutonium since around January. It's no secret that the only place the firm makes money is in its GMAC finance division. To most of us that sounds like a pretty good trick, considering that GMAC has resorted to 0% loans to move big Chevvies off the lots. Perhaps, as the old joke goes, their strategy is to lose only a small sum on each loan but to make it up with volume. Whatever the case, it's likely that Kerkorian sees GMAC as an asset that can be sold to cover at least part of the $1.5 billion he would have at risk. He already owns about $680 million worth of GM stock and was once Chrysler's biggest individual shareholder, so the guy is not exactly a babe in the woods as far as the auto business goes. At 87, Kerkorian would seem less remarkable flying off a cornice at Squaw Valley than he does trying to wrest operational control of the world's largest auto manufacturer. He undoubtedly has a sufficient grasp of the numbers to be confident that he's going to come away with a profit. But one wonders whether Kerkorian-style cost cutting alone can turn GM around. The company has been offering incentives of up to $9,000 just to cajole buyers into choosing a Suburban over a Toyota Sequoia, but even this huge price differential is barely doing

Quick Quiz: Fed meeting days provide an ideal opportunity for investors to: a) catch up on TiVo; b) clean the paperwork from their desks; c) play nine holes; d) meet their paramours for brunch; e) any or all of the above; f) none of the above. If you selected 'e' ' any or all of the above -- then you're probably a seasoned Fed-watcher. Which is to say, you have the good sense to be anywhere but in front of a monitor when the central bank issues its monthly press release. We had long suspected that the announcement itself is cobbled together by a clerk chosen by lot and armed with a dozen stock phrases, but yesterday's unprecedented 'incident' convinced us of this beyond a doubt. For reasons still unknown, the day's first announcement concerning a 25-basis-point increase in administered rates that had been universally expected did not contain the obligatory disclaimer. 'Longer-term inflation expectations remain well contained.' We can only imagine the consternation this must have caused in the world's bourses and trading rooms. It were as though Beria or Khrushchev had failed to appear in the reviewing stand on May Day, or a Miss America contestant had neglected in an interview to express her desire to see the world at peace. Fortunately the oversight ' assuming that's all it was ' was corrected shortly thereafter with an addendum, allowing the stock market to conclude its latest bout of induced labor with a satisfied grunt.

I've been doing my best to avoid raising your expectations for gold, since technical signs have not looked too promising for the last couple of months. Most recently, we focused on some Comex charts to tell us whether the intermediate-term trend might be changing from bearish to bullish. The drum-roll number was 441.20, basis the July contract, and although the futures came within $2 of that price last week, they have since receded by nearly $10, dashing our hopes for the umpteenth time. But this latest bout of weakness may be just what bullion needed to recharge for a sustained move above the $451 peak recorded on March 11. The bullish scenario looks more compelling in the chart of the HUI, and that is why I have reproduced it below instead of a Comex chart. I've labeled an AB impulse leg and a CD follow-through leg that has a 'D' target just a couple of points beneath last Thursday's 175.32 bottom. To be precise, the hidden-pivot target lies at 172.69, slightly less than 3 percent away. My hunch is that the current correction in gold will not end before that number is reached. However, that could be within a matter of days, so we should be prepared to attempt some bottom-fishing in some of the mining stocks tracked in Rick's Picks. As has been our practice in recent months, any bids will be tied to very tight stop-losses. This is because, if the 172.69 pivot works at all, it is likely to work very exactly. If so, there is no reason to risk more than small change as we speculate against the trend. Detailed strategies for doing so will be provided this week in the Current Touts section of the newsletter.