June 2006

Gold futures crushed an important hidden-pivot support at 599.40 yesterday, on their way to one of the worst single-day losses on record. The breach of the pivot, which I'd advertised here prominently, implies that the correction will continue to at least 549.40, basis August. That is the closest important hidden-pivot support below yesterday's 566.80 settlement price, and it should be considered a minimum downside objective for the near-term. If achieved, it would amount to a slightly more than 25 percent pullback from mid-May's multi-decade high near $740. However, measured from the start of the bull cycle launched from $546 two months earlier, the correction would be approaching 100 percent. If the support at 549.40 fails decisively, implying the futures have exceeded it by $1.00 or more, it would have negative implications for the long term, at least in theory. Still, we would want to give the bull the benefit of the doubt, since it would take a dip below 507.50 (see chart above) to create a bearish impulse leg on the weekly chart. For the record, I'll note as well something that will come as no revelation to you -- that the broad market looks like hell. I've provided a precise downside target for the Dow Industrials in the Touts section of Wednesday's edition, as well as an analogous support in the Mini-Dow futures that you can bottom-fish with a very tight stop-loss. However, if the cash-index pivot is exceeded even slightly, we would infer that the Dow's by then thousand-point fall is just the beginning of a decline that is likely to be far, far worse. *** Learn My Secrets Would you like to be able to forecast trends and price reversals as accurately and confidently as Rick's Picks? Have you tried other trading systems, only to find them

Looks like it's not just the usual bunch of numbskulls who have been buying stocks at these rarefied levels. Turns out that big companies buying back their own shares have been a major source of support for the stock market in recent months. S&P-listed firms bought more than $100 billion of their own stock in the first quarter of 2006, up 22 percent from a year earlier, according to the lead story in yesterday's Wall Street Journal. To the newspaper's credit, it gave prominent play, via a sub-headline, to a not-so-bullish implication of all this buying: 'Repurchases Aim to Bolster/Shares but They Also Signal/Hesitancy to Invest in Growth.' To speak of corporate investors' 'hesitancy' is putting it charitably. But then, where else could they conceivably deploy hundreds of billions of dollars in surplus cash? Surely not in new manufacturing capacity, since China seems to be having little difficulty providing the world with all of the manufactured goods it needs. And not in high tech either, since it is obvious that companies with tens of billions of dollars to play with ' we're talking about Microsoft and a couple of others ' are completely clueless about what to do with all that money. YMCA Oil Rigs It would only be half-joking for me to suggest that sinking an oil well in the basement of every YMCA in America might produce better returns thank Microsoft has been earning on its money lately. Not that such a strategy would fly with shareholders (even though it well might have during the dot-com years). These days, most companies are tending to put their money where the lion's share of investable money has been going anyway ' into paper assets. Shareholders would be the last to question such a strategy, since there is probably not a single one of them in

We have a bid in for August Gold, our first attempt to buy the stuff in nearly a month as we've waited for the correction to run its course. The bid is based on my minimum downside target for the Comex contract, 599.40, a hidden pivot first broached here a couple of weeks ago. A subscriber wondered in an e-mail message to me yesterday whether he should be picking up GLD as a proxy, since it has effectively hit the target, registering a low of 59.71 on Friday. While the ETF and commodity gold move closely in tandem, for purposes of buying one or the other it is easier and less risky to calculate separate pivots for each than to interpolate one relative to the other. (Click on chart to enlarge) I've done so in Monday morning's 'Touts' for the benefit of subscribers who want to try bottom-fishing in GLD. I am sufficiently confident in this target that I am recommending that you buy there aggressively, albeit with the extremely tight stop-loss I have recommended. The trade I advised earlier in the August futures can stand as is. We also hold positions in several gold stocks that have weathered the metal's correction nicely. We will continue to hold those positions until an opportunity arises to take partial profits, further reducing our cost basis as we have been doing all along. *** A Subscriber's Wisdom The other day, I heard from an investor who has $200,000 to speculate with. He asked whether it might be a good time to make an unhedged bet either against stocks or for gold. I suggested doing both, via a strangle that would leave him short 'the market' and long gold and/or mining shares. My reasoning was not rocket science. As Rick's Picks readers will already

If you were impressed by yesterday's 200-point turnaround, don't be. We've seen better rallies in an oncology ward. Considering the news ' that one of the world's deadliest terrorists has been silenced forever ' we might have expected stocks to go wild. Instead, the Dow Industrials finished up just 7 points on the day after reversing a steep decline with the help of some regulatory safety switches, not good news. Six months ago, if an investor had known Zarqawi's number would be up the next day, he might have loaded up on stocks and cashed out for a huge profit when the news hit the tape. But when the dust had settled yesterday, the clairvoyant investor would have been lucky to be holding stocks that showed any gain at all. Does this imply that the market could stumble or even drop when bin Laden finally goes to his reward? How would CNBC's pundits explain that one? Would they tell us, perhaps, that the circumstances that caused Osama's death had not quite lived up to the whisper story? Bottom line, yesterday's break-even price action should bring little comfort to bulls, since it tells us that Da Boyz are no longer capable of inciting a short squeeze even when the news is as good as it gets. If good news is about to turn to bad via disappointing Q2 earnings, look out below! *** Going About Our Business While word of Zarqawi's death was being vetted by a skeptical world, my subscribers were fixated on another tickertape of sorts, the Rick's Picks bulletin launcher. Using this real-time tool yesterday, we noted the purchase of Goldcorp shares at what turned out to be a good price, going without a stop-loss for a very rare change. We also established a small tracking position in Microvision (MVIS) based on a

Here's a Rick's Picks subscriber, Pat P., with $200,000 to burn. What would you do if you were in his shoes? He writes as follows: 'Like you, I am of the opinion that the U.S. financial system and equity markets are on the verge of an implosion the will make previous crashes look like mere hiccups. I've been mostly in cash for the last month or so waiting patiently for gold to bottom and the Dow to top out. I agree with you that gold has more downside, but do you think perhaps that the Dow has finally reached a point it will never again see in our lifetimes? 'I have $200K put aside as what I would consider 'expendable risk capital' that I would be willing to bet on gold or shorting the Dow, and let it ride till whenever! I'm itching to put this money to work. I'm not concerned with catching the top in the Dow or the bottom in gold. Is now a good time to just 'do it' and be patient?' (Click on image to enlarge) Yes, just do it, Pat, and be patient. If you can kiss every penny of that $200,000 goodbye without changing your lifestyle or harming those who depend on you financially, it's as good a time as we've seen in a long while to play fast and loose with surplus cash. Before you take the plunge, though, check out The Hustler, one of the great films of the last fifty years, since it might inspire you. By the time Paul Newman's 'Fast' Eddie Felson returns to Ames Billiard Hall for a rematch with Minnesota Fats, he's had his thumbs broken, his girlfriend has committed suicide, and he's scraping the bottom of the financial barrel. Any bear who has survived the

There's nothing funny about Iran, not one single thing, but I had to stifle a laugh when this headline popped out at me at Google News: 'Iran Reacts Positively to New Proposal'. It puts one in mind of the Tim Burton film Mars Attacks!, one of the wickedest satires since Dr. Strangelove. The film opens with Earth on edge as the Martian fleet descends upon the desert just outside of Las Vegas. Do they come in peace? Well, decide for yourself. A hippy lady releases a dove into the air as the grotesquely bobble-headed Martian commander emerges from his flying saucer. His startled reaction is to incinerate the bird in mid-flight, triggering a firefight between Martians and U.S troops that ends with all the soldiers, and thousands of innocent bystanders, reduced to smoldering ashes. Hours later, the solons on Capitol Hill are attempting to spin this catastrophe so as to avoid angering the aliens. Invited to address a joint session of Congress, the Martians are welcomed with open arms before they whip out their death-ray blasters and do it again. Now it's all-out war between Earth and Mars, notwithstanding the U.S. President's (Jack Nicholson) attempt to negotiate a truce on his knees. Let's hope it doesn't come to that as we try to make Iran stand down in the most serious political crisis since Russia attempted to base nuclear missiles in Cuba. *** Drawing a Bead on Gold Gold continues to grope for traction, but that hasn't prevented our doing some bottom-fishing on the way down, presumably to a hidden-pivot target just below $600. Here's yesterday's play-by-play as it unspooled in the Intraday Notes section of Rick's Picks: $ August Gold (629.00) 06/05/2006 20:06:42 EST 6036 I want to reiterate that the 599.40 target given here earlier not only remains

I've long doubted the usefulness of head-and-shoulder patterns, since they tend to be everywhere you look for them. Still, there's no denying that the one the Dow Industrial Average has been carving out since early March is quite a looker (see below). Yeah, it needs a little more development on the right shoulder to give it proper symmetry. But otherwise, it looks good to go for an 800-point plunge. Does that sound bearish enough? Maybe to you, it does. But not to me. For if this market is about to unravel the way I expect it to, a 3000-point leg down sounds about right. But a measly 800 points wouldn't begin to discount some of the more menacing trends that are in the pipeline already, including a real estate collapse and a run on the dollar. I haven't talked much about that last problem, mainly because my deflationist point of view supposes a strengthening of the dollar rather than a weakening. But I could be wrong over the near term. Indeed, although I still believe deflation is not merely likely but absolutely inevitable, I'm willing accept that the dollar could swoon before a massive credit deflation begins. One factor that has made this more likely is a threat from some major oil producers to supplant the greenback as the world's only reserve currency. Rubles Only, Please As of tomorrow, Russia will accept only rubles for its oil and natural gas, and in a month or so Iran and others who use its Euro Oil Bourse will take only euros. These changes have enormously bullish implications for gold, for reasons I shall explain, but catastrophic implications for the U.S. and global economies. For Russia and Iran themselves, it will amount to shooting themselves in the foot, although the economies of both

The denizens of Grand Fenwick laid siege Friday after I published "their" list of news stories about the coming housing bust. The list evidently was compiled by bloggers at patrick.net, but it came to me in the form of an e-mail from someone who identified himself only as 'Martin' and using the address unlisted@att.net. Although none of the aggrieved bloggers threatened to do a Theo Van Gogh on me for "theft" of "intellectual property," there was a lot of hissing and clucking in their messages, which tersely admonished me. I have no apologies to make, but I can nonetheless recommend http://patrick.net to you without qualm, since it provides some interesting and fairly detailed information pertaining to the coming crash. The emphasis is on Bay Area properties ' and what better region to monitor if you are looking for early signs of the coast-to-coast bust? (Click on image to enlarge) The morning was busy otherwise, since a recommendation I'd made to buy June 50 Citi puts came within a hair of being filled ' close enough, actually, that I had to assume that at least some subscribers would have been filled on the order. And so they were, The stock rose on the day, but we'd bid the puts so tight-fistedly that we actually made money exiting them within an hour of purchase. I heard from two subscribers who paid the suggested 0.50 and were able to dump them for 0.60, based on the bulletin I put out early in the session. The profit after commissions was nothing to brag about ' maybe $35 or so ' but that's still enough to take the missus to lunch, provided she doesn't go overboard on the Beluga. Yesterday being a Friday two weeks before an expiration, I had expected the puts to trade

If you've been wondering when gold's correction will end, there may not be much longer to wait. There are three hidden pivots not far beneath the 630.70 low registered yesterday by the Comex August contract, the most bearish of them just a whisker under $600. I've provided exact numbers in my Touts for Friday so that you can attempt bottom-fishing at any or all of them with extremely tight stop-losses. I've also ranked them in order of appeal. This should allow you to tighten stops even further, or to advantageously time the purchase of shares in any of the dozens of mining stocks that Rick's Picks tracks and analyzes. Meanwhile, we've added a couple hundred shares of Miramar Mining (MNG) at what turned out to be yesterday's exact low, 3.43. The purchase established a real-time tracking position for a subscriber who had queried me about MNG during Wednesday's online Q&A session. (Click on chart to enlarge) Hidden pivots also proved useful in gauging the strength of yesterday's rally, which together with the previous day's move recouped almost the entire 184 points of Tuesday's decline. I'd noted in my overnight comments for Thursday that if the Mini-S&Ps got past a hidden-pivot resistance they were butting against at 1274.00, they would continue up to at least 1292.50. The actual high yesterday fell about five points shy of that pivot, but there was little doubt that, unless the world ended overnight , the futures would reach it early Friday. They'll need to do slightly better, though, achieving a minimum 1296.75, to set the stage for a running of the bulls next week. For your information, a target for the Dow Industrials analogous to the 1292.50 pivot in the Mini-S&Ps lies at exactly 11323.19. A rally to this number, at least, became an odds-on