September 2006

Judging from the way stocks have been getting short-squeezed this week, traders must have been loaded to the gills with September put options. My technically savvy friend Tom Tankka pointed this out to me, along with the sad observation that our mutual friends from the trading world have been dropping like flies, so very challenging is the current investment environment. It is at times like this that I prefer to tune out what everyone 'thinks' and simply look at the charts. And so I have, enabling me to identify a very promising rally target for the Dow Industrials that can help take some of the guesswork and pain out of the game. Moreover, in yesterday's Touts I proffered a downside target for Newmont Mining that has the potential to yield the first low-risk buying opportunity in the stock since May of 2005. It was complemented in yesterday's chat room by a projection for December Gold that is not apt to please the hard-money crowd but which most surely has their best interests at heart. I never promised I would break it to you gently, and although I remain a long-term bull on gold, I will never, ever become a cheerleader for the stuff unless the technical evidence demands it. Concerning Wall Street's ongoing dog-and-pony show, getting a handle on things is not rocket science, not as long as one does not open the door even a crack to intuition or knowledge. Both appear useless at the moment, since the stock market is obviously too pumped up on global funny money to respond in a predictable way to negative economic stimuli, even such stimuli as hits like an electrical jolt to the testicles. Does the stock market know there's a spectacular housing bust gathering momentum ' one that could conceivably usher

What amazed me most during my recent visit to the Jersey Shore was that a house in Longport, easily the most boring town in America for any kid who grew up there, had just changed hands for $7 million. I don't know who the buyer was, but it would not likely have been a 'local,' since anyone who grew up in or near Longport, as I did, would never have paid such an exorbitant sum for a home there. They couldn't give Longport homes away during the early 1970s, after the first New Jersey casino referendum went down in flames. Even houses just a stone's throw from the ocean, at the southernmost tip of the island, would sit on the market for years, unsellable seemingly at any price. At the time, you could just as easily have acquired for a pittance nearly any property on Absecon Island, a 7.8-mile spit that includes Atlantic City and the three downbeach boroughs of Ventnor, Margate and Longport. (Click to greatly enlarge) Atlantic City was the same dump then that it is now, except without the casinos: Camden with beaches. Would you believe there was not a single supermarket or movie theater in Atlantic City from around the mid-1970s, when even John's Bargain Store pulled out, until fairly recently. Now there's a grocery store, but still no neighborhood movie house. Some town! However, the lily-white boroughs were another story. They are typically referred to by out-of-town newspapers as posh suburbs of Atlantic City. I grew up in Margate and always considered Longport, with its broken-down bayside docks and Ozzie's grocery store, the epitome of deads-ville. Ocean City, the next island to the south, wasn't much better ' a place where the local cops lay in wait for cars that exceeded the speed limit by

Is the Second Great Depression on its way? Not according to Bob Bronson, whose downbeat quantitative forecasts have been featured here often. Bob predicted the current housing bust fully two years earlier than most of his colleagues, and I don't mean to suggest that he was premature. In fact, using rigorous analysis, Bronson Capital Markets Research saw a topping pattern in real estate that most other observers either failed to notice or regarded simply as a bullish plateau in a more or less endless boom. Along with my friend Jas Jain, Bob has been among the most bearish seers around, a K-Wave proponent who sees deep recession persisting until at least 2009. (Click on chart to enlarge) So why does he believe the property bust currently gathering force will not lead to a full-blown depression? Well, it depends on how one defines a 'depression'. Bronson notes that the 1930s downturn was very severe by anyone's reckoning: 'The consumer price index (and the GDP deflator) declined by 24 percent from August 1929 to March 1933, after having been virtually flat from 1921 to 1929. This decline was accompanied by a fall in real GDP of almost 30 percent' and unemployment of almost 25 percent. Now, he says, 'although we're in the next K-Cycle Winter, our work shows that the coming severe recession and its after-shock one(s) will reach only a fraction of those extremes.' By this, he means an approximate doubling in severity of bull-cycle recessions, though no depression. I Expect Far Worse Long-time readers of Rick's Picks will already know that I am expecting far worse, for several reasons. For one, the world had a sound money system when the stock market plummeted in 1929; this time around, all of the major currencies are very nearly worthless. Second, the U.S.

Several subscribers who dropped by the Rick's Picks chat room yesterday morning were looking for a promising spot to buy gold, which earlier in the day had taken a pretty nasty hit. My advice was to wait until gold itself has signaled the all-clear, an event which has yet to occur but which has been anxiously anticipated by gold bugs ever since bullion prices began a major correction in mid-May. Unfortunately, even after diving $23 yesterday, December Gold looked more like a candidate for shorting than for bargain hunting. The futures barely bounced from their intraday lows near $621, and as the night session began they were timidly probing the upper limits of a $5 recovery range. (Click on chartt to enlarge) The good news, at least so far, is that there are no bearish price patterns on the daily chart (see above) nearly as powerful as the bullish one that culminated with a $691 peak in mid-July. This implies that the long-term bull is still dominant, even if docile for the time being. As I noted in the chat room, however, there is an immediate threat to the intermediate-term picture if the December contract were to fall just a little beneath yesterday's bottom at $621. Specifically, a print below the $615 bottom made on July 24 would make any moderate rally thereafter a short sale, presumably for a plunge below $600. But for the bear to return forcefully, a decline exceeding 513.60 would be necessary. That would create a quite powerful bearish impulse leg by exceeding two internal lows ($615, recorded on July 25; and $587, recorded on June 14); and one external low ($513.70, from December 21, 2005. Bottom line: The long-term bull is not just intact but perfect healthy; however, the intermediate-term picture could change with just

After a drum roll that lasted practically the entire summer, Katie Couric finally took her flying leap last night, belly flopping with such a spectacular splash that only those who wish her ill could have sat through the whole, jaw-droppingly bad show from beginning to end. What could the brass at CBS have been thinking when they decided, apparently, to promote this as the biggest TV event of the year? And could yesterday have been so absolutely uneventful that nearly the entirety of Katie's wretched debut as an anchorwoman could have been devoted, as indeed it was, to the sort of mindless fluff we expect in the final minutes of the nightly news? This was television plumbing yet new lows, the culmination of a circus of self-absorption and hubris so brazenly unabashed as to make the recent JonBenet wallow look respectable in comparison. 'How should I sign off?' Katie narcissistically asked the audience, as her producer cued up a montage of Edward Murrow, Walter Cronkite and other greats offering up their signature good-byes. How will CBS handle this dreadful turkey? If it were a Broadway show, the curtain would never rise on a second performance and Katie would be out looking for work. But the network has far too much riding on her to pack it in so soon, and it's probably going to take at least a few weeks before they toss a few of their own best and brightest to the lions before tossing her as well. In the meantime, we can expect a very drastic retooling of the show, a gnashing of teeth and wringing of hands in the boardroom, and, finally, a tacit admission from the higher-ups that neither Katie's perky cuteness nor some whack-o producer's frivolous format experiments are going to cut it in the well-settled world of

Summer in Colorado has passed with alarming speed, slowed hardly at all by a recent family trip to San Francisco. It is one's daily regimen that tempers our perception of time as it is lived. A particularly memorable passage from Thomas Mann's The Magic Mountain explains why this is so, and why we need an occasional vacation to refresh our sense of the interval: 'What we call tedium is rather an abnormal shortening of the time consequent upon monotony. Great spaces of time passed in unbroken uniformity tend to shrink together in a way to make the heart stop beating for fear; when one day is like all the others, then they are all like one; complete uniformity would make the longest life seem short, and as though it had stolen away from us unawares. Habituation is a falling asleep or fatiguing of the sense of time; which explains why young years pass slowly, while later life flings itself faster and faster upon its course. We are aware that the intercalation of periods of change and novelty is the only means by which we can refresh our sense of time, strengthen, retard, and rejuvenate it, and therewith renew our perception of life itself. Such is the purpose of our changes of air and scene, of all our sojourns at cures and bathing resorts; it is the secret of the healing power of change and incident.' [Translated by H.T. Lowe-Porter] May the sundry pleasures of your Labor Day Holiday seem endless as they unfold! I'm going East myself to spend the holiday with friends, and will talk to you again upon my return. With any luck, the weeks ahead will hold sufficient novelty to slow the usual break-neck dash toward Thanksgiving into something more languorous and enriching for us all. ***

Natural gas quotes have fallen relentlessly, to as low as 5.39, since peaking last December near $16. Under the circumstances, it seemed like a good time to try bottom-fishing in the October futures, especially since seasonal factors for this commodity are now bullish. The trade worked out nicely for anyone who used a stop wider than a penny. The subsequent bounce from the projected Hidden-Pivot low was 24 cents, implying that an initial stop-loss with theoretical risk of $110 dollars could have returned gains of as much as $2,400 in a matter of hours. Here's is the recommendation, exactly as it appeared in the Current Touts section of Rick's Picks on Wednesday night: 'There's a promising Hidden Pivot support at 6.060 where you can attempt to bottom-fish using a stop loss of just a few ticks. It's difficult to predict when the target might be reached, and it could happen during the night session, so I'll make this one entirely at your discretion. If a lesser hidden-pivot at 6.170 above our target fails to provide a discernible bounce, that would be strong evidence the lower objective will be reached. 6.170 can also be bottom-fished with a very tight stop-loss, but it will work best during the night session.' As it happened, the October contract bottomed at 5.050, one cent beneath our projection. The targeting parameters that I used are shown in the chart below, which accompanied the recommendation: (Click in chart to enlarge) I republish it here for the benefit of those who do not have access to the paid-subscriber pages of Rick's Picks, as well as for Hidden Pivot aficionados who were too busy to follow the trade. In my commentary, I frequently talk about Hidden Pivots, but without going into much detail about what they are or how