March 2007

You're 50 pounds overweight and you haven't worked out regularly since college. You'd probably get completely winded if you tried to run around the block, and you can't imagine playing a round of 18 without a cart.. Now imagine what that first day back at the gym would feel like, surrounded by hard-body types: guys who look like they just finished boot camp at Lejeune; women curling more weight than you can press; high school kids doing sit-ups with large slabs of iron on their chests. Feels pretty intimidating, right? But you also know that if you were truly determined to get in shape, and that if you worked out three or four days a week, you'd start to feel at home in that gym in a month. (Click on image to enlarge) So it is with the chat room at Rick's Picks. Newbies who saunter into the room for the first time could get the feeling they've stumbled into a virtual trading pit, what with all the jargon about Hidden Pivots, midpoints, impulse legs, A's, B's and C's. No question, there are some serious traders who frequent the room. But -- trust me on this -- the more you learn about Hidden Pivots, the sooner you will come to understand that there is nothing mysterious or difficult about them. If you can look at a painting and pick out some of the things that make it either 'good' art or 'bad' art, then you can learn to look at a stock chart in a way that will allow you to forecast price swings with amazing consistency and precision. My advice to newcomers is to acclimate yourself to the chat room at your own pace. It's not going to be all Trading U. either. Plenty of actionable ideas pop up

I decided a while back that getting drawn into yet another inflation vs. deflation debate would be a waste of my time, since no one in the inflationist camp has ever challenged me with a reasonably good question, much less persuaded me that hyperinflation was any more than an extremely remote possibility. A recent exchange of e-mails with one of that camp's most capable and articulate spokesmen, iTulip co-founder Eric Janszen, has done nothing to change my mind. Even so, in hopes of dragging a little-understood facet of the dismal science into the light of day, I will share with you some snippets from the exchange I've just had with Eric. If you want the unabridged version of our disputation, it will be posted as an audio offering at iTulip sometime soon. How anyone could fail to understand that the by-now inevitable implosion of a $400 trillion global debt bubble must end in ruinous deflation is beyond me. And it is not just the dummies who think this, either. Eric Janszen is no fool, as anyone who has visited iTulip could tell you. And Gary North, another inflationist who has dug in his heels on the issue, is one of the most astute commentators in the world of economics, not to mention as gifted a polemicist as ever sat down to type. And there is my erstwhile pen-pal Fred Hapgood, probably the only person with a Harvard degree ever to have taught, if only for a year, at Atlantic City High School. Check out his Web site ' 'providing intellectual property to the trade' ' if you want to see an extraordinary mind at paying work. (There's even an essay there about 'good' deflation.) Fed Would Never� So why do all three of these guys turn positively facile when the

Permabear though I be, I will nonetheless continue to warn you that, with respect to bull-mania, it ain't over till it's over. Take a look at the chart below and you will see a stochastic indicator that has begun to roll up from its most egregiously oversold lows since last summer. While this is no guarantee that the Dow Industrials are about to coming roaring back, neither is it a very compelling reason to get short up the wazoo. (Click on chart to enlarge) If the Indoos are indeed destined for new all-time highs, it would be commensurate with a topping pattern destined for infamy on a grand scale. Isn't that the way a 25-year bull market is supposed to end? Regardless, we will not shy from shorting some of the more obvious disasters in-the-making ' banking giants, entertainment conglomerates, casino operators, homebuilders that have rallied a little too energetically ' those kinds of stocks. And if we continue to risk just pocket change on our stop-losses, we really can have it both ways ' make a few bucks, that is, even on bets that prove to have been flat-out wrong. *** Armstrong Misjudged? I wrote here the other day that economist and forecaster extraordinaire Martin Armstrong was in prison for stock fraud, but I'm going to give someone who worked with people who knew Armstrong well a chance to set the record straight. Here's our bird-flu correspondent, Erich Simon, with a different view of the man than you are likely to get from the news mainstream's punditry: (Enlarge this picture? I don't think so...) 'Martin was brilliant. He was the brains behind the whole mess that got him thrown in prison. He never broke the law. It was the other Wall Street firms who actually broke the law (I

Each and every weekday evening, in the 'Current Touts' section of Rick's Picks, we publish Hidden Pivot targets and detailed strategies to guide traders and investors the following day. But it is in the chat room, in real time, and in the Intraday Notes section, that some of the most useful and valuable price forecasts often appear. Yesterday, for instance. With April Gold trading around $651, we billboarded a rally target at 653.40. In fact, the futures peaked shortly thereafter at 653.70 -- just three ticks, or 30 cents, above the predicted peak. Then they dove $5, to just above $648, never bettering the earlier high. (Click on chart to enlarge) We mention all of this in order to emphasize certain important, practical differences between targets disseminated 'the night before' and those that can be calculated in real time. The former are speculative to the extent that neither we nor anyone we know can accurately predict whether a stock, index or commodity will move higher, lower or sideways when stocks open the next day. Indeed, it sometimes feels as though the more elaborate our strategy for leveraging a Hidden Pivot target the next morning, the more likely it is that the chosen trading vehicle will move the 'wrong' way, mooting our advice and hard work. The Good Stuff Be that as it may, the chat room gives us an opportunity to correct obsolete forecasts in mid-course, using such real-time data as may have accumulated in the first hour or so of the trading day. By implication, the price targets sent out to you at night reflect only a small fraction of the power of Hidden Pivot analysis. By further implication, if you tune only to the Touts section of the newsletter, you will miss out on some of the really

Bulls made a solid effort yesterday to get something going, but it will take more than a 157-point Dow rally to re-engage our interest. Yes, we still have that unachieved target at 13045, a Hidden Pivot that lies 250 points above the recent record high. But it looks like the Matterhorn relative to the lows recorded earlier this week, and in any event we don't fancy jumping aboard at these levels just because a few pundits took yesterday's surge as evidence that bull-mania had returned. (Click on chart to enlarge) Even so, we're obliged to acknowledge that it would not take much to make true believers of us, if only for the few weeks it might take for the Industrial Average to reach 13045. Specifically, we'd need to see the Dow Industrials push above the 12351 peak shown in the chart above, preferably before Friday. Given that the peak sits just 144 points above yesterday's close, our challenge could be chopped liver as early as this morning, even before Wall Streeters have had their second cup of coffee. We've set an alert on our trading chart a hair above 12351. If it's hit, the prospect of yet another record high in the Dow would become something less than a longshot -- much less, as far as we're concerned. And if, better yet, the benchmark is hit in the early going today, a follow-through to new all-time highs would start looking like an even-money bet. *** Want to Forecast Like a Pro? Plans for the first online Hidden Pivot seminar are nearly complete. The two-day event will be held via Webex in late March or early April, most probably on successive weekend mornings. There will also be at least one lengthy Q&A session to follow, just as there has been on

Could this ugliness take another four-and-a-half years to run its course? That is the clear implication of the chart below. The deceptively demure graph, from economist Martin Armstrong, has taken on a significance and credibility it didn't have one short week ago, when I reproduced it in the Intraday Notes section of Rick's Picks as the stock market began to unravel. At the time, the chart was merely predicting a major top based on an 8.6-year business cycle that Armstrong had described nearly a decade earlier. By Tuesday afternoon, however, the chart was evolving from prediction into manifest fact, and the ensuing days of pain on Wall Street have turned Armstrong, currently in prison for stock fraud, from rumor to legend. If we have indeed begun a bear market that is not slated to end until late 2011, as the chart implies, what might lie ahead for the economy? My guess is that mounting worries about the stock market are about to deliver a devastating blow to a housing sector already verging on collapse. It doesn't take a rocket scientist to see that that a full-blown housing bust could further depress stocks, setting in motion a destructive spiral as powerful as the financial-asset boom that preceded it. 'Unthinkable' Has Arrived Fed to the rescue? For years we've been hearing that the central bank would never allow such a thing to happen. Well, it is happening, or at least it is beginning to happen, and the Fed has barely shifted gears. Meanwhile, for all of his unconvincing talk about the supposed threat of 'inflation,' one could say in his defense that Bernanke has merely been trying to distract us from the infinitely worse menace of deflation. To believe otherwise is to infer that the guy lacks the intelligence and the imagination

If the week ends with yet one more timid rally, bulls will be under serious pressure to deliver on Monday. Yesterday, it almost looked as though Da Boyz had shorts on the ropes when the Dow Industrials halved a 200-point opening loss in mere minutes. Alas, the remainder of the day was spent in a wallow, and by the final bell the Indoos had not exceeded a single peak recorded the previous day, even on the lowly 5-minute bar chart. In the meantime, the lower lows occurring each day are adding power to a bearish impulse leg whose demeanor ultimately will determine whether the long-term bull is dead or merely pausing for breath. (Click on chart to enlarge) In Hidden Pivot terms, an impulse leg is signaled when a trend leg exceeds at least two previous highs or lows. In this case, the collapse of the Industrial Average has already breached four prior lows without a correction, suggesting that a very powerful reversal has occurred. What constitutes a 'correction'? Very simply, and according to the Hidden Pivot method, a countertrend comprises at least two bars making successively higher highs or lower lows. When this occurs, the AB 'impulse leg' will be seen to have broken into an incipient ABCD pattern. This is illustrated in the chart above, where I have drawn a dotted line extending yesterday's price high hypothetically. If the actual high had followed the dotted line, exceeding the previous day's high by even a hair, it would have ended the AB impulse leg and started a correction that ultimately would describe an ABCD pattern. Any Rally a Short Notice as well that the Indoos will have a chance to further stretch the downtrend today so that it surpasses a fifth prior low without a correction. This would occur

Yesterday's meek rebound was not the kind of rally to inspire confidence. Even so, we're inclined to give the bull the benefit of the doubt until such time as the implications of Tuesday's avalanche are corroborated by certain technical signs mentioned in my commentary yesterday. The commentary was itself inspired by a chart of homebuilder DHI Horton whose significance welled up in me like a bilious burp: Notice how, until about a month ago, the stock had been spasming higher since July, when even the most factually impaired, deranged bulls were beginning to concede there was a problem in the housing sector. In retrospect, we can infer that the rally occurred because many investors were convinced that housing had bottomed ' and never mind the mountain of statistical evidence to the contrary. Timely Heads-Up We dissed the rally the whole way up, and when it finally came time to short the stock, we settled on a Hidden Pivot target at 31.35 as the place to lay 'em out. At the time, Horton shares had rebounded to around $28 and were therefore still a few dollars shy of the target:. Here is the specific recommendation, from the January 23 edition of Rick's Picks: 'A Hidden Pivot not far above, at 31.35, has the potential to prick this bloated gas-bag. We'll attempt to short the stock if and when it gets near the target, but you can make your own preparations if a put-buying strategy is not your cup of tea. Otherwise, stay tuned for further details, which would be posted under Intraday Notes.' The Hindenburg of Homebuilders So why does the above chart leave me feeling bilious? Simply because Horton's eventual top was at 31.13, a chain-jerking 22 cents shy of our target. And there we sat, at 31.35, waiting for an