May 2007

The QQQQ trade recommended in Monday's Touts worked out so perfectly that I want to review the steps we took to get ourselves risklessly short 'the market' for the next five weeks. By day's end, we had legged into bearish June 46-45 put spreads at no cost. That means that if 'the Cubes' are trading below 45 when our options expire on June 15 (they settled yesterday at 46.45, off 39 cents) we will make $100 per spread. Even if we are wrong and the QQQQs rally, we will still make money under $46, and we will lose nothing if they continue to rise in the coming weeks. In fact, we cannot not lose even the cost of commissions, since we put on the spread for a small net credit. We accomplished this by doing the buy side of our vertical bear spread when the underlying vehicle rallied very briefly in the opening minutes of Monday's session. Here's the recommendation exactly as it was disseminated over the weekend: 'I don't want to overuse the word 'ominous,' so let's just say that the divergence shown in the chart is...disconcerting. At the very least, it should make technically aware bulls think twice about trying to milk the uptrend to the last drop. As you can see in the chart, stochastic tops have actually declined since the stock-market rally steepened in late March, and the divergence has become even more pronounced in the last week or so. We don't usually like to buy options other than at precise Hidden Pivot swing points, but I'm going to make an exception this time by suggesting that you buy four June 46 puts (QQQRT) for 0.52 or better, day order. With no Hidden Pivot tie-in, this trade is speculative, so don't overdo it if you plan

Here's a headline in search of a story, from Friday's edition of The Wall Street Journal: 'Retail Sales Slide Fuels Concern.' We had to read the article twice before we were able to determine just who it is that is 'concerned.' Not investors, for sure. With the Dow Industrial Average and other key indices hitting new record highs almost routinely these days, it's clear that Wall Street is not much concerned about anything, let alone how the nation's shopkeepers are doing. In fact, it would be empirically more accurate to say the Street is positively exuberant about the outlook for retailers, given that the Dow Jones U.S. Retail Index is currently trading within less than 2% of all-time highs (see chart below). (Click on chart  to enlarge) Nor do the retailers themselves seem fazed. Wal-Mart Stores, for one, didn't even bother to field a spokesperson to enumerate the reasons for the apparent lull in shopping.  Instead, with April sales at the chain off 3.5% -- the biggest drop in the 28 years monthly results have been reported ' Wal-Mart (and the Journal) let unnamed shoppers do the talking: 'Wal-Mart said its shoppers expressed concern recently about their personal finances, the cost of living and high gasoline prices.' Do we take the shoppers at their supposed word? I should think not, since they've managed to borrow and spend like crazy for the last ten years despite the absence of real income growth, turning the U.S. consumer economy into something like a rent-to-own furniture scam. Buying Less Gasoline? What about Joe Consumer's supposed 'concern' over high gasoline prices? Well, how about yourself? Are you personally buying less gas now that a gallon of regular has gone above $3.00? We might as well ask, is anyone buying less gas ' except, perhaps, those

For those of you who still awaken each morning with somehow undiminished enthusiasm for 'buying the dips' in gold, I've included my rock-bottom price forecast in Friday's Touts. Yesterday, I did some abortive bottom-fishing myself in the June Comex, nibbling at Hidden Pivots that lay, respectively, at 672.10 and 667.80. By day's end, however, I'd lost my enthusiasm altogether, if not to say my trading mojo, even though the best opportunity of the week may lie just ahead, a hair beneath Thursday's lows. As of 5 p.m. ET, the so-far low is 665.90 --close enough to my bear-cycle target to imply that the ideal buying opportunity may already be past. But if the futures should come down to my exact number either Thursday night or Friday morning, you can use it to bottom-fish with an extremely tight stop-loss. Why so tight? Simply because the target is so clear on the 30-minute chart that if it is breached by more than, say, 0.70 points, I'd infer that lower prices ' perhaps $10-$15 lower ' are coming. In any event, we'll continue to play footsies with this correction in various and sundry ways, much as we did yesterday in Yamana Gold (AUY). The stock took a tradable bounce from within a single penny of a predicted low (13.91), so some of you could conceivably have made a few bucks on the stock as it was falling. Please note, however, that the subsequent breach of a lower pivot at 13.71 hints of another serious leg down. If so, I've provided a Hidden Pivot target that will offer a great place to bottom-fish aggressively if you have been looking to build a core position in the stock. Meanwhile, I should mention, as I did earlier in the chat room, that I've covered the last

We've seen one Hidden Pivot rally target after the next demolished in recent months, even if some of them withstood the battering for a while. Now, for the record, we proffer yesterday's 1519.00 high in the Mini-S&P as yet one more such enticing opportunity to get short. This we did, late in the day and with no great expectation of getting rich -- only of picking an entry spot that might afford us the luxury of bucking the tide with relatively little risk during the parabolic blowoff stage of a 25-year-old bull market. (Note: An hour after we initiated the short, it was possible to partially cover the position nearly five points below the entry price; this we also did. One further note: If the futures go on to exceed 1519.00 by more than two ticks, you can bet that they are bound for at least 1545.00. Jot that number down by all means, since it promises to be every bit as short-able as the one that has so far stopped the most recent surge. ) By shorting a runaway bull, aren't we just beating our heads against the wall? Well, yes and no. The bruises do accumulate from getting stopped out each time we are wrong. On the other hand, with some judicious profit-taking, we've generally made money at it, and this has turned would-be pain, if not into pleasure, at least into something approximating smug satisfaction. It certainly beats sitting on the sidelines, agreeing with our like-minded friends that, any day now, the bulls are going to be CRUSHED. Face it, guys, the burden of proof is on the bears right now. But rather than belabor the thankless and well nigh impossible task of proving it, why not just simply enjoy the party? Remember, because we tend to be short

Finding ways to buy gold without risking much is proving to be more art than science, as yesterday's experience demonstrated. In the Touts section of Tuesday's newsletter, I'd put out a recommendation to buy the June Comex contract at 680.50 if it took a 'nasty swoon.' But this is not what happened. Instead of swooning, the futures chopped and spasmed their way lower, acting not so much like a schoolgirl with the vapors as an acrobatic kite on a gusty day. We were there to help break their fall nonetheless, buying a bottom that turned out to have been just two ticks off the intraday low, 684.10. Someone in the chat room had mentioned the lower target at 680.50 around then, perhaps hopeful of having a few contracts drop gently into his lap before they took off once again. 'Looks like Rick's 680.50 [target] is in the cards,' he noted. I replied, 'I'm long gold from 684.30 as we speak. But I'm not thrilled with the first rally from that low.' As indeed I was not. The futures had just failed, on their first, very minor thrust from the targeted low, to surpass any prior peaks even on the one-minute bar chart. But the low held, fortunately, and the June contract got in bullish gear shortly thereafter, reaching an intraday high at 689.00 that represented a rebound of nearly $5 from the bottom. Broke No Rules Those of you who have taken Hidden Pivots to heart may be interested to see how the 684.20 target was derived. I have reproduced it in Wednesday's Touts section so that you can see for yourself not only that I broke no rules, but also that the visually misleading ABC coordinates I used to calculate the target would have been fairly easy to find,

Millions who watched the Kentucky Derby on Saturday would agree that it lived up to its billing as the most exciting two minutes in sports. Street Sense, a 4-to1 shot at post-time, covered the distance in a little more than two minute, delivering more thrills, probably, than the last three Superbowls combined. Jockey Calvin Borel added a touch of class in the winner's circle that rarely obtains in the Superbowl end zone. He not only seemed thrilled to have won the race, but genuinely surprised that he'd beaten such a strong field. Borel's stunning, come-from-way-behind victory looked even more impressive in the replays, since, the first time around, the TV network's cameras were too busy watching the leaders to much notice a horse that was running 19th at the quarter mile. Even Carl Nafzger, the horse's trainer, could not have foreseen the outcome with Street Sense so far behind the field for most of the race. But Borel found daylight along the rail, moving unchallenged from around twelfth place to third. When Curlin, ridden by Robby Albarado, blocked the way coming out of the final turn, Borel went to his right and Street Sense never broke stride, pouring it on in the final furlong to beat favorite Hard Spun by 2-1/4 lengths. Even the Queen of England must have been excited by the way the race turned out. We wish Borel and Street Sense well at the Preakness and the Belmont. It's been nearly three decades since the last Triple Crown winner, but Street Sense has already shown that he's got the greatness in him to keep on winning.

Millions who watched the Kentucky Derby on Saturday would agree that it lived up to its billing as the most exciting two minutes in sports. Street Sense, a 4-to1 shot at post-time, covered the distance in a little more than two minute, delivering more thrills, probably, than the last three Superbowls combined. Jockey Calvin Borel added a touch of class in the winner's circle that rarely obtains in the Superbowl end zone. He not only seemed thrilled to have won the race, but genuinely surprised that he'd beaten such a strong field. Borel's stunning, come-from-way-behind victory looked even more impressive in the replays, since, the first time around, the TV network's cameras were too busy watching the leaders to much notice a horse that was running 19th at the quarter mile. [Insert photo here] Even Carl Nafzger, the horse's trainer, could not have foreseen the outcome with Street Sense for far behind the field for most of the race. But Borel found daylight along the rail, moving unchallenged from around twelfth place to third. When Curlin, ridden by Robby Albarado, blocked the way coming out of the final turn, Borel went to his right and Street Sense never broke stride, pouring it on in the final furlong to beat favorite Hard Spun by 2-1/4 lengths. Even the Queen of England must have been excited by the way the race turned out. We wish Borel and Street Sense well at the Preakness and the Belmont. It's been nearly three decades since the last Triple Crown winner, but Street Sense has already shown that he's got greatness in him.

For die-hard bears like ourselves, one of the most useful features of the Hidden Pivot system is that it is incapable of predicting when the Mother of All Tops is going to occur. That an important top is likely or perhaps even very likely to form is about as much as we can foresee, and even then, as you all know, there are no guarantees. Recall that, since 2004, and until recently, we'd been using a 13045 target for the Dow Industrial Average. The fact that this ostensibly major Hidden Pivot resistance was brushed aside in mere hours caused us no remorse, however, since it kept us ' the most bearish bears this side of Nostradamus ' properly bullish during a time when we could not have come up with a single good reason for owning stocks. Now we find ourselves looking with perhaps insufficient detachment at yet another DJIA target, 13264, a Hidden Pivot that I billboarded after the one at 13045 came a cropper a week ago. Identifying the higher target produced an epiphany of sorts, since the new, improved number did not violate any important technical rules, and because it offered us yet one more opportunity for redemption. That said, or rather confessed, we must acknowledge a less-than-healthy awareness of the Indoos' record high the other day at 13256, a scant eight points below our target. But rather than throw a spotlight on it and greet it with a drum roll, we would deign only to suggest that if you are 'short the market' at these levels, that you prepare to flee your position as one would a lit fuse, should the cash index creep even slightly above 13264 in the days ahead. The Watched-Pot Effect When the DJIA was first stealing up on 13045, I mentioned

'Buy Costa Rican real estate, short movie theaters!' That is the substance of a note I'd scrawled on a memo pad, intending to share with you, dear readers, some potentially rewarding investment themes of the day. Peter Lynch would approve, since both of these ideas come right from the gut. Movie theaters first. I know something about the business because I've had friends who owned movies theaters. But it is my movie-junkie side that tells me that mall multiplexes are fated to die. Why? See if you don't agree with reason number one: Today's movies stink, and they are getting worse by the month. I say this as an inveterate movie junkie who used to see a hundred movies a year at theaters; now I see only about 25. I'm no movie snob, either. I like classic and foreign films, including the highbrow stuff, but I am capable of thriving on cinematic garbage when there's nothing better around. Trouble is, most of the films being released these days barely qualify as garbage. And although the studios used to be able to hype movies so relentlessly that you'd get sucked into seeing some real turkeys before word-of-mouth killed them, now there are reliable reviews all over the Web to keep would-be moviegoers from getting ripped off. For instance, although the trailer for the recently released Hannibal Rising makes the movie look pretty appealing, one need search no further than Metacritic.com to get the lowdown from the New York Times critic: 'Silly, slack and unforgivably tedious.' Even the populist New York Post critic puts Hannibal down as 'dull and dreary.' In other words, save your money. Which I will. Home Entertainment The second reason movie theaters are a dying business is that home entertainment centers are delivering more and more performance for