February 2008

It was springtime on Wall Street yesterday as bulls evidently seized on the notion that an economic rebound is right around the corner. This nutty idea brought the shares of General Motors in particular to a froth. The stock rallied 6% in the space of six hours, settling back 50 cents to end the day at 27.08. That's nearly 40 percent below the exuberant peak of $43 registered back in October, but, hey, you gotta start somewhere. Besides, GM has one thing going for it that investors apparently hadn't thought of before yesterday: GM is not Chrysler. Now there is a basket case! Both companies could use a shot in the arm, for sure, and who's to say it won't come in the form of those $1,200 rebate checks from Uncle Sam? The automakers long ago discovered they could keep the assembly lines humming, and build a loan business, by simply giving cars away ' 'Buy Now! No Money Down, and Zero Percent Interest for Six Years!' Just imagine how many cars they're going to move off the lots if Joe Consumer is about to walk into the showroom with $1,200 burning a hole in his pocket. We can see the promotional banners already, promising two-fer deals like never before: 'Buy a Chevy Tahoe and take home a free, low-mileage Pontiac Aztek.' Very Squeezable If we sound skeptical, you shouldn't necessarily assume that we are eager to short this market. Far from it. As we mentioned in yesterday's touts, it feels like DaBoyz could hold stocks near these levels for as long as they please ' until, say, the right piece of news comes along to trigger off a spectacular short-squeeze. We can't imagine what the news would have to be, but with investors so deluded, apparently, that they are diving back into auto

Gold passed every strength test we could devise last week, ending on an upswing that hints of significantly more upside to come. From a purely technical standpoint, we like the fact that corrections have been routinely reversing at Fibonacci-based supports, and that most of the subsequent rebounds have easily surpassed at least two prior peaks on the hourly chart without pausing for breath. Such rallies are known as 'impulse legs' in our Hidden Pivot nomenclature, and the ones that we've been seeing in bullion lately have been giving us the confidence to trade and position from the long side even as some well-known gold bulls have been calling for a correction to as low as $750. (Click on chart to enlarge) We'll be ready if and when it comes, since no important price reversal can possibly occur without signaling us first on the five- and fifteen-minute charts. When bearish impulse legs start to metastasize for a day or two in this way, that will be our warning to reef the sails. However, so far, gold has shown no signs of weakness, only a heartening eagerness to move higher. Certain developments have understandably stoked fears that bullion is overdue for a punitive correction. For one, a sharp dive recently in Europe's economic vital signs appears to be turning the European Central Bank dovish, and that would be bullish for the dollar, at least in theory. And for two, despite extremely aggressive easing by the Fed in recent weeks, the dollar has stood its ground. If it survived such a nasty hit without falling to new lows, the thinking goes, then it must be revving up for a powerful rally. Thus, with two seemingly good reasons for the dollar to strengthen, gold can only go down, right? Credit-Fairy Skeptics We don't think

Even Wal-Mart appears to be struggling these days. Same-store sales rose a meager 0.5 percent in January and 1.4% for the fiscal year. The latter number is the lowest since the company began reporting such data 30 years ago. Not only that, customers were drawing down their gift cards more slowly than in the past and using the cards increasingly to buy food and other necessities rather than discretionary items. Let's pray we get those fat rebate checks soon, and that shoppers do their loyal best to piss away every last cent as quickly as possible on goods made somewhere other than China. Not that it would necessarily be a good thing if shoppers were to suddenly turn patriotic and buy only goods made in the USA. It'd be a banner year for Harry & David's, for sure, and for Texas farmers who grow those fabulous grapefruits. But think of all the deserted consumer electronics showrooms and apparel stores. (Click on photo to enlarge) Get Thee to Nordstrom's Personally, we're hoping the lion's share of business goes to Nordstrom's -- possibly the last place in America where a shopper can get help from a sales clerk. (Actually, there is McGuckin's Hardware Store here in Boulder, where the staff is famously helpful. But Nordstrom's is probably in more dire need of a shot in the arm, having reported a sales decline of 6.6% in January.) Nordstrom's does more things right than just about any other retailer that comes to mind. The floor personnel know the merchandise and they are always eager to please. Moreover, customers get the benefit of the doubt on all merchandise returns. Can a retailer that bends over backward to please customers survive in this day and age? We certainly hope so, although we are not optimistic about

Buyers yielded ground stubbornly for the second straight day, digging themselves a deepening trap from which extrication will become more difficult as the week draws to a close. The danger became manifest on Wednesday's opening bar, which slightly exceeded a dramatic and important low made a week ago. From a Hidden Pivot perspective the overshoot was sufficient to create a bearish, 460-point impulse leg (see chart below) that has yet to play out and which has the potential to drive the Dow Industrials well below 12000 this morning. (Click on chart to enlarge) The stock market's most recent troubles began last Wednesday, when investors evidently had second thoughts about the Fed's latest desperate giveaway. They initially drove stocks sharply higher on news of the 50-basis-point easing, but the apex of their high spirits proved to be pure Wile E. Coyote, and down she went. The selling quickly became just as overdone, setting the stage for a 500-point short-squeeze the following day. The broad averages have been detumescing ever since, and even though the elections have distracted from all of the usual bad news, no bullish story has crossed the tape with the wattage to kick off another short-squeeze. WSJ 'Howler' We've lost our capacity to imagine what that story might be, unless one of the leading candidates has a better plan than Helicopter Ben for preventing the recession that began at least several months ago. Let's hope at any rate that none of them is reading the Wall Street Journal for inspiration, since he or she might have come across this recent howler and mistaken it for serious thought: 'Many on Wall Street believe a slowing economy will help rein in prices and that the Fed can focus on reviving growth by lowering interest rates.' In fact, the Fed has

What could possibly cause bullion quotes to fall apart here? Not much that I can see. Or even imagine. Someone in the Rick's Picks chat room said yesterday that he was looking for a powerful rally in the dollar, which would of course be a negative for gold and silver. But the only reason he could cite was that the dollar has become pretty oversold. Another chat room regular said more or less the same thing about gold-- that it is about to drop sharply to at least $750 because it has become very overbought. Both statements are true enough, at least on the long-term charts. But that is the hallmark of powerful trends ' i.e., that they tend to generate overbought and oversold readings that persist for much longer than we might expect. (Click on chart to enlarge) Of course, the terms 'overbought' and 'oversold' are relative and can be highly subjective. Look at the weekly chart of gold above and you can see that the futures generated an overbought signal in August 2005 that did not correct to fully oversold for 16 months. In comparison, the current upthrust in gold, begun from around $660 last August, has been meandering in the overbought zone without fully correcting since early September, or just five months. This suggests that the current bull cycle is only mildly overbought and that it could keep going until next January before Comex Gold gets as overbought as it was at the $732 peak in May 2006. The subsequent 25% correction took a while to complete, as you can see, and gold did not surpass the old high until September of the following year. But it was worth the wait; for, once the high was breached, bullion went on a tear, rising almost as steeply as the

If Microsoft buys Yahoo! to try and muscle its way on-line, why should Google even care, let alone be worried about it? Reportedly, the search-engine firm has been maneuvering behind the scenes to thwart the deal, lobbying for antitrust scrutiny and chatting up Yahoo's CEO about some joint projects. But this simply doesn't add up for a company as aggressive and imaginative as Google. More likely is that they are secretly thrilled that their nastiest potential competitor is about to pour $44.6 billion dollars down a virtual rat hole. After all, when has Microsoft ever added value to an acquisition, especially one so beleaguered as Yahoo!? Microsoft has been behind the curve in nearly every big acquisition it has made, paying through-the-nose for a catch-up strategy that has come to define, as well as constrain, its global ambitions. To take one particularly important example, when Google bought DoubleClick last April for $3.1 billion, buttressing its digital marketing prowess, Microsoft paid twice as much a month later for a firm with similar capabilities, aQuantive. (Click on image to enlarge) So what, for $44.6 billion, is the irresistible appeal of Yahoo!? The company's core business has been declining for two years, and Google has been eating its lunch. Jim Cramer called the deal a master stroke, but he is living in the past if he thinks paying that kind of money for mere market share will allow a geriatric case like Microsoft to close the huge gap with Google in online marketing. Innovation is what gets investors' juices flowing these days, not acquisition-driven growth, and the ever-clueless Microsoft could not innovate its way out of a soggy paper bag. Micro-Minestrone This is after all a company whose idea of 'innovation' is Windows Vista, yet another gratuitously enhanced retread of a PC operating

Word on Friday of the first U.S. payroll contraction in more than four years barely slowed the stock market's bullish rampage. Despite the grim news, which makes fools of those who still profess to see no recession, the Dow Industrials rose nearly a hundred points. We'd expected as much, since this is no ordinary rally, but rather a dead-cat bounce driven almost entirely by maniacal short-covering. In this respect, the buyers are as disconnected from the events of the real world as a lug nut, as rational in their thinking as a rabid dog. Not that they could have been unaware of the news -- that the work force had shriveled by 17,000 jobs last month. Of course they were. But it was a prayerful, desperate kind of awareness that asked, oh please, Lord, to punish any investor so stupid as to still be in stocks, even as the U.S. economy sinks into a 1930s-style deflation. Unfortunately for the bears, the heavens did not open up on Friday, nor did the trumpets sound, when the payroll news hit the tape. Instead, stocks merely sold off moderately, demonstrating once again the brain-dead solidarity of its institutional sponsors. Righteous Plunge Indeed, anyone looking for the Dow Industrials to plummet a righteous 3,000 points in the space of a few days must first explain why portfolio managers would dive out of equities simply because U.S. job rolls had contracted. Remember, for all intents and purposes these guys are Kudlow clones. Which is to say they probably view the payroll numbers as bullish -- evidence that employers are become leaner and therefore more profitable. Under the circumstances, it shouldn't be too difficult to predict how the stock market will react to more bad news in the coming days; for we need only ask ourselves:

Despite psychotically wild price swings that are becoming almost routine, the stock market continues to act docilely and more or less predictably when approaching our Hidden Pivot price-reversal points. Yesterday, for instance, in the early minutes of the session, we caught the exact low of a sensational 450-point reversal in the Dow Exchange Traded Fund (ETF) with this trading recommendation sent out the night before: 'After-hours selling remains steady, with DaBoyz seemingly hell-bent on shaking loose more stock at fire-sale prices. As of 8:30 Wednesday night there was a clear downside target at 122.44, exactly 0.27 points beneath the so-far low. I expect a tradable turn from that price, a Hidden Pivot�' Stocks flounced around as dawn approached, but on Thursday morning, less than ten minutes after the opening bell, the Diamonds trampolined off 122.41 -- 0.03 points beneath our target and 0.05 points above the overnight low-- and never looked back (see chart above). The low looks to have been an important one, too, given that the Dow finished up 207 points on the day after easing 50 points in the final minutes. Although we had been looking for lower prices to start the day, we were bullish on the big picture and saw the previous day's wicked selloff as nothing more than a shakedown. Here's the analysis of the Dow Industrials that went out Wednesday night along with the DIA trade recommendation quoted above: 'The selloff that ended yesterday afternoon's comical, Fed-induced tug-of-war was unusually punitive, but I am nonetheless going to stick with the very bullish, 12952 rally target given here earlier. The pattern pointing to that number looks no less compelling despite the final-hour collapse, and, as you can see, the low did not surpass two prior lows even on the 15-minute chart.' Keep an eye