September 2008

No matter how hard they fall into week's end, the range 38.82-39.03 looks like a promising place to play for a bounce. These two "bookend" numbers are Hidden Pivots, and although the lower looks like a somewhat better bet, I don't want to risk missing out if the Cubes trampoline from the higher. Accordingly, I'll recommend buying two September 39 calls (QQQIM) with the QQQQs trading in the specified range, but stop yourself out on a print below 38.70. This would be a Pick of the Day but for the fact that I'd rather not guess about where the calls will be trading if the target zone is reached. However, you should activate your bulletin launcher if you plan to jump in, since I'm going to try to update intraday with a fair value for the calls if it looks like they'll be in play.

As promised in today's Commentary, here are some new targets for some key financial stocks that I analyzed in May. Using very tight stops, all can be swing-traded at their respective targets: B of A (currently 27.20): 23.19 Wells Fargo (33.43): 38.78 General Electric (23.39): 17.47 Goldman Sachs (114.50): 92.96 Wachovia (9.12): 7.10 UBS (13.14): 7.46 Deutsche Bank (70.40): 52.40

So, now the Fed is using a little reverse psychology, hanging 'tough' on interest rates while investors beat the drums for another rate cut. Just this once, we would have to concede that Bernanke & Co. got it right, since a 50-basis-point cut would only have demonstrated to the world the Fed's powerlessness to affect much of anything besides short covering on Wall Street for a day or two. Given the Fed's complete lack of success in stimulating a recovery so far, we can be certain that any further easing would have no effect whatsoever on the economy, nor on the eagerness of lenders to lend, or borrowers to borrow. (Click on picture to enlarge) The central bank belied its new tough-guy act, however, and ultimately its credibility, by backpedaling on a possible bailout of AIG. On Monday, they were going to let AIG sink if Goldman Sachs and Morgan Stanley couldn't pull together $70 billion in private capital to shore up the floundering insurance company, the world's largest for commercial and industrial underwriting. But yesterday the Government spun rumors that perhaps it wouldn't let AIG sink into oblivion after all. What is most surprising about this dog-and-pony show is that the powers that be evidently believed, if only for a day or two, that it was still possible to raise such a sum as $70 billion privately to salvage the woeful likes of AIG. Six months ago, when there were still a half-dozen or so big banks that could at least pretend they were solvent, $10 billion was a big number. Now, they're all broke and the Fed wants to hit them up for big bucks that wouldn't even guarantee protection. Campaign Bantamweights Duke It Out With economic Armageddon as a backdrop, the candidates have been making what passes for

Although the futures failed for a second consecutive day to pick up the pace, they at least held their ground. But we can't ignore the fact that the rally spike that occurred around 8:30 a.m. yesterday failed to impulse by exceeding the look-to-the-left peak at 794.00 recorded on September 9 (see inset). This means there is incipient weakness festering, or that Gold simply needs more time to consolidate the rally off last Thursday's 739.80 bottom. We'll reserve judgment until we see minor thrusts in either direction start to take out two prior highs or lows without a pause. _______ UPDATE: Amen, brothers and sisters! This could wind up being Gold's first hundred dollar day in a generation.

The weakness looks corrective, and when it ends look for the Dollar Index to leap to the next bullish threshold, 80.57. The much bigger picture in the accompanying chart shows both the power and potential of the dollar's impulsive rally off mid-July's low. It has already corrected sufficiently to embark on a second leg (CD), but officially this would be signaled by an uncorrected (on the weekly chart) booster-stage thrust of at least 2.27 points.

The futures have been trying to get traction off a 10.430 midpoint pivot that comes from the weekly chart, but because they've already breached it by 12 cents, the burden of proof remains with bulls. That would require the futures to rally through the range 11.670-12.255 without pausing for breath, as noted here yesterday. More immediately, a mildly bearish target at 9.890 that also was mentioned here yesterday remains my minimum downside objective for the near term. You can bottom-fish there at your discretion.

The three-point breach of a clear Hidden Pivot support at 1166.25 suggest more weakness ahead, even if the futures rallied strongly yesterday from the actual low at 1163.00. My guess is that if DaBoyz can somehow keep this brick afloat for another two or three days, 1199.25 will be central to its oscillations. That's a midpoint Hidden Pivot, and its 'D' sibling at 1083.50 is my minimum downside projection for the next 6-10 days.

The final 90 minutes of yesterday's session created a promising impulse leg with enough power to get the Cubes to as high as 43.56 today or tomorrow. The rally is tradable, but I cannot predict as of Tuesday night whether it will trigger off the 42.21 point 'C' low shown in the chart, or from a lower low yet to occur. Pivoteers should consider a Lindsay-style entry -- and please note that 42.21 was low enough to be in the retracement "window" for a second thrust. _______ UPDATE: This morning's gap-down opening mooted my advice, creating a downside target at 40.79 in the process. Its associative midpoint lies at 41.82, so any distribution ahead of the next leg down is likely to occur near there.

U.S. Treasury paper racked up huge gains yesterday, and all it took to make it happen was for Secretary Paulson to say the magic words 'Drop dead!' to Lehman Brothers. The Treasury Department's surprising hardball decision amounts to tough love for Lehman employees and shareholders, but any Econ 101 student could explain why we'll all be better for it in the end. Somewhat more difficult to understand is why, with U.S. bond prices soaring on the news, the dollar finished moderately lower in quiet trading. After all, if T-bondholders were wildy enthused about Uncle Sam's refusal to bail out yet one more financial giant, why wouldn't their enthusiasm have boosted the dollar as well? A possible answer is that the bond rally was driven by a panicky short-covering while the dollar was constrained by more rational thinking in the form of doubts that the government's new-found laissez-faire policy will last. While it looks like insurance giant AIG is about to be told to go to hell, if any more too-big-to-fail players turn up in the emergency ward, the Fed could be forced, finally, to open the funny-money floodgates. Bears Were Trapped When global trading began Sunday night. bond bears would have had no choice but to scramble for cover on word that the feds had decided not to bail out Lehman. Most of them would have gone home short on Friday relatively confident that Lehman's problems would be resolved in much the same way that other banks' problems have been resolved ' i.e., with a buyout orchestrated and underwritten by the U.S. Government. Considering what actually occurred, shorts were caught with their pants down around their ankles. The dollar's reluctance to follow bond prices higher could be attributed to two factors. For one, dollar bears have been roughed up so