October 2008

There's no getting around the 712.00 target shown in the accompanying chart, although that would imply a significantly higher bottom for the Dow than the one given in today's Touts. We'll take things as they come in any case, using the 712.00 target for the time being as our minimum downside projection. That implies we should also be ready for a short-squeeze to as high as 1157.25, the Hidden Pivot midpoint of the larger pattern. Please note that these numbers are not usable for precise position-trading, since they are derived from a continuous chart that "blends" expiration-month highs and lows.

The $676 target given in today's commentary comes from the long-term charts, but we'll use the intradays to project more-precise hidden swing points for the very near-term. The 10-minute chart (see inset) divulges a sequence of Hidden Pivot targets at these three prices: 704.30, 697.70, and 691.20. Each can be bottom-fished at your discretion with a stop-loss as tight as you please, but a breach, by more than 1.10, of any one of them would imply the next is likely to be reached. Alternatively, it would take a rally exceeding 766.30 today to effect a bullish reversal likely to have "legs". _______ UPDATE: The futures came down hard overnight, bouncing $10 off a low at 704.00 that fell just three ticks (i.e., 0.30) from the first target. They subsequently breached it, trading as low as 695.20, but also reshaping the pattern to produce a new target at 693.70. That's close enough to the projected low to suggest the selling for today is over. However, the 676.60 target given in today's commentary remains viable and should be used as a place to buy aggressively with a stop-loss as tight as you please.

The dollar, fundamentally and completely valueless for reasons that I have discussed here at great length, has gone ballistic. The TV punditry and other halfwits would have us believe that it's a flight-to-safety, but this is just so much rubbish. We are witnessing the mother of all short-squeezes, pure and simple, and its cause is the inability of borrowers of dollars to cover their short positions simply by rolling their loans. This is a deflationary noose around the neck of the whole financial system, and it will simply have to run its course. As noted here earlier, we should expect little resistance up to around 92.

The collapse since April has exceeded every significant low on the long-term charts above $8, creating a very powerful impulse leg of monthly-chart degree. On the weekly chart there are just two ways to read the damage. One yields a potential bottom at 6.730 (10.43); the other, at 4.480 (9.180). The futures are currently in a so-far weak bounce from within 9 cents of the 9.180 midpoint associated with the lower target, but I'd need to see a two-week close above the higher midpoint, 10.430, before taking encouragement. A bottom could of course occur at any time, signaled most subtly on the lesser intraday charts by a preponderance of bullish impulse legs over bearish impulse legs. If Silver devotees will kindly alert me in the chat room to such minor thrusts, I'll be ready to assess their potential significance in real time. Late-night note (2:07 a.m.):A minor down-pattern suggests the futures could turn on Thursday from as high as 9.295, a midpoint pivot, but any lower would indicate further weakness to its 'D' sibling, at least: 9.000. The targets would be invalidated by a rally exceeding 9.590 overnight.

Even though stocks had sold off pretty hard the night before, we were mildly bullish at the opening on Tuesday, mainly because LIBOR rates supposedly were at last starting to thaw. We say “supposedly” because it’s quite possible the banks have been flat-out lying about how much they’ve been paying for unsecured loans from other banks. Since many loans around the world are pegged to LIBOR �' short for London Interbank Offered Rate �' even a small change has consequences for borrowers that can mount into the billions or even tens of billions of dollars. However, the banks are on the honor system in reporting LIBOR data, and it’s not hard to understand why they might want to bend the truth. Indeed, merely creating the appearance of easier credit might help calm the fears that have pushed rates up to begin with. A dispatch from Bloomberg makes clear why the British Bankers Association (BBA) has been investigating the possibility that at least some of the data they have been receiving is bogus. “The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating,” the Bank for International Settlements said in March. “Participants have complained about whether banks are submitting accurate information.” Yesterday, at the annual board meeting of the BBA, directors voted to ban any member deliberately misquoting lending rates. Our hunch is that even without such threats the liars will be found out soon enough when market forces prevail, as they always do. Will the truth dribble out over a period of weeks or months �' or will it come to us in a wrathful epiphany from on high? Based on the way the stock market sold off yesterday despite the bullish LIBOR data, we think investors have

The Indoos have failed to hold above a midpoint pivot at 9105, turning a prospective romp to 10,000 into a possible holding pattern. However, despite the sharp drop into the close, the technical picture remain undamaged even on the lowly 15-minute chart. To avoid stress, we'll leave a wake-up call for today at 9384 (very bullish); and, just in case, at 8718 (very bearish).

The Dollar Index is inching toward an 84.96 rally target proffered here earlier. This Hidden Pivot comes clearly from the weekly chart, and it is therefore not chopped liver. This means we should expect it to show some stopping power; but if it does not, and, say, DXY closes above it, we should infer the rally still has a ways to go. An obvious target would be 92 and change, where two important peaks were made, respectively, in mid-2004 and late 2005.

The nearest place to look for a bullish turn is 31.12, a Hidden Pivot support, but that may be too close for a relaxed entry, given that volatility has routinely been thrashing our more delicate targets. There's a sturdier looking one where we might try to intercept, however -- at 30.20, the midpoint pivot of a somewhat large pattern. The Cubes are unlikely to get there today, but if they do so before the final hour, buy two November 31 calls (QAVKF). _______ UPDATE: The Cubes collapsed in the final hour, turning the 30.20 support into suet. We took no position because the order had expired, but if you did so anyway, I'd counsel against holding it overnight.

A stock on its way to hell, such as this one, will always be difficult to short, since no one who trades Citi has much doubt about where it's ultimately headed. It is this brash certitude that makes the short-squeezes too vicious to trade, the more measured rallies too anemic. The last such thrust failed by 23 cents to reach a midpoint resistance we'd spied at 19.48, and even in retrospect it is difficult to see how we might have caught the top. If and when we do, though, it will be by way of legging on a calendar put spread well below the market. Trading concerns aside, Citi will remain not only a financial bellwether, but a telltale for the banking system as a whole. When Citi shares are rising, we can assume that denial among investors is rising; and when the stock is falling, it is fear that rules. Citi cannot tell a lie, and right now it is saying we ought not put much store in the latest good news from Paulson, Bernanke et al.