December 2008

The 38.33 downside target flagged here last week is as compelling as ever, although the corrected number is now 38.22. You can bottom-fish with a 38.24 bid and a stop-loss as tight as 38.06. If the expected bounce from the target hits 38.98, switch to a 15-cent trailing stop. Minimum upside objective: 39.35. _______ UPDATE: Crude has fallen sharply today, producing a so-far low at 38.03 and a subsequent bounce to 39.02. You're on your own, but anyone who used an initial stop-loss greater than 19 cents should have booked at least a partial gain, since the rally off the low went 99 cents.

Financial genius that you are, you sold the tech boom at the top in 2000, presciently moved the proceeds into real estate, and then rode the speeding freight train to a brilliantly timed exit in 2007. Never one to waste time gloating about your successes, you leaped fearlessly into commodities, doubling your money in energy stocks and crude oil before selling everything at the top last July. Good thing your timing was perfect, too, since that bull market turned overnight into the most precipitous and destructive bust since the tech-stock bubble. But your next move, into Treasury paper, was your most impressive yet, since it displayed not mere genius, but something even more rare in today’s investment world: humility. All but certain that U.S. bonds would drastically underperform the investments you’d made up to that point, you plunged 100% into Treasurys nonetheless, and with urgent haste. For this was no time to be greedy. The financial system looked ripe for collapse, and for the first time in three generations, you reasoned, it was time to put safety before yield. Once again, your timing and acumen was astoundiung -- as well they needed to have been, since the most stunning and profitable rally in the history of Treasury Bonds would be over (we now surmise) just six weeks after it began. Of course, the track record above is a pure fabrication. For who could have been so smart, so prescient and so implausibly nimble? Even the redoubtable Jimmy Rogers is lucky if he got through it without catastrophic losses, since he was famously invested in commodities up to his eyeballs before they collapsed �' not to mention, extremely bearish on the dollar just in time to be impaled by the short-squeeze that drove it into a parabolic spike between July and

Gold was idling mischievously Sunday night after selling off Friday to within inches of our 831.60 target. It would need to hit 861.60 today to turn the hourly chart bullish, but if weakness persists, here are downside targets representing, respectively, a 50% retracement, and a 61.8% retracement, of the rally from the 741.20 low recorded in early December: 812.40, and 795.60.

The 38.33 target given here last week will remain valid unless February crude gets short-squeezed above 52.95. More immediately, a thrust touching 46.75 today or tomorrow would hint that DaBoyz are ready, eager and perhaps even half-capable of fomenting such a squeeze -- so short sellers, beware.

If the futures unravel today or tomorrow you could buy a Hidden Pivot at 858.00 with a stop-loss as tight as five ticks. Anything less would be just noise. Alternatively, immediate upside potential is to as high as 926.25, a Hidden Pivot, if buyers can blow past its associative midpoint at 901.25.

If the Cubes fall, let's try to leverage a Hidden Pivot support not far below, at 29.33, by buying a January 29 call (QAVAC). A price of 1.50 would be about right with the underlying shares trading at the target, so you can park a limit order at our price with your broker. _______ UPDATE: Lower the bid, bottom-fishing the calls when the underlying trades for 29.13, not 29.33. The change is due to the stall at 29.75 on the way down, This is the Hidden Pivot midpoint associated with 29.13. The calls should be trading for around 1.39. _______UPDATE: Calls now look 1.33-ish, so lower the bid to 1.35. It can be entered as a limit order. Market stop-loss is to be used if calls trade 0.10 below where bought. ________ FURTHER UPDATE: The suggested 1.35 bid would have bought the calls on the so-far low of the day. If you bought more than one contract, take a partial profit on the current bid of 1.40 and let the rest ride, using a stop-loss that would permit (in theory) no loss. You'll be on your own otherwise, since my goal was to get you into an option trade in a good place and at a good price.

At what point does a recession become a depression? Our colleague Bob Bronson of Bronson Capital Markets Research notes that there doesn’t appear to be a hard set of rules to help answer this question. “As far as we know there is no theoretic or empirically defined gradient for quantifying the full range of economic declines from recession to depression,” Bronson notes in a recent e-mail. “Please advise if you have information otherwise.” Anecdotally, a recession supposedly is signaled when your neighbor loses his job, a depression when you lose yours. There is a painful truth in this, since the economy, bad as it is, undoubtedly looks much worse right now to someone who has been unemployed for a few months. But when we consider the big picture, unemployment is nowhere near the levels of the 1930s. In fact, by 1933 slightly less than 27% of all wage earners -  about 15 million workers - had been fired or laid off. Could things get that bad this time around? It seems doubtful, since so many workers have relatively secure jobs in local, state and federal government. But we see under-employment becoming a much bigger economic problem than it was during the 1930s. While even in the worst of times the vast majority of workers may be able to avoid filing for unemployment benefits, their incomes could nonetheless fall to subsistence levels. Beating the Draw Indeed, many, if not most, of the country’s top earners are unlikely to show up statistically as unemployed, even if they are down-and-out. In New York City, for instance, a complete economic collapse looms because such high-wage categories as investment banker, stockbroker and, soon, realtor, have crashed and burned. But we’d be surprised if even a small fraction of those whose incomes went to zero after

The Dow is trading exactly where it was two months ago, almost too tedious to watch. That of course means we should expect a "surprise" at any time, presumably one that holds rewards for neither bulls nor bears. The accompanying chart shows why it would not take much of a rally to create a powerful impulse leg on the daily chart. However, although this has been the case for more than a month, bulls have repeatedly failed to seize the opportunity. We'll use a downside Hidden Pivot at 7923 as our minimum objective for now, subject to negation by a thrust exceeding 9654.

In thin trading Thursday night, the February contract made a tentative stab below a minor midpoint support at 846.50, hinting of more downside over the near term to as low as 831.60. That's a Hidden Pivot support, and it looks like a decent spot to attempt bottom-fishing if the midpoint has gotten crushed overnight. (The opportunity to bottom-fish the midpoint itself is already stale. It could have been be done with an initial stop-loss as tight as 845.90.) You'll be on your own if you get long, but don't hesitate to take a partial profit, at least, on a bounce of as little as $2.50-$3.00. If the midpoint holds, the rally would become doubly credible on a print at 866.00._______ UPDATE: You could have gotten long within $1.00 of the low, since Gold plummeted overnight to 830.10 before rebounding to as high as 842.70. My apologies for the error in my original instructions -- a seemingly unavoidable byproduct of too many 14-hour workdays.