December 2008

A bearish target at 38.33 is equivalent to the 34.57 target given here earlier for the Janaury contract. The midpoint associated with the target lies at 45.58, and it is no coincidence that yesterday's little head-fake died just six cents above it. Also, the fact that the midpoint figured so closely in the day's price action suggests that the target itself, 38.33, will produce a relatively precise bounce. I typically advise stop-losses of at least 22 cents in this vehicle when playing for a reversal at a Hidden Pivot, but in this instance you could probably get away with a stop as tight as 12-14 cents.

A Wall Street Journal editorial on Tuesday tallied up the approximately $1 trillion that Japan injected into the economy during the 1990s in a failed attempt to overcome deflation. That amounts to 118 trillion yen, and we doubt that anyone could have imagined it would not be enough to do the job. The initial $85 billion stimulus, by far the largest in Japanese history, came in August 1992. But when GDP and investment continued to fall and unemployment to rise, another package totaling $117 billion was enacted in April 1993. Still, the economy worsened; and so, in September 1993, a “modest” stimulus of $59 billion was added, along with some token deregulation. In retrospect, however, these outlays were just a warm-up for the fiscal packages that followed: $122 billion in February 1994; $137 billion in September 1995, $128 billion in April 1998; $195 billion seven months later; and another $146 billion in November 1999. What Japan got for its money, the Journal noted dryly, was “better roads” -- along with anemic growth and an explosion in debt. What the Journal did not emphasize was that Japan’s failed attempt to re-inflate the economy occurred at a time when its export business was thriving and the global economy humming. It is this fact that raises very serious doubts about whether fiscal stimulus can lift the U.S. economy from its trough. For how can we possibly expect to succeed if Japan, with its manufacturing prowess and deep-pocketed savings, could not, even during supposedly good times? An Idiotic Idea The global economy was relatively healthy when Japan was mired in a decade-long wallow; now, in sharp contrast, manufacturing, trade and finance are in a worldwide state of collapse. For the U.S. in particular, the economic drag is compounded by a manufacturing sector in its

There was a one-day profit of as much as $1,400 per contract for anyone who shorted the 140^12.5 target that I'd flagged here last week as a possible blowoff top. That is exactly where yesterday's powerful thrust climaxed before giving way to a pullback that bottomed at 138^29. We'll be better able to judge whether a major top is in when we see how the correction plays out. It projected down to 138^12, but if there's an upturn from 139^01 instead, followed by the creation of a bullish impulse leg on the lesser charts, that would be warning of another spike above Wednesday's historical -- hysterical? -- high. Anyone who followed my advice precisely yesterday would have exited on a trailing stop no worse than 139^14.5 after the day's low was in. That would have yielded a profit of about $950 per contract. If you still hold a position, you'll be on your own, but you should let at least a small piece of it ride for a possible four-bagger.

As long as I have to keep hanging out a bullish target (i.e., 969.25) each day, I can barely look myself in the mirror. Bullishness does not come naturally to me, most particularly at times like this, when a 2000-point plunge in the Dow would barely even begin to discount reality. Still worse would be for me to get caught with my pants down around my ankles, green-lighting 969.25 just as the plunge finally begins to unfold. For that reason, I'm going to keep a close eye on the abcd pullbacks, even as I continue to billboard our mildly surreal rally target. The target will remain viable unless point 'C' (813.00) is breached to the downside. However, it would take only a print at 857.00 to raise serious doubts concerning the bulls' resolve, since that would create a bearish impulse leg on the hourly chart. For trading purposes, you can play the long side leveraging whatever opportunities the intraday charts may provide. We'll definitely try to short 969.25 if we get the chance, though, and I'll provide guidance to do this using SPY options when the time comes. If you'd like to be apprised via an onscreen pop-up, keep your bulletin launcher switched on for the remainder of the week.

The futures reached our 876.20 target and then some, hinting that the bull cycle begun from 688 around Thanksgiving may yet thrill us with another thrust before buyers take a well earned rest. We pondered an 887.70 target during yesterday's tutorial session, and that still looks like a logical spot to contain a last-gasp feint. If there's a falloff from a high at that price, we'll be looking hard in the chat room for a place to attempt bottom-fishing over (perhaps) the next 4-6 days.

Read 'em and weep, OPEC! The accompanying chart suggests that huge cutbacks in output will do nothing to prop up the price of crude. By my runes, the January contract is headed down to at least 34.57 per barrel, subject to a possible head-fake up to 42.31, the Hidden Pivot midpoint associated with the target. Scalpers can try to leverage the bounce by bottom-fishing at 38.01, stop 37.79. That's the 'D' target of the pattern shown, but it's too close to a whole number to be treated like a gift from above.

Gold, stocks and T-Bond futures are closing fast on targets we’ve been drum-rolling in Rick’s Picks for the last couple of weeks. The targets could be reached more or less simultaneously, and although we won’t pretend to know what this apparent synchronicity portends, it could conceivably mark a turning point for major trends that have progressed since mid-July, when the dollar began a powerful bear rally. Our forecasts are very specific, some down to two decimal places, and include an advisory sent out Monday night that called for a 540-point rally in the E-Mini Dow futures. We warned bears to be wary of an ambush with this note: “A dispassionate reading of the Mini-Dow's daily chart suggests that a 500-point rally could be imminent. We'll look for corroborating evidence in the lesser charts this morning, but there is already reason enough to be cautious about shorting into a seemingly weak rally of 50-100 points.” The heads-up proved timely, since, by day’s end, with a 310-point surge, the futures had covered 60% of the distance to a 9141 target we’d furnished in the Trading Touts section. Join Us Thursday Morning In the meantime, Gold futures have been steaming toward their own Hidden Pivot target not far below $900, while March T-Bonds have traced out a spectacular parabola pointing to a potential blow-off that could be reached as early as today. Because the penetration of a Hidden pivot usually means that the trend itself is likely to continue, we’ll be watching closely to see how gold, bond and Mini-Index futures interact with our numbers. If you are not a subscriber and would like to know the exact targets, you can get a one-day pass to the paid-subscriber pages by clicking here. And if you’d like to know more about the Hidden Pivot

A Hidden Pivot target at 92.31 is equivalent to the 9141 target given for the E-Mini Dow. We'll try shorting there -- albeit with a tight stop, since a decisive move above the pivot would be signaling more upside to as high as 99.12. It's impossible to estimate how much the January 88 puts (DAVMJ) will be selling for, but we'll try to buy one if and when the Diamonds reach the target, presumably later in the week. A price of around 2.73 would be a steal, but that's based on the unlikely scenario of implied volatilities holding level as DIA rises. You should stop yourself out of the trade if the put trades for 0.15 less than you paid for it. I've included a snapshot of an option calculator that shows how I arrived at a fair price. The 44 volatility comes from TradeStation. _______ UPDATE: The recommendation was a non-starter, since the Diamonds never made it above 89.80. We'll consider shorting at another time.

A quote posted in the chat room was attributed to William Poole, former head of the St. Louis branch of the Federal Reserve: "The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding." The person who posted this item noted that Gold did not seem to be discounting a dollar blowout as fearfully as we might have expected. I agree. In any case, based on the technical criteria laid out here last week, we can be fairly certain the dollar short-squeeze begun in July is now as dead as Kelso's nuts. As you will note in the accompanying chart, the bearish impulse leg on the daily chart has surpassed one internal low and three externals, so far without a retracement. That suggests real power, but it will still take an additional plunge to at least 75.88 to create a bearish impulse leg of weekly-chart degree. We'll need to see a decent rally on the hourly chart before we start to refine the outlook for the intermediate term, but for now, let it suffice to note that downside targets on the lesser charts have been getting pulped, routinely and effortlessly.