December 2008

Although Citi no longer works as a bellwether (or a short) because it has been "saved," Goldman remains a good mine canary for purposes of detecting whatever vapors are propping up the banking system. While I remain quite confident the stock eventually will fall to my $29 hula number, for the time being, a rally that could carry as high as 94.00 has intruded. If the 77.11 midpoint associated with that target had not already been impaled, I'd be keen to short it. For now, though, we'll use it analytically, noting whether it may have become support. If so, we could be in for yet more weeks of false spring.

Is the dollar finally starting to crack? It surely looks that way, although we’ll need to see another day or two’s worth of action before we can be more certain. The carnage so far has crushed two key supports on the Dollar Index’s daily chart, and it won’t take much more selling to obliterate a third, greatly compounding the technical damage thus far. That would occur if the steep plunge begun on December 4 surpasses the 80.75 low labeled in the chart below. If this were to occur without an intervening correction lasting more than a day, it would make the selloff the most powerful we’ve seen since the dollar embarked on a huge short-squeeze rally in July. We’ve written extensively about the seeming anomaly of an intrinsically worthless dollar moving relentlessly higher, as it had been doing until late October. This was not a flight to safety, as mainstream reportage had it, but a massive short-squeeze powered by borrowers of dollars who have been finding it increasingly difficult to keep rolling their loans. Although we might have expected the dollar to climax more spectacularly, putting a decisive end to the dollar’s reserve currency status, we are open to the possibility that its last gasp is taking the form of a garden variety head-and-shoulders formation (also shown in the chart). Whatever the case, buyers of gold and silver haven’t been timid about discounting the dollar’s fall. Yesterday, Comex contracts for both metals exceeded minor Hidden Pivot rally targets, raising the odds that they will soon achieve even more-ambitious targets that come from the larger charts and which were spelled out Sunday night in the touts section of Rick’s Picks. The higher targets are well shy of new record highs, but if they are achieved it would imply that there is

A rally target at 288.24 is as much as I can coax from the hourly chart, so anything even slightly higher would be quite bullish going forward. This vehicle isn't widely traded, but an excellent, low-risk buying opportunity would occur following the correction of an A-B rally that terminates above peak #1 or #2, but below #3. ______ UPDATE: HUI pushed well above the target, suggesting that there is yet more buying power percolating beneath the surface.

Night owls can short 883.25, stop 884.25, until the opening bell. You could also try getting long with a buy-stop limit at 875.00, just above the Hidden Pivot midpoint of the pattern shown in the chart. The futures have stalled almost precisely at that midpoint, and any progress above it would therefore imply not only that the 'D' target itself, 883.25, is likely to be reached, but that its stopping power will be felt very precisely. The only factor that prevents this trade from being a Pick of the Day is the single-tick proximity of the target to the look-to-the-left peak. ______ UPDATE: The trade would have worked nicely, since the futures fell six points after hitting 883.25 for the first time overnight. They subsequently rallied back to 883.75 before relapsing again to 876.50 around dawn. The fact that ES eventually got past the target was ever so mildly bullish, as was its move above a look-to-the-left peak at 883.50 recorded along the wall of Monday's decline.

The futures could pop for a quick 540 points, to as high as 9141, if the impulse leg shown in the charts plays out according to the rules. Its power is somewhat masked by the stall, at B, in -- so to speak -- the middle of nowhere. Moreover, the C-D follow-through leg has already surpassed the 8687 midpoint by 70 points, suggesting that 'D' will be reached. Entry with the trend could be tricky, but an obvious strategy would be to bottom-fish the 'd' targets of midpoints of pullbacks.

The $50 billion Ponzi scheme that rocked the investment world last week makes swindlers from the good old days look like pikers. Even after adjusting for inflation, the $220 million that Robert Vesco supposedly stole would amount to only a billion dollars. Bernie Cornfeld? Tito D’Angelis? Stanley Goldblum? These con artists of yesteryear no longer rate even a dishonorable mention in the Guinness Book of Records now that Bernie Maduff has come along with a scandal truly worthy of these times. The celebrated money manager and Palm Beach socialite had boasted 10 percent returns stretching back through good times and bad as far as anyone could remember. Some were skeptical of his success, and in 1999 one of his competitors, Harry Markopolos, asked the SEC to investigate Madoff’s impressive streak, claiming no one could have compiled such an impressive track record honestly. “Bernie Madoff’s returns aren’t real, and if they are real, then they almost certainly would have been generated by front-running customer order flow.” Mild Accusation Markopolos didn’t know the half of it, since front-running is one of the least-prosecuted crimes on Wall Street. Nearly everybody does it, and for Markopolos to accuse Madoff of mere front-running was like accusing a tavern owner of watering drinks. Madoff was able to shrug off the accusation publically, telling Barron’s in 1991 that the charges were “ridiculous.” And so they were, to the extent they egregiously underestimated the brazenness of Bernie Madoff’s thievery. Madoff has already copped to the crime, and it was his own sons who turned him in after hearing the full story straight from the horse’s mouth. As details emerge concerning who among the rich-and-famous got burned, and for how much, the Madoff saga promises to be the most entertaining story out of Wall Street since Enron. Those who

I've reproduced a 240-minute chart that shows why a target at 140^12.5 is important. Bonds are obviously a crucial bellwether right now for once-in-a-century nuttiness, and nothing could be nuttier than historically low yields that fail to take into account the reality that the United States is itself bankrupt. Will the zany appeal of risk without reward end when our target is hit? I don't know, but we can be fairly certain that the target, at least, will be reached. If it is decisively penetrated as well, we'd infer that the major trends of the moment -- stocks down, dollar up, bullion erratic but buoyant -- are likely to continue. _______ UPDATE: The Bonds have topped so far at 140^12.5, the exact price forecast last weekend when they were sitting below 135. If you shorted more than one contract at the high, you could have booked a partial profit of as much as $750 per contract, since the futures pulled back to 139^19.5 after kissing my number. If you hold a single contract, use a break-even stop-loss and switch to a trailing stop of at least 16 ticks once 139^12 is touched.

The bullish impulse leg that I flagged here Thursday night when the Cubes were getting decimated is capable of catapulting them as high as 32.35 over the near term -- a leap of nearly 10 percent. However, because the danger of a market collapse is at an extreme now, I would rather attempt shorting at the c-d midpoint, 30.41, than try to leverage the upside. Accordingly, we'll look to buy two January 30 puts (QAVMD) if and when 30.41 is reached; they should be trading for around 1.64. Although that would be a fair price to pay for them, I'm not going to suggest parking a limit order with your broker since that could cause you to miss the trade. Stop yourself out if the puts trade 0.10 below where bought. _______ UPDATE: The trade was a non-starter, since the Cubes opened on weakness and never traded higher than 29.76.

The 876.20 projection has an analog in a smaller pattern pointing to 835.20 over the very near term (see chart). As of 6:30 p.m. Sunday, the 826.40 midpoint resistance associated with the lower target had already been surpassed, suggesting that a minimum 835.20 is in-the-bag. It would take an easy move past this number, however, to clinch the remaining, expected push to 876.20. _______ UPDATE: The futures refreshed the bull trend with a thrust to 843.70, then settled back to spend the rest of the day pussyfooting with the 835.20 pivot, which has become support.