December 2008

It's been a while since we've looked in on this erstwhile basket case, but I must admit to being ever so slightly impressed -- not only with the fact that its ABCD rally from the November abyss has exceeded an 8.97 target by three cents, but because it created a fresh impulse leg on the hourly chart in the process. Even so. it's still all uphill from here, and no matter how bailed out Citi becomes, the burden of proof will continue to rest with the bulls. The stock is capable of 11.77 if the short-squeeze conditions can be made to persist, but we'll want to see a two-day close above that Hidden Pivot's midpoint, 9.06, before we infer that the hoax of Citi's resurrection is sustainable.

Stocks turned weak yesterday, but it looks like a buying opportunity rather than the beginning of a new trend. Notice in the chart below how the rally begun off Friday’s low has surpassed two prior peaks. That meets our minimum requirement for creating a bullish impulse leg �' one of daily-chart degree in this instance -- and it is what makes us very confident that yet another rally leg awaits once the consolidation beneath Monday’s high is complete. (Click on chart to enlarge) However, despite this bullish picture for the near-term, all is not rosy. In fact, we expect the bear market to resume with a vengeance as early as next week, after the current, benighted outbreak of irrational exuberance has run its course. This prediction also comes directly from the way the A-B impulse leg has formed. While it has indeed managed to get past two prior peaks before correcting, if buyers had any real guts, they’d have pushed past the third peak before taking a rest. How do we “know” this? Very simply, from having watched impulse legs form on tens of thousands of charrrrts over the last decade-and-a-half. We’re open to changing our mind here, but not until we see the kind of bullish thrust that blows past a few daunting peaks without getting so easily winded, as this one has. That could happen today with a push exceeding peak #3 (i.e., 9159), since yesterday’s pullback fell a few points shy of terminating the A-B impulse leg. But until such time as that happens, the burden of proof will continue to rest with the bulls.

There are two ways we might attempt to bottom-fish today: at 84.77, which would represent a 0.618 retracement of this week's rally; or, at 85.44, a 'd' target associated with the pullback. Since the second number is the more conservative way to play it, I'll recommend buying a single January 87 call (DAVAI) if the Diamonds trade within 0.05 of our target. I cannot predict how much the calls will sell for at that time, but the 4.47 estimate shown in the snapshot of my option calculator would be a pretty good deal if you want to park a limit order with your broker. If it looks like my estimate has gone awry, I'll post further guidance under Intraday Notes. You can have the alert pop up on your screen by turning the bulletin lancher on._______ UPDATE: The trade was a non-starter, since DIA gapped up on the opening. Cancel the order.

Here's one for hard-core Pivoteers only, since it will take some savvy observation to determine whether the trade is likely to be a real berry. The downtrend shown in the chart shows a promising pattern with a 'D' target at 874.50 and another at 868.50. Either Hidden Pivot could be bottom-fished with a tight stop-loss, but we'd shun the first unless it is hit in the first 30-minutes of the session. Otherwise, an 868.50 bid can be used with a stop-loss at 867.25. You'll be on your own thereafter. _______ UPDATE: DaBoyz had a pretty vicious short-squeeze going as of 2 a.m. EST, negating the trades suggested above. There may still be an opportunity to bottom-fish overnight, using the c-d midpoint of A=916.26 (60m chart, 12/9, 11:30 a.m.), B=884.50 (Tuesday's low), and whatever C is created later tonight (the high so far 902.75).If this spree should lurch violently out of control, as happens just about every other day any more, keep in mind the 969.25 target given here earlier, since it looks like it can't miss.

Apple triggered the short I'd suggested around the time I began a webinar yesterday for hundreds of attendees. Under the circumstances, I was unable to post detailed guidance for initiating the trade. However, to establish a tracking position for anyone who did get short, I'll assume 200 shares laid out at 102.60. Cover half on this morning's opening so that a generous stop-loss can be applied to the rest. (Put it at 102.73 for the time being.) However, if AAPL should fall below 98 today, cover the rest at will._______ UPDATE: Half the position initiated yesterday could have been covered on the opening for 97.82, leaving the remaining half -- officially, 100 shares -- with an imputed cost basis of 107.38. Apple subsequently dipped below 98, touching a low of 97.00 and triggering the second part of the order. The minimum profit on the entire position would have been $938 if you started with 200 shares and covered the second round lot at 97.99.

We're offering a December 90 call short for 1.80 against a January 90 call acquired earlier for 2.34. My goal for the position is to double our money at least, and that implies we can use a stop-loss as wide as 78 cents (since risk:reward should ideally be held in a 1:3 ratio throughout a trade). Accordingly, I'll suggest stopping yourself out of the position if the January 90 call trades below 2.00 (We're being very conservative on this one.)

Should investors hail President-elect Obama’s plan to create 2.5 million jobs as good news? Frankly, no. It is probably the worst news to hit Wall Street since 1935, when FDR created the Works Progress Administration with the stroke of a pen. Obama apparently intends to bring back Keynesian quackery full-bore, and with it a robust echo of Santayana’s warning: Those who cannot learn from history are doomed to repeat it. We shudder to imagine how long WPA II will delay a genuine recovery -- one based, perforce, on strong capital investment, technological innovation, lower taxes and -- let’s not mince words here �' creative destruction. It took a World War to lift the U.S. economy from the 1930s Depression, but we’d prefer not to imagine what it might take to get us out of this one, especially if nanny state welfarism becomes the central theme of the Obama Administration, as appears likely. That said, we don’t see any good alternatives, politically speaking. Nor do we think the sort of capitalism that has brought the world economy to the edge of disaster deserves a second chance. With America slipping into economic depression, we’d sooner take our chances with home-grown socialism, at least for a while, than with the kind of economic policies that lobbyists for the banks, manufacturers and big business would clamor to implement under duress. All have been corrupted beyond redemption anyway, so let them sink or swim. We will all have to endure quite a bit of economic pain before common sense is restored to the marketplace and the wisdom of Adam Smith once again holds sway in the nation’s business schools. A generation could pass before we are able to start up the banking business anew, presumably after driving a stake through the heart of the Federal

I'd said a two-day close under 85.82 would turn the daily chart bearish, but we'll give the Dollar Index the bullish benefit of the doubt for now, since it has climbed during the night session from a low just beneath our threshold to a high just above it. We can wax bearish at such time as the 85.82 pivot appears to have become resistance; for now, it still looks like support. If and when this midpoint is decisively breached, it would portend more downside to at least 83.95.

Short-term upside potential is to 46.75, assuming the futures get past the pivot's midpoint sibling at 44.65. However, it would take a thrust exceeding 47.27 to turn the hourly chart unambiguously bullish.