January 2009

There is absolutely nothing to like about this market, but bears shouldn't give up hope that it will do the right thing via a thousand-point decline one of these days. Just don't expect trumpets to sound beforehand, tipping you off in plenty of time so that you can comfortably get short and enjoy the show. The 675.50 target given here earlier is still where I think this cinder block is headed, and the last-ditch support is still 809.00, the midpoint pivot of the larger pattern. Night owls please note: On the hourly chart, the futures look like they want to run up to 851.00. That's a Hidden Pivot, and it is short-able if the pattern that produced it does not get too badly bent out of shape Thursday night. _______ UPDATE As of 3:30 a.m. EST the futures were diving, having apexed at 826.75 -- precisely where they were trading when the above analysis was published. The downtrend promised to reach 809.25, at least, but bottom-fishing there is not recommended, since the pivot is closely concident with the 807.50 bottom of Thursday's short-squeeze.

Financial stocks got goosed yesterday, and for a few blissful hours everything was right with the world. The shares of JP Morgan led the way, up 26%, followed by Goldman Sachs, which tacked on $10.80 to close at exactly $70.  A while back, we promised to don a grass skirt and dance the hula in Times Square in the middle of winter if Goldman does not eventually fall to at least $29. However, yesterday's wilding spree in the banking sector may have pushed back a day of reckoning till February of 2010. Meanwhile, every big rally offers a fresh opportunity to get short, even if the position is not one that you could simply forget about till 2010. Nor is there such thing as a buy-and-hold, as Apple shares have demonstrated time and again. The stock has gotten pummeled repeatedly in recent weeks because of speculation over Steve Jobs' health. Yesterday, though, AAPL soared on great earnings news, trading up $12 after the close. We have trouble believing that the upbeat announcement could have been surprised anyone, though. We mentioned here the other day that Apple stores were packed during the holiday shopping season and have remained so since. The same is true for Verizon stores we've visited over the last couple of months.  You could load up on Verizon call options ahead of earnings, but we like the Steelers more, even giving up seven points. *** Inflation vs. Deflation We were deluged with responses after we challenged readers to explain how inflation might emerge amidst the devastating asset collapse now occurring throughout the world.  [ Click here to drop in on this lively discussion at the Rick's Picks forum.]  Here's another great letter that offers much to enlighten, from reader Eric Andrews, to whom we are most grateful:  "I'll

Our bid down at 841.00 missedededededed the intraday low yesterday by $1.50 -- not quite close enough to get us aboard. Now, the futures look bound for an important hidden resistance at 876.90, the midpoint of a pattern tracing back to November. A decisive intraday breach of the pivot, or a two-day close above it, would hint of more upside over the next 2-3 weeks to as high as 952.30. However, even if such a thrust awaits, the futures do not yet appear ready for it. If it were otherwise, they would have taken out the two labeled peaks before receding in the last couple of days.

Yesterday's snap-back rally followed the serious breach a day earlier of an an important midpoint support at 7985 shown in the chart. (The E-Mini S&P did likewise.) The actual low occurred 45 points beneath the support, and although we'd said it would be cause for concern if the Indoos closed beneath the pivot for two consecutive days, the 45-point penetration is probably reason enough to view the rally with skepticism. Our opinion could change, but it would require nothing less than a 932-point rally from here to do the trick, since that would create a bullish impulse leg on the daily chart. We won't hold our breath, but neither will we attempt to intercept this nuttiness until there are signs of terminal fatigue, as there will be. In the meantime, our minimum downside target is 6883, and it will remain so until such time as 9089 is exceeded to the upside.

Our recent commentary, "Calling All Inflationists!" touched off quite an e-mail firestorm. Unwavering deflationists ourselves since the 1990s, we'd challenged readers to explain exactly how inflation might emerge amidst the devastating asset collapse now occurring throughout the world.   Your answers were not merely enlightening, but compelling. Of course, it's hard to argue with the contention that the dollar is just a worthless scrap of paper, and that, sooner or later, that fact is going to hit home. When it does, perhaps because of some epic train wreck on Wall Street, grocery store shelves will be stripped bare within hours. Food, fuel and other essentials will become scarce overnight, and those who possess such things in salable quantities might not be willing to trade them even for hundred dollar bills.Hyperinflation will come on like a tsunami at that point, but the question for now is: How much more deflation will we have to endure first, before debt is repudiated by a tidal wave of printing press money?  Jim Sinclair, an unapologetic hyperinflationist who commands the respect of a large readership, thinks the money blowout could start as early as 2009.  Possibly, but we suspect it will take longer, since the fiscal stimulus about to be tried by our new President will put us on the slow track relative to straight monetization. Those who have been hoarding gold needn't worry quite as much about such things, since, unless the Government confiscates bullion as it did under Roosevelt's 1933 edict, there is no easy logic to support a bearish case for gold. As we've noted here before, even if deflation is about to cause gold's price to drop by 50% in the next year or two, all other types of investable assets will probably fall by even more. So far, though, nothing so

The weekly chart makes clear that the futures will fall to at least 1102.00 in search of traction. Since that number comes from a long-term chart, we cannot expect to get away with the usual penny-ante stop-loss if bottom-fishing. Better to attempt it at a nearby target of a lesser pattern. In this case, the relevant support comes in at 1104.50, a Hidden Pivot whose provenance is shown in the accompanying chart. _______ UPDATE: We'll set aside the bearish target for now, since the futures are in rally mode.

The Dollar Index has speared a midpoint resistance at 83.98 on the weekly chart, and although this is bullish for the near-term (i.e., the next 2-3 weeks), I'd need to see a two-bar close above the pivot to infer that DXY is capable of taking on some important peaks above 92 that were recorded in mid-2004 and in late 2005. The 'D' target associated with 83.98 is 90.62, implying a rally of about 8 percent if the lower number is decisively exceeded.

A false breakdown beneath yesterday's 847.50 low has a good chance of finding support at 847.10, a midpoint pivot, but the pivot looks too close to the visually obvious low to be considered a safe bet. A more conservative play would be to bottom-fish at 841.50, the 'D' sibling of 847.10. That's my maximum downside projection for the near term, but if it's exceeded, take it as a sign that gold is in no great hurry to test resistance near 900.

With no oomph behind Monday night's short squeeze, we never even came close to shorting 8272. The rally died in the wee hours at 8221; then the futures began their nasty, 350-point slide. They were wafting blithely higher again Tuessday night, but we shouldn't read too much into it. A print at 8464 would change all that, creating a bullish impulse leg on the larger intraday charts (i.e., the 240-min), but anything less would be just noise.