January 2009

Stocks showed remarkable pluck on Wednesday, buttressed by a Dow average that fell “only” 248 points on a day when the news could not have been much worse. Retail sales figures released by the Commerce Department had been expected to show a paltry gain of 2.2% over the holiday shopping season, but the actual number came in at minus 2.8%. This was not merely the worst number in decades, it was the worst number ever. Virtually every region of the country is weakening economically, according to figures released yesterday by the Government, and some big employers, including Motorola and Gannett, announced layoffs and furloughs that will affect tens of thousands of workers. Even Microsoft was talking about layoffs, although the company denied that the cuts would be as severe as rumored. Some had been saying that as many as 15,000 workers would get the axe, or 16% of the firm’s global work force. Unmentioned was the fact that Microsoft has already savaged the ranks of its contract employees, the first workers to feel the pain in Redmond whenever times are tough. Even with all the bad news, however, the Dow was never down more than 300 points. True, it wasn’t able to rally much either; but with the blue chip average see-sawing most of the day between down 220 and down 270, it looked to us like buyers, not sellers, were controlling the action. Coincidentally, we had published a link on the subscriber page to a grim essay by Martin Armstrong that emphasized the disconnect between the stock market and the real world. Armstrong thinks we are entering a Second Great Depression that will last at least 23 years, but he also believes that the stock market could makes its bear market low as early as this year or next,

The rally begun just before Christmas amounted to 40 percent -- more than a hiccup, for sure, but not very significant relative to the big, bearish picture. Now, Crude has returned to the multiyear lows near $35 whence the frenzy began. We can infer that it is groping its way down to 32.43, a Hidden Pivot target that lies 12 percent below these levels. The larger downtrend has been almost too tortured to trade, though, since a short-and-hold strategy would have routinely subjected risk-takers to intraday swings of 6%-8%. If a major turn is in the offing, it will be signaled by a strong impulse leg on the hourly chart. Just to give you an idea of how strong, it would take a print today at 40.81 to turn the short-term trend bullish. _______ UPDATE: Crude's little crash-let today brought it down most of the way to the target, to a so-far low at 33.20. The original price objective of 32.43 remains valid -- and OEPC, you can kiss our big fat a**!

The Indoos bottomed yesterday in a perhaps too-obvious place, inches above the 8118 low recorded on December 5. DaBoyz could make their stand here, building on yesterday's seemingly well controlled accumulation, but my hunch is that they'll let the DJIA slip a bit lower before risking their ill-gotten capital. If so, we should look for a tradable bounce from around 7985, a midpoint Hidden Pivot support the provenance of which is shown in the accompanying chart. If that support should give way, signaled by a two-day close beneath it, the Dow would be warning of further jeopardy over the near term to as low as 6883. _______ UPDATE: Down 200 points in the early going, the Indoos got traction at 7995, just 10 points from our midpoint target. With an hour to go in the session, they'd bounced 250 points from the low.

The 766.60 target flagged here yesterday, a Hidden Pivot, looks magnetic, so we'll use it as our downside objective for the near term (i.e., 6-8 days). The pattern that produced it is clear and compelling, suggesting that any buying at the pivot would enjoy an enticing risk:reward. More immediately, I expect the futures to ease lower, to a minor Hidden Pivot at 799.70. Bottom-fishing can be attempted there with a stop-loss as tight as 798.90. However, if settlement is below that price it would raise the odds of a quick drop to 766.60. _______ UPDATE: With the futures down about $9, the low of the day occurred at 801.50, or $1.80 above our target. The bounce so far, to $819.90, has been pretty spirited, but it'll take a print at 823.90 today to make it stick.

We used the Lehman UltraShort 20+ Year Treasury ETF to predict yesterday's powerful thrust. The March Bond futures look like they're not done yet, since there's a midpoint resistance not far above, at 138^03 where a short-term top would be more logical. Hwoever, if they get past it, the pivot's 'D' sibling at 139^19 would become our minimum objective. _______ UPDATE: The futures rallied overnight to touch 137^31, inches from our target; then they fell very hard, to an intraday low at 136^08.5

Just when we’d written the dollar off as brain-dead, it comes roaring back for no good reason! Does this mean that Treasury paper, too, will soon be bounding to new record highs, also for no good reason? We’ll know soon enough. In the meantime, how do we account for the dollar’s resurgence over the last month, following its horrific collapse after Thanksgiving? The only thing we can think of, knee-jerk contrarians that we are, is that it’s a case of buy-the-rumor, sell-the-news. The rumor was that a zillion dollars worth of bailouts and cash infusions into the banking system have yet to achieve even a measureable result, much less a significant one. The news is that Helicopter Ben is well on top of the situation and will soon inveigle yet more metaphysical trillions from who-knows-where for the purpose of shoring up financial institutions, if not shaky borrowers. Some wag estimated that this could send Treasury issuance above $2 trillion in the remaining three quarters of 2009. So how did the dollar react to all of this blandly catastrophic news. Why, by rallying sharply, is how. The Dollar Index was up nearly 1.5% on the day, proving that investors are not merely delusional about the state of financial system, they are borderline psychotic. Tune them in to the self-aggrandizing charlatans who have been touting the prospect of an economic recovery in the second half, and you have all the ingredients needed to produce a 25% sell-off in the stock market. Sentiment indicators underscore this possibility, since they have skewed wildly bullish in the last couple of weeks. If you want us to keep you apprised, click here to receive our free commentary each day by e-mail.) More Letters on Inflation/Deflation We have been deluged with responses to a recent commentary, “Calling

Unable to crack an 873.50 rally target given here yesterday, the futures spent the day marking time in a 15-point range. They were floating aimlessly higher early Tuesday evening, although a push past a minor midpoint resistance at 871.25 would likely put them on course for a move up to at least 876.25, a Hidden Pivot. This was just little stuff -- too meager, perhaps, even for a night-owl snack.

During an impromptu webinar yesterday, we looked for a way to initiate a long position on-the-spot but found nothing. The next three hours of meandering retroactively justified our inaction, but what now? My gut is saying that yesterday morning's rally out of the hole, a $16 thrust, should have gone a bit further, surpassing an 833.80 peak made on the way down Tuesday, if the futures are about to take a leap higher. However, a print at 833.90 is still the benchmark for turning bullish on the short-term picture. Incidentally, the futures have exhausted all downside targets on the hourly chart, having bottomed most recently just above the 813.30 Hidden Pivot shown. This is not necessarily bearish, but if the low gets whacked hard by week's end, it could spell more weakness down to around 766, the midpoint of a larger pattern. _______ UPDATE: I posted the following in the chat room this morning: Most compelling target on Feb Gold's chart: 766.60, a major HP midpoint. (180m chart, A=938.80, from Oct 10) That's where I think gold is going -- a back-up-the-truck number.

There are two potentially tradable supports in the hourly chart: at 39.95, a Hidden Pivot midpoint; and at 38.85, its 'D' sibling. A stop-loss of 0.15 points is as wide as you should use -- and please note that bottom-fishing at the lower number is a more conservative play. Since this vehicle correlates inversely with the long bond, the projection implies that a sharp rally lies immediately ahead for Treasury debt. ________ UPDATE: A long position initiated at the "conservative" pivot referenced above would have enjoyed favorable odds, since TBT rallied 45 cents after bottoming at 38.78.