August 2009

Rick’s Picks Weekend Edition

– Posted in: Free Rick's Picks

My Barber Shares Secret of His Wealth (In the years leading up to the dot-com boom, I freelanced an investment column to the Sunday San Francisco Examiner. Following is one of my favorites. It tells how Louie Piro, my barber when I lived in Mountain View, became a multimillionaire by investing his spare cash - amounting to all of $5 a week - in promising companies when he started cutting hair in the 1950s. Louie was still cutting hair long after he could have retired, but his weekend getaways were anything but ho-hum: marlin fishing in Cabo, golfing in Las Vegas and Hawaii, and casino junkets to Atlantic City. RA) If there is a single word to sum up the success of investor Louis Piro, that word is “dull.” Piro has never made a killing on a stock.  He doesn’t play hunches and he runs from hot tips.  He says he passed up Pfizer not long ago because its shares were too pricey even before... Read the Rest of the Article | Comments *** Diamonds, E-Mini S&P Dance to Our Tune The Diamonds and the E-Mini S&Ps followed our script precisely yesterday, allowing Rick’s Picks subscribers to get short from the intraday highs in both. Because the E-Minis were raising some hell Sunday night, we allowed for a rally to as high as 1046 on Monday - equivalent to about a 200-point thrust in the Dow Industrials.  However, we saw an opportunity to get short at a lower target, a Hidden Pivot at 1034.00, and put out the following trading recommendation:  ”…a lesser target at 1034.00 can be shorted by scalpers with a 1.25-point stop-loss provided it’s hit in the first hour and 1020.50 hasn’t been exceeded... Read the Rest of the Article | Comments *** A Timely Apocalypse Could

Why a Fed Audit Is Unlikely

– Posted in: Links Rick's Picks

Subscriber Peter Montgomery, editor of   Pot o' Gold,  thinks the Fed is paying top dollar for mortgage paper that many investors wouldn't touch: "What I find extremely interesting is the timing of quantitative easing relative to rally this summer. Market commentator Bill King notes that since June, the Fed has only twice purchased Mortgage Backed Securities (MBS). The first time was options expiry week in July for $80 Billion. The second time was the past options expiry week in August for $67 Billion. Arguably, most MBS are trading well below 50 cents on the dollar with some below 10 cents on the dollar. The Federal Reserve will not disclose how much it is paying for MBS and from whom it is buying.  "Bernanke is railing against any kind of audit, which probably means what he is doing is wrong and does not want their actions to see the light of day. My suspicion is they pay full face value. IMO, Wall Street likely uses the freshly printed script to pay off some liabilities but puts the rest to work in equities. The July $80 Billion injection week broke the back of the stock market slump turning it into the rally we see now. Last week's $67 Billion succeeded in pushing the markets to 2009 highs. These two large MBS buys could also be timed to push liquidity into the system to make bond auctions AND the stock markets do well in tandem."

Those Pesky T-Bonds…

– Posted in: Links Rick's Picks

In his latest dispatch, David Rosenberg, chief economist at Gluskin Sheff, says no one should feel guilty taking profits in a market trading at 130x trailing earnings: "Boy, with all that good news - Case-Shiller, housing sales, durable orders, consumer confidence, Bernanke (!) - one would have thought that we could do better than 2.6 points on the S&P 500 in the last two days. It could well be that the buying momentum is subsiding. Indeed, over 50% later, it would make perfect sense for the market, which investors were buying on rumours five months ago, to begin to sell on facts; nothing wrong with taking profits in a market trading at 130x trailing reported earnings. Moreover, sentiment is a clear obstacle here with Investors Intelligence flagging a 51.6% bullish chorus with just 19.8% of respondents in the bear camp - like Tuesday's bull-bear ratio in the August consumer confidence report, we haven't seen market sentiment this smug since the autumn of 2007 (right before the fall). Is that all there is? Despite the good news the S&P 500 is up only 2.6 points "The real enemy for the equity market is Mr. Bond - that pesky Treasury market that just won't sell off and validate the great reflation trade. Indeed, if we were seeing a real asset allocation move on the part of investors, as opposed to massive and ongoing short covering, then the 10-year Treasury note yield would be trading close to 5.0% - especially with these freshly minted Obama debt forecasts. But instead, the 10-year note is now getting perilously close to the July 10 low of 3.32%. Keep in mind that July 10 was the day when Meredith Whitney gave the green light to Goldman, and Roubini declared the recession to be ending, and what a

GS – Goldman Sachs (Last:163.94)

– Posted in: Current Touts Free Rick's Picks

We hold the Jan 130 - Oct 130 put spread four times for _____.  We've been trying to buy an out-of-the-money call as a hedge, so far with no success. However, option volatility has been falling, and we could catch a lucky break today if we underbid the market. Accordingly, I'll recommend bidding 2.10 for a single September 170 call,  contingent on the stock trading 164.20 or higher.

The Rooster Crows

– Posted in: Rick's Picks

The robust impulse leg that formed in the E-Mini S&P after DaBoyz sprung a bear trap early in yesterday's session suggests stocks want to go higher.  My hunch is that it if you're going to catch a relatively riskless ride, it will have to be before the opening bell.

GCZ09 – December Gold (Last: 951.20)

– Posted in: Free

If bulls can get something going today, they'll announce it with a close above 954.70. That's the Hidden Pivot midpoint of a pattern stretching back to July 29 on the 30-minute chart. Success would hint of more upside early next week to at least 978.00.  A success of greater magnitude would be predicated on a rally leg that is unbroken on the 30-minute chart between  959.90 and 963.10.

ESU09 – E-Mini S&P (Last:1027.50)

– Posted in: Current Touts Free Rick's Picks

Yesterday's trampoline rally looks like it needs more corrective action to set up a C-D follow-through. However, its potential power is unmistakable, given the fact that the intraday high exceeded two external peaks (see chart).  As of 9 p.m. Thursday I could find no handholds for night owls to bottom-fish the so-far shallow correction. What this implies is that you will need to find camouflage on the very lesser charts to enter with the trend when it turns bullish again. I cannot predict at this point whether the opportunity will come at night, or after the opening, but it looks like it could be worth your patience and diligence._____ UPDATE (12:33 p.m.): DaBoyz evidently sensed there was not enough buying power on the opening to take stocks seriously higher, so they instead goosed stocks into a fleeting short squeeze that allowed them to unload the inventory they'd accumulated overnight. In the wake of this bull trap, ES has sold off 15 points, but it may be ripe for bottom-fishing momentarily. To that end, I've posted a 1019.75 correction target in the chat room, and you can bid there with a 1.00-point stop-loss. I've also suggested entering on camouflage, using the first signaled point 'X' after 1019.75 is hit or approached within a few ticks. [Epilogue: The futures went no lower than 1022, so we did nothing.]

DJIA – Dow Industrial Average (Last:9581)

– Posted in: Current Touts Free Rick's Picks

Putting aside the broad bullishness of today's commentary, the lesser charts suggest that stocks are too overextended to embark on a new leg up without some sort of pullback first.  The hourly chart of the Dow (see inset) yields only one logical target at the moment, _____, but the imagination balks -- mine does, anyway -- at the notion of another thrust as steep as the A-B impulse leg already concluded. Just in case, though, the midpoint pivot associate with the target is ____. Strictly speaking, it should serve as our minimum upside objective for the near term.