September 2009

The futures spent the day struggling to go lower, failing in the end to overpower a midpoint support at 947.60 whose breach would have greased the skids down to 938.70. The bearish pattern is shown in the accompanying chart, and as you can see, the pre-dawn bounce came from a low that lay within a single tick of the pattern's calculated midpoint. The reactive rally was no world-beater, to be sure, but on balance the picture is at least mildly bullish for the near term.  A _____ rally target given here earlier remains viable, but like you I am growing a bit impatient about it.

A run on a major U.S. bank?  Who could have been spreading such scurrilous rumors? They surfaced yesterday in the Rick's Picks chat room, and elsewhere, not long after we'd done some personal banking ourselves in an online account at the very same bank. We experienced no delays or problems with the transaction, notwithstanding reports of a "default situation" and "elevated" buying of put options on the shares of the bank.  We were able to confirm that there had indeed been a flurry of put-buying, but the action was not so frenetic as to suggest that the bank was in any serious trouble.  To the contrary, banks are operating under such loosey-goosey rules right now that they shouldn't have a care in the world. Imagine having a notarized letter from your local police chief authorizing you to loot and plunder any store in the neighborhood without fear of arrest. That's how the banks are doing business these days - which is to say, however they want.  And if a deal should turn sour it's no problem, since the U.S. government has assured banks that it will pay 100 cents on the dollar for any securities that ultimately fail to clear the market. Smoldering Ruins Tuesday's rumors of a big bank on the ropes evidently were prompted by general weakness in banking shares. The selling had been attributed to nervousness over the prospect of more losses to come in the banking sector. A few analysts added to the stresses of the day by speaking cautiously about bank shares.  Has the spectacular rally begun last November finally run out of steam, they asked? We seriously doubt it. More likely is that those who have been accumulating bank shares hand-over-fist simply backed off their bids for a day, allowing the stocks to fall

Yesterday's mild weakness slightly damaged the E-Mini S&P's hourly chart, but this could provide a bottom-fishing opportunity. A second such opportunity, noted in my analysis, is evident in December Gold. [Late note: The E-Mini S&P has moved slightly higher, negating the bottom-fishing trade as given.]

The bullish penetration of a midpoint resistance at 120^23 augurs more strength over the next 7-10 days to as high as _____.   (The equivalent for the December contract is _____.) Secondary resistance at _____ can be shorted with a stop-loss as tight as four ticks. 

UNG easily punched through a Hidden Pivot support at 10.79 noted here earlier and now appears bound for a minimum 9.89. If you're looking for a tripwire to signal a bullish turn on the very lesser (i.e., one-minute) chart, use the gossamer look-to-the-left peak at 10.97.

Let's try once again to buy at a midpoint support, this  time by bidding 17.06 for 400 shares, stop 16.97, day order. ______ UPDATE (1:15 p.m.): We bought the shares, but cancel the stop-loss, since this trade feels like it's worth risking more than the implied $36 -- especially with AKAM down by nearly 15% in the last three weeks.  The low so far is 17.02, so AKAM could be bottoming.

The bearish impulse leg on the hourly chart formed by yesterday's decline yields an enticing place to try bottom-fishing: a midpoint pivot at _____ (shown). That support should hold if the _____ rally target given here earlier is to retain its promise.

If 1021.50 is not exceeded to the upside overnight, you can bottom-fish with a _____ bid, stop 1011.75.  This is an enticing Hidden Pivot midpoint, but if it's breached we should expect the futures to continue falling down to _____, its 'D' sibling. 

Although we can be certain Americans and their government owe far more than they will ever be able to repay, the question of how this debt eventually will be discharged is the economic conundrum of the day. Some think hyperinflation is the only way out, since it would allow debtors to repay all that they owe with worthless bank notes by then in copious supply. However, this is hardly a solution, since those on the receiving end - i.e. the lenders -- would be ruined, as would the bond markets, banks and all other institutional conduits and agents of saving. We've argued here that deflation will prevail, visiting pain on borrowers more or less in proportion to their sins. Lenders would wind up with the collateral, mainly in the form of residential real estate, but the advantage in this would probably be far less than what has been imagined by those who see bankers as conniving thieves out to steal the whole world's tangible assets. In fact, the bankers would have to rent the homes back to those who had defaulted, saddling themselves with the politically unseemly problem of squeezing blood from a stone. Would they risk stirring up the mob, or would they instead settle up on relatively easy terms?  We don't think they'll have much choice.  Why No Inflation? Our reasoning about such things has always been intuitive -- and so far correct in explaining why the huge fiscal and monetary blowout by the Federal Government during the last two years has produced no significant inflation. This fact is especially telling in the housing sector, which as the inflationists well know was the main target of the government's historically unprecedented fiscal and monetary blowout. Anyone interested in the inflation/deflation "debate," will be abundantly rewarded by reading the superb essay