March 2010

The hourly chart is telegraphing a retracement down to at least 17.105, a Hidden Pivot midpoint that is unappealing for purposes of bottom-fishing because of its close proximity to some recent, prior lows. If it's exceeded by more than three ticks, however, brace for more weakness over the near term to as low as 16.905.  _____ UPDATE (12:13 p.m. EST):  The futures have bounced strongly after getting walloped this morning. The intraday low, representing a 56-cent plunge from yesterday's top, occurred at 16.875, three cents below our target. That will have mildly negative implications for the near term, although that's nothing a thrust above 17.310 wouldn't cure.

On Monday oil reversed one tick above a midpoint pivot and then impulsed down.  The new downward pattern gives both bulls and bears something to work with.  Bulls can view the midpoint at 81.14 as a possible buying level.  Bears, emboldened by the Monday reversal, can see the D target of the new pattern at 80.36 as a minimum downside objective. (Posted by Doug McLagan) ______  UPDATE (12:07 a.m. EST): I usually suggest allowing at least 21 cents' leeway when trading  this vehicle at Hidden Pivot swing points. That would have been just right this morning, since Crude has bounced nicely after making a low at 80.16. If you got aboard, you should take profits now on a multi-lot position or implement a trailing stop on a single contract, since the fiutures have bouncd as high as 81.00.

The daily chart reflects dueling impulse legs, but with a moderate bias to the downside.  Just last week the Yen had threatened to surpass a key external high on the daily chart and thus initiate an impressive bullish impulse leg; however, it fell short and plunged abruptly.  The high at 1.1453 (see chart) can serve as our "A" point, and the decline has confirmed midpoint and D targets at 1.0959 and 1.0572, respectively. The first number will make a logical minimum downside target for the near term, but I wouldn't suggest bottom-fishing there, since it was birthed by a second point 'C' high. (Posted by Doug McLagan) 1.1453

By focusing on a key resistance at 1144.50 we were able to remain disinterested as gold appeared to develop thrust for a breakout.  A two-day close above that Hidden Pivot will all but clinch a $100 surge to 1244.50 as far as I'm concerned, but we should continue to guard against taking even a single careless step ahead of the evidence.  And now, assuming the bull is still dominant, we should expect abc downtrends to fall shy of their 'd' targets.  I've sketched once such pattern that would be tradable, although there are no guarantees that things will play out as the chart predicts.  Please note that I am not using the over-the-falls 'a' as a high, mainly because it looked too obvious, but also because the pattern drawn from the highest 'a' is so unintuitive while still meeting our criteria. _______ UPDATE (11:59 a.m. EST): Well, the downtrend so far has played out almost precisely from the over-the-falls high at 1136.60. It created an intraday low within less than a dollar of its 1107.50 target and has now rallied back to within spitting distance of the pattern's 1116.50 midpoint. If and when the  low is taken out, the 1102.90 target derived from the higher point 'A'  (i.e., the one I'd drawn) will be in play.  It can be bottom-fished with a stop-loss as tight as $1.00.

At the risk of sounding like Prof. Irving Fisher at his most notorious, stocks appear to be incapable of falling these days.  There was zero buying interest yesterday, and yet, instead of pulling back to get some running room, the E-Mini S&Ps remained airborne, never dipping more than two points below a Hidden Pivot target at 1137.25 that we'd used to get briefly short the other day.  Of course, when we become truly convinced that the futures cannot fall, a mental alarm should go off warning us that that is exactly what is about to happen. Even so, I wouldn't suggest staying short this vehicle simply because 1137.25, or somewhere thereabouts, is a logical place from which the inevitable plunge is likely to occur. We'll stick to our discipline and accept the fact that we were stopped out, but let's keep in mind that it will nearly always be possible to get more or less risklessly short on tiny abc downtrends; and that when the market finally does fall apart, the avalanche will begin with a barely noticeable impulse leg on the 1- or 3-minute chart.

(Editor’s Note: When we last featured the thoughts of Doug X, a broker at a Boulder wire house, he had sketched out some back-of-the-napkin numbers that showed why most Baby Boomers were unlikely to realize their retirement dream.  In the think-piece below, Doug argues that Treasury Bonds are now the place to be as deflation takes hold. The essay begins with a reference to an analysis done by his good friend and colleague, famed bear David Rosenberg of Guskin Sheff.) In the discussion about the outlook for Treasury Bonds, you have made the point that supply alone has been an inadequate focus for predicting future prices/yields. Cited as examples are the rise in the 30-Year Treasury Bond yield from 4.7% to 6.7% in 1999, even though bond issuance by the Treasury was practically nil; and the decline in Japanese Government Bond yields over the last 20 years, even though deficit spending has been spectacular in Japan and debt/GDP is approaching 200%. The last I saw, the JGB (10-year) was at 1.3%. The problem with trying to assess either supply or demand in the current market environment is that everything is so confusing here in the early stages of this new secular paradigm of a global credit collapse. There is no way to get it completely right, so as Lacy Hunt has always maintained, it makes much more sense to assess the outlook for inflation as the primary effort in predicting Treasury rates. Simple and elegant. Awesome Debt Supply Still, I have some thoughts on supply and demand. Everyone knows that we are facing awesome supply of Treasury debt.  The Congressional Budget Office has told us the deficit will be over $1 trillion a year, each year for as far as the eye can see, not to mention the $1 trillion

There were no sellers to resist feeble short-covering Sunday night, and so the E-Mini S&Ps were trading just above the 1139.25 stop-loss of the position we initiated Friday.  As of 2 a.m., the rally didn't appear strong enough to do much more than stop traders out above Friday's highs, but if it goes for another 2-3 points we could see the Dow up as much as 150 points in the first hour.

The only major stock index to surpass its January 2010 high thus far is the Russell 2000, whose e-mini futures contract rivals that of the Dow Industrial Average in liquidity.  The Russell has been on a tear for exactly a month, but hidden pivot analysis tells us that this move might almost be at an end: two daily patterns give us nearly convergent D targets at 668.90 and 670.30, just above the current price.

The futures have eaten through a midpoint resistance at 80.90, suggesting buyers have appetite enough for more upside to as high as 84.74.  Because this vehicle requires stop-losses of at least 21 cents for anyone trying to enter at Hidden Pivot swing points, I don't feature it much as a trading vehicle.  However, with nearly $3 more of upside immediately in prospect,  "camouflaged" opportunities to get long should abound, especially on retracements to midpoints that the rally has turned from resistance into support (i.e., 80.90, for one).