June 2010

The futures have been down as much as 14 points Sunday night. This would be just a routine shakedown if not for the fact that the so-far low exceeded  the key bottom at 1055.50 recorded ten days ago.   A subsequent rally has generated a little short covering, but the action looks so feeble that one might infer bears are not very nervous about starting the week with big stacks of chips on the "Don't Pass" line.  I've drum-rolled a target at 1022 in today's commentary, and you can nibble there with a tight top-loss, but keep in mind that a breach of that Hidden Pivot by more than 1.50 points would imply more downside to at least 1014, or possibly even to as low as 997 (a back-up-the-truck number for bottom-fishing).  FYI, bulls would need to hoist this cinder block above 1088 today to mount a credible threat.

The mirage of economic recovery conjured up by our political leaders and a credulous news media dimmed and flickered in the harsh light of reality on Friday, when grim employment figures for May sent stocks into one of their steepest dives of the year. Although 431,000 jobs were added last month, most of the workers were census-takers hired temporarily by the government.  Even that figure evidently was ginned-up, since it appears that many of the workers had been laid off during intervals when there was little to do, only to be rehired later and recounted. But the bottom line for private-sector employment was a paltry 41,000 new hires, the smallest increase since January. Wall Street did not exactly take the news in stride, and the broad averages fell as though the data had caught most traders by surprise. Index futures had head-faked overnight to trap bulls, but by day’s end the blue chip Dow Average was down 323 points.  We would caution bears against becoming overly confident, however, since there are several technical factors coming into alignment that augur a potentially sharp reversal in the broad averages and some important trading vehicles that we track. For one, at Friday’s low of 1059, the E-Mini S&Ps was within 37 points of a longstanding “Hidden Pivot” target of ours at 1022. That’s equivalent to about 300 more points in the Dow, and it could easily be reached this week if sellers continue to hit stocks on Monday morning as they did on Friday. Bullion ‘Vulnerable’ The euro may also be close to an important turn after having been savaged since mid-April, when the currency hovered just above $1.37. On Friday, heavy selling drove it below 1.20 for the first time since 2005. The precise intraday low on the June Comex contract was

Touts for Monday will be out somewhat later than usual tonight -- by around 10 p.m. or so. This may afford us some useful insights into the mood of traders following Friday's hard selling.

My friend Stan Kreis, a commercial real estate developer from Boulder, has written insightfully on the flotilla episode. For a pro-Israel perspective that goes sharply against mainstream coverage, click here.

Relatively modest rally targets for stocks and gold are taking too long to reach, sucking all the fun from the game.  Will DaBoyz be able to leverage the Friday Effect to remedy this tedium?  If so, the best plan for today might be to enjoy your leisure until the final hour.

Someone in the chat room wondered yesterday whether the dollar's strength might be ebbing, but look at the chart yourself and cease to wonder.  I see only a consolidation for a push to at least 89.62 that, once it gets started, will be impervious to supply. Gold has more than held its own during the dollar's curious run-up, and so we shouldn't be too concerned about the prospect of yet more strength in its paper nemesis.

A modest rally target at 1118.50 still awaits the short squeeze that alone can carry the day for nitrous-sniffing bulls.  It's obvious that ordinary, bullish buying -- Kudlow and perhaps his aunt from Minneapolis -- was not nearly sufficient to push the futures through Monday's ephemeral highs. More such supply awaits near 1122 and will give DaBoyz an incentive to milk the Friday Effect for all it's worth, so be prepared for a possible eruption of silliness in the final 30 or so minutes of the trading week. _______ UPDATE: With the Dow trading just above 10,000, I posted a minimum downside target of 9775 in the chat room.  The equivalent for this vehicle 1052.25.

Turning cautious is not necessarily turning bearish, although there will always be the question of whether a major correction looms whenever the futures grow heavy for a few weeks, as they indeed have. My strong feeling is that no particularly punitive swoon awaits, even if Comex Gold continues to demonstrate that it is in no great hurry to push up to minor rally targets, let alone major ones in the vicinity of 1300.  Most immediately, and from a technical standpoint, August Gold will need to avoid falling to 1191.00, the target of the pattern shown, in order to buck up buyers. That is a 'd' target, and it would be preferable if any decline today not exceed its sibling midpoint at 1200.70.  We'll be watching closely in any case and will adjust our numbers if the point 'C' changes. (See also: our recent gold coverage.) _______ UPDATE:  Nice rally off an 1198.10 low today, but the futures still need to eke out three more ticks to nail it for the bulls.  As things stand, they have failed by that margin to surpass a 1221.90 peak made yesterday on the way down. This means the rally is not yet impulsive on the hourly chart, and that fact should leave us mildly skeptical.

A shaky performance yesterday brought the futures down as far as they could go without tripping another alarm.  Notice that the low came within a single tick of the 17.830 correction target shown.  It is mildly bearish that this move exceeded the 18.150 midpoint support, but we'll give bulls the benefit of the doubt, short-term, as long as the low holds.  Because the decline was impulsive, we should set a high bar for a turnaround. An 18.175 print today would do it on the 5-minute chart, but it'll take nothing less than 18.730 to restore the hourly chart to bullishness.