February 2011

Has the stock market made an important top? Are gold, silver and crude oil prices headed to the moon? We think the answer to these questions is “yes,” and that there will be exceptional opportunities for traders and investors ready to take advantage. Join Rick Friday morning at 11AM EST for a real-time demonstration of the Hidden Pivot Method and how it can be used to minimize risk while we attempt to profit from markets that are in steep rises or declines. Click here for registration.

I stuck my neck out here yesterday, calling the top of a bear rally that for two years has kept the nation from facing economic reality. Here is what I wrote: “Stocks fell not because of fears over the spread of violence in the Middle East, as the pundits asserted, but because it was time for the Mother of All Bear Rallies, now almost two years old, to keel over and die.”  Of course, one can never be absolutely certain about such things, and that’s why I struggled briefly with the temptation to rephrase that sentence as follows:  “Stocks fell not because of fears over the spread of violence in the Middle East, as the pundits asserted, but perhaps because it was time for the Mother of All Bear Rallies, now almost two years old, to keel over and die.”  I’ll let my bearish call ride for now, however, because the market’s recent highs came within inches of longstanding, major Hidden Pivot targets. But I’m not going to chisel the prediction in stone as I did a “hula prediction” that Goldman Sachs would ultimately trade below $30 during the bank-stock  collapse of 2007-08.  Goldman shares actually bottomed around $40, and that’s why I am making arrangements, finally, to deliver on a pledge to don a grass skirt and dance the hula in Times Square in the dead of winter. I will provide further details shortly for those of you who want to witness this sorry spectacle.  The irony is that Goldman probably will trade below $30 by the time the world’s $800 trillion derivatives bubble has completely deflated. I’ve also predicted – no hula dance riding on this one -- that a $10 million co-op on Central Park West will eventually change hands for $250,000; and that the damage will

Although we were minutes behind some excellent opportunitites to get short in the Mini-S&P and the Mini-Dow, their respective downtrends played out in ways that validated our bearish outlook in real time. The weakness in these vehicles represented an ostensible follow-through to the previous day’s sharp selloff, and so we were especially interested in determining whether the decline was strong enough to imply a resumption of the secular bear market. The jury is still out on that question, but there were nonetheless encouraging signs that this was the case.

Yesterday's selloff needed to back up for another running start before it could achieve impulsiveness on the lowly 15-minute chart. What this implies is that the biggest single-day decline of 2011 may have been more bark than bite. We shall see, but sellers will need at the very least to extend the decline past the two "external" lows (numbers 4 and 5) highlighted in the chart if we are to take them seriously.  The worst that can happen if the usual maniacs take this market still higher is that we'll have another opportunity or two to short at great prices.

The correction from yesterday's high targets a minimum 32.460, but if that midpoint support fails look for the weakness to continue to at least 31.490, a Hidden Pivot that can be bottom-fished with as tight a stop as you please.  With less risk, you could look for a camouflaged turn if and when the selling reaches 31.505.

A pullback into the range 1374-1390 would set up a C-D thrust to as high as 1450.10 (see inset).  The move would be telegraphed by a booster-stage rally of 15 points beginning from anywhere between those two numbers. More immediately, minor corrective selling below a 1397.90 midpoint support implies more slippage to its 'd' sibling, 1388.80.  If the futures swoon to that number, you can bottom-fish with a stop-loss as tight as five ticks. Camouflage-seekers should look for the turn beginning from around 1389.60.

I've provided two precise Hidden Pivot targets at, respectively, 95.90 (100.17, basis the April contract) and 99.26 (107.01, basis April) where we might expect a tradable pause, but there is no reason to think that $100 crude represents more than a fleeting obstacle to a mounting geopolitical maelstrom that could push quotes $50 higher in mere hours.  Ponder the target shown in the inset and you'll see what an easy romp it will be to 110.90 (111.32, basis April).

Yeah, okay, so I'm smacking my lips because yesterday's selloff has come from a high that lay within 13 points of a major, major Hidden Pivot target. Even so, I've warned in today's E-Mini S&P tout not to turn our backs for even a minute, since the nastiest bear rally of them all may have yet a trick or two to play on anyone who thinks it will be easy to make money if the S&Ps are about to fall by half.

Putting aside the exhilarating possibility that the Mother of All Bear Rallies has finally breathed its last, we'll want to verify the progress of this selloff one delightful day at a time. For starters, it is a healthy sign (for  bears, that is) that the initial downthrust slightly exceeded a 1312.00 'd' target that comes from the five-minute chart (see inset). Also, because a decline that is impulsive on the hourly chart has begun from a high that narrowly failed to achieve a clear rally target, we should infer that the selling will continue, at least for a while.  That said, the 1356.00 rally target itself remains viable in theory, and we should never turn our backs on history's stupidest, if most pernicious, rally.  Our clue that bulls have may at least one more gasp left would come today on a print exceeding 1339.75, a look-to-the-left peak made Monday on the way down.