March 2011

Two weeks of tedious, albeit volatile, dithering has produced a mildly bearish pattern that would be nicely resolved with a drop to exactly 1286.50.  That's a buy-able Hidden Pivot (stop 1285.75), and its sibling midpoint at 1311.50 came within a single tick of containing Friday's fall.  Alternatively, a rally target at 1356.00 has been in our crosshairs for so long that its appeal has eroded.  In any event, it remains shortable either via camouflage or with a 1358.25 stop-loss.

Senate minority leader Mitch McConnell said on Face the Nation over the weekend that President Obama wasn’t serious about the budget. Lest anyone mistake this for partisan sniping, here’s an interesting factoid that drives the charge home:  The $4 billion in spending cuts that Congress just approved to avoid a government shutdown amounts to about ten hours of government spending and less than a day of Treasury borrowing. This calculation comes from Bill Buckler, editor of the Australia-based Privateer. Mind you, the cuts were ginned up by a Congress that supposedly is in the grip of austerity-crazed Tea Partiers and Republicans. What it suggests is that the paltry sum hacked from federal outlays may be as good as it gets for anyone hoping The Government will somehow get its act together.  Meanwhile, if either a Democrat or a Republican claims to be in favor of reducing the deficit, keep in mind that the sums he or she will be talking about will be in the billions, whereas the deficit itself is mounting into the trillions.  As Buckler has noted, “This year, the official budget for the U.S. government is $3,700,000,000,000.  That means the government will spend $10.13 billion every day – weekends and holiday included. The latest official figure for the fiscal 2011 deficit is $1.65 trillion. The U.S. Treasury will borrow nearly 45 cents of every dollar it spends – a total of $4.52 billion every day – weekends and holidays included.” That’s the reality of it. But when our best and brightest on Capitol Hill attempt to reconcile these numbers with tax revenues, you can bet it will play out as slapstick. The looming Punch-and-Judy show between the big spenders on one side of the aisle and the even bigger spenders on the other side was framed by

Yesterday's low came within 0.24 points of a 76.15 target flagged here a while back. A tradable rally should unfold from these levels, but the bigger picture yields only evidence of further decay to come.  Two targets to keep in mind once 76.15 is breached are 74.44 and 74.08. They come from larger bearish patterns of different degree, and the two together should exert a magnetic pull. _______ UPDATE ( Sunday night): DXY came even closer to the 76.15 target on Friday, making a low at 76.28.  Accordingly, camouflage entry opportunities should be pursued aggressively here -- at the moment, perhaps by leveraging the look-to-the-left peak at 76.51 (see new chart).  _______ FURTHER UPDATE (March 8, 2:17 a.m.):  This pup has launched from a low of 76.12(! ) If any subscribers took the trade, please let me know in the chat room so that I can establish a tracking position for your further guidance.

I like the 33.780 Hidden Pivot shown in the chart for bottom-fishing today, although it doesn't come with an ironclad guarantee.  A three-tick stop-loss should suffice, since the pattern is formed from three delicately precise coordinates.  FYI, I took a 20-minute break after writing the foregoing, and now, as of around 7:30 p.m., the futures were in a moderate rally that diminished the appeal of the pattern.  The bottom-fishing strategy will remain viable, however, as long as the point 'C' of the pattern, 34.615, is not exceeded to the upside.

Bears could have taken no pleasure in yesterday's shakedown, since each nasty leg down was followed by an almost equally nasty reaction. If the correction retraces half of the rally from the January 28 low, that would imply a bottom at 1375.10; if 0.618 is retraced, that would put the low at 1358.50.  My gut feeling is that the futures will have to come down to at least 1396.30 before they are recharged for another upthrust.

We're long a single March 57 put for a 0.12 credit, meaning we cannot lose no matter what happens.  The QQQs could go as high as 62.09 if they follow the same long-term abcd pattern as the Mini-Dow and Mini S&P, although that would imply a much more powerful last-gasp spike. Accordingly, we'll plan on buying eight April 60 puts, no stop, if the Cubes get within a nickel of 62.09.  We'll also look to buy four April 59 puts if the rally hits 59.78, a lesser Hidden Pivot target.  In this case, though, we'll stop ourselves out if the QQQs touch 59.93.  ________ UPDATE (March 16, 2:55 a.m.):  Since "easy" trades like this one are intended to help pay for your subscription, I'll recommend offering the put to close for $350, good-till-canceled. -

A 12412 target identified here a while back remains viable, so let's plan on shorting there with a stop-loss at 12421.  As is the case with the E-Mini S&Ps, my preference is to initiate the trade using camouflage.  I don't usually advise getting involved on a Friday afternoon, but in this case, because a short-squeezy high on a Friday close would bamboozle even those who have been eager to get short for...years, scaring them from dong the right thing, I'll make an exception. _______ UPDATE (Sunday, 8:28 p.m. EST):  The futures went the wrong way, but the target and the suggested trade remain viable.  Night owls can look for bottom-fishing opportunities at 12109 and/or 12041.

We still have a longstanding target at 1356.00, a number that feels just about right for a potential top if there's follow-through from yesterday.  A thrust to that number would put the E-Mini S&Ps marginally above the so-far 1343.00 high of the Mother of All Bear Rallies -- just enough, presumably, to set the hook for all the lunatics who will be dancing in the streets down in the Battery. As before, I'll suggest shorting 1356.00 with a stop-loss as tight as 1357.25. My preference, however, is that you initiate the short via camouflage, since the wild ups and downs of the last two weeks may have diminished the reliability of the target somewhat.

Yesterday's call here for a 500-point Dow rally may prove to have been one felicitous step ahead of the news.  With the U.S. economy headed into deepest recession, if not outright collapse, nothing makes me queasier than putting out such a bullish forecast. And yet, once again, mechanically following the discipline of the Hidden Pivot System has kept me honest and alert. Under the circumstances, there was no ignoring the fact that a bull cycle now five weeks old easily penetrated a key midpoint resistance on the E-Mini S&P's hourly chart.  Whether this portends stupid new highs for the broad averages and yet more hubris on Wall Street remains to be seen.  Whatever happens, though, we'll be ready.