Is Dow Developing Thrust for a 900-Point Rally?

Gin up a garden-variety short squeeze in the index futures Sunday night, add a dollop of surprisingly less-than-horrific news from Europe, and before you know it the Dow Industrials are in an upthrust that could carry another 900 points, topping 13,000.  That’s not the way things were supposed to play out.  The story had it that the Fed would do everything in its power to force stocks sharply lower so that investors would flee into the dubious safety of Treasury paper. That in turn would strengthen the dollar, paving the way for yet more promiscuous monetization after this afternoon’s expiration of the abortive QE2 program.  Perhaps the Masters of the Universe are still planning to implement this scheme, but with stocks falling from a higher, giddier plateau?  We should know within a few weeks. Meanwhile, in theory the central bank will have some time to play with, since the Fed’s budget allows for the purchase of Treasurys with the interest on Treasury paper already held in its portfolio. (Ah, yes: How can it be called “monetization” if the Fed is actually “paying” for the Bills, Bonds and Notes it buys?)

We’ll leave it to bloggers and the not-quite-ready-for-prime-time media to examine the Fed’s method of paying for whatever it must buy at the next auction.  They’re likely to find elements of Ponzi, Rube Goldberg, and Bernie Madoff, but they’ll first need to get past the stench of it to peel away some layers. In the meantime, with sovereign banks, U.S. households, hedge funds and other would-be buyers becoming increasingly skeptical toward Treasury debt, it seems plausible the central bank will deplete its interest “income” more rapidly than policymakers might hope.

What to Look For

Concerning the stock market, lest our bullish forecast worry or frighten any right-thinking permabears, we would need to see the Dow, currently trading around 12,261, close for two consecutive days above 12523 before we infer that a powerful run-up to 13182 is likely.  That last number is a Hidden Pivot target, and if you are skeptical about whether it will “work,” try asking a few denizens of the Rick’s Picks chat room yourself.  With just a mouse-click and a few keystrokes, you can get a free subscription that includes access to a 24/7 chat room that draws veteran traders from around the world. Meanwhile, to put things in proper perspective, we’ll note that we don’t expect the Dow to get nearly as high as 13000. The 12523 “midpoint pivot” is probably as good as we’ll see, but we’d be eager to get short at those heights in any event.

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  • Marc Authier July 1, 2011, 12:33 pm

    US capital racket. Hey I am expecting Frank Acampuro coming back from the dead and predicting Dow Nazi Jones at 40,000. Fuck America and its Nazi stock racket. This makes so sense. Surreal indeed.

  • Dan July 1, 2011, 11:44 am

    Hidden Pivots? The book says there’s nothing “hidden” that shall not be revealed. So soon you’ll have to fess up and give us those numbers for free. Until then, I’m shorting the YM at 12522

  • david July 1, 2011, 4:57 am

    Just seasonal dollar crushed,fall and 4th quarter will see major commodity rise led by crude oil…then food and then war in mideast with mian combatants israel and iran…usa and europe with israel china and russia with iran…gold will be 2000 min. silver 75 min.Oil will be 200 per barrel by mid to end of 2012 with petrodollar ceasing in dollars.

  • ful_karboy June 30, 2011, 11:44 pm

    “The only thing that really went up consistantly during these terribly irresponsible economic times has been corporate profits,”

    Gold and silver went up too, comrade.

    “and a much enjoyed windfall for the wealthy. ”

    Not only the wealthy own stocks, these days comrade. Pension funds and the smarter and thriftier members of the proletariat do too. Isn’t that wonderful, the workers owning part of the means of production! We BOTH know why the workers weren’t allowed a chance to invest part of their SS money. They might start VOTING like owners… voting against bureaucracies and income redistribution and for only sensible rules and regs for “their” companies.

  • Rich June 30, 2011, 11:16 pm

    ITC ruled against EK, down -11% so far afterhours.

    Fed’s Massive Stimulus Had Little Impact: Greenspan

    Best market week all year.

    Can a massive bloodbath be that far off?

  • gary leibowitz June 30, 2011, 10:15 pm

    Don’t get it. Crying over high taxes, low wages, high entitlement costs, low dollar, high commodity prices, low bond yields, etc… is enough to make your head spin.

    The only thing that really went up consistantly during these terribly irresponsible economic times has been corporate profits, and a much enjoyed windfall for the wealthy.

    Yeah I guess we are on the wrong path. So to fix it you suggest lowering the tax for corporations and the wealthy, doing away with those nasty government restrictions, and place the whole burden squarely on the middle and lower taxed individuals.

    Rob from the poor to give to the rich. Cut costs of entitlements by making the people that can least afford to, pay more and get less. Afterall, isn’t it the place of charitable institutions, and a trickle down economy that should help the needy?

    I would certainly agree that entitlements have grown out of hand. I would even suggest that in a purely practical standpoint wiping out all entitelments would clear the way for the govenment to enjoy a AAA rating.

    Too bad I am not very practicle.

  • redwilldanaher June 30, 2011, 3:24 pm

    Not that Rick needs a defense but to the poster that’s complaining, sorry bud but that’s how it can be when you follow the charts. The Boyz as Rick calls them are very good at what they do and thus you’re best served by permitting yourself to spin on the proverbial dime when the action tells you to potentially do it. I learned this a long time ago the hard way. Consider this: “Don’t think! Just Trade!” With a tip of my cap to Voltaire: “Anything is possible in this the best of all possible centrally planned stock markets that operate within the centrally planned illusions.”

    • fallingman June 30, 2011, 4:54 pm

      Amen.

  • roger erickson June 30, 2011, 1:55 pm

    There are 3 levels of “wealth”, aka adaptive power. In the following hierarchy.

    1) Affinity & trust of the body politic. (don’t PO the crowd; & be a good citizen among citizens worth having)

    2) Return on coordination of a self-trusting group (in the form of effective military, institutions, thinking neighbors, etc, etc)

    3) tangible currency or other commodities
    (fools & their commodities are soon parted; by barbarians agile enough to barge through any gate, whenever they want to take those commodities)

    Invest your time & efforts accordingly.

  • mario cavolo June 30, 2011, 7:45 am

    GS to cut 230 NYC jobs while hiring thousands in Singapore, Brazil, India…

    Two points:

    1. Who thought such outsourcing to cheaper labor was limited to factories and call centers.

    2. The rise of wealth, incredible, uncountable mind boggling, filthy rich wealth, even amongst tens of millions of common people, is happening in Asia. Think of the numbers in Macau to sufficiently jolt yourself into the reality of it…

    • John Jay June 30, 2011, 1:35 pm

      Mario,
      Yes there has been an amazing wealth transfer from the West, namely from the USA to Asia over the last 40 years. All done with the blessing of our government on behalf of big business and the unholy top 1%. One sided “Trade Agreements” removal of protective tariffs, tens of thousands of factories and tens of millions of jobs just given away. The greatest wealth transfer in the history of the world, now China/Asia is an economic powerhouse and we have become Detroit writ large. Since there is no one left to screw in the public at large, the GS/JPM/etc. bosses cast an eveil eye on their own troops as visions of bigger bonuses dance in their heads. “No honor amongst thieves comes to mind”, also “Live by the sword, die by the sword”.

    • roger erickson June 30, 2011, 1:45 pm

      the GS move is also an open threat to Obama; if he even THINKS about re-regulating the bank crooks here, they say, they’ll take our $ and go away from home with it.

      Look for Obama to cave, as his courage as well as his train of thought are still pondering whether to even try to board at the platform. Every politicians job seemingly depends upon them agreeing to say & vote what’s wrong.

    • Sammie June 30, 2011, 4:05 pm

      Yes, the outsourcing is the theme of the day, and it is a great thing. Just think, if we couldn’t move our business elsewhere, then what could you do to Obama in responce to his communist health care plan?

      What could you do to the union? How can you you tell them to go screw themselves?

      How could you react to the hated government always raising the taxes and fees? Making regulations?

      Truly, thank god there is still a freedom to take your business elsewhere. Without this, the commies would push you to the wall!

      Thanks to outsourcing, now, let them eat their own bread.

    • fallingman June 30, 2011, 4:53 pm

      I get your point RE. And, with all due respect, it would be hard for O to “cave” when he (along with GWB) has already given Goldman Sachs the world and all its treasures on a silver platter. After all, as the Fascist in Chief, that was his job…to make the world safe for the bankers. Heads they win. Tails…well, at the worst they don’t lose and still get the big bonuses.

      He is, as Bush was, a wholly owned political subsidiary of GS and JPM.

  • Rich June 30, 2011, 6:57 am

    Hubbell Telescope call on the SPX Rick.
    Why not?
    We had some really divergent sentiment throughout the day-
    298% opening C/P on Equity Options and 25% opening C/P on Index/ETF options.
    Is the tiebreaker the 1140 Point & Figure Objective?
    http://stockcharts.com/freecharts/gallery.html?%24SPX
    Time will tell.
    Meanwhile, no guts no glory…

    • Rich June 30, 2011, 7:21 pm

      Appreciate you Rick providing an open forum for intelligent market discussion.
      Having said that, note that gold, oil and silver rolling over now after SPX tested trendlines and moving averages. Physicals often lead equity markets lower…;

    • Rich June 30, 2011, 7:41 pm

      Rationale for a major market decline this summer:
      Impeachment rumblings on the 40th anniversary of the Pentagon Papers…

    • Rich July 1, 2011, 3:11 pm

      After after hours EK crash on bad patent case news post removed, guess will have to amend the open forum idea.
      Good luck…

    • Rich July 1, 2011, 3:12 pm

      And now it’s back?…

  • John Jay June 30, 2011, 4:14 am

    I just read somewhere, maybe ZH, that insider buying is at a low, but corporation buy back of their own shares is through the roof. The theory is, the bigwigs won’t use their own money to buy their stock, but they use corporate money to do that, so their stock options go up.
    At some point, they unload the options. So between HFT, Fed money used to buy stock by those with access to that money, and the other criminals on Wall Street, nothing surprises me, and anything is possible.

    • fallingman June 30, 2011, 4:39 pm

      Good observation re: buybacks. It’s all so corrupt.

      Take the money and run.

  • mario cavolo June 30, 2011, 3:58 am

    Hi Rick!

    Let me suggest for the sake of debate that your always insightful comments are narrowly focused with respect to this latest squeeze up. (visions of being a kid squeezing up those clear plastic popsicle sticks come vividly to mind – lime was my favorite)

    Focusing on trying to figure out the short squeeze upthrust in the major U.S. indexes and the relation to the banking/treasuries situation, amen, but I note that the upthrust was much broader. The upthrust occurred across ALL risk assets including the non-equities; crude, platinum (I’ll take credit for a great call on that one!) , gold, silver, corn, wheat, sugar, euro/usd….all exactly up to resistance, and then with the singular diametrically opposed decline of the USD and Treasuries equally declining back down exactly to support at 75 and 122 ish respectively. If one thinks about it intelligently, that should NOT happen in terms of economic analysis, such a high correlation?

    It stinks, and just reminds all of us that this is their game. The matrix machine has been as taken over and controlled as it has ever been. So, I’ll go back to my earlier comments of a few days ago, I have never before in my 3 years of economic and daily chart tracking, like the amateur miniature one man hedge fund that I am, seen such a situation where the only amateurish explanation I can come up with is that the markets have been as fully transformed as possible into a HFT computer matrix, with speculators riding on these heels of these HFT momentum driven trades up and down which exist for nothing but trends to scalp profits up and down up and down with little respect for fundamental supply, demand and value, all within the flowing, gyrating support and resistance points.

    Items like food and crude are necessities for the common man, their prices in the real world have no business spiking!….so clearly they are tools for traders to do nothing more than make money, and in the world we are facing, the coming economic disaster of potentially biblical proportions, getting better at trading is one of the few reasonable defense strategies I can think of to protect myself. Too bad it is so treacherous an endeavor, yet thank God I am month by month getting better at reading the trades, the trends and money management discipline, of course lots of insights I’ve learned here included.

    Cheers, Mario

    The BAC move brought tears to my eyes on my otherwise dandy August puts and at 95.50 I added to my crude puts.

    I am getting more and more convinced that the news follows the market movements rather than the other way around.

    • martin snell June 30, 2011, 4:34 am

      What is amazing is how little volume there is, especially when you consider how many trades are of the HFT variety ( a couple of miners I follow can have almost no trading one day, then a million the next in little 200 share blocks – insane). Back out the HFT and I bet there is almost nothing really being done. The individual investor seems to have left the field, and even the funds seem to just sit there (caught with outflows and no new funds to invest). I guess that is why it is so easy to run the marker this way and that for absolutely no reason. The HFT guys are gradually killing the market for good. The two computers left trading against each other can’t be profitable for both forever.

    • mario cavolo June 30, 2011, 9:04 am

      I’m happy to note exactly as you said that on this rise up to resistance in crude, it has not been on strong volume…hence I added to my short…

    • mario cavolo June 30, 2011, 4:35 pm

      Yes yes and yes on the points about Asia’s rise…caveats: Doing business in China, the advantages are declining…coming here to establish business is 1) getting much more expensive, big bucks required. 2) less and less easy for foreigners in all forms and structures, not easier and easier. 3) a royal pain in the ass and 4) a royal humongous pain in the ass with a freshly different excruciatingly frustrating set of rules one must adapt to. Oh, did I say that already?…when in doubt on 2) repeatedly refer to 3) and 4) to keep your thinking on the right track.

  • Scott June 30, 2011, 3:51 am

    Do you even know what you are doing? one day Pm’s will crash. next day “look for a rally”, market will rise, but short here there and buy everywhere….your stuff is all over the map………..!!

    $$$$$$

    Why don’t you blow it out your shorts, Scott. Better yet, pony up for a paid subscription so that you might benefit from the precisely detailed, unhedged nuances of each day’s forecasts. Conditions are always changing, and I call ’em as I see ’em. RA

    • SD1 June 30, 2011, 4:00 am

      Feel free to give us your analysis on a daily basis Scott. My money’s on Rick, but I’ll give you the benefit of doubt.

    • brad June 30, 2011, 4:32 am

      No doubt.Total jibberish.

    • Cam Fitzgerald June 30, 2011, 3:47 pm

      I think Rick has got it right Scott. What we are seeing now is that the economy-killing rise in commodity prices has taken a sharp turn downward while a renewed interest in equities has developed as corporate profitability is seen to benefit from that shift in thinking and choices of investments.

      Looking at some of the commodity charts today you can readily see that there has been fairly dramatic price drops for some over the past 30 and 60 days. A strategy has developed with the the recent release of oil from strategic reserves to take the wind out of energy costs and blow the froth off input costs that were delivering us inflation absent real growth. What looks fleeting on the surface may turn out to be a trend.

      So it would not surprise me at all that this commodities correction might manifest in higher stock values. Rick is not all over the map here as I see it. A divergence is developing that is positive for equities and may lead to very healthy markets by September.

      Let’s face it, margins were getting squeezed since last summer and the QE’s were threatening to extinguish growth as they inadvertently shifted speculative capital into hard assets and commodities and away from other investments.This was a natural response to fears that inflation would be rising sharply in the future.

      There are clear efforts to reverse that trend now as a means to ensure global growth is not being damaged by the very stimulus that was implemented to reinvigorate the economy.

      I like these policies to be honest. We already know that much of Corporate America is in a strong balance sheet position. Growth is sluggish though, even slowing, and so little energy is being diverted to reinvestment.

      Knocking back commodity prices may indeed result in improved confidence in the boardroom, especially if it is seen to be deliberate policy who’s outcome will improve the business climate and profitability.

      So the advent of declining input costs can only be of benefit to the companies we love to invest in and this should be seen as a plus in this environment that can only result in an improved business dynamics, greater confidence and potentially higher dividends down the road.

      As oil prices, grains and other key material prices drop we should expect some sympathetic declines to materialize in the precious metals markets that tend to track commodity movements. The outcome will be higher equity values.

      It is not a bad thing. It is not inconsistent.

    • mario cavolo June 30, 2011, 4:44 pm

      ….Hey butthead, no trader, no analyst, no talking head, no matter how brilliant and successful is right much more than half the time. The key is to lose a little each time on the wrong half when you’re wrong and make much more on the right half when you’re right. Rick is a chartist, and charts identify key support and resistance and pivot points that are inflection points which increase the level of favored probabilities of trades going one way or the other, but that is not to say they are psychic and can know what kind of news or other nefarious activity lurks in the shadows of the tape that blindsides us…

  • martin snell June 30, 2011, 2:21 am

    Fascinating times.

    This week looks like levitating higher to make Q2 look a bit better. That ends tomorrow and I would not be surprised to see the DOW and S&P take on their 50 day moving averages (which will start to drop next week, barring a massive explosion upward).

    Starting Friday and into next week the interesting times begin. Big drop in liquidity injections, Greece “solved” for now, and attention returning to the debt ceiling debacle (so focus back to US$). We already saw ugly auctions this week (3, 5, and 7’s) as players knew they would not be able to flip their holdings back to the Fed next week.

    Plus if and when they up the debt ceiling look for a flood of new debt to “catch up” to what has not been issued over the last few months – at a time with no Fed buying. It is hard to see how we do not come to a head before the end of summer, and likely sooner … unless they pull another rabbit out of the Jackson Hole.