June 2011

I remain skeptical toward this rally, although it certainly wouldn't be a bad thing if it were to get legs and delivers us a fat short at higher levels. My hunch is that the broad averages will retrace at least half of the downdraft from the June 1 high, 1347.75.  In any case, because it is proceeding from almost precisely where Hidden Pivot analysis had predicted, we should trade with a bullish bias for the time being. There were no compelling camouflage opportunities as we went to press, but night owls may find things to do on the 5-minute chart if subtleties like the one sketched materialize.  (Want to learn how to reduce entry risk to a bare minimum using the Hidden Pivot camouflage technique? Click here for information about the upcoming webinar.)

Because the stock market has just received the kiss of death technically speaking, traders who are looking to get short should view rallies like yesterday’s as a gift.  Notice in the chart below how the S&P 500 exceeded three prior lows without an upward correction. It would have been bearish enough if the selloff had breached only two prior lows, since that is all our proprietary Hidden Pivot Method requires to signal a trend change. But by exceeding a third low for good measure, sellers revealed their eagerness to be out of shares before summer begins.  In the meantime, let’s hope the bullish hubris continues for another day or two, since it could set up the fattest trading opportunity bears might see for a while. (Want to learn how to predict swing highs and lows yourself -- with amazing accuracy? Click here for information about the upcoming Hidden Pivot webinar.  Or here for a free trial subscription to Rick’s Picks, including access to a 24/7 chat room that draws veteran traders from around the world.) According to the Wall Street Journal, stocks rallied yesterday because the economic news was moderately encouraging. We know better, though. It was more a case of the day’s flatulent economic news seeming moderately encouraging because stocks were rallying. The news item of the day -- not counting the salacious one about Rep. Anthony Weiner’s formerly private life (and private parts) -- concerned an unexpected contraction in the trade deficit in April. That’s good news, right?  In fact, the trade deficit declined a whopping 6.7% because Americans are buying a lot less oil. And while that may be good news for the global-warming crowd, it is ominous news for the economy, since it suggests that soaring prices for an essential commodity are beginning to severely impact

The futures looked bound for a corrective low at 35.780 when the day ended, but that target would be negated by just a little push Wednesday night exceeding the 36.965 point 'C' shown. Looking at a somewhat bigger picture, it will require nothing less than a rally to 38.435 to turn the hourly chart unambiguously bullish.  If 'C' has not been exceeded, the 35.780 support can be bottom-fished with a stop-loss as tight as three ticks.

Bears held a slight advantage at the close, but that would be easily remedied by a pop above the 1547.40 peak-let shown in the chart.  Failing that, we should expect a relapse down to 1527.20, a Hidden Pivot target that can be bottom-fished with a 1527.40 bid, stop 1526.90.

From a chartist's perspective, nothing could be less significant to a stock or commodity's price action than news, so we should treat yesterday's OPEC story as absolutely meaningless. It seems they could not agree on an output boost that savvy traders supposedly had discounted. The news media made much of this, but all we see in the charts is yet another distributive rally in a bearish pattern that will eventually take the July contract down to 85.07.  We can infer that the move has begun in earnest if and when the futures close for two consecutive days below the 95.11 midpoint associated with the target.

Pushed below 75, the Dollar Index has grown increasingly nasty toward bears, with Whoopee Cushion rallies interrupting the decline each step of the way.  Although I am still calling for a major decline to at least 68.36, it's not going to be an easy ride for shorts, since the lower the dollar goes, the closer the world's financial system moves toward the inevitable Day of Reckoning. Fortunately, and in any case, it will be virtually impossible for this vehicle to take us by surprise if we simply watch for the creation of a bullish impulse leg on the hourly chart that would warn of a significant trend change.

By breaking beneath a key low recorded on April 18, the major averages have generated bearish impulse legs on their respective daily charts. This is shown in the chart accompanying today's QQQ tout, and it is one reason that we bailed out of a long position in that vehicle when it went against us only slightly.  Downside targets in other vehicles, including the E-Mini S&Ps, had been more than a month in coming, and their failure to engender strong bounces  is a second sign that trouble is brewing.

We briefly held July 57 calls but ditched them for a tiny loss when the Cubes slightly exceeded the downside Hidden Pivot we'd used to time our entry. The move through the support has been slight so far, but the fact that it was exceeded at all hints of still lower prices to come.  Moreover, the decline created the first bearish impulse leg on the daily chart since March. This means we should look to short this vehicle on rallies, so stay tuned for detailed advice if and when an attractive opportunity surfaces.     Incidentally, if you don’t subscribe to Rick’s Picks but would like to know more about the proprietary camouflage trading technique that we use to keep entry risk to a bare minimum, click here for information about the Hidden Pivot Webinar in late June.  You could also take a free week’s trial subscription that will give you access not only to explicit, easy-to-follow trading recommendations each day, but to a 24/7 chat room that draws combat-hardened traders from around the world

We usually look for rally targets to get short; yesterday, however, with the futures down nearly 100 points from early May's Mother of All Bear Rallies peak, we tried bottom-fishing -- with inconclusive results. The E-Minis fell almost precisely to the target I'd billboarded last week, but they couldn't get airborne.  Moreover, because the target had been five weeks in coming, we had good reason to expect a substantial bounce. That could still happen, but the fact that it did not happen yesterday on first contact with the target is ostensibly bearish. To be more certain of this, we'll set the bar today at  1288.00, a tick above the peak shown in the chart.  A print at that price would turn the hourly chart bullish for the first time in two weeks, setting up a possible camouflage trade. Otherwise, look for the futures to continue lower -- to at least 1269.75, a Hidden Pivot support hat can be bottom-fished with a stop-loss as tight as 1.00 point.  Its provenance is shown in the chart.