January 2012

Hey, I've got a hot tip:  Run the other way when some tipster wants to share a piece of juicy insider information with you.  What would you have done if he'd told you earlier in the week that the notoriously well-connected banking firm was about to report horrendous earnings for the fourth quarter? You'd have jumped on some put options, right? Maybe a dozen or two March 95s, which were selling for around 3.50 with the stock loitering suspiciously near $98 on Tuesday.  Guess what: The tipster got it exactly right. Goldman's earnings could hardly have been much worse -- down 58 percent for Q4.  As for the March 95 puts, does an instant double to $7.00 sound about right? In fact, they traded for as little as 92 cents yesterday, having shed three-quarters of their value in just a few short hours as the stock soared almost $10 from the previous day's low. This breathtakingly counterintuitive outcome is one of the sleaziest bear traps I've seen sprung, and although it's ultimately going to undercut the stock's credibility as it makes its way down to, oh, $10 a share years from now, for the time being, Tuesday's short-squeeze will provide exactly the kind of buoyancy that its handlers -- a bunch of goniffs that  I wouldn't trust alone with my cat -- had sought in order to unload shares on widows and pensioners.  Sometime before this swindle runs its course over the next couple of weeks, we'll want to lay in an inventory of way-out-of-the-money puts so that we can later attempt to spread off their risk when the stock eventually plummets like a brick on ginned-up "good" news. Want to join us for the ride?  Click here for a free trial subscription to Rick's Picks.

It's been a while since I looked at Silver Wheaton, which has been tracing out a bearish pattern for too long to give bears much comfort.  Check out my key numbers for the stock if you hold SLW shares, since they are likely to be helpful in gauging the seriousness of any dramatic rally or decline.

We’d almost lost track of Europe since the newspapers went mum on the subject in late December, after auction rates for Spanish and Italian debt receded sharply from the 7% threshold. That’s officially the danger zone, at least to the extent that the business pages usually headline the story, albeit on an inside page. And now, in an apparent effort to keep all of us euroskeptics off balance, news sources often refrain from mentioning certain auction details, including the specific rate demanded by lenders.  Here, for example, is an everything’s-coming-up-roses story from a Wall Street Journal report that ran yesterday under the sunshiney headline Europe Debt Auctions Find Demand: “Spain sold 4.88 billion euros in 12-month and 18-month treasury bills amid strong demand, at interest rates well below those at its previous auction [emphasis ours]. It’s hard to say whether the Journal was being coy. To give them the benefit of the doubt, it’s possible the paper’s editors made a decision to downplay the mention of specific rates because the rates have been fluctuating so wildly in recent months as to be meaningless. Perhaps. For the record, we believe that anything above 2% subjects sovereign borrowers to a deflationary burden capable of snuffing the life from an economy. So how have the PIIGS managed to survive nonetheless? Answer:  They haven’t. Fiscally and economically speaking, they are all Dead Countries Walking. But it seems clear that they will be able to continue to borrow at rates that imply the near absence of risk. That’s because the local banks that are sucking up all of the paper, most of it short-dated and backed by “full faith and credit” boilerplate, are so flush with cash that they don’t know what to do with it all. A Dutch banker succinctly summed up the auction

Targets well below these levels remain valid, but for now we should focus on a bullish impulse leg that has developed this week on the lesser charts. It projects to 1.2882, a Hidden pivot that would become an odds-on bet if and when the futures take out its p sibling at 1.2798.  Yesterday's high missed that mark by nine ticks, but if that should change overnight, night owls might look to 'camo' their way aboard on a B-C pullback beginning from somewhere between the two peaks, as shown.

We'll use the 31.545 target of the pattern shown as a minimum upside objective for now, predicated on a close or decisive thrust above the pattern's 30.485 midpoint pivot. Night owls looking for a 'camo' entry opportunity should check out the following, incomplete pattern on the 10-minute chart: A=30.070 at 11:20 p.m. EST; B=30.255 at 12:10 a.m.; and C=?.

A close look at the Dow Industrials in today's touts holds bullish implications for gold.  Check out the chart of the former if you remain to be persuaded, against all logic, that stocks are headed significantly higher.

Since gold has been moving in lock-step with stocks, this evening's very bullish tout for the Dow Industrials implies that bullion quotes are likely to continue along the bullish path begun from 1524 on December 29. Accordingly, we should continue to favor the 1681.50 target given here yesterday as a minimum upside objective for the near term. If that number is achieved, bulls should take encouragement, since it would complete a minor rally pattern above the important midpoint pivot of the four-month-old correction, effectively transforming a major resistance into a presumptive support.

Take any dozen good reasons for being bearish right now and they still don't equal the bullishness of the chart shown. The undeniably compelling rally objective is 13085, a 4.8% move from current levels, and one can only surmise that the dusting the 12158 midpoint received on the last pullback (12/28) all but clinched a finishing stroke to the higher number. Moreover, it implies that bears shouldn't get their hopes too high even if, in the next few days, the Dow plummets 324 points to retest the midpoint support. As of now, that would signal not weakness, but a screaming opportunity to get long.  Hard to believe, really, but that's what the charts say.  _______ UPDATE (March 6, 12:06 a.m.):  The Dow got as high as 13056 -- close enough to the target to turn me very cautious.  This means, for one, that I am not taking the likelihood of yet one more short-squeeze rally as a given.  In fact, a downdraft that exceeds 12883 would create the strongest bearish impulse leg on the daily chart that we've seen in a while.

Although the stock market is unlikely to grind to a complete halt, it seems to be experiencing what could be called nervous paralysis. Yesterday, for instance, achieving a modest rally target at 1316.75 that we’ve been using for the E-Mini S&P should have been a piece of cake. In fact, buyers were unable to push the futures above 1302.50 before retreating into the close.  This tedious undulation has repeated itself perhaps a dozen times since Christmas, and although stocks have trended timidly higher over that period, the total gain has amounted to no more than about 220 points for the Dow Industrials. Because there is evidently not much conviction among bulls, let alone a good reason to be bullish; and because bears have yet to recover from the trauma of the Dow’s 260-point short-squeeze on January 3, stocks have drifted nervously higher, unable to correct for reasons explained here yesterday. Those reasons mainly concerned the gusher of funny money that the central banks have channeled into the financial system. This is inflation, pure and simple, and although it provides a plausible rationale for buying stocks, we have our doubts that the stock market will ultimately prove to be the best investment vehicle for discounting inflation. Why?  Simply because inflation could play out as an instantaneously ruinous hyperinflation before subsiding just as quickly into a deflation far more destructive than the one we are now experiencing. Waiting for News In the meantime, it seems clear that the mountebanks who maneuver the markets up and down from one day to the next are waiting for the kind of news that will ease their task. Stories concerning Europe’s slow-motion collapse have been temporarily pushed beneath-the-fold by Europe’s seaborne disaster off Italy, but they are certain to re-emerge with a vengeance, and soon. It