June 2012

Another eurobailout, this time for Spain. Here’s how two politically useful idiots who cover business news for the Associated Press – Paul Wiseman and Peter Svensson -- saw it, abetted by the perfect quote from a third:  "This move will come as a relief to the Obama administration as it suggests that European leaders are finally beginning to take significant actions to ease the intensifying pressure on the euro zone's peripheral economies" such as Spain and Portugal,” said Eswar Prasad, professor of trade policy at Cornell University. Finally? Significant?  All three of these guys must have missed the news a few months ago that a trillion euros’ worth of  no-strings credit – about ten times the amount extended to Spain over the weekend – was put at the disposal of Europe’s commercial banks. But to do what?  Hey, let’s not be impertinent! Don’t ask, don’t tell has become the omerta of the global banking system and its news-media lackeys.  And anyway, it’s not the purposes to which such “money” will be put that we are supposed to think about – only that the “money” itself is there – in this case materialized, somehow, by 17 European countries most of which are themselves bankrupt. We’re not referring to just the PIIGS, either.  Has anyone taken a close look at France’s books lately? The Seattle Times headlined the story thus:  “Bailout for Spain’s Banks Buys Time for Europe”. That’s a gutsy way to slant the story on a Saturday night, considering that the world’s stock markets would be voting their confidence, or lack thereof, in less than 24 hours.  Suppose stocks open flat-to-down in Asia, and then Europe follows with a thud? There goes a hundred-and-twenty-five bil, as fleetingly impressive as a shower of white sparks on the Fourth of July.  Our

As promised, we'll keep trying to short this vehicle at each spot that yields attractive odds. Most immediately, that will mean buying four July 63 puts if the Cubes get within 15 cents of the 64.49 target shown.  I can't predict how much the options will sell for at that point, but if you want to get the best possible price, monitor the bid/asked spread for this series from the time QQQ hits 64.  If you fill the order, stop yourself out if the puts trade for 0.25 less than you paid for them.

We're going to stalk the QQQs to get short for the next avalanche, so be sure to sign up for real-time alerts if you're interested. To do so, check the 'e-mail notifications' box on your My Account page.

The 63.18 high of yesterday's opening-bar bull trap exceeded a key external peak from May 29 by three cents, creating a bullish impulse leg that easily endured the selloff that followed. Whatever QQQ does in the days ahead, we'll be looking to short it however we can, every chance we get, since it's an ideal trading vehicle for relative novices.  First, though, here's one for more-experienced Pivoteers: If the pattern plays out more or less as sketched, go short at 'X' by buying a multiple of four  July 60 puts. I'll update with further guidance intraday if at least two traders report fills in the chat room. _______ UPDATE (11:12 a.m. EDT):  Cancel the order. The pattern has in fact developed to produce an 'X' short at 62.40, provided the point 'C' high at 62.40 endures. However, the QQQs are moderately buoyant today, and in the hourly-chart duel that has played out since Wednesday, bulls would appear to hold a slight edge.  If we were to get short right now we'd be in the position of hoping for "bad news" Sunday night. Hope being the final refuge of the desperate, we'll wait for a better opportunity.

In the update to yesterday's tout I predicted sloppy price action for months to come.  I'm tempted to say it will have a bearish bias, but because we know that a dire financial crisis could bubble up at any moment, we shouldn't give up on gold. Trouble is, the crisis could be deflationary -- say, an unexpected bank holiday -- and that would likely send bullion quotes, along with prices for nearly everything else, plummeting. In any case, and most immediately, I would suggest using the midpoint pivot of the pattern shown to initiate a trade -- a short, perhaps, if on a downtrending abc following a breach of the support.  Point 'C' had yet to form as of around 7 p.m. EDT, but the pattern already looks clear enough to suggest its possible usefulness.

It was 'dueling delusions' yesterday:  China's move toward easing vs Helicopter Ben's frank admission that 'monetary policy is not a panacea'.  Isn't it a bit late in the game for him to be saying such sensible things?  In any event, by day's end the Fed chairman's unwonted reluctance to masturbate Wall Street brought shares down from the giddy heights they'd achieved on word that China was prepared to use the West's number one growth tool:  more debt.  Permabears that we are, do we dare get in the way as every nation on earth with a central bank fixes to ramp up credit?  In a word, yes. As has been demonstrated here time and again, we can short every misguided rally from here till the cows come home, often booking at least a small profit even when we are wrong. We can also buy the dips in anticipation of the extreme rallies that are certain to occur if the stock market has indeed entered a bear market. Most immediately, that would imply bottom-fishing at the 1312.25 midpoint pivot of the pattern shown. This must be executed camo-style, however, since the Hidden Pivot support is coincident with yesterday's low.  The objective here is not merely to profit from the rally, but to use the profit to cushion the stop-loss on our next short.  Night owls in particular should note that an easy breach of 1312.25 would imply more downside over the very near-term to its 'd' sibling, 1306.50.  Like to learn how to reduce the risk of a trade using the Hidden Pivot Method? Click here.

[My New England road trip brought me to the St. Johnsbury, Vermont home of an old friend, Neil Raphel.  A marketing consultant with degrees in English literature and law, Neil worked for a while as president of the trading firm of Wall Street legend Victor Niederhoffer.  In the guest commentary below, he summarizes the most important things he learned about trading from Victor. RA] Rick asked me to fill in for a day, and I thought I'd give you some trading and life tips I learned from Victor Niederhoffer. Victor is, above all, a speculator. Like the infamous Jesse Lauriston Livermore, an early 20th century stock investor who made and lost several fortunes in Wall Street, Victor over the past 40 years has made spectacular gains in the market and suffered some devastating losses. I had the good fortune to work for Victor in the mid-1980s, when he was at his trading pinnacle. At his best, Victor was a short-term trader who made money consistently in the commodities markets by charting the interrelationships of commodities. Years later, after I had left, Victor had some setbacks when he changed his trading methods to accommodate a much larger public fund. But to my mind, Victor was a trading genius whose short-term results consistently disproved the "Random Walk" theory of the market. Year after year, Victor produced amazing results. Ten Tips I came to Victor as a trading novice. Here are ten tips from him that helped me learn the trading game: • Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading? • Write down trading prices (by hand). There were a ton of

From our good friend Jonathan Auerbach, an inspirational note on the passing of Ray Bradbury: "Bradbury left us the other day and remember not only his simple message not to miss life and to practice it with guts and determination or as one of my personal Shakespearean favorites, Henry V, put it...'if it is a sin to covet honor, I am the most offending soul alive.' Sure, Ray treated us to magical and mythical futuristic visions but I am here to remind you that we all embrace these visions on a reality of daily material and secular events that are our version of Bradbury's 'STARS'. 25 years ago I spent time in the USSR and came away absolutely convinced that this immense portion of the world's land mass operated as a fraud and those that lived there got it and yet returning to western Europe I found everyone there still believed that the commies imminently planned overtly or covertly to take us quivering socialists in capitalist guise. "But...it is not 25 years ago, and it is not yet Fahrenheit 451, it is 2012 so take a Bradburian moment... remind yourself not to be distracted or deceived by the various complacent and orchestrated rolling fogs of politically and economically motivated obfuscation delivered by your handy hand held, the blogosphere, or the nearest surround screen...and do remind yourself that our reality is an inevitable leveling of the global playing field with hundreds of millions of new and enthusiastic players. Take a last bit of Bradbury advice...'I'll hold on the world tight some day. I've got one finger on it now, that's a beginning."

The early evening was extending Wednesday's trends, effecting weakness in bullion and glowering contempt in the index futures.  They're up just a smidgen at the moment, but it'll take more than yesterday's hysteria to impress me. For the precise number where the E-Mini S&Ps would become interesting, check out the ESM12 tout.  Click here for a free trial subscription.