August 2012

September T-Bond futures look like they're revving for a run at all time highs recorded a little more than a week ago.  Check out today's tout and chart if you think you see a bearish head-and-shoulders pattern in the making, since there is strong evidence to the contrary if you apply Hidden Pivot Analysis.

The futures did yesterday what we should have expected them to do if they are bound for new all-time highs.  The 149^16 low occurred just 5 ticks beneath the midpoint support of the pattern shown, giving way to a spirited rebound that, while not yet impulsive on the 480-minute chart, need only push above 152^14 in the days ahead to generate a bullish impulse leg on the hourly.  Some may claim to see a bearish head-and-shoulders pattern in gestation, but Hidden Pivot Analysis suggests otherwise -- as you can see for yourself in the accompanying chart.

We'll raise the bar a tad lest we be seduced into believing that some little rally portends a far bigger one. Let us stipulate that the futures settle for two consecutive days above the 1619.60 midpoint resistance of the pattern shown before we give this nearly ten-week-old dirge the further benefit of the doubt.   Assuming yesterday's 1586.30 low holds as point C, the magic number for today, as noted above, would be 1619.60.  Above it, there would be no room for even a shadow of a bullish doubt if buyers can push this brick above the 1678.60 peak recorded on  May 1.

I mentioned the prospect of a 40-point rally in today's commentary, and here it is in graphical terms. The C-D leg has been slow in its approach, to put it mildly, but the pattern itself is hardly farfetched. More immediately, the futures will need to resolve the bearish impulsiveness of yesterday's plunge. If the 1404 rally target shown is to be achieved, the downtrending abc shown in purple will reverse from its p midpoint or higher.  Camouflageurs can try bottom-fishing there if the pattern unfolds more or less as shown.  You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

Alas, the devil is in the details for Europe’s latest attempt at financial alchemy.  Much to the investment world’s apparent dismay yesterday, it turned out that the ECB’s Draghi had nothing very specific in mind when he pledged last week to defend Europe’s monetary union by any means necessary.  In theory, and most immediately, such a rescue would entail using printing-press money to mop up Spain’s leprous bonds, lest rates push above 7%. Seven percent is the generally accepted danger threshold for sovereign borrowers, but we’d lower the red zone to around 2% ourselves. Our argument is that even a “mere” 2% rate imposes an asphyxiating burden in real terms, given the combination of deflation and fiscal austerity that has put Europe in a choke hold. Regardless, we won’t quibble over a spread of five measly percentage points if Europe’s bankers have indeed convinced themselves, as they seem to have, that servicing loans at a rate above zero is do-able in a negative-growth environment that could linger for years. No doubt Mr. Draghi feels a twinge of Helicopter envy whenever he is called on to make heroic promises.  His colleague Mr. Bernanke can say and do things that would get Draghi hauled in front of a tribunal – if not in his native Italy, which has always thrived on gray markets, then in Germany, where bankers continue to vex the rest of Europe with their prissy insistence that i’s be dotted and t’s crossed.  With Germany riding herd on any tactic that Draghi might attempt, his task of fixing Europe is akin to Bernanke trying to bail out California with Ron Paul holding a veto.  And while Bernanke could be counted on to evade even the most deadly surface-to-air inbounds, Draghi lacks the experience and political cover to stay airborne.

Yesterday was a very peculiar day that just didn't add up.  With speculators waiting breathlessly for word of QE3, bulls and bears did...nothing when there were no new measures announced to "stimulate growth."  Perhaps because this has been such a memorably asphyxiating, screw-the-pooch kind of summer, the trade-desk whack-offs and algo-maniacs were just too tired to react to the non-news. But it's hard to imagine that, come Thursday, the usual bunch of Wall Street clowns will find something bullish in Wednesday's news.  A delayed-reaction plunge, perhaps?  We shall see.   [Rick's Picks' Hidden Pivot Webinar is going on right now. Click here if you don't want to miss the next in September.]

A chat-roomer with some farming experience thinks there's news yet to come about the corn harvest that will push prices even higher. In any event, we should use the 860^2 target of the pattern shown as a minimum upside objective for the near term. Although buyers had little trouble pushing this vehicle through its 802^7 sibling midpoint resistance, yesterday's relapse back down through it suggests bulls may be tiring. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

How did Stockton, California get mired so deeply in muck, stuck with paying an estimated $417 million over the next 30 years to provide free lifetime healthcare to its pampered workers?  The short answer is that voters were too busy to care about such things. Indeed, if they’d attended city council meetings or kept up with the minutes from those meetings, they’d have realized a decade ago that the city was on a path to financial disaster. Instead, irresponsible and too lazy to be bothered, they paid little attention to how their tax dollars were allocated by a city government that turns out to have been either grossly incompetent, recklessly negligent or a combination of both. Now Stockton and its workers are in a full-tilt battle over whether the latter will ultimately receive all of the absurdly generous retirement benefits they were promised. It needn’t have ended so badly for Stockton, which, with a population of 292,000 ranks as California’s thirteenth largest city. All it would have taken to avert the downward spiral that's coming is the diligent attention of one or two civic-minded gadflies and a local newspaper that cared. In bygone days, the alliance between them has proven highly effective in rooting out fiscal excesses and raising the awareness level and constructive ire of taxpayers.  These days, unfortunately, the local gadfly has all but disappeared from civic life. After all, who has time to attend city council meetings any more, or to ride herd on local decision-makers? Like most of us, erstwhile gadflies are too busy trying to make ends meet to have the time or energy for haggling with local pols over line-items in the budget.  As for the newspapers, they are fighting for their lives, too strapped for cash to cover local government diligently -- but

The markets have been a study in tedium since early spring, and so this session allowed us yet another opportunity to examine the beast in its resting state. On this particular day one could have taken one’s pick as to being long or short Gold or the E-Mini S&Ps. That in itself suggests that only very nimble traders were likely to be rewarded for their efforts. Even so, there were camouflage possibilities in gestation, and these we considered in their subtlest details. Please note that this session runs only 40 minutes due to a scheduling conflict.