Forget About Predicting The Big One

Forecasting the stock market’s price swings accurately is just a cheap parlor trick, as we often like to remind subscribers.  For the most part, and notwithstanding the diligent efforts of Wall Street’s Masters of the Universe to manipulate shares to their advantage, we see technical evidence each day that suggests that stocks and commodities are ruled by a sort of cosmic metronome. If you’re skeptical, we would urge you to visit the Rick’s Picks chat room sometime and see for yourself that predicting the exact highs and lows of minor trends has become a matter of routine for many of the technically trained ninjas who frequent the room.

Far less predictable, however, are the kind of seismic events that make headlines and which have the potential to shake the financial world to its core.  Indeed, speculating about what might happen the next day, even the most gifted market seers cannot but hazard a guess as to whether the Dow Industrials are about to plummet by two-thousand points or instead rise by as much.  Thus do the market’s more or less predictable ups and downs ultimately do the bidding, not of algorithms and trading machines, but of a fearsome, id-driven hybrid of insect, reptile, sea monster and rabid dog. Traders step into the cage with this diabolical creature each day and take its measure not really knowing whether it is about to lull us to sleep, or instead rewrite history with a feat so stunning that even those who have observed the markets for 50 years will be numb with shock.

Lulled to Death

But as long as stocks continue to move mainly in one direction, as they’ve been doing since March of 2009, we tend to see, not the nightmares of investors’ collective subconscious, but a quite normal species that inhales and exhales and which moves with a flow whose rhythms can entrance us with their regularity.  The resulting feeling of tranquility is what naturalist Steve Irwin may have felt as he snorkeled above a sting ray that was lazily making it way along Australia’s Great Barrier Reef. One moment, Irwin was in harmony with the eddies that bore both him and the ray along. The next, without warning, he was in the agonizing throes of death, his heart impaled by the creature’s barbed stinger. Will investors fixated on a bull market that has run for more than four years suffer the same fate?

  • John Jay June 26, 2013, 10:02 pm

    Speaking of Gold…………
    Way back in February of this year I got a call from a futures broker trying to sell me on his scheme to sell puts on December 2013 gold futures.
    At that time gold was trading at about $1679.
    He said it would not drop much further and the puts would expire “worthless”.
    I said no thanks but I have watched the price of put options that were way out of the money at that time.

    Strike Feb 2013 June 2013
    1300 $7 $109
    1350 $11 $107
    1400 $16 $188

    I guess he got stopped out at some point.
    Similar action in NUGT which has gone from $97 in September 2012 to $5 today.
    Amazing returns if you take the plunge.
    Too scary for me to trade.

    • gary leibowitz June 26, 2013, 11:32 pm

      Gold sitting near 1220 right now, right where Rick said was the resting place.

  • Bam_Man June 26, 2013, 6:27 pm

    Re: Rick’s Hidden Pivot Target of $295.85 on AAPL-
    At that level it is very possible that the share prices of AAPL and AMZN would be roughly equal. AAPL has $40/share in earnings and pays $12 in dividends. AMZN has $0/share in earnings and pays no dividend. Certainly in this bizzarro market, I’m not saying it couldn’t happen, but…..wow- if it did, one (if not both) of those stocks is wildly mis-priced.

  • gary leibowitz June 25, 2013, 3:37 am

    I would agree that this 4 year move has tranquilized most with only a small concern it will result in a rout.
    That in itself will not be the catalyst for a crash however.
    The recent action is suggestive of a corrective move, with a clear 2 wave move off the highs, and what seems to be the 3rd and hopefully last wave down. Rick’s own technical opinion seems to confirm this possibility. The bond repurchase has shown to be deflationary, and I see no reason to believe a tapering off would hurt the economy. M2 money growth and 4 years of deflationary pressures are testament to this. The really big fear from wall street is that the economy will heat up and derail their incredible earnings and profit margins. They have a reason to worry. The yield spread increasing will help, not hurt the financials. That assumes there is a cap to this move. Lending and borrowing should become much more lax. I, like Bernanke, believe the housing market will not suffer from the current rate increases. I will though expect earnings to underperform as the consumer outperforms. The next phase of this economy should show improvements for the consumer at the expense of profit margins.

    I hope to re-enter this market if there is seen to be capitulation. Based on the last 2 waves, the time frame for the final bottom should be this week. I am now planning on playing with dynamite, where it can blow up in my face. A dangerous game near a transition point between bull and bear. If I see a one-day capitulation move without violating the assumed support levels, I will bet with the assumption of a 10 + percent rally up, within a timeframe of 5 weeks (approx.). This assumes we don’t have a rout taking out all support.

    As for Gold, it also looks like it has another big one-day event lower to wash out the weak hands. It might just coincide with equities move.

    In any event, whether now or a couple of months from now, the cyclical bear should strike. Without seeing a reversal from the consumer I would not bet it becomes a secular bear. Patience and accumulated economic data is needed to persuade me otherwise.

  • KevinR June 25, 2013, 2:03 am

    Who (or what) is PnF?

  • Rich June 24, 2013, 9:31 pm

    H-Man, PnF Gold target now 1111

    Mario, now with SSEC down -43% from its Aug 2009 high, do you think it is a buy?

    (PnF target now 1920)

    Regards*Rich, busy with 2014 campaign

    • mario June 26, 2013, 2:52 am

      If not yet it’s close…..

      Let’s be clear…the next few years are going to be tough economically due to all sorts of negative factors.

      1. China domestically is much better than most realize, however slowdowns on the mfg and infrastructure side are real too so it ain’t a rose garden even with very strong domestic consumer growth.

      2. Far less transparency in the markets here, it’s Macao, and any Chinese knows that, so don’t kid yourself…

    • Rich June 27, 2013, 6:16 am

      BA CEO tonight said they are back-ordered on One Thousand 787 Dreamliner jets until 2019.
      China, building 93 new airports, 6 of them the size of OHare.
      BA PnF Target 124…

  • decemberlight June 24, 2013, 7:02 pm

    Nice synopsis, Rick. Strong imagery. Masterful characterization of the game and its players. Fun read.
    I’m extending my subscription. Again. Thanks

  • Hueofman June 24, 2013, 2:37 pm

    Martin Armstrong is forecasting a possible 1158 gold target. I think at that point 90% of weak hands throw in the towel and then gold doubles. ~2300 gold? who knows. What do you guys think?

    -Hueofman

    • Bam_Man June 25, 2013, 6:07 pm

      It would not surprise me to see Gold trade down below $1,100 – albeit briefly. This would closely match the percentage decline seen in the 1974-76 correction.

    • Hueofman June 25, 2013, 7:35 pm

      Gold had bottomed in 76′ the month of August to around 103, a roughly 42% decline off the 74′ high of 197. Martin Armstrong’s economic confidence computer model projects an August turning point. August 7th to be exact. Will we see a similar percentage decline in gold? Bam_Man you brought up a very interesting point.

    • Hueofman June 25, 2013, 8:21 pm

      =CORRECTION= 47.7% was the price decline of spot gold going into 76′. With that said 1004 gold would be enough to make even the most battle hardened goldbug begin to have doubts. Psychologically speaking I think seeing that 1000 dollar number is pretty significant on the way down as it was on the way up.

    • Andrew Gutterman June 27, 2013, 3:55 am

      My target has been $1150 for the last year or so, but of course it can go much lower. No rules in a bear market.

      The gold bugs seem to think it may go down a bit more then for some idiotic reason go right back up to new highs, quite fast.

      Not sure what they are smoking. Took 18 months for a top to form, it hardly seems likely a bottom would play out over a few days. Long term tops tend to create long term bear markets.

      Andy

  • Cam Fitzgerald June 24, 2013, 10:42 am

    You could be right, Rick.

    Of course that nearly 6% drop in Shanghai in the last hours is nothing to worry about. There is strong resistance at 1949.00! Surely it will hold and everyone will be enjoying their regular breakfast eggs as usual when they awake Monday morning.

    Or maybe not. Everything is OK until it is not anymore. Why do these things always start in Asia anyway? I am loath to call it a crash event as I just saw on Zerohedge moments ago but then again…..6% is a pretty big number in such a short period of time.

    So will it be Scrambled, Sunny side up or Benedicts today?

    • Cam Fitzgerald June 24, 2013, 11:14 am

      Looks like we another day where currencies, bonds and precious metals are all getting pummeled together. Chinese bank shares getting squashed….Copper just got beaten below 3.00 dollars on Asian news……bonds falling……. But Lumber is up nicely so far……don’t you all feel better now?

      This will be an interesting day.