July 2013

The tedious slop that Mr. Market has served up all week is not likely to mutate into something interesting on a Friday. However, there are a couple of bull trades flagged in today's touts, including a potential opportunity to catch a piece of Netflix's next wilding spree. And in Facebook, I've identified trade possibilities from either side of the market.

Bulls won by decision yesterday, recouping losses and then some after getting hammered beneath a midpoint support in pre-dawn trading. Once again, the gains occurred against a backdrop of lousy Q2 earnings, making buyers' performance seem more impressive than the relatively modest point tallies they were able to rack up. After the bell, this vehicle appeared headed precisely to the 1690.25 rally target shown in the chart. Since that implies just 4 points of upside, however, the more attractive trade could be a short from the target. To keep it simple, I'll recommend a non-camouflage entry -- i.e., just a straight offer of a single contract at 1690.25, stop 1691.25.  You'll be on your own if the order fills, but keep in mind that the initial 1.00 point of theoretical risk will require you to shoot for a profit of at least 3.00 points ($150) on the exit. _______ UPDATE (9:54 a.m. EDT): Last night's feeble rally stranded our short offer when it topped at 1689.00, just shy of the target. The E-Mini's failure to achieve a relatively modest objective suggests it is unlikely to rally by much today -- but neither is it likely to plummet, since the opening thus far has been too boring for words.

Rick’s Picks inaugurates a new format today that will give forum participants a larger role in shaping the discussion.  Instead of the usual essay, I will be posing a question that concerns a key issue of the day. Today’s relates to a theme that has been sounded here many times over the years: Which do you foresee:  inflation, hyperinflation or deflation? To get the discussion rolling, here’s a post of mine at Mises.org in response to a thoughtful essay by Ed Bugos. In the essay, Bugos, a mining analyst and senior analyst at The Dollar Vigilante, asserts that although CPI has been tame, inflation is very much with us and will soon take off in a big way. My comments were as follows: "Mr. Bugos and other inflationists (although not the hyperinflationists, who may yet have their day) envision inflation returning more or less gradually.  But suppose a global flash crash were to occur, triggered by some black-swan event? In such circumstances, the financial system would implode overnight, banks would be shuttered indefinitely, credit cards would cease to 'work', and the economy would revert to barter/cash. Such an outcome would be catastrophically deflationary. "Try to imagine an inflationary 'remedy' and you see that there are none -- certainly not the one used by the German government in 1921-23, since that required tight collusion between the government and a largely unionized labor force. "Nor can it be argued that a flash crash and financial-system implosion are impossible.  Indeed, this outcome seems entirely likely, if not to say inevitable, since the global financial system is hard-wired to a $650 trillion derivatives edifice that has been built on ethereal collateral." Your further comments are welcome.

July's moderately pitched rally left a very bearish target at 129^03 intact, and odds of a finishing stroke achieving it will increase if the futures dip again beneath the 132^31 midpoint support. From a trading standpoint the September contract is a flip-of-the-coin play at the moment, although the short-term opportunity would shift to bullish if the futures were to surpass the microscopic, look-to-the-left peak at 134^25 and pull back in b-c fashion. _______ UPDATE (July 31 at 12:30 a.m. EDT): Sellers have been pounding on a crucial midpoint support at 133^16 for more than a week (see inset, a fresh chart), but if it fails decisively, as appears likely, look for the futures to continue down to at least 130^04.

Wednesday's moderate selloff was bearishly impulsive on the hourly chart, but it didn't negate the 1703.75 rally target shown in the chart. Night owls should look for a bottom-fishing opportunity at the 'p' midpoint support of the small corrective a-b-c at the right-hand edge of the chart. Camouflageurs looking to buy-stop their way aboard will need to zoom down to the 3-minute chart or lower to find the 'external' peaks needed to do this with ease.

Yesterday's selloff was bearish impulsive on the hourly chart, but notice that it began from a high that had exceeded a 'look-to-the-left' peak at 1347.50. The effect was to refresh the chart's bullish energy, even if the current dynamic is a presumably short-term duel between bulls and bears. The latter cannot but reveal their strength, or lack of it, at the p midpoint of the corrective pattern shown in purple. If the larger, bullish ABC pattern is about to resume in earnest, the corrective abc should reverse from p or higher. _______ UPDATE (10:41 a.m. EDT): The futures ultimately bounced from a low at  1308.40 that was close enough to the eventual 'p' at 1309.10 to yield a picture of strength.  When corrections fail to reach their 'd' targets, as occurred here, that is always a bullish sign. Use 1387.70 for a rally target now (60m, A=1269.30 on 7/17), subject to midpoint resistance at 1348.10. A buy signal has been tripped at 1328.30, so hunting for 'camouflage' is appropriate.

The crackpot notion that investors collectively are all-knowing and all-seeing has suffered yet another embarrassment with Facebook's whoopee cushion leap in after-hours trading.  The 22% surge (see inset) dwarfs the bullish hysteria that greeted Apple's lousy earnings report earlier in the day. It also puts in play the 36.49 target shown.  Traders looking for the easiest way to get aboard belatedly should view a pullback to the 29.58 midpoint pivot as a great opportunity. ______ UPDATE (8:09 p.m. EDT): Yesterday's lunatic leap got within 61 cents of our 36.49 target, a Hidden Pivot midpoint resistance. Traders can try shorting from 36.44, but I'd suggest risking no more than 12 cents theoretical per round lot on the stop, since this gambit will entail stepping in front of a speeding projectile. Assuming DaBoyz don't gap the stock on the opening bar, there could be a bull play here as well. If you use a camo approach for the short and the trade survives, please let me know in the chat room and I will establish a tracking position.______ UPDATE (July 28): The 36.49 target is still valid -- and so, therefore, are the tactics noted above.  ______ UPDATE (July 30 at 12:50 p.m.): DaBoyz easily popped the stock through 36.49, implying they've got bigger things in mind. If you reversed a long position to get short at 36.49 with 12 cents of risk, the pain would have been negligible.  Now, use the 40.53 target shown (a new chart) as a minimum upside projection for the near term. This of course implies that trades should be done from the long side until such time as the target is reached.

More impressive, even, than the stock market's relentless climb since early 2009 is its present ability to do no worse than mark time in the face of an onslaught of lousy Q2 earnings and a potentially steep downturn in real estate. This is testimony to the fact that Fed easing trumps reality and all else, including an alleged economic recovery that has brought little relief and no income growth to most Americans. Factor in a zillion tons of dead weight from the Obamacare dreadnought, the most economically destructive piece of legislation ever enacted by Congress, and you could almost believe that nothing will prevent the Dow from hitting 20,000.  Even so, we'll continue to short the market at every potentially important rally target we discern on the charts, even if we know we're likely to scratch the trade a few days later.

The ability of DaBoyz to control the game is simply...awesome.  How else to describe yesterday's vicious short squeeze, which goosed the stock from the depths of a four-day funk into a $25 moon shot? This feat was made even more impressive in view of the headline atop Wednesday's edition of The Wall Street Journal: 'Demand Woes Bite Apple'.  As the story explained, iPhone sales are strong, but more and more consumers are opting for cheaper models. As a result, profits declined for the second straight quarter. Unmentioned, and perhaps unmentionable, is that without Steve Jobs at the helm, the company has been unable to bring to market whatever Next Big Thing will cause consumers to line up by the zillions outside Apple's retail stores. Retail-demand woes or not, bears scrambled for cover throughout the session, and the stock finished near the peak of its intraday range, up $23 at 440.65.  It appears bound for as high as 457.05 on Thursday, provided buyers can get past a lesser 'Hidden Pivot' resistance at 446.15 just above Wednesday's peak. _______ UPDATE (July 31 at 11:38 a.m. EDT)):  Apple spiked to 457.34 on today's opening bar, then plunged $8 to confirm a very precise hit on our target.  The pivot should contain bulls for a while, but if they push past it within a day or two, that would be signaling significantly higher prices ahead.