July 2014

Bears found themselves trapped on the opening yesterday for the umpteenth time since the bull market began, setting up a short-covering panic that turned what began as natural weakness in the broad averages into steroid-powered strength.  DaBoyz simply pulled their bids at the bell, allowing the relative smattering of market orders that had built up over the weekend to have an inordinate effect. Into a bid-less vacuum, stocks dove the equivalent of 120 Dow points, exhausting pent-up orders in about 45 minutes. Once sellers were spent, it was child's play for the smart money to effortlessly squeeze the futures back up to where they had begun the day -- plus a little. Moreover, since there was but a shallow correction from the end-of-day highs, bears remained tactically on the ropes at the close. For our part, since subscribers could have gotten short from as high as 1984.25 based on a Hidden Pivot rally target disseminated last week, some may have elected to swing for the fences by staying short. However, although the trade could have produced a profit of as much as $1200 per contact, the possibility that we were getting the jump on the Mother of All Tops was never more than remote. If you still hold a position, please let me know in the chat room and I will furnish further guidance.  Strictly speaking, a short would have survived yesterday's nasty dipsy doodle if it had been tied to an impulse leg-based stop-loss on the hourly chart.

The 1984.50 rally target I'd flagged in the E-Mini S&Ps has caught the high of a so-far 22-point decline within 1.25 points. My gut feeling is that higher highs are coming. However, if you were short as the week ended, I've provided guidance in today's tout for managing the risk mechanically and without fear.

The stock has been the obedient slave of our Hidden Pivot targets, implying it is likely to provide a precisely tradable bounce from the 413.00 Hidden Pivot target flagged here earlier (see inset).  You can bottom-fish there any way you like, but if options are your preference, try buying the lowest strike with an August 1 expiration and a sub-$1.00 price.  Stop yourself out if they trade for 0.20 less than you've paid for them, but make that order 'one-cancels-other' with an offer to close out half of your holdings for twice what you paid per option. _______ UPDATE (6:44 p.m. EDT): Save some ammo, by the way, since a decisive breach of 413.00 would portend more slippage to 409.83.  A tradable turn from that number seems so likely that you can bottom-fish on your own terms, eschewing the tight risk-management that I usually advise. _______ UPDATE (July 30, 2:24 p.m.): A short squeeze projecting to 432.67 has just about run its course.  On the 3-minute chart, here are the coordinates; a= 419.00 on 7/28 at 10:33 a.m.; b= 428.39 on 7/29 at 10:51 a.m. ______ UPDATE (August 3, 6:02 p.m.): Check out Friday's chat room discussion, since the target I proffered for a potential 'jackpot trade' using expiring options hit a dead-center bullseye. If any positions resulted that survived the weekend, please let me know in the chat room so that I can establish tracking guidance.

The midpoint support at 25.97 where I'd suggested bottom-fishing caught last week's low within six cents. If you filled a bid down there and your stop-loss survived, please let me know in the chat room so that I can establish a tracking position for the further guidance of subscribers. ________ UPDATE: No apparent interest, so I'm taking this stock off the board, at least for now.

The rally from Thursday's 1287.50 low is bullishly impulsive on the lesser charts and would trip a buy signal at 1309.70 on the pattern shown. Accordingly, day traders should come to their task with a bullish bias. The bigger picture, however, needs a decisive push above 1331.90, the midpoint Hidden Pivot resistance of a bull cycle that projects to 1376.30. If the midpoint is exceeded by week's end it would all but clinch a follow-through to 1376.30.

A major top?  It's certainly conceivable, since the futures peaked last week within 1.25 points of a compelling rally target I'd spotlighted at 1984.50. Although this Hidden Pivot resistance looked very short-able, I have my doubts that it will stand for long as the all-time high. The target's main value lay in its clarity, and in that respect it did not disappoint us.  As you can see (inset), bulls exceeded it by a mere inch before diving -- so far -- 22 points. Subscribers who used the target to get short should have covered at least half of any positions by Sunday night and deployed a generous trailing stop for what remains. If you prefer using a stop-loss based on impulse legs, put it at 1979.25, just above a small peak on the hourly chart that was recorded Friday on the way down.

[My apocalyptic interview with economist Kurt Richebächer in 1999 seems almost quaint 15 years after it appeared in the Sunday San Francisco Examiner. He predicted economic disaster; what we got was a quadrillion dollar derivatives bubble whose benefits bypassed the working man but enriched the fat cats of the banking world. Regarding economic Armageddon, permabulls will shake their heads and say, “You guys have been wrong forever.” Permabears, for their part, should only have to acknowledge a failure of the imagination. For who would have believed that the brazen lies that sustained the economy back then would metastasize a hundredfold, even as untold trillions in credit stimulus failed to produce much growth? Richebächer, who died in 2007, might shake his head in disbelief. But he would not recant.  RA] The dismal science will never be the same if Dr. Kurt Richebächer’s dire predictions for the global economy should come to pass. The former chief economist and managing partner at Germany's Dresdner Bank says a deflationary collapse lies ahead that will ravage the world's bourses and usher in a dark period of austerity and financial discipline. Probably not one economist in 50 shares his views, at least not publicly. Richebächer, now living in France, says many of his American colleagues have been seduced into ignorance and complicity by Wall Street's billions as well as by their love affair with mathematical models that shun fundamental laws of economics. Where they see a New Era of productivity growth and industrial efficiency, he sees duplicitous bookkeeping and manufacturing's steep decline. They talk of a booming U.S. economy; he sees a profitless mirage. They worship capitalism's bold risk-takers; he scorns them for recklessly piling leverage to the sky. Someone's going to be wrong, but judge for yourself who. Economic Heresy Like the theories of Copernicus

I don't like the way stocks are acting here, not one bit, but I nevertheless advised covering an E-Mini short from 1982.50 because, for me at least, discipline always comes first. This is especially true when attempting to short a bull market that has been chugging along for 64 months.  In practice, it has become extremely difficult to be long OR short from these levels, since the uptrend has turned into a ratcheting short squeeze that stresses bulls and bears alike.  On balance, I'd much prefer to be short rather than long here, but I'm not so tempted as to leave risk open-ended.

The futures have sold off moderately after making a marginal new high on Thursday.  Even though they could be carving out an important top here, I adhered to a tight stop-loss nonetheless because that's the way I do things, always following my discipline.  However, if you held onto the short from 1982.50 and want me to establish a tracking position for your further guidance, please let me know in the chat room. It is already implied that you'll need a pullback to at least 1973.50 before implementing a trailing stop, since  you've already weathered a 3.00-point swing against the position.