The punditry attributed Friday’s selloff to unnerving developments in Ukraine, but we know better: Buyers simply collided with some Hidden Pivot rally targets and that was the end of their spree, at least for the time being. One of those pivots, which I’d been drum-rolling for a week, caught the 1961.00 intraday top in this vehicle within a single tick. The night before, I’d advised subscribers to get short there without fear: “My advice,” I wrote, “is to short the little sonofabitch….provided you are able to monitor and cover the position if necessary when index futures begin to trade Sunday evening. To bolster your confidence, let me say this: I cannot imagine this vehicle not reaching the target, nor failing to produce a tradable pullback from within an inch of it.” And so it went. Numerous Rick’s Picks subscribers evidently took the suggestion to heart and did get short, reaping windfall gains from the 24-point plunge that followed. The trade could have been worth as much as $1200 per contract to those who covered near the bottom.
Looking ahead, although the futures bounced back to 1954.00 by the final bell, I doubt they will get much further as the new week begins. That’s because it was bulls who got beaten up this time for a change, not bears, and the former will therefore be more eager to bail out of stocks than the latter will be to cover short positions. This dynamic should obtain for at least a day or two, but we shouldn’t give up on the heartening possibility that the July top at 1985.75 (slightly above another Hidden Pivot target at 1984.25 that I’d billboarded well in advance) could turn out to be an important one. For sure, this market has a lot of foolishness to atone for. If the Dow were to fall by 5000 points by autumn, no analyst on earth will be able to reasonably argue that it shouldn’t have happened. _______ UPDATE (August 18, 1:49 a.m. EDT): Bears have obligingly inserted their testicles into the vise Sunday night, implying they’re gung-ho to get themselves short-squeezed to 1974.50. That’s a Hidden Pivot resistance, and it is sufficiently appealing that I’ll suggest shorting it with a 1975.25 stop-loss. First, though, because there’s 16 points of upside potential, you should focus on the task of getting long. _______ UPDATE (August 19, 2014): The target was very closely reached this morning and kept us on the right side of the market for the last 21 points of the rally. If you caught a piece of the ride north, you should widen out the stop to perhaps 2.50-3.00 points. (The implied 1975.25 stop has already been hit — today’s intraday high as of this moment.) If you have an open position, please let me know in the chat room and I’ll establish a tracking position.