A manic two-day short-squeeze from Monday's bombed-out lows met heavy supply on day three, thwarting bulls who may have hoped to get it all back before the week ended. Layers of stock from the previous week's heavy chop remain solid and thick, and there's no telling how quickly, or even whether, buyers will chew through it. But if they do and it requires less than the five days it took to pour the concrete circled in the chart (inset), that would imply new all-time highs are coming. We'd have to respect the trend at that point, but not necessarily the seemingly crazy idea that the bull market is headed much higher. _____ UPDATE (Sep 28, 4:53 p.m.): Bears turned docile midway into the session, failing to convert a promising selloff into a bloody rout. They'll have another chance, probably soon, but it could require a nasty rally first to crush short-covering chumps who are preventing a memorable collapse commensurate with the bull market's extraordinary excesses. ______ UPDATE (Sep 30, 6:15 p.m.): It looks like the jig is up for the sleazeballs who have been short-squeezing stocks every night on zero volume, since even the dumbest, most panic-sticken bears aren't going to fall for the same, stupid con four nights in a row. Stocks reversed today off Wednesday night's phony waft and closed on the low of the day. Incredibly, there are apparently enough suckers around at 6:20 p.m. to levitate index futures slightly into the black, but the supply of them is about to dry up. Look for real carnage on Friday, of the sort that leaves investors fearful over the weekend. I will be bottom-fishing in the discomfort zone nonetheless, but only for a high-leverage scalp-trade with penny-ante risk.
The 398.69 rally target shown maxes out bullish targets that can be projected using the weekly chart. It would trigger a 'mechanical' buy on a pullback to p=357.35, stop 343.57; or, somewhat less risky, at the green line (336.67), stop 315.99. My hunch is that the first trade, if it triggers, would likely visit pain on buyers without stopping them out. To reduce the entry risk, I'd suggest crafting a 'camouflage' set-up on the hourly chart or lower if and when the red line is touched. The target cannot be considered a done deal because the initial push past p was tentative, and the elongated A-B impulse leg was weakened by a detour last spring. Even so, given that the Cubes are still a favorite vehicle for the lunatic fringe, we should always give the benefit of the doubt to the bull trend. If it continues into outer space, here's a chart with a target at 478.87 that is congruent with another huge leg up in this ageless bull market. ______ UPDATE (Sep 26, 5:12 p.m.): The plunge through p=365.06 all but guarantees more downside to at least D=356.07. Let's see how resilient this 'hidden support' is. Pivoteers can try bottom-fishing in any event with a tight rABC trigger. ______ UPDATE (Sep 30, 6:25 p.m.): Don't look for much of a bounce from 356.07 if it happens at all. I'll be looking to try a very tight rABC 'buy' from just above 356, but even if the trade makes money, I don't expect the low to hold.
Are T-Bonds in a bear market, or merely consolidating a longer-term bull? A weekly chart going back to 2012 yields a mixed picture, albeit one that is tradeable. The uptrend begun six months ago is bullish insofar as it exceeded the 'd' target of the rABC pattern shown (see inset). But it is coming off a low that broke a major support from January 2020, creating an impulse leg almost as powerful as the bullish one that spiked the futures to spectacular heights when the pandemic first hit in March 2020. Some traders will also see the contours of a very long-term head-and-shoulders pattern in this chart. I am not a big fan of them, although I'd have to concede that imposing one here is relaxing -- which is to say, mildly persuasive -- to the mind's eye. For trading purposes I'll suggest using this bearish pattern begun from a small peak last January. It suggests minimum downside to 158^09 over the near term. We'll reassess trend strength once we've seen how sellers interact with that Hidden Pivot support. _______ UPDATE (Sep 29, 9:34 p.m. ET): The futures are struggling to put in a bottom somewhat above the 158^09 target given above. It remains theoretically viable, but for now we'll just have to see how it goes. It would be bullish for the intermediate term if a rally takes out some prior highs on the hourly chart without having dipped to 158^09 first. The nearest such peak lies at 160^27.
The decisive breach of p=1755.30 last Thursday strongly implies a finishing stroke to at least D=1722.2o in the days ahead. As always, if that Hidden Pivot support is easily exceeded, the downside target of a bigger pattern would be in play. Meanwhile, the futures triggered a 'mechanical' short from the red line that in theory is still 'live,' since the downtrend has yet to touch p2 following the signal. However, if they were to rally to x=1771.90, that would activate a second signal to get short. The stop-loss would risk nearly $7000 on four lots, but I'd suggest cutting it down to size with a 'camouflage' trigger on the lesser charts. If you're uncertain about how to do this, ask in the chat room when the trade gets close. _______ UPDATE (Sep 29, 9:40 p.m.): We used the 1722.20 target to get long near the low, which occurred at 1721.20. The bounce has produced a profit of as much as $2500 on four lots so far. Check my Trading Room posts beginning at 10:33 a.m. for details. _______ UPDATE (Sep 30, 6:49 p.m.): Usually a sharp rally in gold is barely worth a yawn, but I'm keeping an open mind this time. That's because the same distinctive tone change that may already have caused stocks to top big-time may correspondingly launch the resumption of a bull market in bullion that we've patiently awaited for more than a year.
The downside target at 21.16 that we've been using for a while remains not only viable but likely to be achieved, given the downtrend's decisive penetration of p=23.05 ten days ago. The move has been taking its sweet old time, however, chewing up shorts last week with a ratcheting hump that produced little net change. As in gold, a strong rally to the green line, however unlikely, would trip a signal to get 'mechanically' short. The trade would not be for the faint-hearted, though, since the theoretical risk on four contracts would be around $19,000. Obviously, this one is not for beginners; nor would it even be an exceptional opportunity. We'll consider it on its merits nonetheless if and when it gets there, assuming the December contract doesn't fall straightaway to D. _______ UPDATE (Sep 28, 5:30 p.m.): December Silver has been tap dancingon the 22.11 'secondary' pivot for nearly two weeks, substituting dread for tedium for investors who have watch the futures fall 15% since early August. The initial plunge through p=23.05 strongly implies that it's only a matter of time before D=21.16 is reached. ______ UPDATE (Sep 30, 7:03 p.m.): Silver has taken a leap from a low just above our 21.16 target. It is bullish that the futures didn't quite get down there, but in any event, I'd suggest taking this rally seriously, since it is coming at a time when stocks are finally starting to look like hell. It was always going to take a major paradigm shift in the economy to light a fire under bullion, but perhaps this rally is announcing that the wrenching shift lies just ahead.
Bertie has been all over the place lately, a beast to trade. Three failures over the last week to achieve the 38,552 downside target of the pattern shown seems bullish, and it probably is, but bitcoin has been treacherous for the last few weeks for any trader who assumed that new highs were a given. That said, we can probably count on this vehicle to shred through enormous layers of supply between 44,000 and 50,000 when the time comes. It won't be robinhoodies or Reddit types doing the buying, just a moment when the big boys who are already aboard pull their offers. For now, all we can do is watch the show. Most of the bitcoin traders who subscribe to Rick's Picks have been spending their time in the Coffee House, where bitcoin has scarcely rated a mention in recent weeks. I should note that Friday's news that China has banned all crypto transactions and crypto mining has had an astoundingly small effect on bitcoin quotes, at least so far. They've fallen 5% on the news, but that was less than the plunge that occurred when the Evergrande crisis hit full-bore a little more than a week ago. Is this the usual delayed reaction, a Wile E. Coyote moment for bitcoin until the Big Boys have had enough time to lay off risk on the rubes? Probably not, since the rubes themselves are typically on a hair trigger. We shall see.
The pattern shown is a presumable bullish consolidation that seems in no hurry to reward patient investors. To my eye, a breakout seems likely to occur in either of two ways: 1) with a feint lower that breaches at least one of the four lows that have been recorded this year, or 2) a lurch higher that exceeds the 'external' peak at 233.64 recorded on 6/11. However, a rally that gets between that peak and the more recent one at 229.84 (9/3/21) would be irresistible as a possible shorting opportunity. We will attempt it if the set-up pans out, while acknowledging that a profitable trade would not necessarily signal the beginning of the end for this 'value'-stock index. _______ UPDATE (Sep 29, 9:47 p.m. ET): I commented on the constipated tedium of this vehicle in the chat room today. Check out my posts in the Trading Room starting at 2:13 p.m. for the details. _______ UPDATE (Sep 30, 7:12 p.m.): IWM came to rest sitting on the 218.55 target of the pattern shown. When it fails, which it will, look for more downside to the soon-to-become magnetic low at 214.22. If the low is tested before noon, a half-hearted rally would signal a relapse and probable close beneath the low.
[Recently I wrote here that the world's biggest financial institutions are in Evergrande muck up to their eyeballs, even if they claim that their exposure is small in relation to their respective assets. The trouble is, the supposed assets are as ethereal as Evergrande's grotesquely inflated real estate holdings. In the guest commentary below, Shawn Brown, a San Francisco friend from the hedge fund world, raises the possibility that behind-the-scenes maneuvering by the Fed is attempting to shore up the financial system ahead of potentially massive Evergrande shock-waves that have yet to be felt. RA ] Who are the 80 Participating Counterparties in the daily $1 Tr+ Reverse Repurchase Facility, and why are almost half of the Primary Dealers foreign? It appears Chinese real estate developer Evergrande is going to stiff offshore creditors in a proposed restructuring designed to zombify the property giant. Is this a dry run for the Fed’s rapidly approaching hyper-hypothecated Treasuries moment? Friday, approximately 50 unidentified counterparties had their access to daily RRP doubled from $80 Billion to $160 billion. According to ADVRatings.com, only seven banks in the world have a market cap greater than $160 billion, and four of them are, dubiously, Chinese. Former NY Fed, IMF and U.S. Department of the Treasury employee Zoltan Pozsar says the counterparties are “sterilizing reserves.” If that’s true, the Fed is about to unleash a literal tsunami of liquidity (perhaps up to $5T) heading into fiscal year end to back-stop the Evergrande contagion and subsequent flight to safety. A Hypothecation Problem The Fed has a serious hypothecation problem, and it is also the reason they’re talking taper: everyone is quickly realizing Evergrande collateral is about to take a 50%+ haircut. The Fed continues to throw shade with terms like "accommodative," "full employment," "low inflation," "climate change," Covid --
There are no epiphanies in this lesson, just solid examples of rABC- and ‘mechanical-trade logic when applied to some of our favorite trading vehicles. There is a forced trade in the E-Mini S&Ps that produced a very quick, theoretical profit of $800 in real time. This gambit was interesting because the rally we shorted extended well above the level where we’d originally planned to do the trade.
Bertie has been too dull lately to deserve the top spot in the 'touts' list, but it has found its way there nonetheless because of a quirk in my publishing tool that I did not foresee when I published the latest updates later than usual on a Sunday. Be that as it may, this vehicle is still generating some excellent trading opportunities, mostly with 'mechanical' entries. The one shown is a textbook inversion that tripped a buy signal on the September 10 pullback to the green line. A somewhat riskier buy signal would occur on a retracement now to p=46,180. The stop-loss would be at 45,177. I suggest paper-trading this one unless you know what you're doing. The D target at 49,371 can be used similarly. ______ UPDATE (Sep 20, 12:23 p.m.): Evergrande has sucked the speculative juices from even the hardiest lunatic vehicles, including this one. The 'risky' mechanical trade got crushed, along with the bullish reverse ABC pattern that had informed it. Bitcoin will continue to lead stock-market rallies, but keep in mind that these will be bear rallies, presumably offering us opportunities that will differ from what we've seen over the last decade.
