Rick Ackerman

Although our most important bellwether, AMZN, bucked a weak stock market yesterday with an $18 rally, it peaked an inch from a Hidden Pivot target that could contain bulls, at least for a while. Despite this, the breakdown of VXX suggests more wafting tedium rather than a dramatic selloff.

DIA has spent more than a week pussyfooting with the 216.01 'secondary' Hidden Pivot shown (see inset), unable to muster the modest finishing stroke it would take to reach a corresponding rally target at 217.45.  This is tired price action, but also quite tiresome for anyone who would attempt to catch a profitable ride.  For now I'll suggest two possibilities: getting short if 217.45 is hit, or long if DIA pulls back to the green line at 213.14. In either case, you should use near-the-money-options with at least one week left on them but fewer than three weeks. Thus, if 217.45 were to be achieved by, say, Wednesday, you would buy four August 8 217 puts; or at 213.14, four August 8 214 calls.

With mincing steps, VXX, which tracks short-term S&P volatility, continued its extraordinary descent last week to historical new lows. For long-time market observers, the feeling has grown palpable that "something" has got to give; and yet, on a given day, the broad averages continue to do nothing in particular. They move almost invariably in one direction, wafting ever higher, seemingly unable to sell off for more than a few hours. This is scary and boring at the same time; for in fact, something does have to give. Housing and autos have already peaked, and the disconnect between the stock market and economic reality is growing more troublesome by the day. The money managers know this, but their instincts for sidestepping danger have completely atrophied over the years.  Anyway, we are all in it up to our eyeballs by now: pension funds, private equity, insurance companies, individual and sovereign investors -- a collective of greater fools, unchastened for too many years to recall what it felt like at the last top.

A rally with 40 points of potential -- equivalent to about 320 Dow points -- looms if the futures are about to fulfill the 2512.00 Hidden Pivot target shown. However, the move through the midpoint pivot at 2457 was labored, implying that a quick ascent to 2512.00 is somewhat unlikely. Accordingly, we should be ready for a 'surprise' reversal, which would begin to look menacing if it exceeds 2448.00 to the downside._________ UPDATE (Jul 24, 5:12 p.m. EDT): Zzzzzzzzzzzz.________ UPDATE (Jul 25, 5:47 p.m.): Use a less ambitious rally target at 2491.00 for now. If the futures close above the 2477.00 midpoint resistance with which it is associated, that would imply the target is likely to be reached. A pullback to 2469.75 would trip a 'mechanical' buy signal, stop 2462.50, but you should do the trade only if you understand how to convert the buy signal to a 'camouflage' entry with $60 or less of initial theoretical risk.

VXX came down to within a hair of a key support at 11.27 on Wednesday, but if it fails, the next leg down could see VXX plunge to 10.24 in search of a durable bottom. That would be an enormous move percentage-wise, especially with VXX, a betting vehicle for short-term S&P volatility, already trading at record lows. Were the 10.24 target to be reached, the inescapable conclusion is that the S&P 500 and other broad averages would be trading at much higher levels. ________ UPDATE (Jul 21, 12:35 a.m. EDT): Sellers once again turned chicken, failing to seize the advantage after putting bulls on their heels in the early going.  Friday would be the right day for them to try again, but don't expect any miracles.  

We hold four July 28 12 calls for 0.34 apiece [Note  They went out worthless, producing a $132 loss.], having acquired them when VXX fell to a targeted all-time low at 11.72 earlier in the week. VXX, an equity vehicle created to facilitate betting on volatility swings in the S&P 500, has now fallen to within a few ticks of an alternative target at 11.27. However, the drop from the first target to the second occurred so quickly that I am no longer advising the purchase of more calls. Indeed, if VXX is going to pop, it's going to happen now, from precisely this level, presumably reviving our calls with a vengeance. If there's no bounce, however, the chart (see inset) shows yet another bear market target at 10.24 that would become our new, minimum downside objective. If it were to be achieved, the implication is that the S&Ps and other stock averages would be trading quite a bit higher than current levels.________UPDATE (Jul 24, 5:16 p.m. EDT): Sellers crushed the 11.27 'hidden' support, pushing this vehicle below 11 for the first time ever. The clear implication is that it is now headed down to 10.24. ________ UPDATE (Jul 27, 5:54 p.m.): Today's Whoopee Cushion bounce did not change my outlook. Let's see how things go. ________UPDATE (Aug 7, 3:49 p.m.): Unprecedented weakness continues to dominate. Here's a new chart that shows this while reaffirming the 10.24 target. ________ UPDATE (Aug 8, 9:46 p.m.): VXX exploded off this morning's lows, but the rally will need to surpass July 28's after-hours peak at 11.64 to generate a bullish impulse leg on the hourly chart. At press time they seemed well on-track to achieve this Tuesday night or early Wednesday. _______ UPDATE (Aug 10, 7:38 p.m.): Today's surge did not negate the

AMZN soared as VXX continued to implode, suggesting that the forces that have been driving the bull market in recent months remain strong. That said, the former, currently trading for around 1025, will run out of room if and when it hits 1083, a Hidden Pivot resistance that has been nearly a year-and-a-half in coming. The VXX, meanwhile, won't run out of room until it hits zero -- an impossibility, of course, but we shouldn't be surprised if its ultimate bottom lies well beneath the current, record low.

VXX, which measures short-term S&P 500 volatility, reached a bear market target we've been using for weeks to stay on the right side of the stock market. The actual low occurred at 11.66, exactly 0.06 points beneath our Hidden Pivot support at 11.72.  If it doesn't turn higher from here, look for more slippage to 11.27, an alternative target derived from using night bars for VXX.  It is already at all-time lows, but if it goes still lower that would imply the broad averages are certain to continue to ratchet higher into record territory of their own.  Subscribers bought VXX calls early in Monday's session, so check the discussion log for details.

Perceptions that the Fed has turned dovish sent stocks wafting higher last week, but how high can they go if driven by this allegedly 'new' piece of information?  There was never much room to do any significant tightening in the first place; now, with the housing and auto sectors rolling over, odds of another rate hike this year are practically nil.  Under the circumstances., with the stock market seeming to discount Fed actions that had already been discounted to death, we should be very skeptical toward the rally. Although I have higher targets outstanding for the major averages and bellwether AMZN, the targets are not much higher, and so we should be prepared to fade strength in the week ahead.