The pullback from a record high precisely at p2=11,054 should have bulls worried. This is the pattern's secondary pivot, and it would not be the first time that it has stopped a strong rally in its tracks. That is why I called it a potential giant-killer here yesterday, although I was referring to the p2 of a smaller pattern associated with the S&P 500 Index. I doubt that it is mere coincidence that both vehicles have stalled where they did. Now we should expect a retracement to at least p=9579, a midpoint Hidden Pivot that lies nearly a thousand points below. The good news is that the futures would become a fetching 'mechanical' buy, at least in theory, on such a pullback. There are still higher targets outstanding in the major indices, and that's another reason for optimism. Whatever happens, it looks as though bulls are about to have their mettle tested for the first time in four months.
Nearly all trades begin with textbook impulse legs, and that means the charts we use must contain external highs and lows, the building blocks. Once you get this simple rule down, it becomes possible to trade small but technically perfect patterns on the lesser charts all day long. We did so toward the end of this session, taking a small instance of ‘ABC’ on the chart of QQQ to execute a trade that would have been worth $100. Easy. We also saw that the old-style ‘counterintuitive’ trade is best done ‘scientifically’, using rABC techniques we’ve learned since.
Tesla eked out a modest profit for a fourth straight quarter, earning a listing in the S&P 500. The stock laid an egg in after-hours trading, however, making money only for naked-option sellers who cashed in on some of the juiciest option premiums traders can recall. Such are the rewards of the most manic, delusional buying spree in stock market history. It could have surprised no one that the company's bean counters were able to tweak Tesla's numbers into-the-black, since that was all that was required of them to earn the S&P listing. What did surprise is that analysts had expected Musk to report a loss due to a Covid-induced sales-and-distribution slowdown. Of course, we knew going in that the average Wall Street analyst couldn't hold down a CETA job sharpening pencils, but in the end the pathetic hacks did their job, lowballing estimates so that the company could not but beat them. TSLA's conspicuous failure to go nuts after the close, however, is likely to exert some drag on an otherwise rabidly exuberant Nasdaq index for the remainder of the week. Look for DaBoyz to lighten their offers to stretch out the hours and days they will be able to distribute stock to the rubes. Not that the wilding spree is necessarily over. Check out my forecast for the S&P 500 (SPX) below if you want to see how much higher it could go over the near term.
If Tuesday's high turns out to have marked an important top, it occurred in a logical spot -- almost precisely at the midpoint resistance of a weeks-old bullish pattern projecting to 11688. Even so, bulls held their ground, closing this bloated gas-bag midway between the day's high and low. My gut instinct would be to short into moderate strength on Thursday's opening, since the Naz look so fatigued. It would become a so-so 'mechanical' buy on a pullback to the green line (10,691), but I am not recommending this unless you know how to cut the risk down to relative pocket change using a 'camouflage' set-up.
A cluster of 'hidden' resistance levels not far above suggests that a major top could be imminent. They are numbered to indicate my first, second and third choice of Hidden Pivots with the potential to stop Covid-mania dead in its tracks. Two of the pivots come from the ABC pattern labeled in blue, and they represent, respectively, the p2 'secondary pivot' and D target of that pattern; the third, in pink, is the secondary pivot of a giant bullish pattern stretching back to 2016. All can be shorted with a tight stop loss, since I expect each in succession to show very precise stopping power. If the opportunity arises, however, you should act most aggressively and with a wider stop-loss at the topmost pivot, 3432.15. _______ UPDATE (Jul 26): Last week's high fell 35 points shy of the lowermost target shown in the chart, 3315.50. The subsequent pullback was relatively mild, and the week ended with bears struggling to push the futures any lower. Unless the tempo of the selling picks up by mid-week, look for bulls to regain the upper hand and make another stab at 3315. _______ UPDATE (Jul 29, 6:50 o.m.): Bears are quite depleted, allowing DaBoyz to turn a 3198 midpoint resistance into support with little buying. They are waiting for the right news to pop this beast to p=3315, but I doubt it will go much higher straightaway, so be prepared to lay out shorts there.
Careful! August Gold is closing on a potential rally stopper at 1877.40. I expect a push above it, perhaps after a brief stall, but if buyers blow past it Wednesday night or early Thursday, they'd be in good shape for a romp to the 1992.40 target shown in this chart. I have adjusted it slightly downward from the 1994.40 given here earlier because one of the original coordinates was wrong. The precise pullback from p=1830.40 in the second chart suggests that when the 1992.40 Hidden Pivot is reached, it'll be a good opportunity to lighten up. As far as I can tell from the discussion in the chat room, all subscribers who trade gold have been long with confidence and are enjoying the ride. ______ UPDATE (July 23, 5:35 pm.): Bulls are closing on p2=1911.40, a secondary pivot associated with the 1992.40 target shown in the chart linked above. It is all but guaranteed to be reached, but be prepared for a stall and the start of a correction lasting for as long as a week or two. Alternatively, if the futures blow past the pivot, closing above it for two consecutive days, that would imply 1992.40 has become and odds-on bet to be reached and that this will happen sooner rather than later. _______ UPDATE (Jul 27, 7:14 p.m.): The cruise to an almost certain rendezvous with 1992.40 has been effortless if unspectacular. This Hidden Pivot should evince tradeable stopping power, although I don't intend for you to get short there. The round number $2000 is the more formidable obstacle, but there is nothing in the technical picture to suggest an important top will occur at that height. _______ UPDATE (Jul 28, 7:07 a.m.): Tricky, vicious and gratuitously nasty as always, gold topped overnight at $1974 -- just $18,
The rally halted almost exactly at the 3275.50 'secondary' pivot of the pattern shown. It would be surprising if a garden-variety pink-line, p2 pivot were to turn back the stampede begun in March, but we should be prepared for it anyway, since p2 has slain many giants in the past. My expectation, however, is for the move to hit D=3392.75, although 3370.25 could show some stopping power, That last number is the secondary pivot of a large bullish pattern begun in 2016. It comes from a continuous chart, however, and should not be expected to work with the usual decimal precision. All are shortable with tight stops. There are corresponding numbers given for the S&P 500 cash index in the tout above.
Some interesting things are happening in the markets that could augur an important tone change. For one, the frothing-at-the-mouth idiots who have been pushing Tesla shares into the ionosphere went quiet just a day ahead of earnings. Ordinarily that would be no big deal, but in this case it reflects timidity that has been absent from the stock's absurd rise since March. For two, gold is breaking out and giving up little ground achieved early in the session. We'd gotten so used to one-day-wonder rallies over the last nine years that a little staying power, even intraday, seems shocking. For three, price action in silver is beginning to heat up, suggesting speculative fervor is creeping into the bullion market. And finally, the dollar is approaching a correction threshold that I'd projected months ago. My hunch is that these things together augur a potential major tone change for securities markets, and by extension, for the already beleaguered global economy.
The shoeshine boy is not just giving customers stock tips these days, he is also jumping on hot stocks himself, scalp-trading three or four shares of Tesla, at $1500 a copy, in his Robinhood.com account. That's all the stock these penny-ante schemer-dreamers can afford, and it is why it is not the metaphorical bootblack operating out of his parents' basement who has been driving a handful of stocks moonward, as a story-hungry news media would have us believe. Even so, the shoeshine boy's gambling jones is having its effect on some big players, who for a dozen good reasons have been shorting stocks like Tesla and Moderna all the way up. Panicky short covering is always the most powerful force that drives rallies, since even a sea of Fed funny money cannot float stocks past resistance peaks and through prodigious layers of supply. It takes irrational exuberance and bear panics acting together to accomplish this, but also institutional shareholders who are smart enough to avoid getting in the way. That's why most of the gains in Tesla, Apple and a few other stocks leading the charge have occurred in the dead of night, when volume is practically nil. AAPL will gap up five wholly undeserved points in the wee hours, creating an additional $20 billion of wealth for size players who can afford to buy-and-hold stocks to satisfy their own easy-money jones. The magical result is that money is created even more efficiently than by the Fed, since no borrowing is involved; instead, the winnings show up instantaneously in traders' accounts. This financial fattening occurs, as all manias do, without any real labor. Stock-market rallies have become the true source of helicopter money, although they are probably not what Bernanke had in mind when he averred that the Fed could
Against a backdrop of horrendous news last week about the resurgence of Covid-19, the broad averages still managed to hold aloft, demonstrating yet again that the psychosis that has afflicted investors is worse than merely mild. The August contract looks like a better-than-even bet to reach the 3392.75 target shown in the chart. It appears to be consolidating above a midpoint Hidden Pivot at 3158, presumably for a thrust at least 3275.50, the secondary pivot. However we attempt to get on board, our trading bias should remain bullish until such time as minor abc corrections start exceeding midpoints and 'd' targets. I will signal in the chat room if this occurs to any significant extent. _______ UPDATE (Jul 20, 8:47 p.m. EDT): As anticipated, the futures have rallied sharply and are closing on p2=3275.00, my minimum upside target for the near term. I'll recommend shorting there with a tight 'rABC' pattern to those who are familiar with the tactic. By 'tight', I mean risking no more than 3-4 points theoretical per contract on entry. _______ UPDATE (Jul 21, 6:48 p.m.): I am only half-kidding when I say that all trends, up or down, in all times and all vehicles, reverse at p2. This one did, just two points shy of the pivot, at the top of a 40-point rally. The short could have produced a quick profit of as much as $1500 per contract, but because no one mentioned having done the trade in the chat room, I have not established a tracking position. Now, a decisive thrust past p2 will all but clinch more upside to D=3392.75.
