The Dollar Index last week popped through peaks going back as far as five years, flouting the Fed's doomed efforts to 'manage our expectations'. This is deflation knocking loudly on the door, and as the dollar continues higher it will put increasing pressure on all who owe. (See my commentary above, and click here for a lively, expansive interview at Howe Street.) In the headline essay, I've used a minor, look-to-the-left peak near 109 to project minimum upside for the next few weeks. However, here's a bigger picture that yields a higher target at 112.14. I expect the dollar eventually to challenge highs near 120 recorded twenty years ago. _______ UPDATE (May 13, 9:57 p.m.): To gauge the strength of the uptrend, here's a lesser chart that shows DXY in an apparent bullish consolidation after hitting a relatively minor rally target. The 112.14 target given above remains viable and is still likely to be reached. _______ UPDATE (May 19, 6:13 p.m.): What a difference a day makes. The sharp dive has transformed a promising technical picture into a question mark. Some will see a head-and-shoulders in the making, but we should give it another day or two before be infer that DXY is about to fall back to 100 in search of support.
A lone deflationist on the lunatic fringe of economics 30 years ago, I wrote in Barron's and the San Francisco Sunday Examiner that an out-of-control dollar eventually would do us in. Specifically, I asserted that a short squeeze on dollars would send their value soaring, making it difficult or impossible for anyone who owed dollars to repay them. I'd already run this idea past a few Ivy finance professors, who all had the same reaction: "What have you been smoking??" Not Professors Ivor Pearce and W.P. Hogan, however. It was their 1984 book, The Incredible Eurodollar, that had awakened me to the potential disaster brewing in a dollar market vastly larger than all of the others put together, including stocks and Treasury paper. Could a tradeable asset available in theoretically unlimited quantities from the central bank ever be in dangerously short supply? "An interesting question," Prof. Pearce allowed in a phone conversation we had at that time. The possibility had fascinated me since my days as a floor trader on the Pacific Stock Exchange. It was not uncommon to see a stock soar simply because too many traders had bet against it. These panic-driven melt-ups blithely ignored poor 'fundamentals' to generate rallies that tended to enrich the reckless and stupid at the expense of the well-informed. The latter invariably suffered pain an even financial ruin, although many of them were very smart guys who could do the math. In one particularly memorable instance, they calculated that a certain airline stock trading for around $80 was not worth half that. After the stock ultimately climbed above $200, standing quants on their heads and wrecking some financially promising young lives, the quaintly stupid notion of 'valuations' would never be the same for them. Or for me. Short Up the Old Wazoo This
That whooshing sound on Friday was the stock market getting flushed for a rare change. Permabears shouldn't get their hopes too high, however, since DaBoyz will have an opportunity to turn things around at the 4146.75 'D' target shown in the chart. This Hidden Pivot support can be used as a minimum downside objective for the near term -- and also as a place to attempt bottom-fishing with as tight a stop-loss as you can abide. Since you will be catching the proverbial falling piano, be prepared for more slippage to 3994.75 if the support doesn't hold. There, too, I would encourage you to bottom-fish using a bullish pattern on the very lesser charts (aka 'camouflage'). _______ UPDATE (Apr 26, 11:22 p.m.): At today's close, I provided detailed guidance for a countertrend trade that went on to produce a profit of as much as $2000 per contract. Two subscribers reported doing the trade successfully, each in a different way. The 4194.75 'D' target of the pattern is just an inch away at this hour, so you should be out of 3/4 of the position. Here's a chart that shows how the trade set up. _______ UPDATE (Apr 27, 10:57 p.m.): When the futures finish their distributive dance at p2=4153.81, expect them continue falling to at least D=3994.75 of this pattern. This is the same target as the one given above, but with additional, falling price bars. _______ UPDATE (Apr 26, 10:06 p.m.): No telling how high this detour will go, but AAPL's very strong performance today is warning bears not to get too aggressively in the way.
The steep selloff that ended the week should continue down to at least D=156.63 before bulls can mount a strong counteroffensive. The pattern associated with the target looks good enough for government work, although only barely because of its 'sausage' point B low. Even so, you can bottom-fish at D if you're able to keep the entry risk down to perhaps 5-7 cents per share using an entry trigger from a chart of minute degree. I'll provide guidance on request if I'm in the chat room at the time. ______ UPDATE (Apr 26, 11:47 p.m.): AAPL plummeted $10, but sellers didn't crash the 156.83 Hidden Pivot until just after the close. Its decisive breach says considerable weakness remains to be spent. _______UPDATE (Apr 28, 10:10 p.m.): After the wicked goosing DaBoyz gave AAPL on the opening bar, shorts never had a chance. After-hours price action has been so violent, however, that there is little point in prognosticating ahead of Friday's opening.
Subscribers should have exited a profitable long trade using a 1942.30 stop-loss before the futures turned limp on Friday. The fact that a moderately appealing 'mechanical' play didn't work better suggests weakness will be the coming week's theme. But probably not too much of it, since sellers have not shown much gumption either. My gut feeling is that DaBoyz will stop out C=1893.20 before they gratuitously reverse until hopes are high enough to dash yet again. Set your snooze alarm for 2018.40, a tick above an 'external' peak recorded on March whose breach would signal a bullish resurgence. _____ UPDATE (Apr 25, 5:04 p.m.): After plunging sharply overnight, the reversal came exactly as anticipated, from a hair below C=1893.20. One subscriber reported making hay with the $13 rally that ensued. The futures spent the rest of the day playing footsies with 'C', leaving me with little more to say at the moment. _______ UPDATE (Apr 26, 11:55 p.m.): Although June Gold has bounced from precisely where we'd anticipated, the countertrend has been weak. This has activated the bearish pattern shown in this chart, with a D target at 1825.80. It is an odds-on bet to be reached because of the easy with which the downtrend penetrated p=1914.40, then made it resistance. _______ UPDATE (Apr 28, 10:16 p.m.): The futures bounced sharply off p2=1870.10 of the bearish pattern that projects to 1825.80, delaying a still-likely fall to that number. This has activated Matt's Curse in a bullish way, although I'd need to see the rally surpass 1922.80 before I change my tune.
Silver's rally fizzled, as so many of them do, stranding a 'mechanically' acquired long in limbo just above a 24.04 stop-loss. The sting would have caused little pain, however, since subscribers were advised to set up a 'camouflage' trigger when the futures first came down to the green line. I am anticipating a gratuitous dip below C=24.04 before bulls could attempt yet another charge for better or worse. The chart is such a mucking fess that I can offer no compelling downside targets. This suggests that the next upturn will come firm a 'discomfort' zone lying in the grey void between two prior lows.
June Crude validated the bearish pattern shown on Friday with a day-long game of toe-sies at the red line. That's a Hidden Pivot midpoint support at 101.18, and its decisively breach would signal more downside over the near term to at least p2=99.05, or possibly to D=96.93 if any lower. So far, however, the breach has been slight, and it would therefore be premature to offer odds of a further fall. In the meantime, we can look to get short 'mechanically' on a rally to the green line, but I am recommending that the trade be initiated only via 'camouflage'. In practice, that would mean using a downtrending ABCD pattern on a 15-minute chart or lower to set up a trigger.______ UPDATE(Apr 25, 5:12 p.m.): Crude's plunge crushed all of the Hidden Pivot supports identified above, sending the June contract into a boring void of white space on the daily chart. Adding to the boredom was the return of the June futures to the midway point of the intraday range. UPDATE (Apr 28, 10:19): The picture is still moderately bullish but boring.
We've been using a big-picture rally target at 103.25, but let's start the week with a focus on a more conservative target at 101.97 that looks all but certain to be achieved. Its main importance lies in its ability to tell us whether the steep uptrend might be losing steam. As always, an easy move through a Hidden Pivot resistance would portend more strength to come. The dollar's rise matters a great deal because it raises the price of oil for most of the world outside the U.S., and because it increases the burden of debt for all who have borrowed dollars. _______ UPDATE (Apr 27, 11:18 p.m.): The dollar has very precisely hit an important target at 103.25 that took four years to achieve, so extra caution is warranted. We'll move to the sidelines for now.
If you're a permabear, it might be refreshing to view Friday's thousand-point Dow avalanche as the start of a wholesome new trend. My gut feeling, however, is that the plunge will reverse before midweek, ideally at Hidden Pivot targets featured in the latest list of 'touts' on the Rick's Picks home page. I'll keep an open mind about this if the targets get smashed, but I'm not convinced the stock market has begun the punitive reset it has needed so badly for years. Arguably more interesting and consequential is the steep ascent of yields on the 10-Year Note to within inches of a 3.24% target that I've been drum-rolling for months. What will happen when we get there? My gut feeling is that rates will level off for at least a few months, then head lower for a long, long time as the U.S. and global economies slide into a deflationary bog. Lower rates unfortunately will bring no relief for debtors, however, since the value of assets that they've hocked up to their eyeballs as collateral will be falling as well. Snuffing Inflation From a technical standpoint, the 3.24% target looks too clear and compelling not to halt the rise in long-term rates at least temporarily. From a fundamental standpoint, the reason I doubt the rally will blow past 3.24% is that at that level the total burden of all debts will be sufficient to snuff inflation of every sort, turning the real estate bubble, for one, into a black hole of deflation. This will happen irrespective of what the wizards at the central bank intend or expect. Some are saying the Fed wants the stock market lower. Although that sounds plausible, we shouldn't trust that they know how to do this without collapsing an already shaky global economy. The
While it would be lovely to think that the chimpanzees who make their living throwing OPM at AAPL are finally getting their comeuppance, the reality is that they are allowing it to fall in order to reload at lower prices. AAPL being our main bellwether, this is yet another picture of the groundhog seeing his shadow: six more weeks of phony springtime to be endured by permabears. It's possible I could be wrong -- but not likely, given that the selloff of the last two weeks has come from a high that had impaled two very significant 'external' peaks recorded, respectively, on January 12 and February 9. Most immediately, however, the downtrend targets 158.47, a tradable Hidden Pivot that comes from A=178.49 (hourly chart) on 4/4. _______ UPDATE (Apr 20, 11:15 p.m.): The weak rally to x=168.07 on the opening triggered a 'mechanical' short, stop 171.27. No one mentioned having done the trade, but I'll track it anyway since AAPL remains our key bellwether for the stock market as a whole. Here's the chart. ______ UPDATE (Apr 21, 11:18 p.m.): Shorts had no chance when a gap-up opening goosed the stock to 171.53 before it collapsed almost as sharply.
