I've been talking about the 449.42 rally target for more than a month, which is probably reason to think it won't work. Still, I cannot imagine the futures blowing past it on the first try. The reverse pattern from which the target is derived is too clear and compelling not to stymie the thundering herd, even if only for a day or two. A shallow pullback that lasts for perhaps 2-3 days and works bears into a state of nervous exhaustion would be warning them to dive for cover. Would they even want to know at that point that there would be another opportunity to lay 'em out at 465.90. That's the D target that maxes out reverse-pattern possibilities with the lowest 'a' that is not part of a conventional pattern. (Note to Pivoteers: This is what I call a locked point 'a' high or low, a term worth remembering and asking about.)
If anyone doubted gold is headed to the 2771.00 target touted here earlier, their skepticism should have been dispelled by Friday's close at the intraday high, well above the midpoint Hidden Pivot resistance at 2549.30. The previous day's close was above it as well, further shortening the odds that the target will be achieved, and possibly exceeded. Price action has been squirrelly enough with so many skeptics sitting on the sidelines, but we might expect the trend to turn even more evasive now that 'everyone' wants to be on the same side of the trade. Trends that are easy to exploit don't exist, so don't be surprised at whatever gold does to fool the majority. If I were Mr. Market, I would screw laggards and doubters by accelerating the upthrust, giving them yet another reason to remain on the sidelines as they wait for better prices. Bargains have come all too frequently since April, often in our faces, but you can bet that has changed.
My last update left little uncertainty that the December contract would achieve a minimum 31.795, the Hidden Pivot target of the pattern shown. The uptrend looks too steep to allow the one-level pullback we'd need to get aboard 'mechanically', and the pattern is too obvious to allow us to squeeze off a tightly managed short at the target. That would still be possible, however, if you are proficient at constructing trade triggers on the lesser charts (i.e., 'camouflage'). If buyers push past the target, the next would be a Hidden Pivot not far above, at 31.730. It is derived from 'locked' a=26.950 on 5/2 -- by definition the lowest low in this chart capable of producing a reverse pattern.
I've put aside Hidden Pivots to consider the simple picture afforded by connecting up the last two important highs on GDXJ's daily chart. They yield a rally projection to 51.19 as the week begins, but you should factor an additional 0.05 per day (or 0.25 per week) to account for the trendline's rising slope. That would imply resistance at around 51.44 come Friday. Achieving this height should pose no problem, since gold itself is in a strong uptrend with a target about 7% above current levels. If a commensurate rally were to occur in this vehicle, it would imply upside to 52.40. Can GDXJ catch up with physical? It is bound to happen eventually, presumably when speculative juices are flowing more copiously.
The seemingly unstoppable rally since Bertie bottomed at 52,619 on September 6 will test the idea that the best shorts occur in places that inspire the most fear in bears. Friday's wilding spree tripped a fearsome but technically appealing 'mechanical' short using the green line (x=59,858). That doesn't mean you're supposed to get short at that price, only that you have a proper signal for setting up a 'camouflage' trigger that minimizes the otherwise 5158-point entry risk of a position stopped above the pattern's point 'C' high. I suggest a trigger interval of 625 points, implying $2500 of entry risk on four lots. This trade is only for those who understand the mechanism and are comfortable with the risk.
My confidence in the pattern shown is high. It is that pretty, and the 'mechanical' short triggered on Friday when a two-day bounce touched the green line is therefore likely to fall to at least 99.90 before TLT could find traction. However, a decisive breach of the red line would imply more slippage over the near term to as low as 98.56. The bigger picture remains bullish and points to 105.49 over the near-to-intermediate term, with long-term potential to as high as 150.12 (!). The much lower interest rates this implies should not be regarded as good news, since yields could fall to those levels only in the throes of a very deep recession or a depression.
The 65.95 downside target of the pattern shown is sufficiently clear and compelling that we might have expected it to contain the powerful bear cycle begun in early July from around $85. Instead, the futures breached the Hidden Pivot support by a not insignificant $1.34. This implies the nearly $5 bounce that has occurred so far is likely to sputter out without surpassing any significant prior peaks on the daily chart (the nearest of which lies at 76.40). For now, I can offer a rally target at 69.76 as a minimum upside projection (30m, A= 64.99 on 9/11), or at 71.94 if any higher. These Hidden Pivot resistance points will obtain as long as 67.58, the pattern's point 'C' low, is not violated first.
The so-called 'wealth effect' is the Tulipmania of this era on steroids, creating untold sums of money from speculative spume. If materializing vast quantities of spendable cash is the goal, a revved-up wealth effect makes the Fed Open Market Committee look like a ladies' luncheon club. Indeed, it can take long months or even years for the central bank to stoke the consumption furnace using swaps, repos and direct purchases of Treasury debt. These obfuscations are designed mainly to make the promiscuous use of credit more attractive to everyone. However, the money must be borrowed into existence for profligacy to work its magic on the economy, and that takes time. There is a much faster and simpler way to inject cash into the system. It works every time, and the result is instantaneous, effectively showering Wall Street with a blizzard of $1000 bills. This is a monetization trick that is not taught at Wharton. An added feature is that even Joe Sixpack can pitch in simply by buying stocks on margin. Turbocharged by a 4x multiplier and a steeply rising stock market, Joe will be driving an Escalade and living in a grandiose suburban home he will never own in practically no time. The chart shows how it's done, satisfying America's money sickness in ways even the financially ingenious Dutch might not have imagined. Their seaborne empire was at its height in the 1630s, when greed and hysteria combined in just the right proportions to make the masses believe a rare tulip bulb could be worth as much as ten acres of prime farmland. The Burghers who invented the open-outcry exchange had the good sense to restrict futures trading in flower-bulb contracts in one crucial way: traders could not sell them short. Shorts Power Bull Markets In contrast, a key
By midweek, we had reason to expect a 2% drop to at least 5429.38, the midpoint Hidden Pivot support shown in the chart. Unfortunately, the small penetration of this level in the late afternoon on Friday implies more slippage is likely. Now, you can use the magenta line (p2=5309.19) as a minimum downside objective. But be prepared for additional weakness down to as low as d=5189.00, the blue line) if selling snowballs. There is no reason to believe the dropoff from a range of small peaks recorded over the last two weeks will be any worse than that. However, and nevertheless, we should be mindful of a possibility I first broached here months ago -- i.e., that because the range of small peaks occurred below mid-July's record summit, the S&Ps may be replicating the lower highs and lower lows that occurred in the summer of 1929, just ahead of the stock market's crash in October 1929. Microsoft's performance will be crucial to the way we view these developments, so be sure to read the latest MSFT 'tout' immediately below for more-finely nuanced insights.
We've had our sights trained on a 449.42 rally target for a month. Given MSFT's premier bellwether status, this was sufficient reason to infer that the bull market as a whole had further to go despite a mounting pile of good reasons for its imminent collapse. We also said that if the stock corrected down to 401.54, this would present a back-up-the-truck buying opportunity for an implied 48-point ride back up to 449. The first phase of our plan came to pass last week when MSFT plunged 17 points, or 4%, before settling at 401.82 ahead of the weekend. Although the stock initially trampolined $10 after kissing the target in the early morning, it relapsed to end the day, and the week, with an $8 loss. Although this may have been scary for investors who have ridden the stock down from the record 468 achieved in early July, it still looks like a juicy buying opportunity for those who have been waiting for fire-sale prices. Indeed, the 'reverse abcd pattern' shown in the chart would appear to offer great odds for anyone buying at the green line. A $16 rally to the red line (p=417.50) seems assured, although a follow-through to D=449.42 can no longer be confidently touted as a near certainty. Even if the stock does achieve D=449.42, that would leave open the possibility of a 1929-type secondary top in both MSFT and the broad averages. Alternatively, if MSFT continues to fall, surpassing the C=385.58 low of the pattern projecting to 449.42, that would be strong evidence that the bear market investors have feared for years has begun. _______ UPDATE (Sep 11, 9:49 p.m.): MSFT has now rallied $23 from within a hair of the 401.54 correction target flagged above, in my tout, my weekly commentary and the chat
