Commentary for the Week of March 8

Although some chartists we respect have recently turned bullish on the dollar, count us among the skeptics.  Technically speaking, and based on our proprietary indicators, there are two specific reasons for this. The first is on display in the 240-minute bar chart of the NYBOT Dollar Index shown below. Notice the strong upthrust that began on May 5 from a low of 72.70. We’d be the first to concede it looks like a real barn-burner -- provided the steep pitch of the rally is considered and nothing else.  However, a trend’s steepness is of little concern to those who use the Hidden Pivot Method – the same method that Rick’s Picks has honed and taught to hundreds of traders over the years.  For it is not the angle of an uptrend or downtrend that tells us how strong it is, but rather the number of prior peaks or lows that the initial thrust, or “impulse leg,” exceeds without pausing for breath.  In this instance, and as you can see, buyers have hesitated just below each of several such peaks, pulling back from each in order to get a running start. Long experience tell us that this is not how the Dollar Index should be acting if buyers are indeed gearing up to launch a major offensive or perhaps even a new bull market. Instead, each new thrust should effortlessly skewer peaks to the left of it.  Moreover, fledgling trends with sufficient power to reverse a long-term trend tend to surpass two, three or more such peaks with their first “impulsive” thrust. Look closely at this rally, however, and you’ll see that, for starters, it needed to catch its breath just to get past the little pisher-of-a-peak at #1. Pretty chicken-hearted, really. And that is why we told subscribers last week

We harbored no illusions that Raj Rajaratnam was going to beat the rap for insider trading, but we were rooting for him just the same. The hedge-fund billionaire faces a possible life sentence after being convicted by a jury on Wednesday on all 14 counts of a case billed as the biggest insider-trading scandal of them all. The poor schmuck! Like some zoo specimen of ecopistes miratorius, the common pigeon, he seems so very unlucky for having been one guy among 10,000 quasi-criminals on Wall Street whom the Feds chose to make an example of. Now Rajaratnam will go to jail for crimes against no one in particular, even though many of his colleagues who stole directly from investors through deceit, misrepresentation and gray-area fraud will remain free and unaccused. And rich. Moreover, at the time Rajaratnam was trading on insider tips, there were so many trillions of dollars’ worth of funny money swirling in the financial ether that, however much of the grand sum he stole, no other investor could demonstrably have been denied his fair share. Because the crimes Raj is accused of committing are far worse than the ones that sent Martha Stewart to prison, it seems highly doubtful he’ll avoid doing time in a minimum security prison. Recall that Martha did what any of us would have done if we’d received a phone call from our broker’s clerk warning that a company in which we held quite a few shares was about to announce some bad news: She dumped the shares. However, because the Feds couldn’t get a jury to convict her for doing what most of us would have done, they ultimately sent her to prison for covering up the paper trail.  And while Raj may also have lied to those who prosecuted him, over-the-top

We told subscribers to short the S&P futures yesterday, and although we’d ordinarily use a tight trailing stop because the trade flouts a 26-month uptrend, this time we intend to loosen up and let our profits run. For if the so far puny blip in the US dollar has caused commodities to plunge, and for stocks, finally, to give way, imagine what will happen if the dollar really takes off, causing a cosmic-sized carry-trade unwind as swift and lethal to many traders as investors as a cobra strike. With a big spike in the dollar, silver would assuredly be trading in the mid-$20s; copper, below $2.50; gold at $1200, T-Bond yields, well below at 4%; and the Dow, at 8000 or less. And remember: We’re not in Kansas any more. Corrections that used to take months or even years to run their course now play out in mere weeks. Nor can we rule out the possibility of a flash crash inundating the global financial system in the space of an hour or two. But even if nothing so dire seems likely, traders should nevertheless remain open to the possibility that the market crash – the Big One we’ve all known was coming ever since the Svengalis at the Fed “fixed” the banking system -- has indeed begun. Our thinking on this was stimulated yesterday by our good friend Doug B., known to long-time readers of these commentaries as The Smartest Financial Advisor We Know. He stays closely in touch with some prominent chartists and thinks some of the very best are now on the wrong side of the trade. Poring over their charts, and the ostensibly bullish triangles and wedges that can be found or imagined therein, they’ve deluded themselves and their followers into thinking there will be yet one

Something really does stink on Wall Street, and so, like nearly every other trader we know, we’re itching to get short up the old wazoo. And while we would never do so expecting to nail the Mother of All Bear Rally Tops, we’re content to find juicy, perfectly tradable highs at least once or twice a week.  Yesterday, for instance, the E-Mini S&P stalled for four hours precisely where we’d predicted, at 1351.75. Here’s the forecast exactly as it went out to subscribers the night before, when the mini-futures contract was developing thrust from around 1343.00.  Keep in mind that we’d partially covered a short earlier in the day for a theoretical profit and were looking to do it again on the very next thrust:  “Shorts initiated yesterday from near 1345.00 should be tied to a 1349.75 stop-loss. That is somewhat lower than the 1355.25 stop suggested here earlier, but it is also where the five-minute chart would now become menacing.  Please note that the lesser charts are already working on a minor, bullish impulse leg that yields a 1351.75 target and a midpoint at 1347.00.” Imagine what a cheap thrill it was for us to see E-Mini buyers stymied at exactly 1351.75 for most of the day.  With any luck, one of these times we’ll be able to get short, and to stay short, for the rest of the decade.  For now, though, our goal is to “go away in May,” but with a position that will keep on giving through, oh, the Fourth of July. But the real trick is to make money even when we are wrong.  If you’d like to find out how successful we’ve been at this, or how much fun we've had, even when unsuccessful, then by all means ask a Rick’s Picks subscriber

Gold and Silver  have caught a nice bounce from last weeks lows – up 7.8% and 14.9% respectively -- but we’d suggest postponing the celebration until the rally has had a week or two to develop legs, assuming it does.  Although our initial reaction was that the correction would be over quickly, there are some reasons to be very cautious nonetheless. For one, the U.S. dollar is showing signs of life, a development that could put pressure on bullion prices if it continues. And for two, because a misguided phalanx of amateurs evidently got trapped in Silver at its recent, fleeting summit, it could take a while for the metal to base for the next big rally.  How misguided were they?  Egregiously, it would appear. Volume in ETFs and call options spiked to record highs, no doubt driven by visions of Silver doubling or tripling in price. It is not the lofty expectations of these star-gazing speculators that we would quibble with, however, but rather their timing. And, bad as it was, long-term investors will simply have to be patient, however long it takes for confidence to return to the precious-metals market. In the meantime, more than a few of those who have ridden out the storm so far will undoubtedly be praying for a good rally so they can lighten up.  In our experience, however, and unfortunately, no force is more powerful in driving stock and commodity prices lower than an effusion of prayer seeking the opposite. Regarding the Dollar Index (DXY), it has surged 3.4% since last week and need only rally a further 1.6% to turn the daily chart bullish via the creation of an “impulse leg.” This is shown in the chart above.  DXY has generated two such signals in the last 18 months, and although

The “liquidity event” is back. With stock markets around the world rising on a tide of printing-press money, IPOs, mergers and acquisitions are red-hot once again, turning corporate insiders into billionaires overnight. And -- no surprise here -- the companies that are most closely tied to the funny-money business itself are spawning billionaires the fastest of all – faster, even, than Forbes magazine can make room on its list of 500.  Just one new, hitherto unheard of paper-pusher alone, Swiss commodity-trading firm Glencore, will likely add at least six billionaires to Forbes’ roster when it goes public.  Its CEO, Ivan Glasenberg, who owns 15.8% of the company, could be worth $60 billion after the big day.  Perhaps Facebook founder Mark Zuckerberg went into the wrong business? He’s only worth a measly $12 billion at the moment, and it seems unlikely he’ll surpass Glasenberg, since Facebook, which has yet to develop a solid revenue model,  is expected to fetch only $50 billion when it goes public. In the meantime, poor cousins like General Motors continue to grind out profits the hard way – i.e., by selling their stake in financial subsidiaries that are making money hand-over-fist the new-fashioned way. Fortunately, however, some of the lucre has begun to trickle down to the little guy. The Ackerman household, for one.  We recently received a letter from Well Fargo bank informing us that they were “very pleased to bring [me] some good news!”  I knew the news was going to be good indeed, since the opening sentence was in boldface – and with that exclamation mark!!  Were they perhaps going to reward me for being a loyal customer for 30 years?  Well, yes. But my heart sank with the next sentence:  “We have lowered your annual percentage rate as noted in the table

Gold and Silver punished the faithful yet again on Thursday, demolishing the technical supports we’d thought would arrest the decline. The sturdiest of them barely evinced a bounce, a fact that telegraphed the onslaught that was to follow. How many more days of acute pain?  Not many, for sure, since Silver would be trading for under $10 by next mid-week if the collapse were to maintain its current pitch for just another few days. Now, our worst-case target for the July Comex contract is 31.520, although a bullish turn could conceivably come from a lesser support well above it, at 33.615. Both are Hidden Pivots, and the resiliency of the higher may help us to determine how likely the lower is to be reached.  With respect to Gold, we disseminated a 1451.80 target intraday for the June Comex contract. That number is an important Hidden Pivot support, and it looks sufficiently robust to contain the damage.  Although it lies $10.70 beneath Thursday’s bottom, it could prove to be just minutes away if sellers greet the day in the same despairing mood they were in yesterday. Using our proprietary technical method, we attempt to judge the strength of both major and minor trends by observing their interaction with Hidden Pivot supports and resistances.  It was on that basis that we hung out a yellow flag last Sunday night with this headline: “Comex Gold Closing on a Crucial Target”.  As of that evening, the June contract had gotten within a few dollars of a longstanding rally target at 1581.20 that we’d been drum-rolling for weeks.  In the actual event, the high occurred just beneath the Hidden Pivot, at 1577.40, but we were ready for it nonetheless.  Here is what we wrote at the time: “Technically-derived targets have kept us quite bullish the

Although some technicians we respect think bullion’s correction will stretch into summer, we think it will be over within a week. In our experience, powerful bull markets recoup violent selloffs with rallies that are just as violent. Silver’s correction has been violent indeed, savaging quotes by 25 percent in just a few days. The catalyst for this brazen shakedown was news Sunday night of Osama bin Laden’s death.  Who needs bullion when the world is about to become an oasis of peace, right? Yeah, sure. When the revelers return to their senses the world will still be a dangerous place, the central banks will still be printing money by the trainload, and nothing will have changed to diminish the defensive appeal of precious metals. Under the circumstances, we doubt that Silver will need much base-building to launch an assault on the supposed $50 “barrier.” We view that number not as impenetrable supply, but rather, as a fat carcass waiting to be picked clean by voracious buyers.  Let J.P. Morgan and their ilk try to hold the line at $50. They’re going to be dead meat eventually, so why not now? In our years of experience on the trading floor, huge supply tends to coax forth huge demand.  As traders like to say, opportunity moves to size.  And while the bad guys may have deep pockets and the ability to create tons of “paper bullion” at will, any suspicion that they are trying to cap Silver at $50 is going transform otherwise docile, go-along buyers into aggressive opportunists.  This will prove to be equally true for Gold, we are certain.  The Chinese government, for one, has given its blessing to any citizen who wants to buy the stuff. Want to stand in their way? Precise Numbers From a technical standpoint, July

Although the price action in bullion has been unusually violently since the world’s most feared terrorist was terminated on Sunday, we’ve been able to harness the swings in our favor without much stress. Yesterday, for instance, Silver Wheaton shares, a favorite with Rick’s Picks subscribers, finally hit a correction target at 36.35 that we’ve been focused on for more than a week. The stock has been up, down and all around in the meantime, but even when it was climbing steeply off a scary low, we’d warned that it was not yet out of the woods. That is still true, although we were able to take a nearly risk-free position just pennies off yesterday’s low. We’d been expecting a tradable bottom at exactly 36.35, a Hidden Pivot support, and it was achieved in the opening minutes of yesterday’s session.  The swoon provided us with an opportunity to hedge a position we’d held for a while:  long 300 shares (or a multiple thereof) from 42.01 against three June 40 puts (or a multiple thereof) acquired for 2.35. Silver Wheaton shares can be extremely volatile, and that’s why we hedged them, buying puts when the stock was relatively strong.  The June puts gave us good downside protection, but it came at a price.  In effect, we were paying $235 to insure each round lot of stock till June 17 against a decline below $40 a share. Fortunately, near the exact bottom of yesterday’s selloff, we were able to short three soon-to-expire May 38 puts against our June 40s for 2.85 apiece. This gave us a $2 vertical put spread – a bearish position – for a net credit of $50 per spread. Ordinarily, one pays money for such spreads rather than taking money in, and if you had bought the spread at