Commentary for the Week of March 8

It was the Battle of the Fleas yesterday in the final hour, with the Industrial Average’s maidenly virtue at stake. Earlier in the day, the broad averages had traced out the EKG of a motorcycle victim lying brain-dead on a gurney. Then, when the NYSE’s clock struck three, stocks broke lower, impelled perhaps by an anxiety attack over payroll data due out Friday. Selling commenced in earnest, with an initial pitch that threatened to put the Indoos into a 250-point kamikaze dive. Would the blue chip index be sullied and degraded by a symbolically evocative loss of 100 points or more?  Or instead, would Wall Street’s one true White Knight – i.e., panicky bears covering short positions -- ride to the rescue, as nearly always occurs? Lo, with just ten minutes to go, the selling decelerated and reversed with the DJIA off 115 points.  More nail-biting action.  Two minutes left, and the Dow is now down 92 points, the matter still unsettled. Bulls and bears traded a flurry of puny blows, all of them aimed below the belt. A jab glanced off a buttock…a thumb sought purchase in a groin…a knee found its target in a thigh.  Alas, bulls needn’t have worried. The Dow finished down 96.28 points on the day, achieving the same obscurity in the record book as a long fly ball blown back onto the warning track by a stiff gust of wind. *** Tesla Shares Fly A sibling called yesterday wanting our blessing for the purchase of Tesla (NASDAQ Symbol: TSLA) shares, the hottest IPO to come along in quite a while.  The last time he called about a stock, it was just before eBay’s now-legendary IPO. An inveterate garage-sale junkie, he pleaded his case at the time, explaining that eBay was an idea that would succeed spectacularly.

I put out some quite-bullish rally targets back in May, and now the futures are close to achieving them.  The forecast referenced the June contract and called for a move up to 128^17, or perhaps to as high as 130^04 if the lower resistance, a Hidden Pivot, was breached. The equivalent numbers for the September contract are, respectively, 128^07 and 129^28.  Either could mark an important top, and that's why I am revisiting the forecast.

The futures are recovering gingerly after a two-day strafing that appears to have ended yesterday morning. Most immediately, a minor ABC rally pattern pointed to a Hidden Pivot resistance at 1249.00, assuming its 'p' sibling at 1244.20 can be easily surmounted.  It will take a bit more, however, to put bulls on the offensive. Specifically, the futures must rally today above a 1252.60 "look-to-the-left" peak visible on the 5-minute chart. The resistance was created during Monday's sharp break, and it will need to be overcome if the futures are to refresh the bull trend on the intraday charts.

The downtrend projects to 9431, implying another 440 points of creative destruction over the near term. The feverish short-squeeze at the tail end of yesterday's session racked up 80 points, hinting that DaBoyz might be more eager to sell 'em near the top of a phony rally than to buy 'em at whatever ostensible bargain-basement lows might obtain intraday.  Still, with the July 4 holiday coming up and no clear call on whether America is taking Monday or Friday off (or perhaps both) bullish seasonality will be ratcheted up to the max. We should therefore be on our guard against the gratuitous leap higher, since it is hardly a longshot bet.  It would be telegraphed in subtle fashion with a print exceeding  9967.57 on the 5-minute chart.

All signs pointed lower at the close, although there were no compelling targets amongst a handful of relatively minor ones. A trendline connecting two lows since June 10 implies support around 18.265, and that is the number I'd suggest using if the futures remain weak. To put bulls on the advantage, buyers would need to push the July contract above 18.800 today.

Our small put position is showing a theoretical gain of about $890 following yesterday's refreshing plunge in the broad averages. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70; they closed, respectively, at 1.54 and 3.85.  We should be encouraged by the latter number, since the puts magically traded down to 3.85 after having been as high as 4.15 minutes earlier. What that means is that the thieving dirtbags who are short them -- professional market makers, like I used to be -- are struggling to hold them down.  They may have been "marked" at 3.85 for settlement purposes, but you can bet there weren't many for sale at that price and that the market makers would have jumped on any serious offers at 3.90 or even 3.95. They project to at least 5.00 right now (see chart), implying that sellers are not yet finished with the Diamonds/DJIA.

We were briefly long yesterday morning, unaware that we were buying into an avalanche.  We wound up scratching the trade, but the position was actually profitable for about ten minutes when the futures rallied from within a single tick of the tradable low that had been predicted, a Hidden Pivot support at 1046.75.  The ride was short-lived, however, and ended abruptly when some allegedly shocking consumer confidence numbers hit the tape.  The futures dove in an instant but we came out fine, since we had already taken a partial profit on the position and implemented a cautious trailing stop (all  by way of  detailed, minute-by-minute instructions proffered in the chat room). We wondered aloud just who it is who is doing the expecting whenever these numbers are released.  It would have to be economists, since no one else we can think of would have been wider of the mark.  And now, whither the futures?  992.50 is the target I posted in the chat room, and it still looks great.  Keep in mind, though, that with July 4th seasonality at gale force right now, an unmitigated collapse would be highly unusual.  On the other hand, if DaSleazeballs had had the ammo to short-squeeze stocks at any point yesterday, they'd have done it.  In fact, the broad averages barely got a bounce the entire day.

The narrow failure of yesterday's rally to push above the 502.15 peak from May 12 was a cautionary sign, since bulls with designs on impressive new highs would never have been so timid.  However, they'll have a chance to turn things around if the pullback hits 483.71 (see inset), a minor midpoint support. If it's taken out, though, we could expect the selling to continue to at least 476.85.  These targets will remain valid as long as 490.58 is not exceeded to the upside first. Either can be bottom-fished with a stop-loss as tight as 5-6 cents.  ______ UPDATE:  It was all over for bulls on the opening bar, since HUI gapped down to 475.68 in the first minutes of the session.  This refreshed the bear trend as well, creating a minor impulse leg that projects most immediately to 467.31.  Bottom-fishers would have been stopped out for a small loss.

Yesterday's bull trap did barely any damage to the hourly chart, let alone the daily. Still, there is short-term downside potential to 18.420 if yesterday's low, 18.625, is breached by more than a tick or two.  You can bottom-fish the lower number with a stop-loss as tight as three ticks. If bulls turn things around with more corrective action, a print at 18.880 is where they'd begin to look credible.