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Investors who feared muni-bond defaults when the pandemic first hit created unusual opportunity for those willing to buck the tide. One of the winners was Doug Behnfield, a Boulder-based financial adviser at Morgan Stanley whose ideas have been featured here many times over the years. Doug is not only one of the savviest investors I know, he is one of the savviest guys. Now, he is quite bullish on municipal bonds for reasons spelled out in a report that went out to clients in April.  He also thinks Fed Chairman Jerome Powell's confidence that the inflationary effects of stimulus and fiscal spending will be "transitory" is well founded and that this has already been discounted by stocks and bonds. Doug and his clients enjoyed an exceptional year in munis because he started buying them when others were dumping them. Prices subsequently recovered and then some, yielding excellent gains for anyone who'd faded the panic.  Doug is a canny contrarian who shares your editor's view that deflation poses a greater threat to the U.S. economy than inflation. More immediately, he expects pent-up demand to produce a subdued recovery rather than boom times. It will take years for growth to recover, he says, in part because consumers have learned beneficial lessons of frugality. A Limited Supply There are additional factors that have made Doug especially bullish on municipal bonds. For one, they are exempt from federal income tax. Substantial tax hikes planned by the Democrats will therefore make municipal bonds even more attractive.  Munis also are exempt from a tax that affects mainly the wealthy: the 3.8% levy on investment income under the Affordable Care Act.  Limited supply is another reason munis stand to do well over the next couple of years or longer, he says. Cities will not have to raise

With home prices pumped to record levels, we are hearing more and more about Uncle Sam's plan to avoid sticking it to taxpayers when the next crash hits. Although it's always wise to have a plan to deal with catastrophe, especially one that is inevitable, there are reasons to doubt that a mortgage market valued at $12 trillion could unravel without taking the economy and much else -- including, conceivably, our system of governance -- down with it. Consider that Fannie and Freddie, ground zero in the 2008 crash, still own roughly half of all U.S. mortgages -- as much as the three largest banks -- but lack reserves sufficient to cover more than a small fraction of bondholders' losses if it happens again. Of course, the next crash could conceivably be worse, since the financial system is much more leveraged than then. That's a concern the Feds may not have fully considered when they created "living wills" for financial institutions under the 2010 Dodd-Frank bill.  The law requires large banks to file workout plans that would seek to mitigate the risk of upending the financial system and the economy while accountants deal with the quagmire. Extending this rule to the GSEs reportedly is the last piece of legislation needed to complete the Dodd-Frank reforms. 'Affordable Homes' a Gimmick We should all be grateful that someone in Washington has thought this through. But how deeply? As former heavyweight champ Mike Tyson famously said, everybody has a plan until they get punched in the mouth. And what a devastating punch this one would be. My own forecast, which predates the 2007-08 real estate collapse by more than a decade, calls for a 70% plunge in home prices, with losses on vacation homes reaching as high as 90%. This may sound overly

For sheer arrogance and effrontery, the steep rally that ended the week really takes the cake. Granted, short-covering bears supplied most of the fuel, but the news environment was as discouraging of speculation as we've seen in a while. Consumer inflation was exploding, putting pressure on the Fed to tighten; America's fuel supply had been hijacked by cybercriminals, and the wildly bullish nuttiness in bitcoin was getting quashed by Elon Musk's change of heart. And yet, here were the S&P futures, in a 150-point rally that not only flouted reality, logic and common sense, but which threatened to achieve even loonier new heights. This should tell bears what they are up against: practically unlimited quantities of risk-on capital, much of it supplied in the form of corporate buybacks by companies that can imagine no better use for the money. No one seems to lose as long as this fusion reactor is humming. But because the buybacks produce virtually no real economic growth, it's hardly rocket science to predict that the inflationary spiral of stocks will not end well. For now, I'll eschew new rally targets and simply watch in amazement as the futures ascend to probable new all-time highs. One marginally above last week's record 4238.25 would not be a go-ahead signal as far as I'm concerned, but rather a reason for the utmost caution. It would also put the futures perfectly in our 'discomfort zone', giving us reason to look for ways to get short with our powerful new tool, the 'reverse ABC pattern. Stay tuned if you care. _______ UPDATE (May 18, 10:54 p.m. ET):  Use p=4079 as a minimum downside projection. You can bottom-fish there as well, but if you use the rabc pattern shown in this chart, please note that the entry risk would be around

Bulls spent the week fending off and frustrating sellers before lurching higher toward the 1885.40 target shown.  It is a Hidden Pivot of lesser degree than the one at 1880.10 given here  earlier, but the pattern is so shapely and promising that it justifies raising the target itself.  The pattern can be used to manage the risk of a long position or to acquire one 'mechanically' on the way up.  The bad guys seem to be losing their grip, and it is obvious they are having increasing difficulty pushing gold sharply lower no matter what the news or mood on Wall Street. The effect is subtle, but it is most certainly bullish.  _______    UPDATE (May 19, 10:07 p.m.): The futures achieved our 1885.40 rally target and then some with a thrust to 1891.30. That's not much of an overshoot, but in the context of a target as clear and compelling as this one, we should infer that still higher prices impend. It is a welcome sign that the takedown artists appear to be in a coma after having been punched senseless during the last two weeks.

Bulls and bears have been skirmishing since early February, and it remains to be seen who will prevail. To my eye, the now-deformed head-and-shoulders pattern shown in the chart looks distributive even if its earlier, indisputably bearish perfection has been compromised by May's sideways tedium. If a bullish breakout is going to occur nonetheless, I would expect this to happen subsequent to a feint beneath Mach's sub-210 lows. For the time being, however, I can offer you a 227.25 rally target. That is the 'D' coordinate of the reverse ABC pattern, on the daily chart, where a=215.24 on April 20. ______ UPDATE (May 19, 10:35 p.m. ET): If this hoax can fake its way up to the green line (x=219.64), short there 'mechanically' with a stop-loss just above C=223.24. ______ UPDATE (May 21): The short triggered, leaving us slightly in the red at the close. Hold to the 223.25 stop-loss for now, but cover half on a downdraft to p=216.18. The remainder can be held for a shot at D= 209.11. ______ UPDATE (May 25, 12:35  a.m.) The short appears all but certain to get stopped out just above 223.24. That would not diminish IWM's appeal to anyone wanting to try again, but the required rabc set-up would be labor-intensive. _______ UPDATE (May 25, 11:14 p.m.): Wake me if this brick hits 225.94, which would generate a bullish impulse leg on the daily chart. ______ UPDATE (Jun 1, 3:09 p.m.): The update I sent out Monday night seems to have vanished into digital hyperspace. Anyway, I'd noted that IWM's rally past 225.94 should have impressed no one.  Let's wait until such time as it fist-pumps above April 28's 230.95 high before we give it the time of day. 

The menacing head-and-shoulders pattern that promised a day or two of reckoning for giddy bulls has deteriorated with the extension of the right shoulder by an additional five daily bars. Since a failed head-and-shoulders top is implicitly bullish, I've redrawn the chart to show a gnarly pattern with a 237.72 rally target. It tripped a textbook-perfect mechanical buy signal at 215.45  on April 20, but I am not suggesting that the green line be re-used if IWM swoons again.  I would, however, be moderately enthused about a p2 (pink line) entry if it is hit on a pullback from a high 3-4 points shy of D. _______ UPDATE (May 10, 5:24 p.m. EST): I'd like to see IWM take out the 208.03 low of the bullish pattern projecting to 237.72 before I wax enthusiastic again about the head-and-shoulders pattern. Let's cross our fingers and hope for the worst.  _______ UPDATE (May 13, 12:58 a.m.):  Some subscribers hold the July 16 175/180/185 put butterfly for 0.10 or less based on a recommendation I made on April 18. Better yet, one subscriber legged on the position for a net CREDIT of 0.01 using my explicitly detailed instructions here a while back. The spread is worth about 0.15 as a result of  this week's plunge, but IWM will need to fall below 200 by early June before the spreads get perky enough to let us cash out of half for twice what we paid, as is our custom. Please let me know in the chat room if you hold the spread so that I can gauge subscriber enthusiasm for it. [Not high, evidently, since only three subscribers have reported positions. I will continue to offer tracking guidance nonetheless.]

The Cubes tripped a mechanical buy at the red line (326.27) last week, but I did not recommend the trade because it looked significantly riskier than bidding at the green line. The subsequent bounce from the higher level looks likely to reach the secondary Hidden Pivot at 340.66, but I'll be curious to see whether buyers have enough energy left for a quick push to the 355.05 target broached here earlier. If so, they would signal it with a decisive move past p2=340.66, followed by a close above it on the same day. _____ UPDATE (May 10, 5:46 p.m. ET): Honest markets won a rare victory Monday with the drubbing the Cubes suffered. Now they are bound for a minimum 320.06, the 'D' target of this pattern. The A-B impulse leg is textbook-compliant, and that's why the crushing of p=328.36 means that more downside at least to 'D' is a 'definite'. We'll be better able to judge whether bears have run out of guts when we've seen QQQ interact with this fine Hidden Pivot support. Scalpers who know what they're doing and don't flinch when they detect a falling piano coming their way can try bottom-fishing, but the rest of us will be better served by spectating. ______ UPDATE (May 11, 11:01 p.m.): Sellers exceeded my 320.06 target by a not insignificant 1.04 points, suggesting there is more weakness to come. _______ UPDATE (May 13, 12:49 a.m.): Yes, x=311.87 would trigger a 'mechanical' buy signal, but you'd need a stop-loss at 297.47, and a price objective of just 326.27, not D=355.05. This is not to say the bull market is necessarily over, only that 355.05 could be a long time in coming if it is reached at all. 

We went out on a limb here last week with speculation that, just maybe, the bull market was topping. Alas, Friday ended with a short-covering orgy that bloodied bears, leaving the boldest of them festooned on the ropes. My hunch had been rooted in technical factors, including an ominous head-and-shoulders pattern that has been evolving since January in IWM, a vehicle that tracks the small-cap Russell 2000. Unfortunately for bears, rather than dropping into a steep dive like the textbook says it should have, the index tacked on five new bars to the right shoulder, turning its promising symmetry into asymmetrical dross -- a mocking, rubberized Mona Lisa smile. Similarly, the E-Mini S&Ps had seemed well poised for a long overdue plunge. They'd turned down sharply the week before after getting within an inch of a major 'Hidden Pivot' resistance that was capable in theory of stopping a buying stampede. By Friday's close, however, El Toro had gored the resistance and was snorting flames. In both instances, the geniuses who purport to be "managing" your and Other People's Money provided bullish spin and buoyancy. But when the rally threatened to turn ballistic on Thursday, bears scrambled to buy 'em back lest they get trampled this week by Wall Street's recurrent homage to Pamplona. Can you blame them for panicking? With the Fed monetizing full-tilt and Joe Biden hawking a version of the New Deal that makes FDR's look miserly, who would be so foolhardy as to bet against the asset bubble? Add corporate share buybacks to the raucous mix of monetary and fiscal stimulus and it becomes difficult to imagine how the bull market could possibly end. Apple's announced $50 billion buyback alone will help sustain the illusion of health in the U.S. pension system while eliciting more unearned huzzahs

Friday's surge to 57,421 effectively fulfilled a 57,595 target we've been using as a minimum upside projection for nearly a month. It also extended an unbroken string of profitable 'mechanical' trade recommendations in this vehicle stretching back to 2017 and sub-$4,000 prices.  The still-unachieved 'D' target lies at 72,148, but it is not so certain a bet as it was  five weeks ago, when this bitcoin proxy tripped a second 'mechanical' buy on a pullback to the green line. The first should have sent it to 'D' straightaway but instead produced a trend failure at p2=64,871 followed by a wicked dive. Although D still looks to me like an odds-on bet to be achieved, it is no longer the done deal that bitcoin puffery might assume, nor is the further prospect of much crazier heights certain. ______ UPDATE (May 4, 5:03): The bullish pattern begun in late March has yielded two profitable 'mechanical' trades on pullbacks to the green line (50,318). However, as I tried to make clear during today's 'requests' session, I am not keen on trying this a third time.