The Morning Line

Copper's long-term chart suggests that the global economy could have one last hurrah once the bear market begun in January has run its course. Copper is reputed to have a PhD in economics because of its supposed ability to predict major turns accurately, In actuality, its track record is pretty impressive. The chart above shows its upturn in 2008 had a months-long head start on the bull market that followed the Great Financial Crash of 2007-08. Copper again proved prescient when the Covid selloff in the first quarter of 2020 turned into one of the steepest bull-market run-ups in history. So what is it saying now?  There are a few things to notice in the chart. Most important is the ease with which buyers pushed past the 'midpoint Hidden Pivot' resistance at $3.63/pound (shown as a red line). A decisive move past this impediment is usually a reliable sign that the trend will reach the pattern's D target, in this case $5.33, It didn't, however, and that implies the sideways move that has occurred over the last 14 months is a bearish distribution, not a consolidation. To use a Groundhog Day analogy, we will likely face six more months of winter, give or take a couple of months, before the bear market and a still unacknowledged recession have run their course. The downwave could be steep and the recession brutal, since Doc Copper's expected dive looks all but certain to crush the red line. That makes a further fall to the green line likely. It would amount to a 40% correction from the $5 high and a 33% correction from the current $4. A Screaming Buy At $2.78 (the green line), Comex Copper would become a screaming buy, technically speaking. That's because, under the simple rules of the Hidden Pivot

As if the thimble-riggers at the Fed didn't have enough to worry about, the dollar turned rabid last week, threatening to transform America's still-undeclared recession into a downturn for the history books. The greenback's rally pushed the price of U.S. goods even higher for foreigners while increasing the cost of fuel that they pay for mostly in dollars. In theory the dollar's strength should have alleviated pain at the pump for U.S. consumers. Unfortunately, however, with the cost of gas and diesel fuel thrusting to mind-numbing new highs each week, the effect has been so muted as to be barely noticeable. Wall Street has noticed the gathering storm, however, and is doing everything possible to distribute stock to the rubes before pulling the plug. Last week, for instance, Amazon was trading down around $110 a share following a 20-for-one stock split. The idea that stock splits are bullish is a pernicious lie that has gained currency because most investors tend to think that more of anything is better. Now widows and pensioners who owned just a few shares of AMZN at $2000-plus per now have twenty times as many shares. How fabulous is that? They naturally expect those shares to rise eventually to their pre-split price, which would not be unusual in a prolonged bull market. But we are quite possibly in a bear market now, and the outcome may not be so felicitous as AMZN's peanut gallery might imagine. Whatever the case, you can count on insiders to unload as much of the stock as they can now that shares have become affordable for the masses.

There's no relief in sight for gas prices that seem headed to at least $10 gallon.  The chart above suggests July crude will likely hit $128 this week or early next, a whopping 7.5% gain over last week's high. But watch out if the futures shred their way past this Hidden Pivot resistance, since that would portend a continuation of the trend to $140, a target first drum-rolled here several weeks ago.  It's a safe bet that Californians will be paying $10 or more for gasoline by then, even if far fewer of them are driving. Realize that it is not consumer demand that has been pushing up prices, or even conspiratorial constraints on supply, but rather a flood of speculative money into energy resources as a hedge against inflation. The irony is that the coming price collapse in crude will be part of a deflationary tsunami that wrecks the banksters' moronic shell game. It will occur simultaneously with a real estate collapse that has already begun. Indeed, bidding wars for homes appear to have ceased due to the steep rise in mortgage rates, record-high prices for homes, a dearth of inventory and a scarcity of qualified buyers. These factors have created perfect conditions for a real estate collapse. No Escape Inflation in energy and real estate are similar in that neither contains an escape hatch for investors. Because energy prices cannot continue to rise without eventually throttling the economy, the rally is doomed. But when prices finally plunge, as they must, that will suck the air from a $2 quadrillion derivatives market that was largely built using energy resources as collateral. The collapse in mortgage-backed securities did the same thing to the banking system in 2007-08. This time, although tens of millions of homeowners are sitting on huge paper

As the bear market runs its course in the months and years ahead, it will be punctuated by sharp and sometimes spectacular rallies to convince investors the worst is over. That is how Mr. Market will trap most of them into sticking with stocks until the bitter end. For only when the last bull has thrown in the towel and mass capitulation takes stocks down to levels practically unthinkable now can a floor be created for the next bull market. The first such bear rally started in mid-March and lasted for two weeks. It was not particularly impressive because it didn’t have to be: a mere 15-percenter would have pushed the S&Ps to new record highs. The rally failed well shy of that benchmark, however, before a punitive relapse set in. Stocks appear to have bottomed last week, but not before piercing a Hidden Pivot support that should have held if the current rally is going to achieve new highs. Last week’s commentary was skeptical that the rally would retrace fully half of the downtrend since the bear market began on January 4. That would equate to a top near 4300 in the S&Ps. Using the recent low at 3807, there is now a technical basis for a more confident and precise forecast. Specifically, the S&P 500 appears bound for a minimum 4305.50, basis the June E-Mini contract. The futures look all but certain to reach that number, given the way they impaled the ‘midpoint Hidden Pivot’ at 4056 toward the end of last week. Less certain is that the rally will end there. Indeed, if it blows past 4305, that would suggest Mr. Market has nastier plans for bears who may have overly enjoyed the April/May plunge. Not Quite Impossible Will the rally achieve new highs? I strongly doubt

The same geniuses who recently handicapped a recession that likely began several months ago as a 20% possibility are now reassuring us that the bear market has already run its course. If so, it would be the mildest, shortest bear market in history --three hours and 20 minutes, to be exact. The S&Ps entered bear-market territory on Friday when they dipped below 3854 at 12:10 p.m. That represented a 20% drop from the record high 4818 recorded on January 4. Permabears didn't have much time to celebrate, however, because nervous nellies began to cover short positions an hour later. The buying began with the usual trickle, but shortly after 3:00 p.m. the stampede was on. It pushed the S&Ps back above 3854 at 3:30 p.m., and within the hour to a small gain on the day. Wall Street and its news media toadies will spin Friday's trampoline bounce as bottoming action. However, even these bozos are not so bold as to trumpet the likelihood of new record highs, at least not yet. Their hubris will probably remain subdued until such time as the S&Ps have recouped perhaps half of their losses since January. That would put the index at 4300, a short-squeeze worthy of the name. Relapse Odds My guess is that the rally won't get anywhere near 4300 and that a relapse will begin within the next 4-7 days if not sooner. Bears may be sufficiently spooked to provide buoyancy as the week begins. But they were almost as spooked a week earlier, when a Friday short-squeeze led me to mistakenly expect a follow-through on Sunday/Monday. This time, for bulls and bears alike, the yellow flag is out.

We've had four months to observe and analyze the bear market that began a single tick off January 4's record high. What might be said about it so far?  Mainly that it has been far kinder and gentler than we should expect. Realize that the biggest financial bubble in U.S. history has popped. Although this is becoming increasingly obvious, you can be certain investors are waiting to jump back in at the subtlest sign of a bottom. Their brokers and financial advisors will be the first to spot this bottom, along with a dozen more as the broad averages work their way toward the deepest bottom imaginable In the meantime, the little guys reportedly have been shifting their capital into money market funds, although not at a pace that has spiked redemptions at Vanguard, Black Rock, State Street and a few other biggies that for 13 years made the bull market seem unstoppable. At some point the Leviathans will necessarily turn seller as their customers dive out of shares. It is impossible to say when this climactic phase of the bear market will begin or how long it will take to run its course. Much sooner than we might expect, and with blitzkrieg speed, are two possibilities for which we must be prepared. What is certain in any event is that when Vanguard, Berkshire, Fidelity, Black Rock et al. are forced to dump their crown jewel AAPL, the little guys will not be stepping in to support it at $100, or $80, or $60, or even $20. In the extremely unlikely event they are in a buying mood as the Mother of All Dips seeks a bottom, their ammo will be gone, deflated into hyperspace by ruinous asset deflation. The Lomcevak More immediately, however, we should view last week's sharp

Last week's commentary asked how high the dollar can climb before it snuffs inflation and the increasingly shrill hysteria that has accompanied it. Inflation is supposed to cheapen the dollar, but that is not what has been happening. Instead, it has been climbing steeply relative to all other currencies. The experts have not been able to explain this, nor why the rally began well before the Fed was even thinking about tightening. It is simple, though, if you understand deflation and its chief symptom, a rise in the real burden of debt. The dollar has been climbing because it "knows" there are more debts than can ever be repaid. This can only result in massive waves of bankruptcies that are going to make us nostalgic for the consumer inflation that is today's headline news. Sure, the Fed could print enough money to pay off everyone's debts, including its own: student loans, our collective liabilities for Social Security, Medicare and private pensions, etcetera - but also car loans, mortgages and credit card balances that have ballooned. The resulting hyperinflation would solve nothing, however, even as it destroyed lenders as a class and all institutional conduits of borrowing. The megabanks would be ruined, leaving no one to lend to you, me or anyone else. It could take a generation or longer for credit to sprout roots again. Do we really want to go down that path? More Tightening Unneeded This week's question is related to the one about the dollar: How high can interest rates climb before they snuff inflation and the increasingly shrill hysteria that has accompanied it? Economists and pundits seem to think the Fed has only begun to tighten. More likely is that interest rates are already high enough to have tripped the U.S. and global economies into deep

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

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