Bears eager to get short near the top of the stock market’s inexplicable rampage could have just one chance left before shares blast off for infinity and beyond. This is the clear implication of the chart included with my latest forecast for the Nasdaq 100 (see below). On Tuesday the E-Mini Nasdaq futures peaked almost precisely at a long-term Hidden Pivot resistance located in a place that has been known to show magical stopping power. The futures sold off more than 4o0 points after touching it, but they recouped more than half of it Wednesday, showing no sign of fatigue at the bell. The 9604 high could conceivably mark the end of the vertical rally since March 23. However, if the June contract closes above the 9585 pivot for two consecutive bars on the weekly chart, that would make a run-up to 10,571 an odds-on bet. That is a little more than 9% above the all-time high at 9763 recorded in February, and it would make this spring’s sensational running of the bulls even more inexplicable and frightening. Although health officials are cautiously optimistic about a vaccine, Wall Street is quite obviously wildly optimistic. ______ UPDATE (May 28, 6:37 p.m. EDT): Subscribers in the Trading Room around mid-day could have jumped on a short I detailed explicitly in the E-Mini Nasdaq futures (see chart above). Check out my posts on this beginning at 12:26 p.m. if you want to determine whether you could have pulled the trigger. It occurred 21 points off the intraday high, just ahead of a 147-point plunge worth as much as $588 per contract. By the close, 75% of the initial position had been covered, with one contract remaining for a swing at the fences. That was the purpose of this gambit, as the headline stated.
All heaven broke loose ahead of Tuesday’s opening, starting with a gusher of headlines suggesting the worst is behind us. The Wall Street Journal led with a story about how trucking activity has picked up, and even the hotels and cruise lines are stirring. The pick-up in tempo is slight so far, as the Journal was forced to concede, but sufficient nonetheless for the editors to stuff a hat trick’s worth of subliminally bullish data into stories played above the fold. Elsewhere on the page, in the wrap-up briefs, it was alleged that air travel is creeping back to life, although almost no one you or I know is even thinking about flying for the next few months. Rounding out the Journal’s v-shaped-recovery lollapalooza was an item about mortgage activity picking up, although there was no mention that most of it involves re-fi’s. Such is the news in a time of cholera, and in fairness to the Journal, its rosy perception of the things is merely following the lunatic trajectory of the stock market. Rick’s Picks remains very bullish in nearly any event, despite all the fake news and ‘re-opening hubris’. We’ve been forecasting a nearly 2000-point rally in the Dow, albeit with one foot on the fire escape. Short-covering will remain the name of the game for the time being, turbocharged by Fed purchases of corporate bonds as well as Treasury paper held by companies with surplus cash.
A recent newspaper article about superspreaders — stadium events, concerts and outdoor festivals that effectively bathe crowds in Covid-19 — noted that a boisterous fan can spew viral particles that remain airborne for as long as 12 minutes. There’s additional evidence that when we steep in this microscopic spume for a couple of hours, as occurs when crowds are densely seated, it increases the ‘dosage’ of the virus and therefore its ability to do harm. This is scary stuff, especially since no one really knows how we’re going to deal with it. And yet, in the same newspaper, on the same day, we read that concert promoters expect to be back in business in 2021, that airlines foresee a resurgence next year, and so do the cruise lines. Say what? Do they perhaps know something that you and I do not regarding the imminent availability of a miracle vaccine? Or are they absurdly optimistic simply because they have chosen to believe a different set of facts, however illogical? The mainstream media has done its part making it easier to be more upbeat on reopenings than the blog world that you are in at this moment, gushing content without attempting to make coherent sense of it. Why ruin an upbeat story with depressing facts, especially if you are beholden to advertisers for your survival? A local newspaper, the South Florida Sun Sentinel, offered a holiday-weekend entertainment section on Friday that listed myriad activities and events certain to attract an audience that will have endured its limit of cabin fever. A local night club owner who advertises heavily in print media took the opportunity to do a little PR for the club, which features live jazz, blues, salsa, blues and a well-worn dance floor. “I’ve seen some places that could care less about the rules, could care less about social distancing,” the owner said. “Some people are coming back into this world in the proper fashion, and some people … it’s the wild, wild west.” It is quintessentially American to say “Damn the torpedoes!” and we wish this guy the best. But whether we will visit his club or take to the dance floor in sufficient numbers to make the place come alive and be profitable once again is a question that will hang over the nation’s entertainment colossus for many months, if not years. Cruise Line ‘Superfans’ The cruise business in particular will face particularly difficult challenges trying to lure back vacationers. The Sentinel’s headline put an entirely different spin on the story, however, with this headline: Cruise Superfans Are Eager to Set Sail Again. Of course, you, I and just about everyone we know are as eager to set sail on one of these floating petri dishes, as they’ve been called, as we are to take the family to a salad bar and a movie. But not Gail Raines, the cruise superfan to which the headline alludes. “Raines, 55, is among a loyal contingent of South Florida cruisers who book trips like clockwork each year, rack up rewards and enjoy onboard perks like free champagne,” the reporter noted. “For them, a cruise is not a one-off vacation. It’s a way of life. ‘It’s just what we do,’ she said.” All over America during the holiday weekend, there were crowds in most of the usual places. But they were all constrained from fully enjoying themselves by rules that will remain in force indefinitely, presumably until an effective vaccine becomes widely available. For the time being, however, the crowds will not be spending in the normal way, since opportunities to do so are limited. The summer blockbuster movie that might have grossed $300 million will be stay-at-home affair with an economic impact far narrower than in summers past. The crowds are mostly just spectating, and there is nothing on the horizon to suggest they will become paying customers any time soon.
With trillions of stimulus dollars raining down on America already, how much more of them does the economy need? Mnuchin and Powell differ on this, which, fortunately for taxpayers, is an argument playing out in Congress that has put any further sums on hold. The Fed chief thinks a recovery will be at risk if additional funds are not forthcoming. Treasury’s Mnuchin is on record with a prediction that U.S. growth will bounce back sharply in 2021 and says there has already been stimulus enough. If Powell’s argument prevails, what kinds of things could the Fed do to open the money spigot even wider? Wonder no more. Here’s a prospectus from one Abhishek Shrma, writing in the Financial Times about the threat of deflation from falling commodity prices and the steep plunge in consumer spending. Fortunately, he notes, “the Fed and the Treasury are far from being ‘out of ammunition’. They should take the following steps. First, the interest rate that the Fed pays on bank reserves should be reduced to zero (from 0.1 per cent now). Then payroll taxes should be eliminated for the rest of the year (and all those already paid this year by workers and employers refunded) until the deflation abates. This is much more efficient than more federal spending. Social Security Can Play the Market “The Treasury,” Shrma continued, “should also be authorised to swap T-bills for the non-marketable Treasury securities in the Social Security Trust Fund, so that its trustees can sell them and buy common stocks. If this had been done during the 2008 crisis, Social Security would have reaped a gain of trillions of dollars, based on the rise in US share prices over the decade. Share purchases should be done via an exchange traded fund, so that the government has no corporate voting rights.” If Elizabeth Warren, Bernie Sanders and their hero, leftist French economist and author Thomas Piketty, had put their heads together they could not have come up with a better plan for the Democrats to pursue. Let’s hope Pelosi, Schumer et al. don’t read the Financial Times. ______ UPDATE (May 21, 5:53 p.m. EDT): There was not a single Fed-related news story on the front page of Bloomberg.com or The Wall Street Journal‘s online edition Thursday, implying Powell & Co. decided to maintain a low-profile ahead of the Memorial Day holiday. The markets will be closed on Monday, and there was no reason for the spinmeisters to risk stirring up traders ahead of a three-day weekend. The strategy will have paid off if stocks finish the week quietly on Friday, but we shouldn’t bet too heavily that they’ll remain mellow when trading begin again on Monday evening.
On Monday, with the Dow Industrials up nearly a thousand points on news that a Boston-based company, Moderna, has a promising vaccine, I warned that U.S. equity markets were about to start trading like a drug stock in trials. Lo, on day two, we’ve already got our first inkling of how damaging even mildly disappointing news can be to asset values when Wall Street is stoked on vaccine hubris. Moderna fell hard, taking the entire stock market with it, after a reporter at the web site statnews.com expressed skepticism over the quality of the company’s PR releases. “While Moderna blitzed the media,” noted Newstat’s Helen Branswell, “it revealed very little information — and most of what it did disclose were words, not data. That’s important: If you ask scientists to read a journal article, they will scour data tables, not corporate statements. With science, numbers speak much louder than words.” So there you have it: Hedge-fund buyers of shares trampled each other on Monday because of mere words. Maybe next time they’ll be more careful. We had better get used to this kind of craziness, because it’s going to make investors’ tariff-war angst last year look like a game of tiddlywinks. And who, you ask, is Helen Branswell? A day ago few of us had ever heard of her. On Tuesday, though, she was the most influential reporter on the planet, causing shares, ETFs and stock indexes everywhere to shed tens of billion of dollars worth of value in mere hours. Now THAT’s power! The thing is, now there will be a hundred Helen Branswell wannabes out there in the blog world eager to take on the biggest story of the century. Will investors be able to live with incontinence for the next three months as, predictably, vaccine stories continue to roil their lives? How about a year? Two years? ______ UPDATE (May 20, 8:37 a.m. EDT): A subscriber familiar with Branswell assures me that she is well known and respected as a medical reporter, and that her words carry considerable weight in the investment world. I replied as follows: “Whatever Helen Branswell’s credentials, her influence on trillions of dollars worth of assets is an absurdity. It exists because investors behave like a herd of cattle inflicted with Mad Cow Disease. Going forward, the only difference between Branswell and other reporters eager to please their editors is that she is probably more likely to at least get her facts straight. I did, however, remove the words hit-job’ from my commentary, since, as you’ve made me realize, her article simply stated the facts.”
Who could have imagined that the entire universe of U.S. stocks would someday trade like the shares of a small pharmaceutical company with a supposed miracle cure for cancer in the works? That, evidently, is what Wall Street has become: a drug-stock crap-shoot-on-steroids. The Dow Industrials shot up more than a thousand points Monday on word that a vaccine from Moderna was showing promise in initial tests on humans. To understand how far the Cambridge MA-based firm is from defeating Covid-19, consider what Bloomberg news had to say: “The vaccine trials are being conducted in stages, with the first test designed only to look at safety and whether or not the shot created lab markers of an immune-system response. Only in later stages of testing, to be conducted in thousands of patients starting in July, will the vaccine go up against the virus in the real world in a definitive test of whether it prevents or lessens infections.” What Could Disappoint? Ah, the real world! What could possibly go wrong between now and July to disappoint investors? For starters, the drug could prove to be a total bust. That would not be unusual in the annals of drug testing. In fact, it is far more unusual when such disappointments do not happen. Considering speculators’ rabid exuberance on Monday for what is at best a longshot bet, disappointment in this case could cause shares to shed ten trillion dollars of value in day or two, in a global cascade that would make the 1929 Crash seem like a burp. To repeat: Big disappointment are the norm, not the exception, in the world of experimental drugs. Moderna’s efforts are inspiring boundless overconfidence simply because speculators are conflating the urgency of finding a cure with the likelihood of succeeding at it. It is assumed that because developing an effective a vaccine is the most urgent business of the world right now, that the combination of ten thousand scientific geniuses, unlimited venture capital and complete docility from the regulators is certain to produce a winning drug. But consider that untold sums of money and more than a hundred years of intensive research have yet to produce a cure for the common cold. Don’t expect such concerns to weigh down stocks, though, especially since the vaccine ‘story’ extends to ostensibly promising efforts under way in China and the University of Oxford. The rally could continue for yet a while longer, but it is already close to discounting a return to economic normalcy that is far more preposterous, even, than a global population made immune to Covid-19 ‘soon’.
Although the spread of Covid-19 has gripped the world with fear, there has been precious little discussion of the one thing that could stop the disease in its tracks: our natural immune systems. Although we habitually seek cures in the form of vaccines and other drugs, our bodies are capable of outperforming them with little risk to our health. This fact is well known to those who have explored cancer remedies, only to discover that even the most renowned treatment centers still employ primarily “slash-poison-and-burn” methods that have not changed much over the last 50 years. Nor could any of these tactics be said to have beaten the disease. While surgery, chemotherapy and radiation can sometimes prolong the lives of those afflicted with cancer, they are hardly a cure. Far from it. The toxic combination of radiation and chemotherapy, for one, can have a devastating impact on the quality of one’s life by destroying vital organs, blood vessels and nerve pathways, along with T-cells and the body’s ability to regenerate healthy tissue. Is there a better way? Fortunately, yes. In the case of Covid-19, rather than waiting indefinitely for a miracle vaccine to come along, here are ten steps you can take immediately to help protect yourself. This indispensable list comes from two good friends who live in Boulder, Dr. Joel Rauch and Alexia Parks. Alexia is a world-changing dynamo and one of the most remarkable women I’ve ever met. Joel is a retired physician, Baylor trained, who specialized in bone-marrow transplants. He has become Boulder’s go-to guy for world-class triathletes, bicyclists and rock-climbers seeking a nutritional edge. Their Ten Steps spells out simple things anyone can do to help fortify the immune system against the coronavirus and other diseases. If the plan engages you, please send a copy of it to your local newspaper and disseminate it online so that it can reach the largest possible audience.
Thursday’s dip got bought so ferociously that bears will think twice about getting in the way again, at least for a day or two. That was the purpose of the rally, even if there were no conspirators promoting it, just bears terrorizing themselves. There was no news to have caused the explosive move other than the usual grim headlines. Another week has gone by with no change in anyone’s outlook. Mnuchin and Kudlow still believe the U.S. economy will be going gangbusters sooner than we think, but no one believes them. An effective vaccine is three months off — or two years at best, if ever, depending on which supposed expert you’re listening to. The inevitable, ugly political war is over how quickly things should reopen. Fox viewers say it’s time to return to business, while CNN/MSNBC’s audience wants to keep things locked down more or less forever. Conservatives will win this one because everyone is going crazy sheltering at home. And for what? All the pain has done nothing to eradicate the virus, only to slow it down as long as we don’t venture out into the world. How long can that last? It will be a miracle if even the reopenings that have occurred so far do not kick up the death tolls and ‘positives’. We’ve all become expert enough about the pandemic to know that the experts themselves don’t know a heckuva lot more than we do about how the nation should proceed.
Bull got pushed back on their heels for a change Wednesday, although sellers were unable to deliver a coup de grace in the final hour. The Dow Industrials ended the day with a 516-point loss nonetheless, unable to extract much yardage from short-covering. We’ve all been waiting for the other shoe to drop, but has it? It seems possible, since three weeks of noodling around failed to push the broad averages to targeted Hidden Pivot highs that weren’t especially ambitious. AAPL, the world’s most important stock, can usually help clarify the mood of portfolio managers, but its performance was mixed. The stock finished down about $3, well off the lows, and remained in the throes of a mild short squeeze just before midnight. If bears have anything going for them it will be the prospect of a weekend with little news to encourage.
Continuing yesterday’s theme of how the stock market has completely decoupled from reality, we note that the shares of some publicly traded companies immersed in the home rental business have gone bonkers. A story on the front page of Tuesday’s Wall Street Journal noted that “Investors are flocking to the U.S.’s mega-landlords, drawn by signs that companies that emerged from last decade’s foreclosure crisis owning huge pools of rental houses are weathering the economic shutdown far better than feared.” Oh really? In the first place, these companies bought up whole blocks of homes, and even started building them as the trend gathered steam, near the top of the market. I learned about this first-hand from a friend who was sent by his employer to buy up every home he could find in the very-inflated Denver market. Although company had never before been involved in real estate, they got immersed in it up to their eyeballs in just two years, according to my friend. They Bought the Top Paying inflated prices will not be the worst of their problems as the economy sinks into a state of permanent recession-or-worse. Their tenants are mainly young families and couples unable to afford homes of their own, and it’s likely they will have little saved to cushion themselves against very hard times. Concerning the notion that mega-landlords have weathered the pandemic better than expected, the optimists are jumping the gun, since we are less than two months into the downturn. Moreover, its effects have been muted so far by the $1,200 checks sent out to millions of Americans as part of a massive stimulus package. Anyone who received one of those checks would have recognized instantly that the goal of stimulating the economy was dead on arrival. No one went out and bought a Bass Cat Puma or a Cadillac Escalade. More likely is that the money went into checking or savings accounts and was gone shortly after May’s rent came due. If the stimulus achieves anything at all, it will be keeping landlords and their mortgage lenders solvent for a little while longer. There are so many holes in the bullish mega-landlord “story” that it seems inevitable that those who have been binging on their shares are headed for a punitive rebuke.
Those who have closely observed the stock market’s ups and downs over many years understand that it often acts as though it were detached from observable reality. This is so obvious at the moment that even casual market-watchers have come to realize that the absurdly strong performance of shares lately reflects nothing less than a kind of mass mental illness. Until recently, so strong a characterization would have been greeted with skepticism by those who are not tuned to the daily histrionics of shares. Think of the skeptics as the extended family of a fictional Aunt Jean, whose behavior, according to family gossip, has grown a little strange lately. She has always seemed a little eccentric, of course, and why should we worry if she has become a little moreso in her dotage? And then the shocker: With everyone seated around the Thanksgiving dinner table, Aunt Jean wrenches the carving knife from her brother’s hands, stabs the turkey ten times, and shrieks “Death to the Paraclete!” This, in a manner of speaking, is the way the stock market has been acting lately. As such, it is no longer regarded as quaintly crazy. Indeed, even Wall Street’s most reliable shills and apologists have taken to shaking their heads in disbelief. Some, including the Wall Street Journal, are in calculated denial. A WSJ headline over the weekend noted that the Smallest U.S. Stocks Are Rallying Despite Grim Economic Data. However, this fails to capture the alarming recklessness pushing the very largest U.S. stocks, including Apple, Amazon and Google, toward or even above their previous highs. TSLA in particular has stoked the white-hot imagination of the lunatic fringe with a rally from 350 to 869 that recently brought the stock within 10 percent of all-time highs. Even the company’s founder, Elon Musk, has warned buyers to cool it. Not Mere Tulipmania Realize that the market’s cheerleaders possess no special knowledge that would allow them to claim, as Larry Kudlow did last week, that a ‘spectacular’ 2021 lies in store for the economy. In point of fact, the unique thing about this recession is that because each and every one of us is being affected by it, we can see through the fatuousness of those who would claim Americans will soon start spending their way out of an economic hole as deep as the one we faced as 1930 began. Given the circumstances, it would take a miracle to produce a U-shaped recovery, never mind V-shaped. The way things are going, actually, we may soon discover that the best we can hope for is to pull even with the trough of the recessions in 1973-74 and 2007-08. The rally on Wall Street is different from previous speculative manias in one interesting respect: Stocks are not at record levels (at least not yet), but somewhat below them. Even so, this is not merely a variation of Tulipmania we are witnessing, or of the South Sea Bubble , but rather a welling up of irrationality that in dollar terms, even after adjusting for inflation, dwarfs both episodes. The mainstream narrative is that stocks are moving higher because investors believe we’ve hit bottom and are looking ahead. Far more convincing is a confluence of factors, to wit: 1) institutional investors and Baby Boomers are sitting tight for now. They were not spooked out of their shares at the March 23 low, although another day or two of hard selling could easily have triggered a full-blown stampede by the latter; 2) bears have been shorting the rally every inch of the way and are being forced to cover their positions with each new upthrust. This has supplied a powerful and urgent source of buying that has only increased as stocks have climbed; and, 3) portfolio managers, while eager to unload stocks, are smart enough to realize that dumping them would be self-defeating; and so they continue to distribute as many shares as they can with a light, deft touch. Big Spenders Kayoed The bullish story, such as it is, flouts an economic fact that will remain insurmountable for the foreseeable future — i.e., most discretionary income is in the hands of older people who are not about to rush out and spend it, especially when the value of their assets is being decimated by the pandemic. Here is my colleague Charles Hugh Smith on Why Assets Will Crash: “The top 10% own roughly 85% of all non-family-home assets (i.e. stocks, bonds, business equity, rental real estate), [and so] the decline in the value of these assets and the decline in the income generated by these assets will hit the top 10%, not the bottom 90% who own a tiny sliver of these assets.” Concerning the wealthiest, he notes in a recent email to subscribers, they account for “about half of all consumer spending, and these are the households that will be most affected by the sharp drop in assets, small business income and the shrinking of heretofore ‘safe’ white-collar jobs in higher education, healthcare, finance, etc.” Smith further notes that the aging owners of wealth “are more at risk of Covid-19 than younger people. Surveys have found that people who feel more at risk are much less inclined to start going back to restaurants, musical events, etc., or going on cruises or airline flights.” Bottom line: The stock market has nothing to celebrate right now. Trust your instincts on this and steer clear of it, since the next leg down is going to be like no other before it. _______ UPDATE (May 11, 4:20 p.m. EDT): The world’s smartest money — the strong hands in which the stock market’s fate has been vested — has maneuvered AAPL against all logic to within 4% of new record highs. Incredible, isn’t it? This chart shows a massive reverse head-and-shoulders pattern, a bullish formation that few could have envisioned when price action looked more like a dead-cat bounce back in early April.
Stocks continue to mark time, giving up almost no ground as DaBoyz, with infinite patience, await the news that will ignite the next short squeeze. We’d intended to short the 250.43 target shown in the chart ourselves, assuming it was ever reached. The rally that was supposed to get it there is at five weeks and counting, and while this is not a record for how long it has taken for a stock to achieve an easy objective, it certainly deserves an honorable mention. If another dull day draws to a close, presumably with a modest final-hour frillip, and you are uncertain about whether to take a position over the weekend, I’d suggest flipping a coin and doing the opposite of whatever instruction it provides.
The stock market has settled into a tedious rhythm that could almost make one think there’s nothing interesting going on in the world. Dull nights have been setting the tone for dull days, as occurred on Wednesday. Traders are waiting for news to move the markets, but perhaps all the news that matters, at least for the time being, is already out. So we are left with squabbling along the political fault lines of the pandemic. A Texas hairdresser was jailed for defying the quarantine, and the nation as always has divided roughly in half over the question of whether the state overstepped its bounds. All such convictions and fines are certain to be overturned if these cases ever get heard in an appellate court. If you watch Fox News, you’ve had enough; if CNN/MSNBC, anyone who defies the lockdown is a potential killer. A reasonable assumption is that the truth lies somewhere in the middle. The fact that this question is unlikely to be settled, even broadly, promises to gnaw on the American psyche for years to come.
A series of bullish targets in AAPL and the E-Mini S&Ps has kept us steadfastly on the right side of the trend, insane as it has seemed at times. In my latest update (see below), a target for the latter suggests it could be on its way to as high as 3149, just 7% below the all-time peak. The target is not quite the sure thing we’ve enjoyed using lesser ABC patterns, but it looks like no worse than a 50-50 bet to be reached. I’ve made the tout publicly viewable, although you would need to subscribe in order to access timely trading ideas tied to Hidden Pivot targets. Click here for a $1 trial subscription that will allow you to access all features and services of Rick’s Picks, including two virtual rooms that draw great traders from around the world.
One might have imagined that fighting a deadly global pandemic would transcend political differences in America, but instead it has only sharpened them. A friend who plays in a weekly poker game that features high stakes and nine players says the ones who get their news from Fox want to re-open everything, while the CNN/MSNCB guys want to keep the quarantine tightly in place more or less indefinitely. This comes as no surprise to me personally. Several weeks ago I emailed a brother who lives in San Francisco a YouTube video in which a noted epidemiologist explained the futility of trying to defeat the new coronavirus with lockdowns, however strict. My brother took the email as a political affront and we haven’t spoken since. Although the civil rights dimension of the lockdown is the big story now, the ACLU unsurprisingly has sided not with you and me, but with state and local enforcers. On the far left of the pandemic divide is the New York Times, which has buried its head in the sand on the matter of whether the virus originated in a Wuhan lab. Neither the Times nor anyone without top security clearance has seen a report that Trump and a few others are saying makes a compelling case for the lab theory. Evidence aside, the Times has scoffed at this claim rather than graciously acknowledging we should simply wait for the facts. If they come, however voluminously, expect the Gray Lady to reject them as either inaccurate or poorly supported. Racist Beekeepers? Since I don’t read the Times, I have no idea whether it has picked up on reports of a ‘murder hornet’ with well-documented origins in Japan turning up in the U.S. Mother nature’s heavily-pincered, two-inch version of an attack drone has been savaging the hives of honeybees, and its venom is known to cause liver, kidney and heart problems in humans. Beekeepers in the Pacific Northwest have been fighting this scourge as best they can. Let’s hope their efforts and enthusiasm are not hobbled by Portland and Seattle newspapers when they sink to the defense of the Japanese murder hornet with editorials decrying racist beekeepers seeking only to rid themselves of a dangerous pest.
Monday’s commentary typically goes out before markets lurch back to life Sunday evening, but it appeared likely that the weakness we saw on Friday will continue and perhaps gain momentum. Rick’s Picks unfurled the yellow flag just in time Thursday night after the S&Ps and AAPL both failed to reach respective Hidden Pivot rally targets by crucial inches. Concerning the latter, Warren Buffett turns out to have dumped about 25% of Berkshire Hathaway’s $72 billion stake during the first quarter. [Late-breaking note: I am now informed by my source that Berkshire Hathaway did not in fact sell a significant portion of its Apple holdings, at least not as of March 31. My hunch, however, is that Berkshire eventually will be shown to have sold quite a few shares of the stock as it rallied into the April window. RA] Well before this news, we had characterized Apple’s powerful bear rally as smart money unloading as much stock as possible into a short-covering panic. Buffett being Buffett, he and his ilk have been very careful about not dumping so much stock into the buying frenzy that it might risk overwhelming it. On the evidence, this is exactly what has been happening, and it seems all but certain that Buffett and the Masters of the Universe will continue to distribute stock as deftly as waning demand will allow. With AAPL’s ascent to heedless levels, the smart guys will probably increase the supply commensurately. We are on record with a prediction that the shares will eventually trade for less than $100. Although Buffett and DaBoyz are not likely to be so bearish, they undoubtedly have the good sense to recognize that exiting above $250 is a time-limited opportunity that might never come again. In any event, Rick’s Picks remains bearish as all get-out because the company makes most of its money selling very pricey cell phones that long ago ceased to offer improvements with ‘wow factor’ and that until very recently were notorious for battery problems. As the world slips into recession-or-worse, the cult of buyers who ordinarily clamor for the latest model every few years will stop upgrading. Another problem is that all assembly work has been done in China and will have to be moved to some place where the labor force and facilities needed to do the job do not yet exist. $181 Billion Hoard Could Vanish AAPL at $100 would demonstrate a pernicious effect of deflation that might sound surreal. The company is sitting on a reported $181 billion cash hoard that would seem impregnable. However, all of it could easily get sucked into the same deflationary sinkhole that is turning the Guvmint’s multi-trillion dollar stimulus into chopped liver as I write these words. Apple will do everything it can to support the stock as it falls from current levels to below $100, and that would naturally include share buybacks all the way down. Among the sellers will be Buffett and DaBoyz, to the extent that they will have been unable to unload their holdings into short-covering at these absurd heights. If Apple were to buy back, say, 20% of its float over time in an attempt to prop up the stock, the $181 billion could conceivably vanish overnight in the kind of spectacular air pocket that is certain to occur as this bear market unfolds. In the meantime, the Sage of Omaha is decidedly less bullish than Larry Kudlow, who promised a ‘spectacular 2021’ on one of the Sunday talk shows. Kudlow, director of the National Economic Council, has always made a good living cheerleading whatever the Administration that employed him was doing, and that’s why we shouldn’t take him too seriously. But we can still appreciate the guy, since someone’s got to talk the bullish talk or economic reality would quickly become too depressing. For his part, Buffett is not doing much cheerleading these days, putting his focus instead on the task of unloading vast quantities of stock before the bear market takes another leg down. He says cash is the best place to be now and for the foreseeable future, and it’s hard to argue with that. We don’t envy him the task of maneuvering Berkshire in that direction before the bottom drops out.
The S&Ps and Apple shares fell slightly shy of their respective Hidden Pivot rally targets on Thursday, so I am unfurling the yellow flag. Without offering any specific projections, Apple showed weak revenue growth and sees at least a couple of tough quarters ahead. Under the circumstances, I would advise particular caution if the broad averages rally on Friday without exceeding Thursday’s highs. With just a little good news on the pandemic front, that could be sufficient enticement for traders to take long positions over the weekend. Whatever the news, nothing will have changed the grim outlook for the economy for the foreseeable future. A new wrinkle is that overly generous unemployment checks are making it hard for businesses trying to reopen to hire help. A Portland operator/owner of 20 restaurants hires cooks for $15/hour, but the ones it laid off are collecting the equivalent of $25 an hour for not working.
Boeing’s $9.65 surge on Wednesday, an astounding one-day gain of 7.3%, pretty much sums up the psychotic nature of the stock market’s epic squeeze. It occurred with this item on the front page of the Wall Street Journal as a backdrop: “Boeing faces criminal and civil scrutiny into years of widespread quality-control lapses on it 737 MAX assembly lines.” Fancy that! And yet, buyers seemingly couldn’t get enough of the stock yesterday. Its sharp rise was perfectly synced with the FAANG/lunatic sector, which powered relentlessly higher with no exceptions or laggards. Driven by short-covering and a deft lightening of supply by The Smart Money, the rally is as disconnected from reality as any ever witnessed. In dollar terms, it is the most powerful rally ever. For my thoughts on when, and how, it could end, check out the E-Mini S&P tout immediately below.
DaBoyz jettisoned subtlety on Tuesday as they attempted to distribute as much stock as possible into a bull cycle begun last week that appears to be losing steam. The increasing urgency of this task was evident on the opening bar, a bull-trap rally that notched the high of the day. Thereafter, the futures sold off 60 points over the next hour and spent the rest of the session screwing the pooch. Don’t count the sleazeballs out, however, since they were hard at work squeezing shorts with a mid-evening rally designed to take advantage of poor liquidity and a dearth of sellers. The smart ones will hold off shorting until their hapless ursine bretheren have paid the full price for being early.
Rick’s Picks subscribers have finally embraced an ambitious rally target first broached here when the Dow Industrials were trading nearly 3000 points lower. If you’re keen on getting short at this prospective Hidden Pivot peak, read my E-Mini S&P tout for Tuesday (below) first, since it takes a skeptical view of the notion that the insanity can’t last. Stocks are already higher than most of us could have imagined just a few weeks ago, when bad news was piling up thick enough to smother the decade. All it has taken to erupt the stock market into a Vesuvius of stupidity was a few well-intended but disingenuous words from our Treasury secretary. Mnuchin has spring-loaded hopes enough to trigger a short-covering panic, but it’s your choice whether to resist it with rationality or accept it and scuddle for yet a few more days with the lemmings.