Regardless of whether today’s high turns out to be the mythical Mother of All Tops, it was easy money for anyone who initiated a short position in DIA as I’d suggested. Weeks ago, Rick’s Picks spotlighted what stood to be an important Hidden Pivot rally target at 280.88. When it was missed by just 0.04 points at Tuesday’s high, DIA subsequently dove to 278.78, equivalent to 200 Dow points, causing near-the-money put options to at least double in price in mere hours. The DIA rally target was offered as an alternative to one at 2128.50 in the E-Mini S&Ps, since not all subscribers trade futures. The latter had already produced gains of as much as $800 per contract on Monday for subscribers who reported taking a position. This could still turn out to be a major top, but even if the highs are marginally exceeded this week, I doubt the broad averages can go much higher without a long overdue, brutal correction first. This is a logical place for it to start.
The S&P mini-futures topped three ticks from an important rally target on Monday while the Dow missed a corresponding target by less than two hundredths of a percent. Is this the Mother of All Tops? Probably not, if for no other reason that we cannot expect to nail the top of a bull market that has been making record highs for more than a decade –especially when we are fixated on a price target that has been drum-rolled here for weeks. Even so, those who shorted the E-Mini S&Ps at their intraday high reaped instant gains and could roll up even bigger profits if the high is not breached on Tuesday. My hunch is that it will be, but that significantly higher prices over the near term are unlikely in any event until after stocks have had a painful correction. It is not merely because important Hidden Pivot targets have been reached, but also long-term trendlines that stretch back years. Together they offer resistance that seems unlikely to give way easily, even if bulls marginally penetrate them over the next few days. If I am wrong and buyers blow past these impediments as though they did not exist, you can infer that the Dow is on its way to at least 30,000, a seven percent gain from current levels and what is sure to be fist-pumped on Wall Street as a milestone.
Should we be concerned that stock-market bulls have been on a take-no-prisoners rampage, acting as though all is right with the world? It was only a few months ago, after all, that investors were said to be deeply troubled over the prospect of global recession and dimming odds of a meaningful trade deal with China. Not that these problems, which haven’t abated other than in investors’ forgetful brains, much slowed the onslaught of buying. Stocks rose over the summer anyway, even as yields were falling to levels implying the U.S. would soon join Europe and China in recession. Now, with interest rates again on the rise, the Dow Industrials and S&Ps have illogically been hitting record highs, prompting this headline in the Wall Street Journal: “Rising Yields Quiet Bond Market’s Key Recession Alarm“. But don’t break out the bubbly quite yet. For as our friend Bob Hoye points out in his latest Pivotal Events, the fact that the yield curve is no longer inverted hardly means that the warning has gone away. “Not likely,” he notes, “as the trend to inversion and the actual inversion is a key form of speculation in the credit markets. Once done it can’t be erased and the contraction is inevitable.” Bob is renowned as a diligent student of market history, and you can be certain he has not misused the word “inevitable” merely to seize our attention. He tracks data stretching back hundreds of years, and his spot-on predictions have always ranked him near the very top of economic forecasters. His chartist, Ross Clark, whom I’ve called the Ray Charles/Mozart of technical analysis, is no slouch either. Both are cautious right now, with Ross noting successful tests of support by the Dow Industrials in May, August and September. However, he would regard a failure to break out above 28,300 as bearish if followed by a breach of the 50-day exponential moving average and October 24’s 26,714 low. A Blowoff? Whatever happens, we are challenged to explain why shares continue to surge on most days almost as predictably as that the sun will rise in the east . The suspicion grows that the stock market is in the wacky, damn-the-torpedoes blowoff phase of the the bull-market begun in March 2009. Blowoffs cannot continue indefinitely, though. Their pitch is unsustainable, as the word itself implies, and stocks eventually must crest when buying power runs out. No equation can tell us when this will occur, since the sources of investable cash that support the buying are innumerable and too arcane to comprehend, let alone measure accurately. And so we rely on stock charts to tell us where key highs and lows are most likely to occur. Right now, the charts are saying the S&P 500 and the New York Composite Index are within respective hairs of major trendlines stretching back for years. However, the Dow Industrial Average and the Nasdaq 100 have already decisively exceeded their respective trendlines, and this is undeniably bullish. But there’s a caveat: Both are within easy distance of rally-stopping targets derived from the Hidden Pivot method of analysis. At the risk of queering the predictive power of the targets by drum-rolling them, I’ll note that the Dow target lies at 28,046, just 42 points above Friday’s record high; and the Nasdaq’s at 8,365 — 12 points above its corresponding high. If these numbers are decisively exceeded intraday or surpassed on a closing basis for two consecutive days, we’d have to infer that the buying stampede of 2019 is likely to continue. But why? Here we’ll quote one of the better explanations we’ve seen for the stock market’s relentless uptrend. In a Wall Street Journal think-piece headlined All News Is Good News When the Market Keeps Ripping Higher, columnist James Mackintosh notes the following: “My best case is that the economy muddles through, trade tensions dissipate and earnings turn out to be sustainable, despite leverage and accounting tricks.” This probably sums up institutional mindset perfectly. But even Mackintosh concedes it “pretty optimistic,” since it leaves no room for trouble. We’ll suggest going with the flow for now, meaning that any pullback from significantly above the targets for S&Ps and Nasdaq 100 be viewed as merely corrective. Even so, we intend to monitor the intraday charts closely, since that’s where trouble will show up even before pundits and economists have a clue.
Gold and silver prices look primed to turn higher after getting pounded for the last two weeks. Does that mean stock prices, which usually move opposite bullion’s, could top out at or near these levels? The chart provides good reason to think so — or to hope so, if you believe shares are overdue for a breather. The E-Mini S&P futures will be challenged to get through the trendline shown. It comes in at around 3119 and will rise to 3125 next week. My gut feeling is that these numbers are sufficiently ‘magnetic’ to use as minimum upside objectives for the near term, but also as firm resistance points. Don’t count too heavily on Tuesday night’s full moon to reverse the bullish tide in stocks, however. According to a subscriber posting in the Rick’s Picks trading room, lunar cycles correlate with reversals in gold, not shares.
Although a Warren victory would be an unqualified disaster for the stock market and, arguably, for America, it’s harder to imagine what a Bloomberg presidency might look like. The left-leaning billionaire entered the race on Friday by filing for the Alabama primaries. This is a change of heart from a few months ago, when the news mogul announced he had no plans to run. He has stepped in because he’s concerned that none of the leading Democrats could beat Trump. He may be right, especially since Warren shot herself in the foot — and chest, and head — last week by spelling out exactly how she would pay for ‘Medicare for All’. How’s That Again, Liz? If there were any doubts that her ideas were hatched in the fever swamps of socialism, they have been dispelled by what she revealed of Warrencare. For starters, and as we already knew, everyone in America with an employer-based health plan would lose it. Billionaires like Bloomberg supposedly would pay for it, but if funding came up short, policy tweaks would make up the difference. How’s that again? Here’s Warren in her own wonky words: “I will use available policy tools, which include global budgets, population-based budgets and automatic rate reductions to bring it back in line.” Are you reassured? Even Piketty, the French leftist whose ideas Warren has borrowed from promiscuously and plagiarized, must be embarrassed by such claptrap. Bloomberg, at 77, is a year younger than Sanders but robust and seemingly in good health, so age would not be a major factor. He could run a much better race against Trump than any of the current Democratic frontrunners — Warren, Sanders, Biden and Buttigieg. Unlike them, although Bloomberg is a meddlesome liberal who would want to intrude heavily on every area of our lives, including our diets, he is at least no loony leftist like most of the Democratic candidates. He is in fact very much a capitalist, for better or worse, and so Wall Street undoubtedly could live with him. If he were to win the election, the bull market probably wouldn’t miss a beat, assuming it was still chugging along a year from now. An added plus — for America and all mankind — is that a Bloomberg run would probably drive a stake through the heart of any Hillary candidacy, ending her political career once and for all
So when is Mr. Market going to wipe the stupid grin from bulls’ faces? Soon, would be my guess. Check out the trendline in the chart. A pisher it ain’t. It connects the peaks of two major rallies and goes back more than seven months. And here are two more trendlines that are arguably even more daunting. The first shows the New York Composite Index (NYA) and comes from Peter Eliades. It first appeared here more than a month ago. The second shows the Industrial Average. If these trendlines fail to stop the bullish wilding spree dead in its tracks, then technical analysis is just toad entrails and tea leaves. All three resistance points lie not far above current levels, implying that the manic rally in U.S. stocks could continue into next week. ‘Freaky Friday’ is not usually a reversal day, so we should brace for more of the same, at least for now. _______ UPDATE (Nov 7, 10:19 p.m.): DJIA popped through its respective trendline like it wasn’t there, hitting a high nearly 200 points above it before settling at the midpoint of the day’s range. This is quite impressive, and there is no denying it is very bullish. Let’s see how NYA and the E-Mini S&Ps (see below) do.
It often seem as though trade-deal news drives the markets, but how could this be so when we all know that China will never, ever change its crooked ways? Not that it matters. If Trump hadn’t started a tariff war, it would have made little difference in the way a bull market now in its eleventh year behaves; stocks would still be trading about where they are. The only difference is that the con-artists who make their living levitating stocks would have found a different story to drive the short-covering rallies that alone are capable of boosting the broad averages past old highs. ‘Phase One’ Forever! When we read in the Wall Street Journal that shares have risen because traders supposedly were optimistic on a given day about the tariff talks, we understand that this is poppycock and not even remotely true. Even so, the hair-trigger reflex of institutional investors is to buy stocks whenever there is the faintest bullish buzz, and to dump them the instant China responds with incredulity. Wednesday’s earth-shaking story was that a meeting to enact phase one of the deal has been pushed out to December. Stocks greeted this discouraging mid-day tidbit with spasms that lasted for all of ten minutes; then they settled back into their wonted, bullish groove. At this rate, the talks will drag on indefinitely without producing any tangible results. Although it has been clear for some time that this is what both sides want, it was not until this afternoon’s gratuitous spasms that investors revealed it is what they want as well.
The S&Ps and Nasdaq 100 have fallen moderately after overshooting important Hidden Pivot rally targets on Monday that I might have warranted as impenetrable. This is bullish, as is the fact that AAPL, our #1 bellwether, still has an outstanding target about 10% above current levels. Even so, and despite the fact that the U.S. economy has “never looked better,” we shouldn’t be too trusting of the rally. The chart shows that VXX, which tracks short term volatility in the S&P 500, may have reached an important bottom. If it is about to reverse, that would imply stocks are about to fall. I trust this indicator more than I do all others at the moment.
What are we to make of Wall Street’s exuberance over recent news concerning a U.S. economic expansion that refuses to die? Employers are hiring, consumers are spending and business is humming despite a dramatic economic slowdown in Asia, Europe, South America and elsewhere. Perhaps America really is an economic island, one blessed with unstinting support from a central bank that has finally succeeded in taming the business cycle? If you are too young to remember the last three or four recessions, you might actually believe that things are different this time. Wall Street Journal columnist David Harrison evidently does. Judging from his picture, Harrison is no older than 30, so we can perhaps forgive him for suggesting, to borrow Prof. Irving Fisher’s immortal declaration, that economic equilibrium appears to have reached a permanently high plateau. In fairness, it must be said that Harrison’s recent think-piece, A Bellwether No Longer Rings True, makes a good statistical case for downgrading manufacturing as an economic harbinger. He notes that although factories have had a tough year marked by falling output, investment and employment, as well as a global tariff war that threatens to drag on indefinitely, the U.S. economy overall has barely flinched. This happy if surprising state of affairs he attributes to manufacturing’s shrinking share of the economy. In its place, a burgeoning services sector has inoculated the U.S. against downturns, balancing out the inventory swings that have long been associated with boom and bust cycles. Misleading Statistics Or so the argument goes. But the suspicion nags that the rosy statistics do not yield an accurate picture. To be sure, a lot of fat cats have grown their wealth stupendously by holding shares in companies that on the surface seem to be doing amazingly well. And yet, two obvious examples, Facebook and Google, are just glorified advertising agencies. How long will their profits hold up in a global downturn? Another corporate behemoth, Apple, depends largely on the sale of just one very high-margin product: the iPhone, which has saturated its market and faces increasing competition from Asian manufacturers, most notably Huawei. If these are truly the best of times as the headlines would have us believe, the statistics by which we judge them so are an inch deep. A bull market currently in its eleventh year colors our thinking more than we might care to imagine, and we are delirious if the bull has made us believe that the global downturn in manufacturing will not eventually impact consumers. Hubris and rising shares prices have kept them borrowing and spending, at least for the time being, but don’t be surprised if the stock market starts to swing more wildly than anyone can recall, signaling trouble. Leading pundits will tell us to stay the course, but that in itself could be viewed as a timely warning to abandon ship.
Shares rose Wednesday on the ho-hum news of a third rate-cut in 2019. Will it be the last? Of course not; it’s only a matter of time before Fed chief Powell dons his well-worn knee pads and gives Wall Street and the President whatever they want. For now, though, Powell & Co. would have us believe that the U.S. economy is doing fine and that there is no urgent reason for more easing. That’s baloney, of course, even if their little white lie is somewhat mitigated by the flurry of activity in the housing sector. Refinancing and home sales have picked up with 30-year mortgages down at 3.75%, and we can be confident that real estate will remain buoyant, at least, if rates continue to fall. A point lost on the dim bulbs who report on such things is that it will come at a cost. For although marginally qualified buyers may finally have an opportunity to “own” a home, they will be getting in the door at inflated prices. This is bound to become burdensome when the next recession hits, especially if home prices fall even a little, never mind significantly. As for all of that re-fi money, that’s how the Fed shakes dollars from trees to pay for free lunches, and there’s no denying that it will add to household liquidity. But don’t expect consumers to spend it all, or even most of it, on bling. They can sniff a recession coming just as you and I can, and, fully ten years into a recovery cycle, they are not fooled by the stock market’s autumnal exuberance. Puttin’ on the Ritz This just in: We see that the usual suspects have seized control of AAPL in after-hours trading. The flurry of short-covering due to bullish Q3 earnings news has pushed the stock decisively past a 248.48 resistance that was drum-rolled here the other day. Yes, it’s possible that by the time you read this AAPL will have detumesced sufficiently to fill buyers with remorse. However, the bear panic will nonetheless have blown a key resistance to smithereens, smoothing a path to at least 283.97, a Hidden Pivot that lies 14% above. When the shares of the most valuable company in the world are rising so strongly, that will put a floor beneath stocks and pull the broad averages significantly higher. Realize that it is panicky bears more than any other source of buying that helps sustain the illusion of a strong stock market. We hesitate to say “healthy” stock market because no one in his right mind could believe that the relentless buying that has occurred in recent months with the global economy tottering is healthy. However, like the bolt of lightning that brought Frankenstein to life, short-covering has caused Tesla shares that were in a death spiral to tap-dance to the Street’s version of Puttin’ on the Ritz. Never mind that Tesla’s bullish earnings surprise was attributable in large part to dazzling accounting tricks that would cause any serious auditor to roll his eyes. Expect the dog-and-pony show to continue shamelessly as stocks ascend into the thin air amidst faltering earnings projections and diminishing real returns on funny money.
I drum-rolled AAPL Sunday night because it was stalled in a dangerous place, an inch from a crucial resistance at 248.48 (see tout, below). The stock holds the key to the bull market, which is all but certain to continue as long as Apple shares are moving higher. Coincidentally, AAPL and the broad averages somewhat diverged on Monday, with the former getting socked for a 2.23% loss as indexes closed little changed. I expect this ‘divergence’ to be reconciled shortly in bulls’ favor, but you never know. In any event, the yellow flag is out.
Bitcoin has taken a so-far $2500 leap, its most powerful rally in nearly a year, since Thursday evening, when Rick’s Picks issued a ‘buy’ signal on YouTube and Facebook. It was triggered when a widely tracked bitcoin vehicle with the symbol BRTI touched $7609 a day earlier. That represented a spectacular fall from the $13,855 peak reached in June. ‘Mechanical’ buy and sell signals are a salient feature of the Hidden Pivot Method, and they tend to work best when trading vehicles are at their most violent and evasive. That means the entry points themselves are often scary, since they typically occur opposite steep trends. The timing of this signal was somewhat surprising, since earlier this month some big banks Facebook had corralled into supporting its planned Libra cryptocurrency backed away from a deal. Some reports attributed the ballistic rally to a statement by Chinese President Xi Jinping that was supportive of efforts in China to expand the realm of blockchain money. One account cited trendline support for bitcoin near the price where it bottomed, but the chart was haphazardly drawn and unpersuasive. Nor did this report or any other offer an inkling as to how high bitcoin might go if it has in fact bottomed. We’d suggest using Rick’s Picks’ target at $21,032 if you are crazy enough to trade this vehicle. This Hidden Pivot resistance is shown in the chart. The pattern from which it was derived is somewhat unconventional, and that’s why we are not offering any guarantees. Lest you jump on this trade to get rich quick, please note that BRTI, which tracks bitcoin bids and offers in real time across many markets, could still relapse to as low as $6166 before putting in a bottom.
Sometimes I wonder if America is becoming a nation of scammers. Not a week goes by that I don’t hear from at least one or two of them. That’s no exaggeration. The phone number above popped up on my caller ID this afternoon when I was trying to unwind after a busy day. A woman with a heavy Hispanic accent told me that my Social Security number and a phone number associated with it were found, along with a quantity of cocaine, in a car seized in a raid near the Texas border. She asked me to verify the last four digits of my Social, but I impolitely declined. Instead, I told her that if she ever bothered me again, I’d find out where she works, where her kids go to school, who her relatives are, and then I’d wreck their lives. It’s possible to find out all of this with a little diligence and some training. I know this because I worked for a private eye in San Francisco for a few years who taught me how to find out nearly anything, especially about the people we meet. I’d worked as a newspaper reporter before then, and so I was already pretty good at it. But much as I’d enjoy tracking down this woman, her co-workers and her sleaze-bag employer to teach them that crime doesn’t pay, who’s got time for that sort of thing? And anyway, crime actually does pay. This is unfortunate but true now that local police departments have given up on petty crime. The result is that America is breeding a nation of scammers who go about their business with impunity, right out in the open. The Rental Con One of them was advertising a $1,000 rental in Lauderdale Lakes, Florida a few days ago that interested me. I am helping an elderly friend who was stricken with cancer find an apartment because the one he and his wife have lived in for seven years has been sold out from under them. The ad was on Craig’s List, the scammers’ newspaper of record, and it sounded too good to be true: three bedrooms, two baths, a nice yard and utilities, all for a thousand bucks a month. Suspicious but desperate to find a rental, I replied anyway, telling a “Mr. Atkinson Harrindell” of my interest in his house. The response I received from him was right out of Scamming for Dummies — a ridiculous story about how he’s taking a job in California, and could I maybe pay a full year’s rent in advance. There was no realtor involved, and therefore no way for me to have a look inside the house. He suggested that I drive by it, and that if I liked it, to get a $12,000 certified check to him even though he wouldn’t be available to receive it in person. Realize that this is South Florida, where there are a lot of senile old coots who actually fall for stuff like this. Determined to set up this shithead for a pinch, I called the local police department to see if they might be willing to help. It took me five or six calls to reach a sympathetic detective, but his superior evidently ruled out the sting I had in mind. When was the last time you read a news story about one of these Craig’s List rental scammers getting arrested, never mind convicted? It’s easy to understand why this will never happen: They are more numerous than fleas and just as hard to catch. Merely pursuing the con-artists I’ve run across in the last couple of months would be a full-time job. One scum-bag offered to buy a painting I’d listed on eBay for $14,000. I’d been trying unsuccessfully to sell it for five years, and along comes this guy who wants to buy it without even haggling over the price. Suspiciously, he never said a word about the painting itself or why he liked it. I told him I’d pay to have it shipped from Colorado to… wherever — he never did say where he lived — but he insisted on sending me a check for $14,000 plus an extra $3000 that I supposedly would hand over to his shipper. The check he sent me, drawn on “Apple Ltd.,” arrived in a priority mail envelope, but my banker at Wells Fargo just laughed when he saw it. By that time I had enough information to find out the scammer’s real name and where he lived, so I sent him a letter via regular mail taking him to task for concocting such an idiotic scam. I also offered to critique his methods for $2,000, but I never heard back from him. Bring Back the Pillory? Did I mention that three of the dozen or so marketing directors I’ve hired over the years were scammers? One of them, “Eddie D____,” operated a separate business under a different name. A word of advice: NEVER do business with someone who uses more than one surname. Another one of my “marketing directors” practically wrecked Rick’s Picks with a low-rent promotion designed to recoup the $60,000 he’d billed me up-front. He knew as much about marketing as the pizza delivery guy. I’ve begun to wonder whether there are more crooks out there than honest businessmen. Steer clear of Craig’s List if you’re as cynical about this as I am. And don’t depend on the police or your local sheriff’s department to do anything about it if you get ripped off — unless it’s for $50,000 or more. The best we can do otherwise is hope that there’s a special place in hell for those who take us all for suckers. There was a time in America when they would have been pilloried in the public square. Ahhh, for the good old days!
(Note: Rick’s puts out at least two fresh commentaries each week, usually on Mondays and Thursdays.) The odds of a Trump victory in 2020 may have reached a tipping point last week, even if few will have noticed. One influential conservative columnist who did notice was Peggy Noonan. Writing in the weekend Wall Street Journal, she speculated that the Democrats, helped by Trump’s increasingly erratic behavior, could conceivably change some minds about impeachment if they can resist the temptation to turn the hearings into a political spectacle. Slightly more than half of U.S. voters already favor impeachment, reports Gallup, but if that number were to increase in the weeks and months ahead, Noonan thinks it could sway some GOP votes against Trump in the Senate. Twenty Republicans would need to side with the Democrats to take down the president, but as Noonan, a former Reagan speechwriter, reminds us, stranger things have happened. These are not the musings of a never-Trumper or some TDS loony who froths at the mouth whenever vocalizing the man’s name. Like many Trump supporters, including your editor, Noonan finds little to like about him personally but will probably vote for him anyway because his opponents seem hell-bent on dismantling the Republic. For Trump’s supporters, this election unfortunately will not be about making America great again, but about protecting America from the depradations of a left-wing lynch mob keen to settle all scores once and for all. ‘Crazy’ in What Way? Noonan measures her words carefully, but she is still forthright enough to consider that maybe Trump really is crazy. His enemies certainly think so, as they never tire of telling us. But they mean “crazy” in the certifiable, clinical sense of the word. How about crazy in the behavioral sense? Trump’s own words make a pretty damning case, and Noonan has quoted them persuasively. There was the letter last week to Turkish President Erdogan that was alternately pleading (“You can make a great deal …I will call you later”) and threatening (“I don’t want to be responsible for destroying the Turkish economy — and I will”). She also caught some disconcerting moments from the Cabinet Room meeting between Trump and congressional leaders. “See you in the polls!” he called out, with an excess of confidence, as the session was ending. That was just before he tweeted, referring to Pelosi, “Pray for her. She is a very sick person.” Trump sent out a picture of the meeting just as the letter to Erdogan was released. He evidently thought it made him look good, wrote Noonan, only “[underscoring] the sense that he has no heavyweight advisers around him — the generals are gone, the competent fled, he’s careening around surrounded by second raters, opportunists, naifs and demoralized mid-level people who can’t believe what they’re seeing.” The Boom Was a Fake In any event, the exuberant MAGA theme of the 2016 campaign has ceased to reverberate and will ring increasingly hollow as Campaign 2020 unfolds. To the extent Trump’s rising fortunes fueled the stock market’s sensational rise, his fall from grace, particularly among supporters, will be a depressant. And so will a darkening reality. Noonan, not being an economist, missed a key aspect of the economic boom that has accompanied Trump’s term in office. For in fact, it was only financial assets and real estate that boomed — or, more accurately, inflated in value, albeit with little substance behind them. America may seem more prosperous, but it is only because both government and consumers have gone much deeper into hock to sustain extravagant spending levels that have far outrun wage growth. In the process, not only has Trump failed to reduce the burden of debt that has put the economy on a certain path toward collapse, he has cheer-led the expansion of public and private borrowing to unprecedented heights. Fed by greed, stupidity and $2 trillion in corporate buybacks enabled by Trump’s tax “reform,” the stock market is in the grip of insanity, perversely encouraged these days by downbeat economic news that supposedly will lead to lower interest rates. This is mass folly at its apex, an orgy of greed that is poised to end precipitously, as all bubbles must, with the ebbing fortunes of Donald Trump.
A glance at the charts of Boeing and Johnson & Johnson shows what stock-market bears are up against as they patiently await a meaningful correction of excesses that have been building in the financial system for nearly a decade. Are the portfolio managers who support these two stocks without a trace of nervousness crazy, or what? Boeing has received relentlessly negative press since December, and for good reason. Its huge fleet of 737 Max jets has been grounded for an overhaul of faulty navigation equipment that caused two crashes resulting in 346 deaths and a spate of lawsuits around the world. For its part, Johnson & Johnson just got socked with an $8 billion jury award that is not even related to the motherlode of lawsuits they will face because of talcum powder’s supposedly carcinogenic effects. The $8 billion verdict involved a guy who supposedly developed man-boobs after taking J&J’s antipsychotic drug Risperdal as a child. Boeing may be in slightly better shape, having made progress settling with the families of some of the passengers who died in the crashes. But other aggrieved families undoubtedly will seek jury trials that will leave the airline exposed to open-ended liabilities for the foreseeable future Fund Managers’ Omerta And yet, the charts show that the shares of both companies have held up astoundingly well considering that their legal problems could drag on for years or even decades. After shaking out the weak hands, DaBoyz put the stocks back on their respective glide paths as though nothing of consequence had happened. Indeed, the stocks look capable of remaining buoyant more or less indefinitely, or at least until the inevitable bear market lays waste to all stocks. In the meantime, the omerta that binds those who make their living throwing Other People’s Money at a small handful of must-own stocks will prevail. A stampede out of Boeing and Johnson & Johnson shares in particular is coming, but not until a bull market that long ago took leave of its senses draws its last breath. _______ BULLETIN (October 18, 3:01 p.m.): Boeing and Johnson & Johnson are getting savaged today, down respectively 7% and 5.4% on “bad news” that investors already knew about. It was being reported that a Boeing pilot told a colleague he unintentionally misled federal regulators about a key system on the plane maker’s 737 MAX, but this adds little of significance to the long list of sordid, sue-able facts that have already surfaced in connection with the fatal crashes.
Would the Wall Street Journal consider walking away from Trump if the alternative were Elizabeth Warren? A recent headline atop the front page hinted that the newspaper’s right-leaning ownership could already be on that path: Turkey Launches Offensive Against U.S. Ally. Even the Trump-hating New York Times stopped short of saying so bluntly that the U.S. had sold out its erstwhile allies, the Kurds, by unleashing the Turkish military on them. Here’s how the Times cued up the same story: Turkey Launches Offensive Against U.S.-Backed Syrian Militia. Technically, that leader is more accurate than the Journal‘s, since there’s little chance the Kurds, legendary fighters who crushed Islamic State in Syria, still consider themselves U.S. allies or that they will ever again put their lives on the line for the U.S. Trump for his part seems convinced that by telling Turkish President Erdogan to be gentle with the Kurds, a bloodbath can somehow be avoided. Bear in mind that Turkey regards all Kurds as terrorists and presumably would rather see them dead than resettled anywhere near Turkey’s border with Syria. With understatement that is bound to haunt him on the campaign trail, Trump called the air and land assaults launched by the Turks last week ‘a bad idea.’ Even worse is his own strategy of standing down while Turkey, hellbent on killing every last Kurd, vaults into a leadership role in one of the most politically dangerous regions on earth. Syria is destined to become still moreso if the 12,000 Islamic State terrorists imprisoned by the Kurds are loosed upon the world. Do Trump and his advisors think Turkey will simply take over as jailers of these human time bombs? They haven’t said because they simply don’t know. Warren’s Moment Until very recently, it was arguable that Trump would win re-election as long as the economy held up. Now, just as recession appears to be threatening, the president, in his eagerness to get U.S. troops out of the Middle East, has acted with such careless haste that even his most ardent supporters, Christian evangelicals and Lindsay Graham among them, are questioning his strategies. Other Trump diplomatic initiatives seem unlikely to yield bragging rights, although brag he will. Kim Jong-un said he’s done with talks. As for China, the face-saving deal reportedly struck on Friday (and timidly reported as a “tentative, Phase-One trade pact”), will do little to burnish the President’s image. Nor will it long support the stock market, which has stayed sufficiently buoyant up until now to offer investors an enticing opportunity to ‘sell the news’. Shares have been feisty in the meantime, fortified by the imminent non-news concerning tariffs. Meanwhile, Warren’s moment has unexpectedly arrived, energized by millions of self-proclaimed have-nots who see her ascendance as the best chance they may ever have to even the score with their economic betters. They would doubtless be thrilled to see the very same corporate America that feeds, houses and clothes them goaded to docility by Warren’s cattle prod. What do they have to lose? Half of those who pay taxes contribute only 3% to the government’s take. Although it’s inconceivable that the Wall Street Journal would endorse Warren, the paper has slowly shifted news coverage of Trump to emphasize his failures and weaknesses rather than his successes. The Journal‘s editorial page has not yet abandoned Trump and probably won’t, but it is clearly struggling to put a positive face on his zeal for isolationism, loose credit and governance by tweet. Because the Journal has the attention and respect of the political centrists who will decide the 2020 election, that is why the apparent anti-Trump drift of the newspaper’s headlines matters.
With a steady barrage of trade-war tweets that have alternated between promise and threat, Trump has screwed with investors’ heads for so long that most of them simply want to get it over with. They undoubtedly would love to see the U.S. and China settle their differences. But stock-market bulls should be careful what they wish for. Indeed, this is a classic case of ‘buy the rumor, sell the news’, since whatever the two sides agree on is unlikely to live up to the optimism that prevailed just a few months ago. Such notions have slowly succumbed to cynicism and despair, but shares have risen anyway. Why? Probably because Trump and Xi Jinping appear to have avoided the worst-case scenario — i.e., declaring irreconcilable differences and walking away from the negotiations openly hostile toward each other. The story being spun ahead of The Big Announcement is that tariffs will be reduced or temporarily rolled back pending further talks designed, of course, to drag on indefinitely. Although any agreement would be better than none, it is unlikely to reverse the economic implosion that has beset Europe and China and which appears to be gaining force in the U.S. In the meantime, the imminence of a deal has restrained sellers who appear eager to clobber stocks ‘on the news’. If the broad averages rally initially, don’t expect the exuberance to last more than a day or two, if that long. We’ll gladly fade the spike, since any feel-good reaction will be out of kilter with a darkening reality.
In observance of Yom Kippur, the Jewish Day of Atonement and holiest day of the year, there will be no further updates for Wednesday. Normal service for Rick’s Picks subscribers and followers will resume on Thursday morning. Let me wish you an easy fast if you plan to do so. May the year bring family and friends good health, prosperity and joyous tidings. Happy new year to you all!
[Note: The Morning Line is published every Monday and Wednesday unless a significant event occurs in-between. Facebook and YouTube commentary, forecasts and trading ideas are aired on Monday’s and Wednesdays. RA] The Dow Industrials ended the week with an 800-point Whoopee Cushion bounce that recouped two-thirds of a 1300-point loss suffered days earlier. The swoon, exhilarating as it may have seemed to traders, will do little to brighten an economic picture that has gone from boom to gloom since mid-summer. One might think the dark cloud of recession billowing over China and Europe these days would have caused investors to lower their expectations for the U.S. economy. However, evidence that they care even slightly about a global slowdown was nowhere to be discerned on Friday. Shares were up across-the-board, with the S&Ps tacking on a 40-point gain and the FAANG stocks in the rapacious grip of trade-desk madmen. Short-covering provided nearly all of the turbo-boost as it always does, warning bears still on the sidelines to stay put for the time being. We’d fully expected the bounce to come from lower levels — specifically, from a 25,363 ‘Hidden Pivot’ target in the Dow that had looked certain to be achieved. Alas, the forecast missed by a not-so-trivial 380 points when the Indoos trampolined off 25,743. The jury is still out on this one, however, since 25,363 will remain a valid price objective in theory unless the rally exceeds 27,303. But it is usually a bullish sign when downtrending ABCD correction patterns fall short of their ‘D’ targets, as seems to have occurred here. Moreover, there is no reason to think that a deepening global downturn, impeachment mayhem and signs of a top in the U.S. economy will impair buyers’ bad judgment. For at the end of the day, the rally is not being driven by bullishness, but by urgent short-covering, a world awash in credit money, entrenched institutional mindset and a dearth of investment alternatives. Love That Bad News! Although short-covering was the technical reason behind last week’s oversold bounce, the news media served up an explanation of its own that we can laugh at as we might the emergence of twenty clowns from an Isetta. So what was on investors’ tiny, febrile brains that might have justified their week-ending exuberance? Why, the prospect of more Fed easing, of course! Manufacturing, capital investment and consumer confidence falling off a cliff? No problem. As long as the securities world’s useful idiots continue to expect more easing, bad news will be greeted as good news. You say the Fed governors have promised no such thing? Well, they don’t need to as long as Powell, when addressing his masters on Wall Street, remains on his knees. Concerning the technical picture, we are still literally banking on Apple shares to tell us when the fat lady might be ready to sing. The stock has an outstanding rally target at 243.68 (slightly revised from the 242.48 given here earlier) that looks very likely to be achieved. As long as AAPL keeps progressing toward it, the ten-and-a-half-year-old bull market will endure. Yes, this is at odds with the prediction above that the Dow will fall to at least 25,363. But because I am much more certain about Apple’s bullish chart than the Dow’s bearish one, I’ll place my bets on the former for now.
Sellers turned gutless Wednesday night after swinging a wrecking ball for most of the day. Shortly before midnight, index futures were trading moderately higher. Usually, prices move at night only when impelled by news that makes buying or selling over short stretches nearly riskless. It wasn’t news that sent the Dow Industrials plummeting nearly a thousand points over the last two days, however; rather, it was a negative drumbeat over the last several weeks that persisted for long enough to feed into a presumably minor bear cycle. I say ‘minor’ in respect of a forecast I made here earlier — i.e., that the bull market would keep on chugging at least until AAPL, the key bellwether stock these days, ascends to at least 242.48. That’s a $24 leap from here, equating to about 11%. Although AAPL got slammed on Wednesday, it still closed above Friday’s settlement price, showing the kind of resilience we should expect from a stock that portfolio managers revere above all others (save only Boeing, had the second 737 Max crash never happened). Regardless of what AAPL does over the next few days, odds of the DJIA not falling to at least the 25,363 target shown (or alternatively to a maximum 25,280) are close to zero in my estimation. First, AAPL to $242 So confident am I that Apple shares will reach the $242 target in the next bull run that I have banished from my mind a long list of troubling economic developments in the U.S. and abroad. But more bearish than any such factors is a political one: the perception that Trump is likely to lose the election. This idea has little force at the moment and is unlikely to gain in strength merely because the Democrats are intent on doing him in. Their tactics have been increasingly desperate and clumsy, and that is no way to win an election. The wild card is the stock market itself, since a prolonged downtrend could shift perceptions of the economy sufficiently to trigger the recession that is surely coming sooner or later. That would wreck Trump’s chances while boosting Elizabeth Warren’s. Some Wall Street denizen was quoted recently as saying the markets probably wouldn’t open the day after a Warren victory. More realistic is that investors would have sniffed this out months before election day and discounted it with a 10,000 point drop in the Dow. Cooler heads would eventually prevail, but when everyone came to their senses and realized that Warren was indeed in charge, the DOW would probably shed another 5,000-8,000 points. The NYSE could declare a 30-day emergency, but that would only delay Armageddon, not prevent it. GOP-leaning historians would blame Fauxcahontas for the subsequent Second Great Depression; while others — socioeconomist Bob Prechter, for one — would correctly see that her time — the end of boom times, that is — had finally arrived.