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The Morning Line

Why No One’s Breaking Out the Bubbly

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Shhhh! Don’t look now, but the S&Ps have tiptoed up to their all-time highs, presumably to attempt a quarterback sneak on Friday that would mute the hubris when they cross the goal line. DaBoyz don’t want to jinx the rally or call attention to its surreal nature. After all, except for a handful of grotesquely overvalued tech stocks and some fast-food chains, America’s economy, its largest cities and commercial real estate everywhere are slipping into a full-blown depression. Under the circumstances, the revelry on Wall Street is more than a little unseemly. In fact, it is a civilizational embarrassment whose dire consequences our children, their children and their children’s children will be living with for the next hundred years.

Rick's Picks for Friday
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QQQ – Nasdaq ETF (Last:271.96)

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$GCZ20 – December Gold (Last:1965.80)

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$SIU20 – Sep Silver (Last:27.555)

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$ESU20 – Sep E-Mini S&P (Last:3370.00)

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$DIA – Dow Industrials ETF (Last:280.82)

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Much as I’d hoped to find a technical glimmer of sanity, it is nowhere in sight on DIA’s intraday charts.  The island-gap reversal (see inset) back in early June was ostensibly bearish, but last week’s consolidation above the gap and the midpoint Hidden Pivot of the very bullish pattern shown suggests bears are in for at least a few more weeks of brutally tough love. Friday’s pop above p was slight, but the fact that DIA closed above it, and that this occurred on the high end of the week’s final hourly bar, suggests that bulls are as revved up as they were in early April, before they embarked on the most powerful and financially consequential rally in history. The 297.18 target shown would leave the Dow just a hair shy of 30,000, and there’s no point in fighting it. Our trading bias will remain bullish for the foreseeable future, presumably via ‘mechanical’ entries of a lesser degree than the chart shown. A pullback of one full HP level, however unlikely, would be a screaming ‘mechanical’ buy. _______ UPDATE (Aug 12, 4:38 p.m. ET): Buyers are closing on p2=285.16 (see inset) — a good place to look for a tradeable stall, especially if you’ve been long on the way up.

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$AAPL – Apple Computer (Last:452.24)

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The stock’s vertical climb reversed Friday from within a hair of a technical target I’d drum-rolled a while back, allowing subscribers to initiate short positions with puts that went in-the-black almost instantly, just as we should prefer.  We all ended the day wondering, however, how long it would take for The Thing That Wouldn’t Die to rev its jets for another rampage.  I’d estimate that an eventual move to at least 490.97, the Hidden Pivot target shown in the chart, is an 80% shot, given the way short-covering madmen gapped the stock through two HP levels in just two days as August began.  By last week, though, buyers were overdue for a breather, even if not looking spent. Although a retracement to the red line (p=423.78) would trip a ‘mechanical’ buy, I’ll suggest holding out for even better prices if we should decide to jump in at all. AAPL hasn’t had a correction lasting longer than three consecutive days since before the March crash, but if it were to whip around early this week and take out last week’s record peak on less than four days’ rest, that would be amazing but also appalling, since it would imply a degree of heedlessness and greed on the part of buyers (including the Swiss central bank, apparently) that until now had been unimaginable. AAPL has friends in high places, but that doesn’t mean they aren’t just as crazy as lowly portfolio managers who are paid to stay fully invested at all times in just ten stocks. _______ UPDATE (Aug 10, 8:05 p.m. ET):  It turns out that Switzerland owns $6.3 billion worth of Apple shares, and that the burghers are continuing to add to this position with flim-flammery that even Powell & Co. must envy.  Here’s the full story from Wolfe Richter. _______ UPDATE (Aug 11, 8:15 p.m.): The original chart (see inset) noted that trend failures at p2 — in this case 457.37 — can be dangerous, but I downplayed the possibility it would be fatal this time. Even so, the stock has now fallen on three of the last four days since encountering p2, and so we should be open-minded to the possibility AAPL has made an important top. If so, we should start to see downtrending abc patterns of minor degree exceeding their d targets, and uptrending ABCs fall short of theirs. _______ UPDATE (Aug 12, 4:43 p.m.): So much for that theory.  AAPL will need to close for two consecutive days above p=457.37 to clinch a trip to 490.97 (see above), but bulls seemed to be rehearsing for it all day long on Wednesday.

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DXY – NYBOT Dollar Index (Last:93.41)

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The Dollar Index is closing on a long-term trendline that bears watching. It’s been six years since the dollar last fell to the line, implying this technical tool is not sufficiently well-developed to give us a confident basis for predicting a major reversal. But if one does occur it would mark an approximately 12% correction from the 103.82 high recorded in January 2017.  An intervening rally in the 2018-20 period topped at the height of March madness before institutional investors settled on the rote themes that have dominated since then.  Looking just ahead, if DXY were to connect with the trendline by late August, the touch-and-go landing we are looking for would occur at around 91.78.  We’ll use this as a downside target for now, since it looks more promising than any Hidden Pivot support I could offer you. It would be more than a little useful to get this prediction right, since a trend change in the dollar would likely reverse all of the trends that have become entrenched over the last five months, including the bullish ones in gold, silver, the stock market, crude oil and copper.

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$GDX – Gold Miners ETF (Last:39.05)

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GDX’s plunge deepened on Friday, but subscribers were able to sidestep the so-far 8% dive using a longstanding rally target at 45.71 that caught the tip of last week’s spike within 7 cents. We should view this reversal with more than the usual amount of caution, since the high failed by 19 cents to surpass a small but technically significant ‘external’ peak at 45.96 recorded back in early 2013. To be sure, it would take a print down at 40.20 to even hint of trouble on the daily chart, and we will treat this weakness in the meantime as a buying opportunity. But our bids will be less aggressive than usual, and we may even attempt to get short if a compelling opportunity should arise.  Stay tuned meanwhile to the chat room, where crowdsourcing in this vehicle has served us well. _______ UPDATE (Aug 11, 8:35 p.m. ET): You don’t have to be a chartist to see that GDX has farther to fall before it can find good traction. This chart shows two logical places for the correction to bottom: at 36.84, re[resenting a 0.618 retracement of the rally begun from 31.32  in mid-June; and 34.93, equating to a 75% correction.  There  will be opportunities to trade both sides of the market on the way down, so stay tuned to the chat room for real-time, crowdsourced guidance.

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