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The Morning Line

‘Wild Week’ Starts with a Thud

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The usual experts were predicting a wild week on Wall Street, but a few more days like Monday and traders could fall into a trance. The Dow was off a measly 104 points, although it seemed more boring than that because the loss developed an inch at a time.  Everyone supposedly is waiting to see whether Trump will impose another layer of tariffs on Chinese goods next week. We’d bet heavily against it, but that doesn’t necessarily mean the President won’t feint one way and then the other a half-dozen times before he announces the good news. AAPL, the #1 bellwether for the bull market, looked leaden and probably held back buyers of other stocks in the lunatic sector. Only GOOG and TSLA were up on the day, presumably because bears were still dizzy from a nasty bout of short-covering on Friday.  AAPL remains the stock to watch, and it looks like it will need to go a bit lower to attract some bottom-fishing. Bears had better be ready to leap aside, however, when DaBoyz make a run for the $283 Hidden Pivot target we’ve been using since before Halloween.

Rick's Picks for Wednesday
$ = Actionable Advice + = Open Position
List of Symbols to use in Search:

$ESZ19 – December E-Mini S&P (Last:3135.25)

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$GCG20 – February Gold (Last:1473.00)

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$+AAPL – Apple Computer (Last:270.70)

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AAPL remains an excellent proxy for the bull market, so perhaps it’s a good time to look at its intraday charts, the better to judge whether December’s shaky start portends more trouble. My gut feeling is that the weakness will pass, if it hasn’t already, and that both the stock and the broad averages will soon be banging out new record highs. This scenario will become more likely if AAPL blows past the 266.11 midpoint Hidden Pivot shown in the chart to end the week. That would put it on track for a shot at D=269.55 next week, and, presumably, generate corresponding strength in the broad averages. A rendezvous with D could provide us with more information, but I expect sufficient resistance there to set up a potential ‘reverse-ABC’ short. Stay tuned to the Trading Room for timely guidance. _______ UPDATE (Dec 6, 1:49 p.m. EST): Short-covering at the opening sent AAPL into a lunatic spasm that not only demolished the 266.11 midpoint resistance, but continued higher, eventually reaching and then surpassing the 269.55 target. When it did, I put out a new target at 270.94 (“not rocket science”) in the Trading Room that appears to have stopped the rally cold.  AAPL has since fallen $1.04 (!) after peaking at 271.00, six cents above my target.  _______ UPDATE (Dec 8, 5:10 p.m.): We still hold eight 280 calls with a cost basis of 0.16 that expire on Friday. Offer half of them to close for 0.62, good through Tuesday.

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TNX.X – Ten-Year Note Rate (Last:1.933%)

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Although some notable long-term bond bulls are close to throwing in the towel as U.S. Treasury yields continue to climb, the chart suggests the bull market begun nearly 40 years ago still has farther to go.  Yields on the long bond settled Friday at 2.41%, up from 1.90% in August, while T-Notes have gone from 1.43% to 1.93% over the same time. The rallies have been impressive if not to say scary, since they have subjected hundreds of trillions of dollars of borrowings to a deflationary turn of the screw. The burden of debt promises to lighten before it becomes fatal , however, when the uptrend in interest rates reverses.

Is This a Good Thing?

Hidden Pivot analysis says relief could come soon, with the 10-Year topping at 1.984% and the 30-Year at 2.477%. How far might they fall thereafter?  My forecast calls for major lows at, respectively, 0.84% and 1.64%. This implies that the negative-rate weirdness of Europe will not afflict U.S. debt. Is this a good thing? Don’t ask the ‘experts’, because they don’t understand negative yields any better than the news media hacks who write about it.  Sub-zero yields reflect the central banks’ increasingly desperate efforts since the 1990-91 recession to avoid a catastrophic deflation. Predicting they will fail is not exactly rocket science, even if not one observer in a hundred expects this.

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$DXY – NYBOT Dollar Index (Last:98.37)

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I rarely update my dollar forecast because 1) my very-long-term outlook is unshakably bullish, and 2) subscribers do not trade it. Nevertheless, the dollar sold off hard last month, raising mild concerns about whether the long-tern trend has changed. A glance at the weekly chart, however, reveals little technical damage. Regardless, I’ll need to start treating the chart as I would some trading vehicle I don’t care about. Strictly speaking, a further decline touching the green line would put p=92.67 in play as a downside target. I refer to it as my worst-case scenario in the chart, but in fact 85.67, the pattern’s ‘D’ target, would be the actual worst-case possibility. That is unimaginable to me, and so I’ve put it out of mind.  ‘Impossibilities’ aside, I’ll be watching for ‘counterintuitive’ buying signals each time DXY takes out a new low on the weekly chart. The nearest of them lies at 97.03, and thence at 95.84. _______ UPDATE (Nov 8): Interesting that a market as vast as the dollar should rally following a cheesy fake-out low that exceeded a previous one by a few cents.  That is what has happened, however, as this chart makes clear.  The rally would look more sincere if and when it exceeds the external peak at 98.65. _______ UPDATE (Dec 4, 6:44 p.m.): The greenback has taken a moderate fall after going no higher than 98.54, just 12 cents shy of our bullish trigger price. The weakness would become significant if it exceeds the 97.03 low recorded on August 9.

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