The Morning Line

Ready to Get Sucked In?

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We’ve had four months to observe and analyze the bear market that began a single tick off January 4’s record high. What might be said about it so far?  Mainly that it has been far kinder and gentler than we should expect. Realize that the biggest financial bubble in U.S. history has popped. Although this is becoming increasingly obvious, you can be certain investors are waiting to jump back in at the subtlest sign of a bottom. Their brokers and financial advisors will be the first to spot this bottom, along with a dozen more as the broad averages work their way toward the deepest bottom imaginable

In the meantime, the little guys reportedly have been shifting their capital into money market funds, although not at a pace that has spiked redemptions at Vanguard, Black Rock, State Street and a few other biggies that for 13 years made the bull market seem unstoppable. At some point the Leviathans will necessarily turn seller as their customers dive out of shares. It is impossible to say when this climactic phase of the bear market will begin or how long it will take to run its course. Much sooner than we might expect, and with blitzkrieg speed, are two possibilities for which we must be prepared. What is certain in any event is that when Vanguard, Berkshire, Fidelity, Black Rock et al. are forced to dump their crown jewel AAPL, the little guys will not be stepping in to support it at $100, or $80, or $60, or even $20. In the extremely unlikely event they are in a buying mood as the Mother of All Dips seeks a bottom, their ammo will be gone, deflated into hyperspace by ruinous asset deflation.

The Lomcevak

More immediately, however, we should view last week’s sharp reversal as the beginning of a powerful short-squeeze rally equal to or greater than April’s barnburner. This is implied by technical action in a few bellwethers. On Thursday, several were sitting precisely on Hidden Pivot targets disseminated to subscribers a while back. On Friday, most of them demolished their respective ‘hidden’ supports, implying another killer wave will follow when the squeeze sputters out like a Lomcevak. In the case of the tech-heavy NASDAQ, which has been pounded particularly heavily and was down 30% at the recent low, the turn came precisely from the 11,654 target shown in the chart. Although a relapse is possible, the pattern looks too compelling to suggest a retest would be anything more than a foot-fake. If this bear rally is going to prove worthy of the name, it should leave even your editor wondering at its apex whether new all-time highs might be coming as the U.S. sinks deeper into recession.

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$CLM22 – June Crude (Last:110.49)

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The pennant  formation shown is building a base for June Crude to pop to as high as 146.42. This seems incredible and goes against the grain of my recent forecasts, which have implied that crude topped at $121 in March. Even so, I’m forced to consider the possibility of a powerful upthrust, based on the purely technical evidence in the chart. Such a move would not likely be caused by a surge in the global economy, which appears headed toward deep recession. It would also be bucking deflationary headwinds that will continue to mount as higher interest rates crush borrowers.  The only way crude could get to $146 is with a massive disruption of the distribution chain such as war might cause. Is the chart predicting a geopolitical conflagration?  So it would seem.

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AAPL – Apple Computer (Last:147.13)

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AAPL, the crown jewel of the institutional investment world, has lost more than 20% of its value since January. Last week it signaled still lower lows down the road when it deeply pierced a case-hardened floor of Hidden Pivot support at 146.77. But how far down the road? My hunch is that last week’s bounce on Thursday from a bombed-out bottom at 138.80 will prove to be the start of the most powerful short-squeeze since January. As such, and according to design, it will devastate bears who have grown complacent betting against the biggest portfolio managers in the world. The fact that the squeeze began off a bottom on Thursday, giving the stock a running start for a psychotic leap into freaky Friday (the 13th, no less), is evidence that DaBoyz are taking no chances. They do not want this rally to flame out quickly like all the others that nipped at shorts’ privates in April. The stock will still need to take quite a leap, to 156.75, merely to generate an impulsive leg on the hourly chart. Expect DaBoyz to succeed at this project — the earlier in the week the better for them.

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$ESM22 – June E-Mini S&Ps (Last:4000.00)

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TLT – Lehman Bond ETF (Last:115.94)

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TLT has taken a promising but still-fragile bounce from the 112.31 secondary Hidden Pivot of the pattern shown. When reversals occur at p2, they sometimes continue in the same direction, eventually stopping out the pattern with a move through ‘c’ — in this case 123.03.  This dynamic is called ‘Matt’s Curse’, named for the subscriber who first observed it, and in this case the implications are bullish. The rally would become less tentative with a pop above  the ‘external’ peak at 119.31 recorded on May 3.

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GCM22 – June Gold (Last:1808.20)

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There’s a Hidden Pivot support at 1754.40 to break gold’s steepening fall, but then what?  A tradeable low seems very likely to occur there, or somewhat lower near one of several ‘external’ lows that stairstep down to 1704.30. The downtrend could even end with Friday’s 1797.20 low, the pattern’s ‘secondary’ pivot, but I wouldn’t count on it. The futures are certain to be volatile and therefore tradeable while they carve out a bottom, but opportunities will necessarily be labor-intensive and short-lived.

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$SIN22 – July Silver (Last:21.125)

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$BRTI – CME Bitcoin Index (Last:29,986)

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$TNX.X – Ten-Year Note Rate (Last:3.12%)

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With long-term rates closing like a missile on my 3.24% target for the U.S. Ten-Year Note, I was compelled to double-check my math. The chart not only confirms the validity of the target, it offers a bigger-picture perspective on an ABCD pattern that is as gnarly as it is compelling. I’d previously used a daily chart to project an identical target, but the fact that the same persuasive, rules-based elements are present on the weekly chart makes 3.24% the number to watch. It is not short-able with the usual precision because its stopping power will be conflated with that of a top made in the same place in October 2018.  I have more to say about this in this week’s Morning Line commentary, so check it out if your curious about what a top in Treasury rates could mean for the U.S. economy.

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$DXY – NYBOT Dollar Index (Last:104.50)

The Dollar Index last week popped through peaks going back as far as five years, flouting the Fed’s doomed efforts to ‘manage our expectations’. This is deflation knocking loudly on the door, and as the dollar continues higher it will put increasing pressure on all who owe. (See my commentary above, and click here for a lively, expansive interview at Howe Street.)  In the headline essay, I’ve used a minor, look-to-the-left peak near 109 to project minimum upside for the next few weeks. However, here’s a bigger picture that yields a higher target at 112.14. I expect the dollar eventually to challenge highs near 120 recorded twenty years ago. _______ UPDATE (May 13, 9:57 p.m.): To gauge the strength of the uptrend, here’s a lesser chart that shows DXY in an apparent bullish consolidation after hitting a relatively minor rally target. The 112.14 target given above remains viable and is still likely to be reached..  

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