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The Morning Line

Precise DIA Rally Target Made Shorting a Breeze

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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.

Rick's Picks for Wednesday
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List of Symbols to use in Search:

$+DIA – Dow Industrials ETF (Last:279.31)

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I’m establishing tracking guidance for a short position initiated near Tuesday’s 280.84 peak, since the 280.88 target I’d begun drum-rolling two weeks earlier is just too good to waste. Usually I require that at least two subscribers report having done a touted trade before I track it, but I am making an exception this time because it would seem that most of you have all but ceased using these targets, even to buy cheap puts or calls that effectively leverage the targets with entry risk held almost to nothing. Accordingly, I’ll assume eight Nov 22 280 puts acquired for 0.77, where they opened (before trading down to 0.73). Half would have been covered for 1.54, leaving four with an effective cost basis of zero. We’ll plan on holding them until Friday, when we can roll into the Dec 6 or 13 expiration. Incidentally and for your further guidance, the puts appear bound most immediately for 1.97, a ‘D’ Hidden Pivot target that is likely to be reached if p=1.53 is decisively exceeded.

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$+ESZ19 – December E-Mini S&P (Last:3109.25)

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The futures topped three ticks from a Hidden Pivot target I’d been drum-rolling here for nearly two weeks. ‘Drum-rolling’ would be an understatement, actually, since it was more like a public relations campaign to drive subscribers’ attention to a trade that promised to effortlessly produce a low-risk winner. And so it did, even if only one subscribers — ‘Bachus’ in the chat room — reported taking action. Bachus has a very impressive track record — not only for turning my price targets into quick cash, but for doing so with enough street smarts and brio to improve on what I’ve advised. Also, he often shares winning trades in a timely manner that would allow anyone in the room to follow his lead. In this case, Bachus used a corrective ABC pattern of his own to exit the position, covering the short (or at least a portion of it) exactly 1.00 point off the intraday low. Nice shootin’, dude! The trade was worth $800, and it was as close to a sure thing as any you will find on the daily list of touts. If you did the trade, please do mention it in the chat room. I’ve marked it as “Open” for purposes of establishing a tracking position — that’s what that little plus sign (+) next to the symbol ESZ19 means — but if no one else actually did the trade, it will be removed. If you passed it up in hopes of shorting my DIA target with put options, you’re on your own, since no one in the Trading Room expressed any interest in the symbol.

Despite today’s bullseye, the question remains as to whether the 3128.50 target caught a major top. This was a logical place for one to occur, and that’s why anyone who got short there should have kept at least 25% of the original position for a swing at the fences. The futures recovered most of a 17-point correction by day’s end and looked eager for more, as they nearly always do these days. But so what. Our goal is not to nail the Mother of All Tops, lovely as that would be, but to make money trading the swings.  Most immediately, even if the futures were to push above today’s high as the week unfolds, I strongly doubt they’re capable of another significant rally without a nasty correction first. The 3128.50 pivot, as well as a major trendline that I wrote about here earlier, look too daunting to give way easily. I’d be astounded if the resistances gets trashed, but we should nonetheless be prepared for it. If buyers explode and take this gas-bag significantly higher by Friday, I’d resign myself to more of the madness that has gripped Wall Street. Perhaps this bull really IS unstoppable? Maybe things really ARE different this time. Nahhhhh! _______ UPDATE (Nov 19, 8:31 p.m.): Today’s gratuitous blip above Monday’s high has not brightened my short-term outlook, although a two-day close above it would. Incidentally, no one even mentioned the DIA short I’d recommended using a 280.88 rally target, so I have not established a tracking position. DIA topped on the opening bar just 0.04 points from the target before plummeting to 278.87, the equivalent of 200 Dow points. Near-the-money puts more than doubled.

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$+AAPL – Apple Computer (Last:262.20)

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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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$VXX – S&P VIX Short-Term (Last:18.64)

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$GDX – Gold Miners ETF (Last:27.18)

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We gutted it out last week to stay long through a swoon that left GDX little changed from a week earlier. The partial profit we took on half the position gives us 200 shares with an adjusted cost basis of 26.77. Friday’s punk performance lagged physical gold, which was up nearly $5 at one point. GDX never went ‘green’, but it is not likely sit still if bullion’s rally resumes or picks up steam in the week ahead.  In any event, offer 100 shares to close for 28.60, o-c-o with a stop-loss on the position at 26.78. If GDX takes out the 26.18 point ‘C’ low of the pattern, we’ll look to re-enter at the first good opportunity. _______ UPDATE (Nov 7, 10:54 p.m.): We were stopped out at 26.78 for no loss or gain. GDX has yet to break down as badly as gold futures, although this will come as scant consolation to those who’ve held a long position in this vehicle. I’ll recommend waiting for a washout down to this 25.22 target before buying. We can adjust if GDX reverses without falling that far. ______ UPDATE (Nov 13): I’ve asked for help crowdsourcing an opportune ‘buy’ point for this banana slug. If you’re keen to trade it, please leave an actionable idea of your own in either of the chat rooms. ______ UPDATE (Nov 17, 7:44 p.m.): Bears’ unimpressive struggle to push GDX lower is starting to seem pathetic. This is ostensibly bullish, but I have little enthusiasm for simply taking a flier. If there’s good interest in this stock in the chat room, I’ll happily contribute to the discussion and vet actionable ideas.  ______ UPDATE (Nov 18): There was just one mention of GDX in the two chat rooms today — by ‘Johnfed’, a new subscriber who already looks like a guy to watch. He reports being long in GDX. How about you?

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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.

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$+BRTI – CME Bitcoin Index (Last:8114)

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I’ve been trying to avoid this vehicle, since it stirs up craziness in the trading room. That said, a pullback to x=7609 would trigger a textbook ‘mechanical ‘ buy.  Hard to ignore? Not for me, since the nearly $4500 initial risk is scary no matter how you slice it.  I’m putting out this advisory for informational purposes anyway, but if I hear from at least two subscribers who do the trade (this will be on the honor system), I’ll make it official by establishing a tracking position. Little further guidance would be needed, since winning would be a simple matter of gutting it out. Your stop-loss would be just beneath C=3134, with p=12,083 as a minimum objective.  Please let me know in the trading room if you’re a player. Good luck! ______ UPDATE (Oct 5): Paypal has dropped out of Facebook’s Libra cryptocurrency experiment, so don’t be surprised if the ‘mechanical’ buy at 7609 triggers soon. It missed by an inch on the last selloff. ______ UPDATE (Oct 10, 10:50 p.m.): Bitcoin has turned pathetic again. I’ll leave the tout up for a while anyway because the dip to 7719 came so close to signaling the ‘mechanical’ buy noted above that we could consider the trade as having triggered. _______ UPDATE (Oct 24, 6:50 p.m.): The nasty selloff from late June’s 13855 high has finally triggered the ‘mechanical’ buy signal noted above.  This type of trade works best in vehicles that move violently, but I’d suggest watching from the sidelines, since, with a stop-loss at 3133,  the initial theoretical risk would be $4475. A less risky place to attempt entry would be at the 6166target of the smaller ABC pattern shown here. The long-term rally target associated with the 7609 buy signal is 21,032. _______ UPDATE (Oct 29, 8:30 a.m.): The buy signal triggered on Oct 23; two days later, BRTI embarked on a $2600 rally, its strongest since last year. If you climbed aboard, you should take a fat partial profit. No one reported doing the trade, but if I hear from at least three subscribers who did, I’ll establish a tracking position. _______ UPDATE (Nov 2, 3:50 p.m.): Some ‘experts’ wrote last week that $10,000 resistance looks all but impenetrable, but I would disagree. In any event, we’ll use a trailing stop if and when bitcoin pushes above $1ok, so stay tuned for details if you care. _______ UPDATE (Nov 19, 8:25 p.m.) BRTI has come down hard, but this is no shakeout relative to the 7609 ‘mechanical’ entry I am tracking. The real shakeout — from the June 28 high at 13,855 — was what we deftly avoided to get long after bulls in above 12,000 had been gutted and disemboweled. The position was in-the-red for only a day or two, and only by $304. That’s a lot better than the $6,650 loss some had experienced at the time we joined the fun. Here’s a chart that puts it all in perspective.

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