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The Morning Line

An Ounce of Good News Fuels a Rally

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Investors seem to imagine that slightly encouraging pandemic news will somehow beget improved economic news. Shares rallied for a third straight day, evidently because the deadly tide of contagion appeared to be receding somewhat in Italy and China. Even that story was a bit muddled, since there were reports that a second wave of Covid-19 was rolling through Wuhan. Regardless, the small businesses that are the backbone of the American economy face a long, difficult slog toward normalcy, assuming anything approaching it ever returns. The Fed has made a mighty effort to ameliorate the pain in the meantime, providing a credit lifeline to tens of thousands of businesses that are not generating any cash.

Far more daunting than their cash-flow problems, however, are the challenges of  staying solvent.  My colleague James A. Kostohryz has some sobering thoughts on this subject in an article he posted at Seeking Alpha, How The Intrinsic Value Of Common Equity Shares Will Be Destroyed In This Crisis.  The discussion that follows is worth a read as well, since it suggests there are still plenty of investors who expect a v-shaped bottom and who are ready to pounce on stocks at the first encouraging sign. This is in stark contrast to my prediction that the Dow Industrials will trade well below 10,000 before the bear market has run its course. You can read Kostohyrz’s essay by clicking here.

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$DIA – Dow Industrials ETF (Last:234.33)

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My forecast zigged and DIA zagged. Oh well. Now DIA is about to probe the 228.77 midpoint resistance shown in the chart. An easy move through it should be taken as a sign that more upside to at least p2=239.56 remains. The outlandish D target at 250.35 would somewhat exceed a corresponding target at 2881 that I’ve proffered for the E-Mini S&Ps, but we’ll trade each as though the other did not exist. If both vehicles were to reach their respective D targets, it would be as though there had been no bear market at all, just a garden-variety 15% correction. Considering what caused the stock market to collapse in the first place, and the fact that a deep recession is coming under the best of circumstances, the rally would be the most powerful — and ridiculous — short-squeeze in history. That, of course, is the purpose of short-squeezes — in this case to persuade investors that they should never have doubted the advice of the shills and idiots who have been telling them to sit tight. It is predictable that the next leg down will be even more history-making than this psychotic rally. _______ UPDATE (Apr 7, 9:25 p.m.): If DIA falls to the green line (217.97), it would trigger a ‘mechanical’ buy signal. Stay tuned to the chat room if you’re keen on trading this one. ______ UPDATE (Apr 8, 9:18 p.m.): DIA came nowhere near our niggardly 217.97 bid when it dipped slightly in the first hour. A minimum 250.35 is still where it’s headed, but we’ll have to keep looking for opportunities to get aboard. The next potential stumbling block is 239.56, the secondary Hidden Pivot.

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$ESM20 – June E-Mini S&Ps (Last:2741.25)

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$GCM20 – June Gold (Last:1681.70)

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$AAPL – Apple Computer (Last:262.29)

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AAPL looks like it will need to go lower for a running start to help Buffett and DaBoyz trigger off the next short-squeeze. If so, the 228.11 midpoint support shown in the chart will be an opportunity to try bottom-fishing. The pattern is too gnarly to attract the attention of the rabble, and the red-line support is nicely in the middle of nowhere. Accordingly, we’ll look to buy Apr 9 calls for under 1.00 if the stock gets within 0.15 of the target. This may require going as high as the 250 or 252.5 strike.  Keep in mind that the calls will expire Thursday because markets will be closed on Good Friday. ______UPDATE (Apr 6, 9:37 p.m. EDT): Well, we knew all along that Buffett and DaBoyz weren’t going to get hosed just because they own hundreds of billions of dollars’ worth Apple and iPhone sales are headed for disaster. The way they fist-pumped the stock today through the 259.68 midpoint Hidden Pivot shown in this chart, there can be absolutely no doubt it is going to at least 282.45. I am still predicting a plunge to well below $100 before this bear market is over, but Apple shares are going to 282.45 first.

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$DXY – NYBOT Dollar Index (Last:101.95)

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$TNX.X – Ten-Year Note Rate (Last:1.26%)

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I’ve revised downward to 0.26% my forecast for interest rates on the Ten-Year Note.  A 0.30% target given here earlier was based on an erroneously drawn pattern discovered by a subscriber. But could the so-far low at 0.39% have been the bottom, especially considering the power of the subsequent rally to 0.98%? It’s possible, but I doubt it. The pattern itself is sufficiently clear and compelling to suggest that the Hidden Pivot target will not merely be closely approached, but actually touched. This revised forecast will have no bearing on my forecast for a drop to 0.73% on the 30-Year Treasury Bond. It  traded down to a record 0.84% last week but has since rebounded as high as 1.63%. The T-Bond sellers who drove rates back up to that height were useful idiots who were simply fulfilling the inviolable law that no trend ever goes sup or down in a straight line without correcting. ______ UPDATE (Mar 18, 9:15 p.m.): This is quite a rally we are witnessing — probably the steepest climb ever recorded for yields on the Ten-Year Note. So, was the dip to 0.39% the finale for the long-term cycle? I doubt it, but I am not going to get in the way of this rally.

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