Vollständige Version anzeigen : Rick Ackerman - Market Wise Blackbox - börsentäglich neu. Startausgabe: 02.12.2002
A Stock-Picker's Lament
by Rick Ackerman
I took up technical analysis many years ago because I was such a mediocre stock-picker. Over time, I've held more than my fair share of stinkers, including a few that went belly-up. There were some stellar performers of course, like EMC and Siebel Systems, but overall the gains got averaged down to mere respectability when such swan-divers as Beta Natural Gas, Altec Lansing, Ecogen and Work Flow Systems were figured in. Now it looks as though I'll need another doubler to offset my latest misadventure, Aquila.
I mentioned the other day that although I hold no stocks for investment purposes, my kids have shares in a few companies. One of those companies is the aforementioned Aquila, a Kansas City, Missouri, company that used to be a stodgy operator of electricity and natural gas distribution networks in the U.S., Canada, the United Kingdom and Australia, as well as power generation assets. Not conten t with such prosaic business, Aquila evidently borrowed Enron's business model in an abortive attempt to become an energy-trading Master of the Universe. Like Enron, the company made fervent believers of investors for a short while.
The erstwhile rubes obliged by boosting the company's share price by more than 150 percent over a 14-months period that started in early 2000. The stock peaked just below $38, but my story -- my kids' story, too -- began a few months ago as a bottom-fishing expedition near $3.50 a share. How much could I/the kids lose, right? Well, for starters, nearly half of the initial stake. That was about where things stood with the stock trading at $1.78 shortly after the company announced it was suspending the dividend on its common shares. Aquila has rebounded smartly since -- all the way top $2.16, leaving me/the kids in the same position as millions of other investors: needing for the stock to rally 75 percent just to get me/us out even.
Say one th ing for Aquila's directors, they didn't try to sugar coat the news. Here's how CEO Richard C. Green Jr. opened his Q3 letter to shareholders: "For Aquila, the past quarter was just plain ugly. In fact, in our press release I refer to this entire year as 'a disaster.' From your letters, calls and e-mails received over the past few months, I already know that you fully agree with this description." What bracing candor! How many CEOs can we recall having used the word "disaster" in a letter to investors? Would that our Fed Chairman were so plain-speaking! It's letters like the one quoted above that fortify us for whatever rough times lie ahead. I've decided to hold Aquila come hell or high water, in hopes the firm will return to the mundane business that made it a reliable winner in the pre-Enron days. When the stock is trading for eight bucks a few years down the road, then will I tell the kids about how patience is the key to successful investing.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8896.09): We'll modify Friday's bullish benchmarks so that they are somewhat less ambitious: The closest hidden-pivot obstacle lies at 8907.81, but if the Dow can close above it, or trade above 8931 intraday, we'd expect the rally continue to at least 9145.45. If that last number is reached before the final two hours of the session, you can short a mini-contract there at your complete discretion.
DEC S&Ps (936.00): Friday's close above a 933.20 pivot implies the futures are on their way to 955.70. If they can close above that price (it raises the bar from a previous 952.00) for two consecutive days, we'd infer that a rally to at least 1007.20 has become an odds-on bet.
OEX (478.85): Friday's close slightly exceeded a 478.07 hidden pivot, but if the OEX is holding above it after the first hour of trad ing, we'd infer it's on its way to at least 489.81. Any print even slightly above that last number would imply a minimum 499.67 for this rally cycle.
DEC BONDS (109.06): The futures would need to print 111.02 within the next two days to get out of short-term jeopardy; otherwise we see a test of support near 107, where they made an important bottom in late October. If it does not hold, the December contract could fall to as low as 105.09 over the next three weeks. If this occurs, we would need to revise our long-term bullish outlook, which has seen the action between 107-115 as consolidation for a possible moon shot to 120+.
$ QQQ (27.72): The intraday top at 28.29 fell 0.06 points shy of a minor hidden-pivot resistance, but if it's breached even slightly, it would portend a rally to at least 29.81. Let's try to short up there by buying some December 29 puts. Bid 0.70 for two, contingent on the Cubes trading 29.99 or lower. Our bid is tantamount to th ievery, so it should be close to where the market makers are bidding the puts if the QQQs are trading near 29.81.
FEB GOLD (317.80): By closing below a hidden pivot at 318.10, the Feb contract signaled possible weakness ahead, with a worst-case downside target of 310.00 over the next 3-4 weeks. They'd need to pierce 326.20 to get out of immediate jeopardy.
DEC NASDAQ 100: (1117.00): There's a hidden pivot at 1141.50 that will serve once again as our minimum upside target. You can short an E-Mini contract at 1141.40, stop 1142.20, in the first hour, but you'll be on your own thereafter.
***
AOL (16.37): Our upside target is still 16.99, fractionally above Friday's high. It will remain viable so long as 15.24 is not penetrated to the downside. The target is too close to the round number to yield much of an edge for shorts.
$ + CSCO (14.92): We hold four Jan 12.50 puts (CYQMV) for 0.35. We'll continue to offer four Dec 12.50 puts (CYQXV) against them for 0.25, g-t-c.
INTC (20.88): No change. Intel appears bound for 23, the lower threshold of a huge, bearish gap it left on the charts in early June.
$ C (38.88): No change. Our minimum upside projection is still to 40.24. The target will make a good short if it is hit on a spiky rally, so let's offer 200 shares there, stop 40.34, good in the first two hours.
+ GG (9.95): We hold 200 shares for an average 4.35. It will take a two-day close above 10.99 to trigger a powerful rally. Stochastic signs still look moderately supportive, but a negative close today and perhaps tomorrow would bend them bearish for the near term.
+ DROOY (3.12): We own 600 shares for an average 4.29. Any bout of serious weakness should be expected to bring DROOY down to a hidden pivot at 2.89, since support near $3 has gotten pounded during the last month.
$ + MSFT (57.68): No change. We hold two Dec 60 calls for $1. There's a hidden pivot at 60.22 that will serve as our minimum upside target for now. Let's try to backspread our position by offering 100 shares short of 60.19, g-t-c. This trade is only for those who own two December 60 calls.
+ EBAY (68.92): We hold two December 75 calls (QXBLO) for 0.40 and we're offering a hundred shares short at 71.98 as a backspread hedge. That's 11 cents shy of our current minimum objective, 72.09, a hidden pivot.
A Bear Sees More Upside
by Rick Ackerman
We recently heard from Rusty Stratton, a Black Box subscriber who is the only technician I know who was very bearish almost until the day the market turned with a vengeance on October 10. He’s still bullish but ready to pivot on a dime again if his indicators should flash red. “Make no mistake, this rally does not change the fact that we remain in a structural bear market,” he writes. “But after punishing the longs for most of this year, the shorts are getting their comeuppance. So what else is new. The markets and stocks in particular always give and take, with the market taking from whoever wishes to remain fixed in his opinion, or influenced by the opinions, lies, deceits, mistruths, half- truths, mista kes, misconceptions and misperceptions of others (i.e., the fundamentalists).
”Now we have journalists, TV commentators and fundamentalists galore declaiming points of view -- and they can provide evidence to persuade they are right. But I'm reminded of the only salient fact I remember from my Statistics 101 class four decades ago: Figures lie and liars figure. Which is which? Who cares? While I am occasionally exposed to the gibberish, I can choose to ignore whatever is not supported by the dispassionate tools that have no ulterior motive and no cause for misrepresentation. Sooner or later my short term anticipators will turn down, and sooner or later after that my intermediate anticipators will turn down. Later, the fundamentalists will discover the same.
So what is Rusty doing about it? “For now, with the exception of a couple of your long plays, I'm mostly in cash, taking intraday trades until I can better gauge where next month will head. But the Bullish Percent Charts are all bullish. In fact, most sector Bullish Percent Charts have now turned bullish while still under the 50% on buy signal territory. This indicates that a significant gain from these levels would not be unreasonable, despite all the talk about the market being ‘overbought’ “
As you may have inferred, Rusty and I are in close acccord these days. Although we remain open-minded to trading from the long side, we are highly skeptical that bulls are going to be right over the longer term. The important thing to understand is that being right about the big picture does not much matter. We are traders not investors, after all, and profits will come just as easily from rallies as from declines.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8862.57): Monday’s sharp selloff reversed a flaky, opening-hour rally before eating up half of last Wednesday’s equally flaky gains too. We’ll bring pivot-price speculation to today’s analysis, since it’s the only tool I’ve got that’s inured to the psychoses of news-driven markets such as this. The closest upside target for today is a h idden pivot at 8973.78, but if it’s breached by more than 2-3 points, especially within the first 90 minutes of the session, we could expect further progress north, to a short-term cycle maximum of 9160.34.
DEC S&Ps (935.30): We’ll use a hidden pivot at 948.75 as our minimum upside target for today – that’s assuming shares accommodate us by move higher. If the futures breach that number by more than 1.50 points intraday, or close above it, it would portend a continuation of the rally to at least 970.80.
OEX (477.19): On a rally, our minimum target would be 483.74, a hidden pivot, but if that number were to be exceeded even slightly – by more than a point, say – we’d be looking for a burst to at least 494.18 by no later than Wednesday.
DEC BONDS (109.11): The futures would need to print 110.15 (a somewhat lower benchmark than the one given here previously) within the next two days to get out of short-term jeopardy; otherwise we see a test of support near 107, where they made an important bottom in late October. If it does not hold, the December contract could fall to as low as 105.09 over the next three weeks. If this occurs, we would need to revise our long-term bullish outlook, which has seen the action between 107-115 as consolidation for a possible moon shot to 120+.
$ QQQ (28.00): Yesterday’s penetration of a 28.35 hidden pivot suggests the Cubes are headed up to at least 29.81. Once again, let's try to short up there by buying some December 29 puts. Bid 0.60 for two, contingent on the Cubes trading 29.99 or lower. This is a tad lower than Monday’s bid, but still realistic.
FEB GOLD (318.40): Just a small change. By closing last week below a hidden pivot at 318.10, the Feb contract signaled possible weakness ahead, with a worst-case downside target of 310.00 over the next 2-3 weeks. They'd need to pierce 325.70 to get out of immediate jeopardy.
DEC NASDAQ 100: (1128.0): The futures opened above the stop on our recommended short, so no position was entered (or if it was, you may have gotten short and stopped out simultaneously, presumably at the same price). The bullish action in the futures suggests they will rally at least to the next pivot, 1200.00. This number is without value for us, however, since it coincides exactly with a rou nd number where crazed speculation by both longs and shorts will be rampant.
***
AOL (16.57): Monday’s spiky opening slightly exceeded the 16.99 target we’d been using, implying that the next hidden pivot above it, 17.20, will be reached. Just to stay limber, let’s offer a round lot short at 17.19, stop 17.26. Make it good until the final hour.
$ ; + CSCO (15.06): We hold four Jan 12.50 puts (CYQMV) for 0.35. Let’s lower the offer to 0.15 on four Dec 12.50 puts (CYQXV) we’ve been trying to short against them. We’ll also bid 0.10 for four Dec 17.5 calls (CYQLW), or 0.05 for a dozen, good on the opening rotation only.
INTC (21.05): Intel still appears bound for 23, the lower threshold of a huge, bearish gap it left on the charts in early June.
$ C (38.52): Our minimum upside projection is still to 40.24. The target will make a good short if it is hit on a spiky rally, so let's offer 200 shares there, stop 40.34, good in the first two hours.
+ GG (9.85): We hold 200 shares for an average 4.35. The closest hidden-pivot support lies at 9.54, but if the stock closes below it or trades more than 0.11 cents lower intraday, I’d infer that a fall to at least 8.74 is imminent. For those of you who have stood patiently by gold patiently, here’s something I know you’ll enjoy: http://www.321gold.com/editorials/willie/willie111202.html
+ DROOY (3.08): Uh-oh. We own 600 shares for an average 4.29. Any further weakness should be expected to bring DROOY down to a hidden pivot at 2.89, since support near $3 has gotten pounded during the last month and is getting pounded once again..
$ + MSFT (57.69): Still no change. We hold two Dec 60 calls for $1. There's a hidden pivot at 60.22 that is our minimum upside target for now. Let's try to backspread our position by offering 100 shares short of 60.19, g-t-c. This trade is only for those who own two December 60 calls.
$ + EBAY (70.75): eBay was the strongest performer on our list yesterday, as you will already know. We hold two December 75 calls (QXBLO) for 0.40 and we're offering a hundred shares short at 71.98 as a backspread hedge. That's 11 cents shy of our current minimum objective, 72.09, a hidden pivot.
Deflation's Growing Power
by Rick Ackerman
Like the gravitational pull of a black hole, deflationary forces that have been waxing for nearly a decade in the global economy are becoming irresistible. It is happening slowly, to be sure, though no longer so slowly as to remain invisible and largely unobserved. Over the last year or so we have seen prices fall in an expanding list of products, including autos, clothing, computers, furniture, gasoline and heating oil. Nor has the service sector been spared, as prices for hotel rooms, telephones and airplane tickets also have fallen, in some cases precipitously. This would seem to be good new for consumers – and it is, at least for the moment. But it is bad news for sellers of goods and services, since, for most of them, it will mean lower profits. You don’t need to be a genius to see that this will eventually impact consumers adver sely, however, since it portends growing unemployment and shrinking paychecks for American workers.
Just ask the employees at United Airlines. Most have already capitulated on wages to help their employer avoid bankruptcy. The mechanics are the last holdouts, for reasons that were spelled out last week in a Wall Street Journal article. It did not concern United’s mechanics specifically, but their trade union, whose bosses just weeks ago envisioned, not pay cuts from current levels averaging $60,000-$70,000, but raises to $100,000 and above. We’ll know soon if the mechanics were bluffing, since, by rejecting United’s ultimatum, they would risk having no job secur ity, no health coverage and possibly no work.
A Pleasant Side
Meanwhile, a pleasant, deflation-related surprise for those of us who live in Colorado has come in the form of falling lift-ticket prices. The Thanksgiving holiday was one of the biggest ever for the region’s ski resorts, which benefited from heavy autumn snowfall that lured vacationers from all over the U.S. What Denver-area news reports did not mention, however, was the heavy discounting o f lift tickets that helped draw the big crowds -- and doubtless will continue to draw them, barring drought or a precipitous slide in the economy.
Anyone who skied here a couple of years ago could have seen it coming. I met some friends for a few days on the slopes of Aspen in 2001, and one-day tickets were $65 (if memory serves). How much higher could they go, I wondered -- especially with Gen-X and Gen-Y slackers becoming an increasingly important component of ticket sales? In fact, the price of Colorado ski passes has plummeted, particularly in the last few months, and deals that bring a single-day pass down to $16-$20 for top resorts are much more widely available than they were even a ye ar ago. Will this mean lower profits for the ski operators? Perhaps. But if tickets had continued to escalate to $75 or higher, you can be sure the resorts would be dying rather than filling the slopes in the same way Wal-Mart fills its stores -- with bargain hunters.
Two Absolute Musts
We also observe that, as the case for deflation grows more and more compelling, writing on the topic is improving co mmensurately. Below are URLs for two of the best articles I’ve seen – both are brilliant, really, and should be considered must-reads by all of you who would endeavor to understand the forces that are holding the economy in check. The first is by Marshall Auerback at Prudent Bear, whose insightful work we have featured here before.
http://www.prudentbear.com/internationalperspective.asp
He explains, among other things, why deflationary drag is making a true economic recovery increasingly unlikely. The second article is Contrary Investor’s lead item for December:
http://www.contraryinvestor.com/mo.htm
The latter feature even got a rise from a pen-pal of mine, Fred H., who has remained skeptical about the threat of deflation since we began debating the subject years ago. The Contrary Investor distinguishes deflation from pricing pressure, a perspective that helps to explain why so many economists are confused about the macro picture. “There’s a lot to agree with in here, true enough,” writes Fred, with characteristic understatement. If you can read both of these articles and come away thinking the U.S. economy is on track for a recovery, then you are not playing with a full deck.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8742.93): We zigged but stocks zagged Tuesday, but I’ll continue to emphasize one direction or the other in my forecasts, since an alternative scenario for each and every issue tracked would do little more than embellish an intrinsically boring and trendless outlook. For this vehicle, round-number support lies at 8700, but if it’s easily ruptured, 8400 is the first place where support thickens. A rally would not meet signifi cant resistance till 8908, a hidden pivot that is not worth shorting.
$ DEC S&Ps (923.80): If the futures do not first breach yesterday’s 910.70 low, then we can try to short a hidden pivot at 939.85. Do so by offering a single E-mini contract short at 939.75, stop 940.25, good until the final two hours. Switch to a 2.50-point trailing stop below 933.00, using 924.00 for a target.
$ OEX (469.62): If the OEX goes no lower than yesterday’s bottom, 468.57, a rally could be expected to reach a minimum 479.37. Short there on your own terms with a very tight stop, but only until the final hour. If 479.37 is easily penetrated, infer that the bull is back.
DEC BONDS (109.06): The futures would need to print 110.05 today to get out of short-term jeopardy; otherwise we foresee a test of support near 107, where they made an important bottom in late October. If it does not hold, the December contract could fall to as low as 105.09 over the next three weeks. If this occurs, we would need to revise our long-term bullish outlook, which has seen the action between 107-115 as consolidation for a possible moon shot to 120+.
QQQ (27.17): We’ll back away as the Cubes come down to a fibo at 26.60 in search of traction.
FEB GOLD (321.70): It’d be premature to get excited just yet, but if the Feb contract can muster a two-day close above a hidden pivot at 324.70, it would imply a very likely test of September’s 330.00 high.
DEC NASDAQ 100: (1094.50): The closest support of significance in the short-term picture lies at 1070.75, a fibo. In any event, it will take a rally of at least 35 points to jump-start the bull cycle begun in early October.
***
AOL (14.21): AOL’s promising rally got derailed yesterday by the kind of announcement we’ve come to expect from the company – a prediction that advertising revenues will drop by as much as half next year. The news seemed to have unsettled Wall Street, which is still fixated on the mirage of Q3 profit growth. For AOL’s shares, crucial support lies at 14. If it is penetrated decisively, however, we should expect the stock to fall to at least 12.82, a fibo.
+ CSCO (14.52): We hold the Jan 12.50 puts (CYQMV)/ Dec 12.50 put spread four times for 0.20 after selling four of the Dec 12.50 puts yesterday for 0.15. We also bought four Dec 17.50 calls (CYQLW) on the opening for 0.10.
INTC (20.31): Intel needs a booster rally of at least 1.02 points from some bottom no lower than 19.53 to get back in gear. We’ll just watch for now.
$ C (37.85): Citi’s mild relapse changed our time frame a tad, but our minimum upside projection is still 40.24. The target will make a good short, so be ready to offer 200 shares there, stop 40.34, later in the week if the stock revives.
+ GG (10.50): We hold 200 shares for an average 4.35. There’s a hidden pivot resistance at 10.60, but if Goldcorp chews through it in the first half-hour or so, look for the rally to continue to at least 11, where the stock made a series of tops in mid-November. Anything above 11.13 would shorten the odds that September’s high near 12 is about to be challenged. If you want a fresh look at the pricing of gold from the perspective of Tony Bortolin, who is featured at 321Gold.com and Prudent Bear, click on this URL: http://www.321gold.com/editorials/bortolin/bortolin112402.html .
+ DROOY (3.35): We own 600 shares for an average 4.29. Drooy is not yet free of the pull of $3, but yesterday’s strong surge should help to heighten buying interest at that level if the stock should dip down to it yet again. The most immediate challenge is a hidden pivot at 3.39, but if the stock is holding above it after the first 90 minutes or so, it’ll be an odds-on bet to reach a minimum 3.78 in this rally cycle.
+ ; MSFT (56.71): We hold two Dec 60 calls for $1, but we can pull the 60.19 stock offer for now, since it is not likely to be tagged over the next day or two. Let’s watch to see whether a fibo support at 56.05 survives before we attempt anything further.
+ EBAY (68.89): We hold two December 75 calls (QXBLO) for 0.40 but getting off a round-lot short at 71.98 looks unlikely for the next day or two. We’ll do nothing for the time being.
Bull-Trap Signs
Rick Ackerman
The intraday indicators have turned so wishy-washy that I found myself looking elsewhere for meaningful clues. Usually I write Trading Notes, then do forecasts and recommendations for the issues tracked below. Today, however, I started with the forecasts in hopes that, once I'd looked at a dozen or so charts, their graphical vital signs would give me something to write about up top. As it happened, I didn't have to go too far down the list to find that ominous dark spot on the X-ray. It manifested itself in the stochastic indicators for the DJIA weekly chart. My approach to stochastic analysis is simple: If ascending price peaks are matched by descending stochastic peaks, that is a bearish divergence; and if it happens on the long-term charts, it is even more bearish.
This is exactly what has occurred in the Dow Industrials' weekly chart: The index got very overbought when it made a top on August 18, but it got even more overbought when it topped last week. The bearish implications would be negated or at least mitigated if the Indoos turn sharply higher today and tomorrow. But if the Dow should close below 8700 (or so), it would be a decisively negative sign for the intermediate term -- six to eight weeks, in this case. The same holds true for the S&Ps and the OEX, though not for the Nasdaq 100, which has generated a fairly bullish stochastic picture over the same period. Taken together, however, and notwithstanding the relatively positive stochastic readings for the Nasdaq average, these technical clues suggest that a heightened level of caution is warranted. The rally from early October's lows has smelled like a bull trap all along, but now, technically speaking, it's starting to look like one too.
[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8737.37): Stochastic indicators for the daily chart are falling gently but look like they still have at least another day or two to go before they would be capable of supporting a decent rally. If so, there are two places we could look for support: 8644.46, a fibo that lies just beneath Wednesday's low; and 8500, the approximate midsection of a consolidation zone that was formed between late October and late November. Stochastic signs on the weekly chart look somewhat ominous - not only because they are starting to roll down from overbought extremes, but because the top itself is bearishly divergent with a stochastic top that was formed in conjunction with the August 18 peak.
$ DEC S&Ps (919.00): The futures made their low yesterday within a point of a minor hidden pivot, but the subsequent bounce was not very powerful, considering the pivot marked the end of a trend that had played out over two days. This leaves us mildly bearish coming in this morning, but we'd be open minded to the bullish case for the near term if the futures are trading above 920.30 after the first hour. That would put them in good shape for a run to at least 927.50 - a target which is shortable via the E-mini until the final hour. Use a 928.25 stop-loss, switching to a 2.50-point trailing stop below 921.25. Target: 914.00.
OEX (468.03): There's a fibo support a 461.27, but if it's penetrated easily the OEX should be expected to fall at least to around 455, near the middle of a consolidation zone carved out between mid-October and mid-November.
DEC BONDS (109.25): Wednesday's high barely exceeded our 110.05 benchmark, somewhat alleviating a bearish outlook for the near-term. We won't relax until 112.24 is hit, however, but a 111.02 print would provide some breathing room. In a bigger picture, if support near 107 does not hold, the futures could fall to as low as 105.09. If this occurs, we would need to revise our long-term bullish outlook, which has seen the action between 107-115 as consolidation for a possible moon shot to 120+.
QQQ (26.57): The Cubes smashed through a fibo support at 26.60, implying the correction has yet to run its course. There are no precise targets that I can discern immediately below, although a vague band of support near 25.50 would appear to beckon.
FEB GOLD (323.10): No change. If the Feb contract can muster a two-day close above a hidden pivot at 324.70, it would imply a very likely test of September's 330.00 high.
Click for December or February Gold Chart.
$ DEC NASDAQ 100: (1071.00): The closest hidden-pivot resistance lies at 1124.00. Although it is unlikely to be achieved today, we can nonetheless prepare to short there in the final hour with a 1123.75 offer for a single E-mini contract, stop 1125.25.
***
AOL (13.84): The breach yesterday of support near 14 implies AOL will now fall to at least 12.82, a fibo. If it seems to get little support there, the next likely stop would be the round number, 12.00.
+ CSCO (14.43): We hold the Jan 12.50 (CYQMV)/ Dec 12.50 put spread four times for 0.20, as well as a four Dec 17.50 calls (CYQLW) for 0.10. Stay put for now.
INTC (19.74): Intel broke below an implied support we'd flagged at 19.53, but we'd still give the bull the benefit of the doubt of the stock is able to rally to 20.32, 1.02 points above yesterday's low. Until then, we'll remain on the sidelines.
C (37.85): Citi looks so mellow hanging out above 36 that we can only assume its charging its batteries for another bull run. Our minimum upside projection is still 40.24, but let's no longer gear for a short at that level, since the target may not restrain the stock's further progress for long.
Goldcorp
chart
+ GG (10.61): We hold 200 shares for an average 4.35. Goldcorp shredded its way past a hidden-pivot resistance at 10.60, suggesting further upside to come. Anything above 11.13 would shorten the odds that September's high near 12 is about to be challenged.
Durban Roodepoort Deep
chart
+ DROOY (3.45): We own 600 shares for an average 4.29. Drooy surmounted the resistance of a hidden pivot at 3.39, making it a good bet to reach a minimum 3.78 in this rally cycle. The most significant impediment along the way is the 3.65 top made on 11.13, but it looks primed to yield.
+ MSFT (56.54): We hold two Dec 60 calls for $1. A fibo support at 56.05 got tagged, but the stock showed no particular weakness thereafter. We'll rate it as neutral coming in, a market stock that will follow rather than lead.
+ EBAY (68.25): We hold two December 75 calls (QXBLO) for 0.40. Do nothing further for now.
syr :)
Gong Tolls for Dollar
Rick Ackerman
Not since Chairman Greenspan gave his "irrational exuberance" speech in 1996 has a speech by a Fed governor stirred up so much commentary as the one given by Ben Bernanke on November 21. He said, in so many words, that the Fed would simply not let deflation happen - that it would do everything in its power to prevent a deflationary collapse. Not that such a collapse could ever occur in the first place, mind you. Indeed, Bernanke was quick to aver that the odds of deflation are very, very low. By the carefully-scripted standards of the Fed, however, this would qualify him as a relative scaremonger. Recall that the last time Mr. Greenspan spoke on the topic, he assured us that the chances of deflation were "extraordinarily remote." We were undoubtedly given to infer that the world is far more likely to be destroyed by a comet over the next year or two than to experience falling prices and wages. We've argued stridently otherwise in this space, and would note in passing that the inflationists seem to require a lot of dubious rhetorical tricks to buttress their case, such as it is. But putting aside the question of whether the Fed can fend off deflation with all-out stimulus -- which arguably has been occurring anyway for more than a year -- one thing seems both obvious and irrefutable...
...the dollar is toast.
If I'm right, Bernanke's speech will be cited years from now in the history books as a gong-clear warning that the dollar had nowhere to go but down. This will not happen overnight, especially with Japan having declared recently in favor of an even weaker yen, and euroland in no condition to burden its exporters and addled economy with a hard currency. But happen it will, since the quantity of electronic dollars in circulation is so cosmically vast as to ensure from the outset that the greenback eventually must be repudiated as a reliable store of value. Think about it. Foreigners are holding dollars up the wazoo, and along comes Bernanke, following thirteen consecutive rates cuts, to say, almost literally, You ain't seen nuthin' yet. We should take the man at his word - and stockpile gold against the day when all currencies are discovered to be as intrinsically hollow as the dollar.
***
[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8623.28): Stochastic indicators for the daily chart are still falling, with perhaps a day's room before they hit bottom. Now that a support we'd flagged at 8644.46 has been breached, we expect the decline to continue to around 8500, the approximate midsection of a consolidation zone that was formed between late October and late November.
DEC S&Ps (909.00): Below the round number 900 there's a flimsy support near 892.50, but if it fails on a closing basis the futures could be expected to fall another 20 points at least. A bullish note is that the daily chart looks too oversold to suggest a crash here - or at least, more than another day or two of downside.
OEX (461.67): The OEX bottomed just 0.01 points from our fibo-based target, 461.27, but if that number is penetrated today expect the decline to continue to at least 455, near the middle of a consolidation zone created from mid-October to mid-November.
MAR BONDS (109.06): Switching to the March contract, we'd need to see a close above 109.25 to breathe easier. Otherwise, a test of October's 105.30 low beckons, with risk over the intermediate term down to as low as 104.13 if it should fail. In a bigger picture, if support at 105.30 does not hold, we'd need to revise our long-term bullish outlook, which has seen the action between 106-112 as consolidation for a possible moon shot to around 120.
QQQ (26.20): A vague band of support near 25.50 will have to serve as a short-term target, since there are no compelling hidden pivots in sight.
FEB GOLD (325.60): One more day above a hidden pivot at 324.70 and we should assume the Feb contract is ready to test September's 330.00 high.
DEC NASDAQ 100: (1056.00): The futures are a day or two from a bottom, to judge from stochastic indicators on the daily chart, but that does not tell us how far they might fall. There are no useful pivots immediately below to use for targets, so two prior bottoms - the first at 1019.00, the second at 974.00 -- will have to suffice.
***
AOL (14.00): The fact that AOL could rally 16 cents yesterday is testimony to the fact that even crap does not fall ceaselessly without occasionally correcting. Perhaps savvy investors got wind of the fact that, below $14, AOL is trading underwater and the Time-Warner part of the company represents value? Regardless, our downside target is still 12.82, a fibo, or 12.00 if any lower.
+ CSCO (14.11): We hold the Jan 12.50 (CYQMV)/ Dec 12.50 put spread four times for 0.20, as well as a four Dec 17.50 calls (CYQLW) for 0.10. Again, we'll plan on doing nothing further.
INTC (18.96): Intel looks headed for a thick shelf of support near 18. A bounce is likely, but we can discern no particular edge in bottom-fishing there. C (37.14): Citi remains tightly controlled in preparation for a distributive rally to 40, but its handlers may have to let it fall to 35 or so if the broad averages continue to weaken.
+ GG (10.84): We hold 200 shares for an average 4.35. A print above 11.13 would make Goldcorp a good bet to challenge September's high near 12. Meanwhile, although the stock has been as tentative in its upward probing as non-bullion stocks have been in their decline, it looks like the bulls are quietly in charge.
+ DROOY (3.61): We own 600 shares for an average 4.29. Durban's peak was seven cents from our minimum target, 3.78, but we're not gearing for action today no matter how high it goes. With guys like Bernanke running around giving speeches, we'll downgrade to "low" the threat that round-number support at $3 is about to be tested.
+ MSFT (55.34): We hold two Dec 60 calls for $1. Searching for traction, MSFT looks like it will grope its way down to 54, near where multiple bottoms were made in November.
+ EBAY (67.85): We hold two December 75 calls (QXBLO) for 0.40. Like numerous other issues tracked above, eBay looks to be a day or two from a short-term bottom. This constrains us from buying puts, so we'll simply have to bide our time with the calls, which fortunately came cheap.
syr :)
Running With the News
by Rick Ackerman
Prescient as always, the stock market saw Treasury Secretary O’Neill’s resignation for what it was: an instant boon to investors and balm for the beleaguered taxpayer. Small wonder, then, that the Dow Industrials took the news and ran with it, surging 120 points in a matter of minutes after having started the day on a dismal note. Whoaaaa! Let’s back up and try that again. In reality, this line of thinking is such rubbish that only someone like Larry Kudlow, CNBC’s spurious answer to John Madden, could have voiced it -- did voice it, actually, during the CNBC segment that passes each day for enlightened on-camera dialogue between Kudlow and the always voluble James Cramer. Now, there is no point in pretending that either Kudlow or Cramer is lacking in intelligence, although both seem to turn stridently stupid whenever the microphones are switched on. Let’s just say they know who butters their bread and, in order to remain in the public eye, that it will always behoove them to emphasize good news over bad, and to find the silver lining no matter how dark the cloud.
Strictly speaking, O’Neill’s resignation is neither good news nor bad, since nothing of significance that has happened to the economy since he took office could be attributed to him; nor could any conceivable successor – the estimable Robert Rubin included – all by himself turn the economy around. So why, if Kudlow is as laughably wrong as always, did stocks take off on the news, which also included the resignation of Fed Governor Lawrence Lindsey? Plain and simple, the stock market is under such deft distribution these days that any news short of a nuclear blast in New York City can be, and invariably will be, spun as bullish and used to squeeze shares higher. The effect is similar to something we witness occasionally in the concert hall or at the theatre. A newly minted Juilliard grad does a too-clever take on Beethoven that sounds like it was transcribed by a hip-hop artist. But before the audience can summon a proper measure of revulsion for such tripe, a shill in the audience yells "Bravo!" and rises to his feet, clapping and cheering like someone who has just experienced a musical apotheosis. And so it goes on Wall Street. Before investors can begin to parse the news, the program traders flip their "buy" switches, steam-rollering anyone so foolish as to wonder what O’Neill’s resignation might actually portend. Cramer and Kudlow are part of the chain reaction, but the spin they put on it is by then superfluous, since the stock market has already "interpreted" it with a manifestly irresistible and seemingly bullish surge. That is how the game works, but woe to anyone so foolish as to think O’Neill’s resignation warrants holding stocks at their headline-reactive prices over the weekend. And speaking of the weekend, here’s your reading assignment, another gem from Morgan Stanley’s Stephen Roach, the deflationist’s deflationist these days: http://www.morganstanley.com/GEFdata/digests/20021206-fri.html#anchor0
[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8623.28): The Dow bounced from near 8500 -- precisely where we’d expected it to bounce -- but it remains untradable via strategies that can be plotted a day in advance. If the index breaks below 8500 today, the next stop lower should be a no-brainer for anyone who has followed Black Box. On a rally, the first hidden-pivot that looks interesting lies at 8820.98. You can short there until the final hour with a micro-stop, provided you are comfortable with my pivots.
$ DEC S&Ps (910.50): Friday’s low occurred a point and change above our target, 892.50, support from which was based on an obvious prior low made in mid-November. There are no enticing trades for today that I can discern, although boredom might tempt me to go short if and when the futures reach 936.00, a minor hidden pivot.
$ OEX (464.14): The OEX bottomed within less than a point of our minimum downside objective, 455. There’s not much to say today, although, like the S&P futures, this vehicle could tempt me to short a boring tape: at 472.34, stop 473.00. You can use the Dec 470 puts, riding (i.e., mimicking) whatever bid is reflected by the market makers when the index first touches 472.10, but you’ll be on your own thereafter.
MAR BONDS (109.07): The futures surged above our 109.25 bullish threshold but couldn’t hold the gain. Until such time as this occurs, there will be downside jeopardy to 105.30, October’s low. In a bigger picture, if support at 105.30 does not hold, we’d need to revise our long-term bullish outlook, which has seen the action between 106-112 as consolidation for a possible moon shot to around 120.
$ QQQ (26.49): The Cubes fell to within a quarter-point of our target, 25.50, before rallying robustly into the close. If the rally continues to 27.48 today, you can short a round lot there with a 27.53 stop. Switch to a 0.20-point trailing stop below 27.07, using 26.54 for a minimum objective.
FEB GOLD (327.10): September’s 330.00 high repelled the futures on the first try, but they’ll be banging on it again today if non-bullion stocks are flaccid or weak. The target -- a high-confidence number, as far as we’re concerned -- is a minimum 337.10
DEC NASDAQ 100: (1065.00): The closest hidden pivot of interest lies at 1105.00. If and when the futures get there, you can short an E-mini at your complete discretion. A very tight initial stop (i.e., one that risks no more than $30 of your capital) is suggested.
***
AOL (14.00): Our downside target is still 12.82, a fibo, or 12.00 if any lower, but I can come up with no risk-wise way to leverage it from these levels.
$ + CSCO (14.18): We hold the Jan 12.50 (CYQMV)/ Dec 12.50 put spread four times for 0.20, as well as a four Dec 17.50 calls (CYQLW) for 0.10. In the first hour only, you can try shorting 100 shares at a hidden pivot at 14.66, stop 14.71.
INTC (18.71): Intel underperformed the averages and still appears headed for a thick shelf of support near 18. A bounce is likely, but we can discern no particular edge in bottom-fishing there.
C (37.56): Our immediate upside target is a minor pivot at 39.10, but once above it Citi would be an odds-on bet to reach a minimum 41.71. The implied rally is not so compelling, however, that we will risk premium exposure in the December 40 calls.
+ GG (11.15): We hold 200 shares for an average 4.35. Goldcorp is bound for a test of September’s high near 12, but we expect the stock to eventually blast through it, en route to an intermediate-term target of 16.06. That’s where we’ll do some profit-taking, but probably not before. Action in and around a major hidden pivot at 11.23 will tell us whether the stock is ready to make its move.
+ DROOY (3.69): We own 600 shares for an average 4.29. Our profit-taking objective is a hidden pivot at 7.35, but Durban will first have to clear a lesser pivot at 4.78. For now, stay put.
+ MSFT (55.47): We hold two Dec 60 calls for $1. Stochastic signs on the weekly chart look ominous -- which, given this stock’s bellwether status, could spell weakness for the market as a whole in the months ahead. More immediately the outlook is neutral to slightly bullish. Nothing further is advised for today.
+ EBAY (68.54): We hold two December 75 calls (QXBLO) for 0.40. If eBay can close above 69.00 today it would torque stochastic indicators for the daily chart into moderately bullish mode. Stay tuned.
syr :sss
Sorry, falscher Thread :rolleyes: ... Test
The Non-Recovery
by Rick Ackerman
The December issue of The Richebacher Letter makes some very interesting statistical comparisons between past economic recoveries and the one allegedly under way now. Real GDP growth has rebounded by an average 5.3 percent in times past, but measured over the 12-month period begun in Q3 of 2001, it has been a far more subdued 3.0%. And that’s with the hedonic adjustment we’ve written about here before, which took a $7 billion increase in computer sales and pumped it to $75 billion on the basis of ever-multiplying computational "horsepower" per dollar. Do you find that your productivity increased proportionately since you swapped your old 233 mHz desktop for a Pentium 4? Me neither.
The stats cited by Dr. Richebacher grow still more uninspiring, if not to say ominous. While capital spending has recovered to an annual growth rate of 2.4% in the past, investment is still plummeting this time aro und, at a negative annual rate of 19.7%. On average, trade deficits persisted even during cyclical upswings, but never as they have this time. The average growth for net exports during recovery periods has been –0.1%, but the comparable figure for the current period is minus 17.2%. And none of you will be surprised to learn where the pockets of strength are these days: in consumer spending, which despite massive Fed stimulus via the housing market is up just 3.0%, trailing past recoveries that have averaged 5.3%; and in government spending, which is running at a 4.7% growth rate, compared with 1.2% in the past. This last increase is not apt to be sustainable, however, since local economies are nose-diving, even if the ruling elite in Washington, D.C. have yet to feel our pain. An AP dispatch in today’s edition of The Boulder Camera notes that sales tax revenues have dropped precipitously in the state despite Colorado’s diligent efforts over the last 20 years to diversif y out of oil and gas. It would appear Colorado has merely traded one dependency for another, since sales tax revenues now account for three-quarters of what the cities take in each year.
With the economy barely creeping along, the outlook locally is growing grimmer with each passing week. Amazingly, huge new malls continue to spring up all too often -- the latest of them an outlet-store megaplex in nearby Arvada. It is about a 20-minute drive from the $300 million Flatiron Mall that opened just a mile or so from my home here two years ago. The Camera editorial page wondered whether the outlet-store complex would hurt sales at Flatiron, but it seems a foregone conclusion, especially since Flatiron itself tolled the death knell for Boulder’s aging Crossroads Mall. Anecdotal evidence that the economy is deep into the second dip of a recession is beginning to overwhelm the bullish spin from Washington. Or perhaps it’s just Colorado that’s dying, and the rest of the country -- other than Silicon Valley, of course -- is booming? That’s what our friend Kip Reich has been telling us for some months now, but I don’t completely trust his viewpoint, which emanates from the profit-less auto sector. Readers?
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8473.41): The Dow Industrials are adrift right now, bumping and bouncing off round numbers when there are no other obvious inflection points to influence price action. That makes 8400 a good place to look for support if Monday’s decline should spill over, or 8300 if it is decisively breached. We’ll remain spectators for lack of compelling opportunities.
DEC S&Ps (889.20): A close on the low of the day implies that still lower depths are likely to be sounded this morning. Because the futures spent a good deal of time consolidating near 880 between mid-November and mid-December, that is where we should expect them to seek support today. With no precise inflection points available, however, we’ll remain uninvolved.
OEX (453.99): Like the Dow and the S&P futures, the OEX looks sufficiently oversold on its daily chart to suggest that a bottom of at least short-term importance is no more than a day or two away. Round-number support at 850, then near 850, appears to beckon, but it would yield no particular edge for purposes of bottom-fishing.
MAR BONDS (109.19): The futures have been oscillating nervously for more than six weeks, biding their time, in our estimation, between 106 and 112 in preparation for an eventual run at 120. A close above 109.25 today or tomorrow would suggest a successful test of the November peak at 112.11 lies in the offing, but we doubt the futures are ready for an assault on the multiple peaks near 114 that were made in early autumn.
QQQ (25.22): The round number 25 sounds like a promising resting spot, but our hunch is that the Cubes will fall a bit lower, to 24, to pick up support from the consolidation zone that served as a launching pad for early December’s rally to 29. we’ll do nothing for now.
FEB GOLD (326.40) : The Feb futures evidently have more digesting to do in the wake of Friday’s spurt to $330. If so, a correction to as low as 321.60, a fibo-based support, would be perfectly healthy. Stay tuned.
DEC NASDAQ 100: (1015.00): Exactly a month ago, when the futures last came down to 1000, they crashed through it enroute to an intraday low of 974. Accordingly, the most bullish scenario we could see for today would call for a marginal penetration of 1000 by just a point or two, then a squeeze on shorts fooled by what would later prove to have been a false breakdown. Otherwise, 974 itself will become a likely spot for the futures to seek support.
***
AOL (13.08): The Internet rumor mill on Monday was the source of some ominous predictions for AOL’s employees. Word has it that the company’s human resources department has reserved conference rooms in six cities today where AOL has a significant presence. According to the source, layoffs c ould run as high as 25% of the firm’s staff, with smaller severance packages than have been typical at the firm, and the biggest cuts coming in San Francisco, Mountain View and Columbus, Ohio. Whatever occurs, our minimum downside target remains 12.82, a fibo, or 12.00 if any lower.
$ + CSCO (13.50): We hold the Jan 12.50 (CYQMV)/ Dec 12.50 put spread four times for 0.20, as well as a four Dec 17.50 calls (CYQLW) for 0.10. Let’s try to cover the short side of our calendar spread with a 0.10 bid for the four Dec 12.50 puts. Make it a day order, no contingencies.
INTC (17.68): Intel trashed a support at 18, leaving only November 11’s 17.27 low to break its fall. If the support fails, the stock would have to fall to around 16.55 to get traction. That is where the stock made a moderately important peak on October 15.
C (36.15): Citi still looks to be tightly controlled, but if it can’t hold above 36 we should look for it to pull back to around 34 in search of support. The stock will be reinforced somewhat by the fact that its canny handlers had almost two weeks to distribute it above 38 in November to the usual widows and orphans.
+ GG (11.00): No change. We hold 200 shares for an average 4.35. Goldcorp is bound for a test of September’s high near 12, but we expect the stock to eventually blast through it, en route to an intermediate-term target of 16.06. That’s where we’ll do some profit-taking, but probably not before. Action in and around a major hidden pivot at 11.23 will tell us whether the stock is ready to make its move.
+ DROOY (3.77): No change. We own 600 shares for an average 4.29. Our profit-taking objective is a hidden pivot at 7.35, but Durban will first have to clear a lesser pivot at 4.78. For now, stay put.
+ MSFT (53.53): We hold two Dec 60 calls for $1. Until yesterday the lowest low recorded during the last five week’s was November 11’s 53.82. However, the breach of that number late in the day implies immediate downside potential to 51-52, where the stock did quite a bit of consolidating before launching toward 60 with a huge gap on November 4. All we can do for now is sit with the calls, since the puts are not cheap enough to warrant "strangling" the position with the purchase of December 50 puts.
+ EBAY (67.47): We hold two December 75 calls (QXBLO) for 0.40. With yesterday’s loss of a mere dollar per share, eBay was a relative pocket of strength. If the broad market continues weak, however, the stock’s handlers are apt to take it down to as low as 65 before they could be induced to load up on shares for the next rally. We’ll keep our distance for now.
Beating Inflation
by Rick Ackerman
Let’s debate the inflation/deflation question – you first, by responding to the following question: If inflation is about to take off, what it is that we should rush out and buy tomorrow? Stocks, perhaps? A vacation home in Lake Tahoe? Iowa farm land? An Impressionist painting? Oil in the ground? Collectible stamps? A Bugatti? 1950s baseball cards? A Tiffany lamp? Depression glass? A Persian rug? I ask because, other than gold, there is nothing else that leaps to mind that would qualify in my book as an absolute no-brainer.
For the moment, however, I doubt that even die-hard inflationists could be seriously worried that the prices we pay for the stuff that fills our houses – TV sets, furniture, refrigerators and DVD players, to begin the list – are about to take off. I look around my own house and the only items that I expect to appreciate, if perhaps more slowly than in the past, are a rocking chair that I bought about twenty years ago from a woodworker named Robert Erickson, and a book by humorist Bruce McCall called Zany Afternoons. I paid $800 for the rocker and it supposedly is worth thousands now, but the book appears to have been an even better investment percentage-wise. It was $20 new in 1982, but copies in merely okay condition have turned up on the Web for as much as $850. My copy is pristin e, with a dust jacket that doesn’t even have a nick in it, but even so, I hardly think it will double in value again soon -- regardless of whether the Fed pulls out all the stops to “beat” deflation, as it has said it will.
Anyone who is worried about inflation has probably forgotten the 1970s, when prices of just about everything seemed to be rising more or less constantly. At the time, we were induced to buy now because we knew it would cost more later. But if you are concerned that this is about to happen again, you should be out swapping dollars like crazy for assets, besting anyone foolish enough to take the other side of the deal. We should note at this point that the cause of inflation is not an excess of dollars per se, but of dollars bidding up goods or services. That said, and assuming an inflationary spiral is imminent, as well as the dollar’s collapse, which goods should we be bidding up?
Car Not on Short List
It would appear that one item for which we should not have to bid too eagerly is the automobile. I’ve been holding out for a free Lexus myself, but that may be a tad wishful, even given the rapidly deteriorating state of the new-car market. But consider how patience paid off for one Black Box subscriber, a Boulder rabbi who was skeptical when I first broached the subject of deflation in a conversation we had more than three years ago. He writes: “Speaking of a weak auto sector and your recurrent theme of deflation, for the first time, I am inclined to agree with you. Although we don't particularly need it in a life and death sort of way, we thought it would be convenient to have another car. Yes, that brings us to five drivers--two under 21-- and four cars. Though none of my kids has ever even had a ticket, one can imagine wha t our auto insurance bill is.
”For the first time in my life, I got to shop leisurely for a car. I did so over the past three months. I'm glad I hesitated! Over the past two months, I have watched the price of the car I ultimately bought (a 2002 leftover Pontiac Aztek) drop an extra $2,000 after already having a $2,000 rebate on it. Back when they first appeared on Fisher's lot in the summer of 2001 (or, that's when I noticed them), they had stickers on them for about $25,000. Informal conversations with salesmen back then showed little price flexibility. I probably could have bought the car for about $24K . Yesterday, Jessica and I bought the same vehicle from the same dealer for $18,800. Since the dealer did not succeed in selling us any after market stuff (warranties, "clear bra", fabric protector or the like) I have no idea where they could have made more than the $300 "dealer prep."
Where’s the Profit?
”Prices are indeed going down. For people like me, who did not spend but saved during the booming 90's, and have no debt, these are great times!” He notes in a follow-up message that “some astute reader will surely point out that dealers get money from the manufacturer to push slow models, so I'm sure the dealer made a few hundred dollars. However, how GM made any money at all on the car beats me. The only way they will turn a profit is if the thing starts breaking after the warranty is up and start selling me expensive replacement parts, but they will have to wait at least three years to do so.”
So let me ask all of you die-hard inflationists once again: With inflation supposedly just around the corner, what is it that I should rush out and buy today? I’m all ears – not to mention, eager for a final chance to find some bargains before prices take off.
E-Mini Trader
If you got shut out of the last E-mini trading demo, you can sign up for today’s at the following URL: http://www.terranovaonline.com/TNO_Webinar/WebinarFutures2.asp?L EFut2 ; or call Terra Nova Online at 800 228-4216. The show will begin 11 a.m. EST (Wednesday), with attendance limited to 50. Your MarketWise Black Box editor will be on board, as well as a veteran CME floor trader.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8574.26): The nearest potential rally resistance worth noting is a hidden pivot well above, at 8788.67. We’ll make that our upside target for the time being, but it might take two days or more to get there. If the Dow instead falls, we’ll be watching those boring round numbers again: 8500, 8400, etc.
DEC S&Ps (902.00): Oversold stochastic indicators on the daily chart are starting to round up from the frozen depths, but it would take a close today of 918.50 or higher today to trigger them bullish. For now, we’ll remain uninvolved.
OEX (460.49): The OEX would require a close above 466.50 to turn stochastic signs friendly. On a strong rally, the first crucial resistance would come at 475.32, a hidden pivot. You can short there on your own terms, but risk no more than nickels and dimes on the initial stop.
MAR BONDS (110.03): Yesterday’s mildly upbeat close was sufficient to imply the futures intend to challenge the 112.11 peak made in November. In a bigger picture, they have been oscillating nervously for more than six weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.60): The nearest rally resistance worth mentioning is a hidden pivot at 27.52, but the Cubes need only finish the day above 26.30 to pick up a stochastic tailwind.
FEB GOLD (324.20): As noted here earlier, the futures have more digesting to do in the wake of last Friday’s surge. If so, a correction to as low as 321.60, a fibo-based support, would feel right as rain now.
DEC NASDAQ 100: (1031.00): We’ll use a hidden pivot at 1105.00 as our upside target, but I’ll repeat the pullback scenario just in case. To wit, the marginal penetration of 1000 by just a point or two could set up a short squeeze with the power to carry nearly a hundred points. Worst-case downsi de over the near term is 974.00.
***
AOL (13.75): Dire rumors failed to materialize, depriving AOL of what might otherwise have been an interesting day. Now stochastic forces appear to be gathering some thrust, although there is no hidden-pivot target that I can offer. For the time being, risk of a fall down to 12.82 is low.
+ CSCO (13.93): We hold four Jan 12.50 puts for 0.30 after covering our short Dec 12.50 puts yesterday for 12.50. We also have four Dec 17.50 calls (CYQLW) purchased for 0.10. For now, do nothing further.
INTC (18.13): We’d projected a test of November’s 17.27 low, but Intel could escape the magnetic pull of that number with a close today of 19.10 or higher. That would turn stochastic influences associated with the daily chart decisively bullish.
C (36.79): For this vehicle as well as numerous others tracked herein, it would take just a modest rally to turn stochastic indicators for the daily chart supportive. A close above 37.65 would do the trick, putting Citi on course for the trip up to around 41 that we’ve been projecting. Daunting resistance near 38 would first need to be overcome, but a short-squeeze could probably chew through it in two days.
+ GG (10.85): Stochastic indicators for the daily chart are rolling down from very overbought levels and would become heavy following a close today of 10.42 or lower. Regardless, we’ll continue to hold 200 shares acquired for an average 4.35. Our profit objective is an intermediate-term target of 16.06.
+ DROOY (3.57): Durban is picking up volatility, but any negative close today would dampen the upside for the next 2-3 days. We own 600 shares for an average 4.29, with a minimum price objective of 7.35. First, the stock would have to clear a lesser pivot at 4.78.
+ MSFT (54.01): We hold two Dec 60 calls for $ 1, but the next few trading days will have to be real doozies to resuscitate them. Stochastic indicators look moderately promising, but they probably lack sufficient power to do much more over the next day or two than prevent the stock from falling to 54.
+ EBAY (68.20): We hold two December 75 calls (QXBLO) for 0.40. The stock could get goosed to as high as 72.05 (a hidden pivot) over the next two days, but that wouldn’t be enough to take us out of our calls with a decent profit. We’ll sit on the position for now, since it’s not worth augmenting.
Readers Respond
by Rick Ackerman
We’ve gotten some interesting responses to a question posed here yesterday: In which assets do we invest if we expect inflation to break out? We’ll take up this subject at length next week, by way of quoting from the e-mail we receive over the next several days. Suffice it to say, we remain skeptical that the huge debt burden amassed by American businesses and households over the past decade can simply be inflated away, even if the Fed has made stridently clear its determination to do so. If mere determination were sufficient to overcome deflationary drag, Japan’s economy would not still be mired in a liquidity trap. It must be noted that Japan’s task of re-inflating should have been easier than ours, at least in theory, since, as I’ve pointed out here numerous times before, the Japanese had insatiable demand from U.S. consumers to help buttress their export economy. We should ask, therefore, Who will hel p bail us out when the recession starts to deepen? The only possible answer is the American consumer. But this implies that he would have to take on an even greater debt burden in order to sustain even moderate economic growth. Is this a way back to prosperity? Not if you believe, as the Austrian economists do, that wealth is created by capital investment rather than by rising asset values or, most emphatically, higher levels of consumption. We’ll try to flesh this point out next week, using responses from Black Box subscribers to augment the give-and-take. Meanwhile, there will be a one-day hiatus for MarketWise Black Box, since your editor will be going out of town on Friday for the weekend. Friday’s edition will be published as usual, but the next issue after that will arrive on Monday evening for Tuesday.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8589.14): No change. The nearest potential rally resistance worth noting is a hidden pivot well above, at 8788.67. We’ll make that our upside target for the time being, but it might take two days or more to get there. If the Dow instead falls, we’ll be watching those boring round numbers again: 8500, 8400, etc.
DEC S&Ps (902.20): Our bullish threshold will come down a bit as a result of yesterday’s tedious dirge. Today the futures would need to close above 912.80 to trigger a friendly stochastic signal. I wouldn’t advise going long on the close, however, since indications are merely mildly encouraging, not exuberant.
OEX (460.69): Just a small change. The OEX would require a close above 461.00 to turn stochastic signs bullish for the near term. On a powerful rally, the first crucial resistance would co me at 475.32, a hidden pivot. You can short there on your own terms if and when the time comes, but risk no more than nickels and dimes on the initial stop.
MAR BONDS (110.28): The futures are on their way to test the 112.11 peak made in November. In a bigger picture, they have been oscillating nervously for more than six weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.72): No change. The nearest rally resistance worth mentioning is a hidden pivot at 27.52, but the Cubes need only finish the day above 26.30 to generate a bullish stochastic tailwind.
FEB GOLD (325.50): We’d warned of a possible correction down to as low as 321.60, and it will indeed remain likely until such time as the futures surpass a hidden pivot at 329.80. This is fractionally beneath the spiky peak at 330.00 made last week, but if 329.80 is exceeded by a tick, consider the conquering of 330.00 a done deal. When this hap pens the futures will be imminently on their way to a minimum 336.50, a hidden pivot.
DEC NASDAQ 100: (1035.50): No change. We’re using a hidden pivot at 1105.00 as our upside target, but I’ll repeat the pullback scenario just in case. To wit, the marginal penetration of 1000 by just a point or two could set up a short squeeze with the power to carry nearly a hundred points. If the futures get hit by selling, worst-case downside over the near term would be 974.00.
***
AOL (13.65): Turns out the rumors were true, albeit a day premature. AOL on Wednesday announced layoffs that eventually could equal last year’s 1,925. The story was reported as follows by Reuters: "America Online will cut about 300 jobs on Wednesday, beginning an expected wave of layoffs as it trims costs and tries to revive the embattled Internet division of AOL Time Warner Inc., a source close to the company said. "An AOL spokesman declined to comment. Sources famili ar with the situation as well as analysts expect the layoffs to be the first over the next couple months -- targeting overlap and areas that are no longer core to the company's new strategy. The Internet division, based in Dulles, Virginia, employs about 18,000 people. America Online Chief Executive Jon Miller said earlier this month he planned to cut costs in the ‘nine-figure’ amount, and most analysts expected reductions of more than $100 million. Miller also indicated the company may phase out areas that were not core to its new strategy of building a high-speed Internet service, new paid and commerce services and programming.
Some sources have said the layoffs could match the 1,925 made last year, shortly after AOL completed its $106.2 billion purchase of Time Warner. The AOL division has been struggling with a deep slump in advertising spending and subscriber growth, as well as ongoing federal probes into its accounting practices." The stock confounded expectations – as w e might have expected it would – by rallying, but given the news, we’ll continue to use 12.82 as our minimum downside target for the near-term.
+ CSCO (13.85): We hold four Jan 12.50 puts for 0.30 after covering our short Dec 12.50 puts yesterday for 12.50. We also have four Dec 17.50 calls (CYQLW) purchased for 0.10. Yesterday’s inside day changed nothing in our outlook, which called for passivity.
INTC (18.16): Just a small change. We’d projected a test of November’s 17.27 low, but Intel could escape the magnetic pull of that number with a close today of 18.92 or higher. That would turn stochastic influences associated with the daily chart decisively bullish.
C (36.26): I’d said a close above 37.65 would turn stochastic influences decisively bullish, but Citi on Wednesday could not muster even an intraday penetration of that pivot. Today the stock need only finish above 37.41 to do the trick. That would put it on course for a move up to aroun d 41, assuming that presumably formidable resistance near 38 can be surmounted via the obligatory short-squeeze.
+ GG (11.25): We hold 200 shares for an average 4.35. Goldcorp’s strong finish tamed stochastic influences on the daily chart that were beginning to threaten. Nothing further is suggested for now, but we’ll note nonetheless that we expect this minor rally cycle to reach a minimum 12.71. Our profit objective lies considerably higher, at 16.06.
+ DROOY (3.79): We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. First, the stock will have to clear a lesser pivot at 4.78 on a closing basis.
+ MSFT (54.66): We hold two Dec 60 calls for $1, but with one week to go they have become a longshot. Bullish stochastic influences will kick in if the stock can close above 55.00 today, but they will not likely be powerful enough to push MSFT more than a couple of points next week.
+ EBAY (67.59): No change. We hold two December 75 calls (QXBLO) for 0.40. The stock could get goosed to as high as 72.05 (a hidden pivot) over the next day or two, but that wouldn’t be sufficient to take us out of our calls with a decent profit. We’ll sit on the position for now, since it’s not worth hedging.
Arguing the Other Side
Rick Ackerman
Just a reminder: The next issue of MarketWise Black Box will be sent out Monday evening. I would caution you that the stock market has a remarkable propensity to do crazy and sometimes violent things whenever I go out of town for more than a day. To those of you who may have experienced this manifestation of Murphy's Law yourselves, I would suggest that you, too, go out of town so that we can hope to cancel out each other's karma, at least until Monday, when we'll back in front of our monitors.
Meanwhile, before airing a subscriber's interesting comments on the inflation/deflation question, we should pause for a word or two about gold's powerful rally on Thursday. Conventional news sources said it was the result of a weak dollar and mounting tensions over Iraq. True enough, albeit simplistically expedient, but we should not lose sight of a far bigger picture that sees these spurts and feints in bullion's price, no matter what the news, as the adolescent stage of a bull market that eventually will push gold quotes to levels that may lie beyond the imagination, even, of many gold bulls. I've repeated this over and over again for more than a year, but I will say it again: Right now, as an investment, gold is the no-brainer of a lifetime. If this statement was true last January, it became an in-your-face fact a few weeks ago when Fed Governor Ben Bernanke told the world that the U.S. stood ready, in effect, to debase its currency to whatever extent is necessary in order to fend off deflation.
Now, on to the discussion. Below is a letter I received from a subscriber who works as a tax accountant in the Pacific Northwest. He sees fiscal stimulus as a reliable way to rekindle inflation, no matter how dead the economy, and further notes that gold's bullish price action is conclusive evidence that inflation lies ahead, not deflation. The subscriber writes as follows:
Goldcorp Hedge
"First, I want to thank you for sending me your free nightly newsletter. It is excellent--I read it as soon as it pops up on my email every night. I am not an active trader; although I am a tax lawyer by trade, I represented all of the local securities brokers in the ______ area in the late 60s and early 70s and had some limited but good training from some excellent traders which has benefited me greatly over the years in understanding how the markets work. At some point in the future, I might try to get into your program and trade the markets, but right now I am trying to take investment positions I can periodically avoid thinking about. I am primarily in T's; have six figures in BEARX; and own 2,500 [Newmont Mining] for an average of around $17.83, and 500 Goldcorp at $9.17-- a result of reading your newsletter. I am thinking about converting some or most of the NEM to GG because, having read their filings and statements, I've concluded I like the latter's management and business plan better.
"The inflation deflation issue is a hot topic of the moment. Your 'Inflation or Deflation' essay several weeks ago was excellent -- better than any of the many articles I saw online. At that time, you concluded that the economy would not go into an inflationary spiral because the [prospective losers] had significant political swat and would do everything possible to protect themselves. I thought the concluding analysis was a little weak but that the answer was correct. I still think that.
Airplane Money
"I have read Bernanke, and the commentary following his speech stressed the intuitive proposition that the man who controls the printing press can print until he runs out of ink. That is wrong. Suppose you are Alan Greenspan, and you have decided to create inflation. Exactly what steps do you take? You call the printing press in the basement and tell them to run packages of $100 bills. Then you call the helicopter company and have them throw the bundles of cash out the window as you run down 5th Avenue? Or do you simply credit $10,000 to every checking account in America? I think neither. The helicopter-money answer is counterproductive because, when the Fed attempts it, the dollar ceases to be a medium of exchange. Facts are that additions to bank reserves, and reduced-price bank reserves, are having a declining impact on the money supply. Bankers have finally figured out that there is credit risk in some of these high-leverage, non-supporting loans, and the money is no longer getting out the door so easily. "So how would we get inflation? Through fiscal policy -- the origin of all prior inflations. It is awfully easy for Congress to authorize spending in excess of what the lending markets will support, as we all know. But at this point we don't see any evidence that the lending markets have drawn the line; in fact, long T-bond rates are flat. You are forecasting the bond futures at 120, and my judgment is that you are probably correct (maybe later than March though). So at least before March, we don't see inflation resulting from fiscal action either.
Why Gold Is Rallying
"So why is gold going up? We know that if deflationary forces prevail, gold cannot increase in value against the fiat currency. Purchasing power of the dollar will go up in a deflation, including relative to gold. There are two possible explanations: One, the current value of gold is greatly in excess of the current trading market. (The story about the CEO of Goldcorp placing an order for 40,000 ounces at market which did not fill demonstrates that the true market is not the one reported by KITCO and the CBOE). We can have commodity-price increases in a deflation that result from structural supply/demand changes (i.e., grains because of bad weather, oil and gas because of supply fluctuations and steel because of tariffs, etc.). Unfortunately the structural supply/demand market for gold is primarily a monetary series. So that is a difficult but not impossible explanation, although my own current view is that it is in fact what is happening.
"The other possible explanation is that the market is influenced by the intuitive assumption that the Fed can in fact cause inflation and is responding in the only readily available marketplace. If so, when that proves out, gold will tank. So, on to your question, What do we buy besides gold if the answer is inflation? Collectibles worked in the 1970s, but they won't work as well now because the medium-of-exchange function of money is more significant than it was then.
Store-of-value is still an important factor, although one would want to be sure the collectible ultimately would have a ready trading value; under the most likely inflation scenario, most stuff will not. Thus, expensive art might qualify, but many other collectibles won't. So the best answer is energy. It is also the reason why I am in the natural gas business. Unfortunately, it is very difficult for someone not in the industry to get into a position to drill holes in the ground on an economically effective basis. Assuming you think the legal system will survive to enforce the rights of stockholders, there are some small public companies in the natural gas business that may be the second best asset after gold. Thank you again for your nightly commentary and trading advice. DWS"
My response will follow in Tuesday's edition of newsletter. Have a great weekend!
[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8537.92): Zzzzzzzz. The nearest potential rally resistance worth noting is a hidden pivot well above, at 8788.67. We'll make that our upside target for the time being, but it might take two days or more to get there. If the Dow instead falls, we'll be watching those boring round numbers again: 8500, 8400, etc.
DEC S&Ps (901.90): Tedium continues to reign, requiring but a slight adjustment in our short-term numbers. Today the futures would need to close above 909.30 to trigger a friendly stochastic signal. I am not advising that you go long on the close, however, since it looks like a weak trigger.
OEX (458.51): Again, just a small change. The OEX would require a close above 460.00 to turn stochastic signs bullish for the near term. On a powerful rally, the first crucial resistance would come at 475.32, a hidden pivot. We'll provide theoretical put prices if warranted to go short up there.
MAR BONDS (110.26): No change. The futures are on their way to test the 112.11 peak made in November. In a bigger picture, they have been oscillating nervously for more than six weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.86): The nearest rally resistance worth mentioning is a hidden pivot at 27.52, but the Cubes need only finish the day above 26.10 (slightly lower than the number given here yesterday) to generate some bullish stochastic thrust.
$ FEB GOLD (332.10): Thursday's powerful rally put the Feb contract on course for a surge to at least 336.50, the upside target given here earlier. If that hidden pivot should be exceeded by more than 0.50, however, the chance of a move to at least 352.60 by no later than year's end would be around 65%. If you are long at this point on your own initiative, some profit taking near 336.50 is suggested.
DEC NASDAQ 100: (1041.00): Stochastic indicators for the daily chart have just turned bullish, though only tentatively so at this point. We'll continue to use a hidden pivot at 1105.00 as our minimum upside target while noting that chances for a pullback to below 1000 over the near term have diminished as a result of Thursday's modest gain.
***
AOL (13.56): With a small downward adjustment, our minimum downside target is now 12.68, although the stock is likely to remain north of $13 so long as the broad market continues sideways-to-higher.
+ CSCO (14.11): We hold four Jan 12.50 puts for 0.30 after covering our short Dec 12.50 puts yesterday for 12.50. We also have four Dec 17.50 calls (CYQLW) purchased for 0.10. Turgid action like Thursday's will spell slow death for our calls, but after Friday we'll still have some cheap puts with a month left on them.
INTC (18.19): Zzzzzzzz. We'd projected a test of November's 17.27 low, but Intel could escape the magnetic pull of that number with a close today of 18.37 or higher. (The threshold has been lowered a tad.) That would turn stochastic influences associated with the daily chart decisively bullish.
C (36.62): We'll lower the bar once again for Citi's handlers. Today the stock need only close above 37.12 to turn stochastic influences decisively bullish. That would put it on course for a move up to around 41, assuming that presumably formidable resistance near 38 can be surmounted via the obligatory short-squeeze.
$ + GG (12.20): We hold 200 shares for an average 4.35. Our minimum projection for the near term is still 12.71 -- 31 cents above Thursday's peak -- but if that hidden pivot is breached by more than 0.06, we should infer that Goldcorp is on its way to at least 14.76. I'd pegged 16.06 as the first place we would seek to take profits, but because 14.76 is such a high-probability inflection point we'll offer a round lot (i.e., a hundred shares) there, with the goal of replacing it on a pullback. Make the offer g-t-c.
+ DROOY (4.26): No change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
+ MSFT (54.17): We hold two Dec 60 calls for $1. Bullish stochastic influences will kick in if the stock can merely close above 54.20 today, but our calls will remain longshots regardless.
+ EBAY (68.73): We hold two December 75 calls (QXBLO) for 0.40. Stochastic indicators for the daily chart went bullish two days ago, but the stock, weighed down by a comatose stock market, appears to be squandering the advantage. eBay should show excellent relative strength on the next rally, but it will need inspiration from the broad market before it can shift gears.
syr :)
Just a reminder: The next issue of MarketWise Black Box will be sent out Monday evening
Für unsereinen gibt's also wieder einen neuen Rick Dienstag, 17.12.2002...
$1000 Gold, No Inflation?
by Rick Ackerman
In Friday’s edition I published a letter from a subscriber concerning the question of which is more likely, inflation or deflation. I’ve responded below with some extremely bullish comments on gold, and my conclusions may surprise even long-time subscribers of MarketWise Black Box. My comments were prompted by a follow-up query from the same subscriber, who wrote as follows: “The important issue which must be addressed is this: Given that we are in a period of deflation, how can gold go up? Obviously I agree with your conclusion that it is in a strong uptrend, but why? We know that in periods of deflation, legal-tender fiat money will go up in value against goods and services--it should be going up against gold, not down. The balance of my e-mail is directed to possi ble explanations of why that is happening although I am more interested in provoking you to advance your view than I am in defending my own.”
My reply:
Gold is especially strong right now for one reason -- the speech several weeks ago by rookie Fed Governor Ben Bernanke. With a bluntness that stunned the economic world, and with the obvious backing of his boss, he said in so many words that the Fed would do whatever it takes to ward off deflation. Now, it’s one thing for an official spokesman to say the government will no lo nger support a strong dollar, as various spokesmen of the central bank have done from time to time when it advanced America’s interest to have softer dollars. But it is quite another thing to declare that the central bank is ready to throw the dollar overboard if that’s what it takes to get the economy moving.
Why Dollar Hovers
Even so, and try as it may, the dollar cannot immediately fall relative to other currencies because 1) the euro is tied to the performance of German and French economies that over the short- and long-run lie beyond salvage either politically or demographically; and 2) the Japanese government has just begun monetizing stocks (!), buying depressed shares directly from the portfolios of banks. This suggests that the beggar-thy-neighbor game of competitive devaluations has become so deadly earnest and aggressive that one currency can no longer fall very much relative to the others. For the moment, however, all currencies remain subservient to a dollar that is linked to one of the last theoretically viable economies on earth. Regardless of how much longer the major currencies move in a seemingly stable relationship to each other, all currencies, including the dollar, will come to be measured more and more against gold. And that is why I continue to assert, as stridently and as often as possib le, that as the third millennium begins, gold is the no-brainer investment of our lifetime.
But how does this square with my deflation prediction, whereby the dollar presumably would be "king" and grow in purchasing power, even relative to gold? It doesn't, actually -- at least, not in a way that conventional thinking can comprehend, much less interpret. In fact, we are headed into an economic typhoon for which there is no historical precedent: a world drowning in debt, but also awash in fundamentally valueless money. Can deflation occur as global funny-money mounts into the hundreds of trillions of doll ars? My answer is yes, but not across all classes of assets. I will be examining them one by one in the coming weeks in MarketWise Black Box, since I've concluded that no one, even die-hard deflationists such as myself or Bob Prechter, has yet parsed the specific and seemingly contradictory details of a deflationary bust occurring in a global monetary environment characterized by worthless fiat.
Inflate What?
During my trip to California over the weekend I had a chance to talk with a friend who has always managed to stimulate my thinking about the economy. My thoughts jelled in the drive back to the airport, and I think you will find them both highly original and compelling. For now, though, let me say that I'm convinced gold could go to $1,000 an ounce without producing a commensurate repricing of goods and services straightaway -- or even much of a change in the relative valuations of currencies. (Bonds and certain other assets are another matter, but we’ll save that discussion for later.) After all, it is not perceptions that drive inflation, but physical dollars chasing goods and services. If gold went to $1,000, would dollars necessarily "chase" college tuitions up to $70,000 per year, or ground beef to $20/pound, or doctor visits to $300? I seriously doubt it -- for how could prices possibly soar without a corresponding increase in incomes -- or at least, in asset valuations that can be further leveraged? If you think more housing inflation is the answer, then, along with our Fed chairman and his board of governors, you flunk both economics and common sense. Meanwhile, we won't even mention the scenario of a wage-driven inflation, since even those who believe fervently in the economic-recovery tooth fairy are not dumb enough to believe their pay is about to double.
Stagflation Pipe-Dream
And what about stagflation? In our dreams, perhaps. For even with the Fed striving desperately to pump up asset prices, 1970s-style inflation remains a remote prospect. The economic system is simply too stressed by gargantuan debt for a muddled and gradual resolution. Moreover, unlike the economy of the 1970s, today’s is characterized by a deflationary global market in goods, primarily from China, and the mounting unaffordability domestically of health care, college tuition, and, as deficits swell, services provided by state and local government. We survived the 1970s inflation mainly because our homes, if not always our paychecks, kept p ace with inflation, and because the weight of our debts was being inflated away by a depreciating dollar. But it is a far different matter to survive deflation, when wages and most asset values are falling in both real and nominal terms. It is anomalously strong housing prices that we should be most concerned about, since they have been sustained entirely by Fed smoke-and-mirrors. To the extent the Fed chairman, a PhD in economics, continues to propagate the idea that rising housing prices represent an increase in wealth, an insidious and dangerous ignorance has come to cloud the average American's thinking about the economy. Catharsis will not likely come so easy as a mere 40% fall in the Dow Average.
______________________________________________________________________________________
[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8627.40): No change. The nearest potential rally resistance worth noting is a hidden pivot well above, at 8788.67. It remains our minimum upside target, but it is tediously slow and untradable in coming.
$ MAR S&Ps (909.00): We’ll switch to the march contract, for which stochastic signs on the daily chart have just turned moderately bullish. Our minimum upside objective is around 928.00, a target that lies within a quarter-point of a hidden pivot (927.75) and a fibo (928.20). Shorting near 928 is okay if you are bored, nimble and clever, but you’ll be on your own.
OEX (463.26): Above this level the first crucial resistance lies at 475.32, a hidden pivot. We’ll ponder the near-the-money puts if and when the OEX gets there.
MAR BONDS (109.04): Look for this pullback to end near 108.20, a hidden pivot. Thereafter, we expect the futures to test the 112.11 peak made in November. In a bigger picture, they have been oscillating nervously for more than six weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.85): No change. The nearest rally resistance worth mentioning is a hidden pivot at 27.52, but the Cubes need only finish the day above 26.10 to generate some bullish stochastic thrust.
< SPAN style="FONT-SIZE: 9pt; COLOR: black; FONT-FAMILY: Verdana">FEB GOLD (337.60): As stated in our last analysis, the futures are bound for a minimum 352.60 over the near-term. It’s obvious that gold’s bull market is gathering strength -- that even powerful rallies in Dow and Nasdaq stocks are no longer sufficient to suppress gold quotes. If the central bankers do not want to waste money trying, they would be wise to hold back until spot approaches $400.
MAR NASDAQ 100 : (1043.50): We’ve shifted to the March contract, necessitating just a small adjustment of our minimum upside target. It’s 1098.50 now – an inflection point that is too close to the round number to be worth shorting. If we can find a cheap way to play the trend, we’ll advise.
***
AOL (13.40): Our minimum downside target remains 12.68, although this brick will hold above $13 so long as the broad market continues side ways-to-higher.
+ CSCO (13.70): We hold four Jan 12.50 puts for 0.30 and four Dec 17.50 calls (CYQLW) for 0.10. As in November, the December option expiration is putting more weight on this convictionless and by now feeble rally than it can overcome without a short-squeeze assist. Chances of an explosion in out-of-the-money calls is almost nil, but Wall Street’s dog-and-pony show will have a better chance of continuing next week, with December puts and calls out of the way.
INTC (18.22): Stochastic influences have just turned mildly bullish, but they don’t warrant jumping on the December 20s, even for a nickel, or the January 20s for 55 cents. Remain on the sidelines.
$ C (37.48): A hidden pivot at 38.35 will tell us what kind of tricks this stock is up to. We’ll make that our minimum target for now, but it’ll take a two-day close above it to suggest the stock is on its way to the 41 target we’ve held in mind for many weeks. Short 38.35 with a tight stop if bored.
$ + GG (13.10): We hold 200 shares for an average 4.35. Our minimum projection is to 14.76 now that Goldcorp has surpassed a lesser pivot at 12.71. We’ll offer a hundred shares to close for 14.76, day order, with the goal of replacing it on a pullback.
+ DROOY (4.32): Still no change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
< B>+ MSFT (54.48): We hold two Dec 60 calls for $1. Nothing further to advise.
+ EBAY (69.28): We hold two December 75 calls (QXBLO) for 0.40. Given eBay’s bellwether status as one of relatively few companies making enviable profits, we should look for the stock to lead the charge with a move decisively above $70. That’s what it will take, at least, to keep the averages moving higher.
Leveraging a Quiet Tape
by Rick Ackerman
The broad averages surrendered about half of the previous day’s gains, offering a preview of the year-end tedium that may await us over the next eight trading days. We’re pretty certain the toothsome bear rally begun in October does not have the moxie to hurdle December’s near-the-money strikes. But it’s quite possible that on Monday, with expiring puts and calls out of the way, bulls will seize the opportunity to foment a short-squeeze. It wouldn’t be the first time that pre-Christmas quietness was used to leverage the benefit of surprise. My colleague Larry Amernick informs me that the week before Christmas almost invariably has seen one day when stocks screamed manically higher. We’ll just have to pick the right day, so that we can be holding January out-of-the-money calls when it arrive s.
Hidden Pivots Explained
I should mention that MarketWise will be conducting a Web presentation tomorrow (Thursday) at 11 a.m. EST on a topic about which I have received dozens of inquiries over the last few months: hidden pivots. I’ll be giving a one-hour seminar on how pivots are calculated, and how they can be applied. You can register by pointing your browser to the foll owing URL:
http://www.marketwise.com/mw_main/NassWeb.asp
There’s room for 50 participants, but don’t worry about getting shut out this time, since, if demand warrants it, we’ll repeat the presentation at a later date.
Richebacher Freebie
Today’s second note concerns Dr. Kurt Richebacher, the Austrian-school economists whom I quote here every chance I get. Anyone who still clings to the notion that the economy is about to come roaring back has not read any of Dr. Richebacher’s recent newsletters. They refute nearly all that Fed Chief Greenspan has been telling us, arguing from bedrock principles of economics that the 1990s boom was a statistical hoax, and that the correction of boom excesses has much further to go. When the Richebacher newsletter arrives in the mail at the beginning of each month, I find myself wishing that I could share it with all of you. This time, however, I can -- courtesy of the publisher, Agora Publishing, Inc. Here’s a link to the December issue, which should settle your mind about our immediate economic prospects:
http://www.dailyreckoning.com/pdfs/rch1202P.pdf
And here’s another link for those who would like to learn more about the newsletter itself, as well as how to subscribe:
http://www.dailyreckoning.com/pdfs/rch1202P.pdf
This issue is a must-read. Bears will come away with a new understanding of the dynamics of economic growth, and a grasp of the reasons why the present state of the economy all but precludes a strong recovery over the foreseeable future. As for bulls, read it and you will find it doubly difficult to remain in denial.
__________________________________________________________________________________
[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8535.39): Some revisions are in order because of the oopsy-daisy action of the last two days. My minimum upside objective is now 8628.77, but any rally exceeding that hidden pivot by more than a point or so should be expected to carry at least to the next, 8732.37. You can short either at your complete discretion, using a tight stop, or you could even trade the breakout, since you would not have much company at those levels, obscure as they are to conventional methods.
$ MAR S&Ps (902.00): It’ll take a “booster” thrust of at least 6.25 points, beginning from no lower than 895.40, to kick Monday’s rally back into gear. You can trade that intelligence as you please, but be aware that the rally would have nearly 2 0 points of potential following the entry trigger.
OEX (458.60): Assuming the OEX goes no lower this morning, a rally that exceeds a hidden pivot at 463.71 would signal further strength. My target in that case would still be 475.32, a number given here earlier.
MAR BONDS (109.06): No change. Look for this pullback to end near 108.20, a hidden pivot. Thereafter, we expect the futures to test the 112.11 peak made in November. In a bigger picture, they have been oscillating nervously for more than six weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.93): We’ll lower the bar to 27.33 for purposes of determining whether the n ext rally is the real McCoy. Once the cubes have closed above that pivot, we’d infer they’re on their way to at least 29.65.
FEB GOLD (337.50): The futures held the previous day’s gains nicely, affirming our prediction they are bound for at least 352.60 over the near-term. We’ll know the move-to-target is under way when the futures rally a minimum 5.00 points from some bottom above 330.60.
MAR NASDAQ 100: (1046.00): Our minimum upside target remains 1098.50, an inflection point that is too close to the round number to be worth shorting. If we can find a cheap way to play the trend, we’ll advise.
***
AOL (13.52): Use a hidden pivot at 13.26 to tell what might be on AOL’s mind. A close below it would be decisively bearish, although I hesitate to say this dreck would much benefit from more tedium spent above it.
+ CSCO (13.66): We hold four Jan 12.50 puts for 0.30 and four Dec 17.50 calls (CYQLW) for 0.10. We’ll avert our eyes for now, lest we be lulled into coma.
INTC (17.89): Zzzzzzzzzz. Stochastic influences recently swung bullish, but not very.
$ C (37.13): Our minimum upside projection is to 38.35, a hidden pivot, but a two-day close above it would imply the stock is on its way to a longstanding target at 41. Scalpers: short 38.35 with a tight stop if you’re to bored to stay out of trouble.
$ + GG (12.48): We hold 200 shares for an average 4.35. We usually associate such stocks as Citi with talented, sleazy handlers, but Tuesday’s peek-a-boo top was a reminder that even “nice” stocks are manipulated for the benefit of the few. Yesterday’s reversal will likely delay a move to our upside target at 14.76, but we’ll re-enter the order to sell a round lot there, making it g-t-c.
+ DROOY (4.11): No change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
+ MSFT (54.36): We hold two Dec 60 calls for $1. MSFT looks like it will continue to hang out near 54 over the near-term, absent any meaningful crisis in Redmond. One thing’s for sure: the stock remains manifestly oblivious to Trent Lott’s troubles.
$ + EBAY (70.09): We hold two December 75 calls (QXBLO) for 0.40. They’re keepers, but it will take all this stock can muster to raise them from the dead. Let’s offer one for 0.70 g-t-c, just in case strange things happen.
Gold's Return as Money
by Rick Ackerman
Keep those cards, letters and e-mails coming, folks -- even the contentious ones -- since we’re getting some very insightful comments on the inflation/deflation conundrum. One that I received on Wednesday came in response to my recent assertion that, even if gold is on its way to $1,000/oz or higher, it doesn’t necessarily imply that we’ll face an inflationary spiral. If my somewhat lengthy explanation failed to engage you, here is a succinct and lucid grabber that likely will -- from the same source whose letter was excerpted in Tuesday’s edition: "Gold is no longer a commodity, it is money; this is just an exchange rate adjustment happening in a deflationary environment for the legal-tender fiat currency. No inflation; none in sight. It is also insightful to consider the proposition that diverse classes of assets may be affected differently--I had not considered the possibility, but no doubt you are correct."
Just so. Gold is on its way to becoming another currency, and as such, even at $1,000 per ounce, it will be no more "inflationary" for the U.S. or the rest of the world than a D-mark valued at, say, $20, or a yen priced at $1 per. And here’s a further thought supplied by my MarketWise colleague Tom McCafferty, author of many books on commodities and trading, including, most recently, "The Market Is Always Right" (McGraw Hill). Tom says that structural dislocations in the global economy are by now so severe that only a return to a gold standard can enforce the necessary discipline to bring things back into line. That is almost unthinkable in a world where debt has come to play such a gargantuan economic role, but perhaps he’s right – that a de facto gold standard is about to be forced on a world that lacks the will to rein in excesses of money and credit.
Asset Mix Crucial
I heard also from a long-time subscriber who runs a highl y successful hedge fund. He writes:
"Wouldn't a price rise in ‘essential commodities’ priced in dollars constitute inflation per se? If our standard of living is determined by the things we buy – things like food, clothing, shelter and amusement -- and those things cost more in the future, then we have inflation when viewed from a dollar perspective, right? Utilizing $1,000 gold to pay for the essentials at some time in the future would certainly be deflationary to the gold holder. If the Fed continues to monetize the ill conceived debt bubble, the real value of the dollar will collapse. The 2005 Porsche will no doubt be priced higher in nominal terms but lower in real terms. Inflation? Deflation? It all depends upon your perspective.
Structuring ones' assets correctly will have a great deal to do with that perspective.
My response was as follows:
The crucial point to consider is that global indebtedness is far too vast to monetize wit h a 1970s-style, guns-and-butter inflation. Monetizing over a hundred trillions dollars worth of essentially uncollateralized obligations implies not mere inflation, but hyperinflation. Since hyperinflation by definition is unsustainable, and since creating inflation implies taking borrowing to even higher levels than they are now, we must infer that a successful all-out effort to inflate would have to end precipitously in the form of a massive debt liquidation -- i.e., as deflation.
No Inflation in Finished Goods
In the coming months and years, as more and more people come to understand that the world's major currencies are essentially worthless, we are all but certain to witness a scramble for hard assets, with gold leading the way (as indeed it is doing). But this would be in the context of a deepening economic depression, suggesting a comatose market for finished goods. (I see economic depression or at least a very deep recession as inevita ble because, no matter how the economy evolves, the chances of companies returning to profitability within the foreseeable future are almost nil.) Meanwhile, although you could argue that farmland at $500,000/acre would eventually have an inflationary impact on the price, say, of men's suits, my contention is, not this time. Skyrocketing prices for land, oil and such would not be inflationary per se, nor would they become so unless tomatoes were to rise to $12/pound, or gas at the pump to $20. But with the economy in a funk, how could that possibly occur? The answer is that it could not, and the result would be that the price of land and oil eventually would fall back to earth -- though not the price of gold, since by then it would have assumed an almost direct, transactional role as money.
________________________________________________________________________________________
[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8447.35): If the Dow continues to fall -- you can flip the coin this time -- it would likely grope its way toward round numbers in search of traction. In the event of a strong rally, our minimum upside objective is still 8628.77. It's short-able with a tight stop, but not a good risk in the final hour.
$ MAR S&Ps (891.80): The closest downside pivot is 882.70. Accordingly, I'll suggest bottom-fishing in the first hour only, using an 882.75 bid for a single E-mini contract, stop 881.75. Using 894.00 for a minimum objective, switch to a 2.00-point trailing stop above 887.00
$ OEX (452.78): You can try bottom-fishing 448.77, a hidden pivot, in the first hour, but the specific strategy will be at your complete discretion. A very tight initial stop-loss is advised.
MAR BONDS (109.27): We expect the futures to test the 112.11 peak made in November, although there is no telling how much more time will pass before the move gets under way. In a bigger picture, the bonds have been oscillating nervously for eight weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.38): The closest downside pivot below a weak shelf of support at 25.00 lies at 24.49. It is useless for our purposes, since the cubes are likely to oscillate around 25 for the next week in the absence of high drama.
$ FEB GOLD (345.80): We've been using 352.60 as our minimum rally projection for the short-term since the futures closed above 324.80, but we'll raise it to 357.10, a hidden pivot that looks more compelling. If long on your own initiative, scale-out profit-taking is advised from 352.60 on up.
MAR NASDAQ 100: (1024.00): The futures closed a point below a minor hidden pi vot, but if they do so again today, expect the decline to continue down to at least 993.00.
***
$ AOL (13.14): Use a hidden pivot at 13.26 to speculate on what AOL might do next. Yesterday's close beneath it shortens the odds that the stock will fall to a 12.68 pivot we flagged here earlier. Scalpers can bottom-fish there with a 12.64 stop, but you'll be on your own thereafter.
$ + CSCO (13.22): We hold four Jan 12.50 puts for 0.30 and four Dec 17.50 calls (CYQLW) for 0.10. We’ll scalp against the position with a bottom-fishing bid for 200 shares at 12.74, stop 12.69. That's a promising hidden pivot.
INTC (17.13): Intel appears bound for a weak pivot-support at 16.07, but because of the closeness of that support to the round number, I would not suggest bottom-fishing there.
$ C (37.15): No change. Our minimum upside projection is to 38.35, a hidden pivot, but a two-day close above it wo uld imply the stock is on its way to a longstanding target at 41. Scalpers, if bored: Try shorting 38.35 until the final hour with a tight stop.
$ + GG (13.18): We hold 200 shares for an average 4.35. Our rally target is 14.76, and we are offering a round lot there to close, g-t-c, with the goal of buying it back on a retracement.
+ DROOY (4.42): Still no change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
+ MSFT (53.53): We hold two Dec 60 calls for $1. There are no easy opportunities that I can discern, so let's continue to snooze through this tedious loitering near 54.
$ + EBAY (69.37): We hold two December 75 calls (QXBLO) for 0.40. One is offered g-t-c for 0.70, but the odds of booking a profit are probably no better than 4 to 1.
Inflation/Deflation Conundrum
by Rick Ackerman
My reading recommendation for tonight is this gem from Tim Picks of Market Ruminations:
http://www.321gold.com/editorials/picks/picks121902.html
The bias is deflat ionist, as Black Box readers should by now expect, but Picks takes great pains to bring the reader convincingly and insightfully to his conclusions. Immediately below is another contribution to our inflation/deflation dialogue, from a hedge-fund trader who has subscribed to Black Box for many years:
“We've obviously been following the inflation/deflation debate closely for some time, especially in light of our core long term position in mining stocks. You rule out stagflation quickly, yet it’s hard to ignore these facts: a) the economy is stagnant in spite of aggressive monetary easing and; b) gold and the CRB currently r eside near 5 year highs. These facts present a conundrum for the hard core deflationist. The $USD should be reigning over all asset classes, especially commodities, if deflation was truly manifesting itself. It is not.
It’s been clear to us that the monetary ease has been on for 3 years now since the Nasdaq crashed. Now with the axing of O'Neill & Lindsey its clear that the fiscal ease will be ramped up. Is this not inflationary? Gold up/dollar down really took off when this was announced. Of course I doubt that policy makers can drag the economy out of its doldrums, but might they effect some inflation? In spite of noise the gov't made today about an "unchanged" dollar policy, they want it lower to ease our debt burden. It seems the US has embarked on a path of competitive devaluation with Japan & the Eurozone? Can we see a world of DEBT deflation, $USD devaluation, slow economy & commodity inflation? Maybe that's what the yield curve is telling us, inflation not the economy is coming back. I wait in eager anticipation of your reply which surely will find flaws in my overly simplistic reasoning.
My reply:
Debt Bomb Grows
Debt-related stresses in the global financial system are far, far too powerful and precipitous to allow us to escape with a lengthy, stagflationary muddle. As Dr. Richebacher asserted nearly two yea rs ago, debt must now keep increasing by at least 2-3% per year merely to keep the economy afloat, never mind growing. Meanwhile, net fixed investment -- the only true source of wealth -- can only continue to shrink, given the structural profitability problem.
I also said here earlier that the coming deflation will not encompass all classes of assets, but that, absent significant increases in personal income, there is little chance that prices for finished goods and most services will rise. Gold's current rally is being fed by perceptions that the Fed is about to blow out the dollar. This is supposedly inflationary to the extent it pushes up the price of imports; but to reiterate, we won't be importing many luxury cars in a depression, and exporters will have to hold the prices down to sell any of them at all. We should expect the currencies to sink together relative to gold, but it will still take the same number of D-marks or dollars to buy a Porsche -- though much less gold.
In the extreme case, if gold were to shoot up to $1000 next week, only the price of gold will have changed initially. Then the scramble would be on to bid up the price of farm land, oil, natural gas and water. But beyond essential commodities, I don't fo resee inflation in either wages, prices or most services The bidding war for natural resources will have been speculative and narrow, rather than broad and "organic" in the way the 1980s stagflation was.
I continue to stress that we are in uncharted water, since no debt deflation has ever occurred atop a hollow global money system. That is why the rule about cash being "king" must be tossed out. It is not your mother's deflation. Meanwhile, hearing that your firm is substantially invested in the miners comes as no surprise, since you always seem to catch the big waves. If you stick with your gold positions, this one is going to be one helluva ride.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8364.80): Again, if the Dow continues to fall, there’s a hidden pivot where you can try bottom-fishing at your complete discretion in the first hour or so. The support lies precisely at 8272.79, and assuming it works, a 10-cent initial stop-loss will be sufficient.
$ MAR S&Ps (884.50): A new set of numbers: The closest downside pivot is 875.40. Accordingly, I'll suggest bottom-fishing in the first hour only, using an 875.50 bid for a single E-mini contract, stop 874.75. Using 888.00 for a minimum objective, switch to a 2.00-point trailing stop above 881.00.
$ OEX (449.12): Today you can try bottom-fishing 445.53, a hidden pivot, in the first hour. A tight stop loss is suggested, but you’ll be on your own otherwise.
MAR BONDS (110.28): No change. Our minimum upside expectation is the 112.11 peak made in November. In a bigger picture, the bonds have been oscillating nervously for eight weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.06): No change. The closest downside pivot below a weak shelf of support at 25.00 lies at 24.49. It is useless for our purposes, since the cubes are likely to oscillate around 25 for the next week in the absence of high drama.
FEB GOLD (346.50): Yesterday’s spiky high to 355.70 fell $1.40 short of our target by $1.40. FYI, if you were long on your own initiative, a judicious trailing stop would have taken you out at 355.00 This implies a risk reward of 1:2 held constant. (i.e., when the futures hit 355.70, leaving an additional $1.40 of profit potential, the trailing stop should have been no more than half of that). 357.10 remains viable as a minimum target, but be aware that any rally that surpasses that number even slightly would imply the futures are bound for a minimum 363.90. Meanwhile, the Febs could pullback to as low as 335.32 and still be the very picture of health, technically speaking.
MAR NASDAQ 100: (1014.00): There’s a hidden pivot at 997.00 that we’ll use for a minimum downside target, but I wouldn’t suggest bottom-fishing there because of its close proximity to an important round number. If 997.00 is easily breached, infer that more weakness will follow.
***
$ AOL (13.31): AOL is playing footsies with a hidden pivot at 13.26, but if it heads lower, expect it to bounce off the next: 12.68. Scalpers can bottom-fish there with a 12.64 stop, but you'll be on your own thereafter.
$ + CSCO (13.00): We hold four Jan 12.50 puts for 0.30 and four Dec 17.50 calls (CYQLW) for 0.10. We also bought 200 shares a penny off yesterday’s low, 12.73. Sell half of it this morning market-on-opening, then use a 12.82 stop for what remains. Switch to a 10-cent trailing stop once 13.23 is reached, using 13.68 as a price objective.
INTC (17 00): No change. Intel appears bound for a weak pivot-support at 16.07, but because of the closeness of that support to the round number, I would not suggest bottom-fishing there.
$ C (37.00): Assuming Citi does not first take out yesterday’s 36.61 low, it would trigger a minor-trend buy signal with a 37.51 print. Thereafter, we should expect the stock to reach a minimum 38.40. You’ll be on your own here, but please note that any shorts from 38.40 should risk no more than a few cents on the initial stop-loss.
$ + GG (12.50): No change. We hold 200 shares for an average 4.35. Our rally target is 14.76, and we are offering a round lot there to close, g-t-c, with the goal of buying it back on a retracement.
+ DROOY (4.19): Again, no change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
MSFT (53.11): We may as well sleep through what remains of the week, but first we’ll zero out our two December 60 calls for a $200 trading loss.
$ + EBAY (68.67): We hold two December 75 calls (QXBLO) for 0.40. One is offered g-t-c for 0.70, but the odds of booking a profit are now remote. eBay nonetheless remains the best vehicle on the lost for buying high-leverage calls. We’ll try again in January, but not aggressively.
More on Inflation/Deflation
by Rick Ackerman
: The two-day hiatus in service that was to have occurred later this week has been pushed back into the next. This means that you will receive newsletters for Thursday and Friday, and for Monday, December 31, but not for Tuesday or Thursday of next week. You should also be aware that most U.S. markets will close early today and on December 31. Now let’s continue our discussion of the inflation/deflation conundrum. In one of last week’s editions, I quoted some insightful comments from Tim Picks, author of the Web-based Ruminations. In a subsequent e-mail dialogue I had with him, I asked Tim to comment on whether he thought deflation could co-exist with a collapsing fiat currency system. His reply advances our discussion somewhat, but without drawing hard conclusions. Indeed, as his response suggests, it may not be possible to predict with confidence how the collapse of a hundred trillion dollar, global debt bubble would be impacted by an all-out effort by the central banks to reinflate.
First my note to Tim:
Much enjoyed your essay posted at 321Gold, Tim, and hope you decide to take a crack at the conundrum of deflation occurring in a world sloshing in valueless money. A case of an irresistible force meeting the immovable object, perhaps? I've been writing with increasing shrillness about the deflation threat -- in Barron's, The San Francisco Examiner and in a bunch of newsletter including my own (Black Box Forecasts) -- since around 1991. But I became convinced in the early 1980s that deflation eventually would defeat inflation after reading the late C.V. Myers' 1978 book, The Coming Deflation. Said Myers, "Every penny of every debt must eventually be repaid -- if not by the borrower, then by the lender." With $8Tr in stock equity value having been contributed to this process already, it would appe ar the housing stock would have to be next. To paraphrase Willie Sutton, "That's where the assets are."
Inflating Away $100Tr?
Meanwhile, very few seem to understand the catastrophic implications of the central banks' trying to inflate our way out of a $100Tr global debt bubble. Even if it were pos sible, given the sums involved, only a hyperinflation could result rather than a run-of-the-mill inflation. Also, as Jim Davidson pointed out in The Great Reckoning, by destroying savers as a class and the institutions that conduce savings, a massive reinflation would not necessarily be the lesser of two evils, assuming a wave of bankruptcies as the alternative. The deflation/liquidation route would leave the infrastructure of the banking system intact, notes Davidson, while hyperinflation would destroy it for at least a generation.
Tim’s response:
“The whole inflation/deflation thing is a toughie. My guess would be that the Fed will be able to continue to inflate, so long as housing prices don't start to fall. But I view that at just a matter of time. However, I've been way off in timing before, so that's not a minor issue. I have much experience with the old line that the market can stay irrational longer than you can stay solvent.
“Once housing prices go, and that's where people have most of their wealth, then I think the money supply does indeed shrink. People are so leveraged in housing that we might sort of end up with a giant stop-loss order, where once hous ing goes down by a certain amount, it could just trigger further sales, etc., etc. But prices in general are a different story from inflation (at least in my eyes). I think it's possible that you could have, for a period of time, inflation (increasing money and credit) and yet have a negative CPI, for reasons mentioned in the piece.
Gold, Commodities Rise
“And if the dollar tanks badly enough, I could see gold and commodities rising, as those things ge t cheaper for people in other countries, and thus, world demand increases, especially in some of the burgeoning economies like China and India. In the U.S., I would think demand for these same items would go down somewhat, but not a lot, because many of these things aren't optional. Beef, wheat, sugar, coffee, cocoa, oil, sure there could be some decline, but for the most part I would think demand would stay relatively level for these things -- things that you really need and where demand is relatively inelastic. And any decline in demand here in the U.S. could be more than offset by those things getting cheaper in the currencies of other countries.
“But for the things you just WANT however, look out below. Car prices, new clothes , new houses, adding a room to your house, etc., those things could just collapse in price, as could the demand for ‘services’ as people start doing things themselves again. But another possibility would be competitive devaluations where each country's government tries to shaft its citizens faster than the other. Maybe people say, hey, the dollar is bad but nothing else is any better. (The charts look like the dollar is gone, but who knows.) In this case it still seems like gold and commodities would do well. Because you can't print those.
“If you had a global depression, however, then all bets are off and I really don't even have a guess. If every country is so dependent on our consumerism that we bring them all down, wow, I don't know. I guess each country's home currency would be the thing to hold. I suppose people could still go into
gold out of fear. I'm sure you've gone through all these thoughts yourself and I'm not saying anything new. Seems like each time I think it through I come up with a different answer myself.
Other Musings…
“I wrote a few other piec es in the past, if you really want to bore yourself. I tend to be a little longwinded by trying to describe things or use stories in a way that people can relate to. These two are pertinent:
http://www.fallstreet.com/Spotlight/dec1701picks/dec1701picks.htm
http://www.fallstreet.com/Spotlight/feb1402picks/feb1402picks.htm
“I write so infrequently that I have a little mail list to let people know when something new has come out. I also send out some shorter thoughts to it occasionally. It's open to anybody from any email address by just sending a blank mail to: timpicks-subscribe@topica.com
“But I wish I new for sure which way things were going to fall, and in what time frame. You could certainly make a killing. But if you're wrong and bet too boldly, you could certainly get killed too. S o far, I've been making money betting against the Fed, and it's amazing to see them still have so much hubris even after being so wrong. That makes me think the markets will slap them around a little more. But who knows, maybe I'm in for a beating, myself. Thanks very much again for the note, and I'll certainly keep reading what you have to say. Always good stuff.”
_____________________________________________________________________________
[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8493.20): Yesterday’s projected target for the Dow, as well as for nearly all other vehicles tracked immediately below, closely matched the actual intraday highs, providing some scalping opportunities for the bold and the nimble. Today’s target is splitting hairs: 8507.14, the minor-est of pivots, is my minimum upside projection for today. If you try shorting there, I’d set the stop loss just a few hundredths of a point higher.
MAR S&Ps (897.10): There’s a very minor hidden pivot at 898.00, but if that number is breached by more than 0.50 points we’d infer the futures are on their way to the next pivot, 903.50, which is almost as inconsequential. Scalp there only if boredom feels like it is encroaching on your sanity.
OEX (456.06): If, on your own initiative, you went short at yesterday’s top with a one-point stop-loss, the subsequent pullback afforded an opportunity to cover the position with a nice profit. Today, mainly for informational purposes, I will mention two hidden pivots just above: 457.38 and 460.19. If the first is breached, assume the second to be imminently on its way.
MAR BONDS (110.27): Again, no change. Our minimum upside expectation is the 112.11 peak made in November. In a bigger picture, the bonds have been oscillating nervously for eight weeks, biding their time between 106 and 112 in preparation for a projected run to 120.
QQQ (25.67):< SPAN style="mso-spacerun: yes"> Yesterday’s peak at 25.76 was just 0.05 above where we’d predicted. If the high is breached today, we’d infer the Cubes are on their way to at least 26.13. No trade is suggested.
FEB GOLD (345.60): Here’s something for the short-term to stretch the bullish imagination. The closest hidden-pivot resistance above these levels lies at 355.30, just a hair from last Thursday’s multi-year high, 355.70. This double resistance is a daunting barrier, but if and when the F ebs close above it, or print 356.10 intraday, we should infer they are on their way to a minimum 371.60 in this rally cycle. Meanwhile, there was an obvious error in the 323.20 bid price suggested on Monday, but it had no practical consequence, since the futures never got near the intended “buy” price of 335.32.
MAR NASDAQ 100: (1033.50): The closest hidden pivot above lies at 1041.00, but that’s too close to tops made yesterday and last Thursday to be worth much to us. If the futures break past it, we should assume they’re on their way to at least 1055.00. That number is worth shorting, using the E-mini and a stop-loss at 1056.20, and provided it is hit before the final two hours of the session. You’ll be on your own thereafter.
***
AOL (13.24): Zzzzzzzzzz. This hoser has bo red us quite enough already: 14 straight days loitering in the range 13-14. We’ll be substituting a new stock ASAP. Any suggestions?
$ + CSCO (13.44): We hold four Jan 12.50 puts for 0.20. Cisco looks like it’s fixing to meander up to 14, but we can still be ready for a downdraft by offering one of our puts for 0.80, g-t-c.
;
INTC (17.21): Two insignificant and nearly worthless pivots just above: 17.37 and 17.66. More power to you if you can harness them for some small good. A suggestion: If the first is penetrated, considered the second a lock-up.
C (37.68): We expect this hoax to rally to at least 38.40, or to 38.91 if any higher. A (very) minor pivot at 38.14 must be overcome along the way.
$ + GG (12.90): We hold 200 shares for an average 4.35. Our rally target is 14.76, and we are offering a round lot there to close, g-t-c, with the goal of buying it back on a retracement. Goldcorp will be on its way to the target if it can close above a lesser hidden pivot at 13.31. That number is worth shorting intraday as a scalp, although I wouldn’t suggest leaving it uncovered overnight.
+ DROOY (4.16): We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis. Here’s a note from a Canadian subscriber, Francois R, that I’m sure all you will enjoy: “Good morning Rick. I've been reading your letter for few months now and I have to admit that your views on the market have been quite valuable. I've been a gold bug for more than 18 months, and I really believe that what we are seeing these days is only the beginning of a long (i.e., at least 2-3 years) bull market in gold. In July 1999, the Dow relative to gold turned down on a trend basis -- something that has occurred only twice before in the last hundred years (in 1929, and again in 1969). If we take those two years, each correction or reversal brought the Dow/gold ratio at 2x or less (from 18x and 28x, respectively). So, from a top of 45x in July 1999, we're now at 25x, which suggests there is a lot of upside in gold and also a lot of downside in the Dow in order to return to a ratio of 2x or less. That's why 30% of my assets are in gold stocks (DROOY and Canadian stocks like Cambior, Eldorado, Kinross, Northgate Explorations) and the balance in cash.”
MSFT (54.00): We’re fighting boredom as MSFT continues to breast-feed near 54.00.
EBAY (70.10): eBay’s next pop, sometime between now and Jan 3, will be to 72.05, but probably no higher. We are good at timing our options purchases -- but not quite that good.
Gold 'Indicator' Misleads
by Rick Ackerman
We are most grateful for the insights that you, the newsletter's readers, have contributed to an ongoing discussion of inflation, deflation and the price of gold. While letters to the editors of The Economist, The New York Times, The Wall Street Journal, Forbes, Time, Newsweek et al. suggest that the evidently benighted readers of those publications are mired in prayerful hopes for economic recovery, we are confronting a grim reality squarely, hedging and even leveraging it with a growing emphasis on gold as the ultimate safe investment. In recent weeks, we have stressed that the surge in bullion quotes does not necessarily portend higher prices across-the-board for goods and services. Here’s a letter from a previous contributor to the discussion, D.S., that will help to further clarify the point:
"A hedge fund subscriber asked earlier whether a price rise in 'essential commodi ties' priced in dollars would constitute inflation per se? The direct answer, with all due respect, is ‘no.’ " It depends in part on how we use the terms ‘inflation’ and ‘deflation’. Your discussion is founded on the premise that when we use these terms, we are talking about a phenomenon that is the consequence of monetary policy -- the result of the money supply and the Federal Reserve money system. The usual concept is that when money supply increases (or when transaction velocity goes up) without a commensurate increase in the supply of goods, we have inflation -- the same quantity of money buys fewer goods; prices are up because the goods are being chased by more money.
Supply and Demand
"Left to be distinguished is the situation where we have price increases or decreases that don't result from adjustments in the money supply. For example, when the supply of oil to the market is curtailed, say, by war, b y OPEC, or by depletion of wells, oil’s price will rise even if the money supply is contracting. Where the supply of wheat is curtailed because of hard freezes, the price of bread goes up no matter what has happened to the money supply. Particularly in the case of oil, structural price increases tend to work their way through the supply stream because oil is used to create such other utilities as power, transportation and the like. All without any impact from increases or decreases in money supply or velocity.
"It is important to keep the distinction in mind. The Consumer Price Index is determined by prices for a basket of commodities, and many if not most of them are affected more by structural shifts in supply and demand than by changes in the money supply. The CRB Index is in exactly the same position -- oil and gas are in the CRB, and so are the grains, precious metals (read: gold, even though we see its current utility as monetary rather than as a commodity); so the CRB index is going up right now, and the CPI is going up a little, even though the monetary-system impact is sharply reduced velocity, and probably somewhat reduced effective money supply (as a result of which we have deflation).
"So when we hear the talking heads telling us that gold is going up because of incipient inflation, they are probably wrong. One ramification is that if the increase in the price of gold were related only to inflation, the probable price rise would be limited because the Fed can continue to control the money supply within some parameters. On the other hand, if our analysis is correct, and we recognize as should everyone else that it might not be, the increase in the price of gold will be driven by demand for its use as money. And virtually everyone who uses fiat currency as a "monetary store of value" will prefer to convert as much of it as possible to a more reliable, higher-utility store of value -- namely, gold."
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8432.61): Yesterday's coin-toss bearishness didn't work out, so we'll reflexively try a bullish target today: 8634.97, a hidden pivot. That would imply a pretty spirited rally if it happens in a single session, but we won't suggest going short there ahead of the weekend. In any event, it'll be our minimum target -- as well as a possible inflection point -- in the event of a strong rally.
$ MAR S&Ps (890.50): There's just one pivot within spitting distance that looks interesting: 871.10. If the opportunity arise, you can bottom-fish there with an 871.25 bid for a single E-mini contract, stop 869.75. You'll be on your own thereafter.
$ OEX (450.60): A hidden pivot equivalent to the one I've flagged for the March S&P lies at 442.82. You can bottom-fish there at your complete discretion if the OEX falls hard, but I wouldn't suggest doing so in the final hour.
MAR BONDS (111.23): No change. Over the near-term we continue to expect a rally to around 112.11, where the futures peaked in November. Longer-term, using a Fibo-based target, our outlook is now bearish and calls for a decline to at least 104.07.
$ QQQ (25.28): The Cubes slightly breached a 25.78 pivot on a rally, but that is hardly reason for bulls to celebrate. We'll back away, lest this vehicle's 14th consecutive day jacking around within a 1-point range lulls us into coma.
FEB GOLD (349.40): Gold quotes have been so frisky lately that we are coming to view sessions like yesterday’s, when prices for most futures contracts increased a "mere" $2, as resting days. The Febs rallied $2.10, leaving our very bullish outlook for the near-term unchanged. To wit, the closest hidden-pivot resistance above these levels lies at 355.30, just a hair from last Thursday’s multi-year high, 355.70. This double resistance is a daunting barrier, but if and when the Febs close above it, or print 356.10 intraday, we should infer they are on their way to a minimum 371.60 in this rally cycle.
MAR NASDAQ 100: (1020.00): Just a small revision: The nearest hidden-pivot support lies at 1018.50, but if the futures close beneath it we’d infer they were on their way down to at least 991.000, a somewhat more important pivot. You can bottom-fish 1018.50 in the first 5 minutes using the E-mini contract and a 1018.60 bid, but I’d risk no more than $25 on the initial stop-loss.
***
IBM (78.50): We expect the stock to remain rangebound between about 78 and 82 for a while, but we’d be tempted to short it if it rallies into the mid-80s. That would create a nice head-and-shoulders pattern on the daily chart and, although I don’t put much store in h&s patterns, this one looks too temp ting to ignore.
$ + CSCO (13.10): We hold four Jan 12.50 puts for 0.20. A downdraft would likely bring this stock down to 12.48, a minor but compelling hidden pivot. We’ll continue to offer one of our puts for 0.80, g-t-c.
INTC (16.69): No change. Magnetic support lies at 16, where a fairly important bottom was made in late October. That remains our minimum downside projection for now, but we won’t try to bottom-fish there because of its obviousness.
C (36.02): Citi's low yesterday fell precisely on a trendline that connects bottoms extending back to late October. Stochastic signs are somewhat bearish, and if the stock breaks the support (at 35.77) we should expect it to fall to at least 34.42, a hidden pivot. Were that to occur, it would have no useful implications for us.
$ + GG (13.41): We hold 200 shares for an average 4.35. Our rally target remains 14.76, and we are offering a round lot there to clos e, g-t-c, with the goal of buying it back on a retracement. Goldcorp should be assumed on its way to the target straightaway, since it finished Thursday's session above a lesser hidden pivot at 13.31.
+ DROOY (4.28): Again, no change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
MSFT (53.39): Every kid in my neighborhood got PlayStation for Christmas, not an X-Box. If MSFT's investors get wind of it, they may want to bring the stock down to 52 or so, where a comfortable plateau of support awaits for purposes of accumulation/distribution.
$ EBAY (67.61): I didn't catch the news, but shareholders must have had some pseudo-profound reason for dumping the stock yesterday. We'll play for the Big Bounce, though -- inevitable if the bear rally begun in October has any life left in it -- by legging into an out-of-the-money calendar spread. For starters, bid 1.20 for four Feb 75 calls, contingent on the stock trading 66.70 or higher.
Harnessing Bear-Power
by Rick Ackerman
Judging from quantity of mail I’ve received, the substitution of IBM for the moribund AOL appears to have been a popular choice. I should mention up front that my bias toward Big Blue is quite bearish, and that recent comments I’ve received from some of you have made me even moreso. I am also bearish on the market as a whole, as you know, inclining me toward two time-favored strategies as we begin the New Year: 1) buying put calendar spreads at strikes well below the market when stocks reach hidden-pivot rally targets; and 2) buying out-of-the-money calls just ahead of bear-market rallies.
It may sound counterintuitive, but the most difficult way to make money in a bear market is by buying put options. In the first place, because option market-makers are not exactly unmindful of the fact that we are in a powerful, secular bear market, put options are priced to reflect a bearish mindset. Second, even if the DJIA is on its way down to 3000, the number of days it will spend actually plummeting will be relatively few. Consequently, it has always been more difficult for me to nail the beginning of downdrafts than to catch the precise bottoms of spiky bear rallies. Option expirations tend to exacerbate those spikes via the short-squeeze effect, and that’s one reason most of our juiciest profits have come from buying out-of-the-money calls a week or two before they’ve expired. But for a variety of reasons, mos t of them too arcane to go into here, long-squeezes triggered by panicky covering of out-of-the-money puts have been a relative rarity since listed options began trading nearly three decades ago. In fact, October 1987 stands out as the long-squeeze of a lifetime – a milestone in the learning curve of market-makers, who until that week had not properly understood the risks of selling “teeny” puts that seemingly had no chance of finishing in the money.
Handling Big Blue
As we head into 2003, here’s an inspiring reflection on our new vehicle, IBM, from one subscriber who evidently has the stock figured out:
“I neglected to respond to your request for suggestions, so I was pleasantly surprised when other subscribers voted for IBM. I am a former IBM employee and over the years that I worked for the company I was able to produce phenomenal returns in my 401(k) by switching back and forth between IBM stock and a money-market fund. Since IBM shares would go into trading ranges on a regular basis, I used a stochastic indicator for timing and it wo rked very well. Some of my fellow employees got interested in this concept and started following it as well. We could move in and out of the stock with negligible transaction costs and a single phone call At times, I was essentially swing-trading the stock when it was trending strongly. The only difficulty was that you had to make the decision to enter the transaction by 1 PM, but the price you paid or received was the closing price. (I am sure that the intermediary did well because of this time-lag.) Notwithstanding that drawback, for many years I made it one of my chores before going to lunch to check the price and the chart to determine whether to move money into or out of the stock fund.
“At any rate, I am signing up my former colleagues for the newsletter so that they can have the benefit of your analysis as opposed to what I tell them. Many of us still have the 401(k) waiting for better times to roll it into an IRA. By the way, since IBM is a bit of a pricey stock, I hope that you are planning to suggest option plays. That has been your strategy on much less expensive stocks.”
[B]Scheduling Note
This will be the final letter for 2002, since the next one will go out Thursday night for Friday, January 3. Let me take this opportunity to wish you all a very happy New Year. May 2003 bring you only good things.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8303.78): Yesterday’s dismal close brought an axis of symmetry to the last six weeks’ action. After rallying nearly 800 points along the way, the Dow has fallen back to exactly where it was on November 13. Are we having fun yet? Pretending I’ve tossed a coin, I’ll go with my gut and predict that stocks will fall today. There’s a promising hidden-pivot support at 8254.15 that you can bottom-fish at your complete discretion, but if it is easily breached, expect the Dow to seek traction near 8200.
MAR S&Ps (871.80): The breach of a pivot at 886.30 telegraphed 16 points of further weakness, as predicted. It brought the futures to within less than a point of the 870.60 pivot we’d fla gged as our minimum downside target. If that number is breached today, the futures would be in jeopardy of falling to at least 843.50 as the New Year begins.
OEX (443.04): Our bearish forecast missed nailing yesterday’s exact low by less than a point. Since it did not occur in the final two hours of the session, however, you should not have taken an overnight position.
$ MAR BONDS (112.27): The bonds rallied to our 112.11 target, then put on a burst of energy to end the day even higher. They are within striking distance of last autumn’s highs near 114, so expect a tentative probing of that level today or tomorrow. If the March contract can close above 113.28, I’d make them an odds-on bet to reach a minimum 117.24. If so, that’s a hidden pivot that we’ll want to short.
$ QQQ (24.82): Friday’s low missed reaching our projected short-term bottom by 11 cents, so you should have ended the day with no position. The Cubes could still turn at 24.64, but I am no longer advising that you bottom-fish there.
FEB GOLD (349.70): Gold’s recent price a ction reminds me of a headline I recall atop a feature about Cardinal Hall-of-Famer Lou Brock, base-stealer extraordinaire: “When He Walked, He Ran”. And so it is with bullion quote these days: Even on days when they are “resting,” they continue to move higher. Our very bullish outlook for the near-term is unchanged, as follows: The closest hidden-pivot resistance above these levels lies at 355.30, just a hair from last Thursday’s multi-year high, 355.70. This double resistance is a daunting barrier, but if and when the Febs close above it, or print 356.10 intraday, we should infer they are on their way to a minimum 371.60 in this rally cycle.
$ MAR NASDAQ 100: (1001.00): The futures have bounced reflexively if feebly from obvious round-number support at 1000, but we expect them to head still lower now, to a minimum 989.00. Accordingly, in the first hour only, you can bottom-fish the E-mini contract with a 989.20 bid for a single contract, stop 987.80. Switch to a 3-point trailing stop once 998.00 is touched, and use 1007.00 for a minimum objective.
***
IBM (77.36): The Beamer dropped out of what had become a fairly comfortable range. Now the stock must reckon with a head-and-shoulders formation that threatens a fall to at least 72. We’ll spectate for now.
$ + CSCO (13 01): We hold four Jan 12.50 puts for 0.20 and are offering one of them to close for 0.80, g-t-c. Our minimum downside target remains 12.48.
INTC (16.40): No change. Obvious support lies at 16, where a fairly important bottom was made in late October. That will be our minimum downside projection for now, but we won’t try to bottom-fish there because it’s bound to attract a crowd.
C (35.17): Citi is about to probe support near 34, where enough bottoms have been made in the past to hold the stock aloft for a while, at least. There is no edge for us in trying to bottom-fish there.
$ + GG (13.09): We hold 200 shares for an average 4.35. Stochastically speaking, Goldcorp is not even breathing hard as it consolidates for a move higher. Our rally target is 14.76, and we are offering a round lot there to close, g-t-c, with the goal of buying it back on a retracement. The stock will be on its way to the target if it can close above a lesser hidden pivot at 13.31. The brief move above it on Friday should be regarded as a bullish sign.
+ DROOY (4.21): Again, no change. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
MSFT (52.97): We’d love to short this brick on a rally, but it looks as though the stock will head lower without g iving us the satisfaction.
$ EBAY (67.03): We bought four Feb 75 calls for 1.20 – our bullish ticket for a New Year’s rally. Regardless, let’s try to spread off some of the premium risk by offering four January 75 calls short for 0.70, g-t-c. Th e stock would need to rally about 4 points next week to get us filled.
My Good Fortune
by Rick Ackerman
Would you trust someone from Togo named Murphy Kamoki? No matter; the important thing is, he seems to trust me. I received an e-mail from this fellow a couple of weeks ago asking whether I would be willing to take delivery on a huge shipment of gold dust. All he asked of me – a complete stranger -- was that I send him a quantity of cash to secure the transaction. “Sounds great,” I replied promptly. “Just let me know where I can send my life savings.”
I don’t know whether it was the effusiveness of my reply, or its obvious sincerity, but Murphy responded immediately with further details. “Dear Sir,” he wrote. “I was happy with you reply dated Thu, 19 Dec 2002. Something in me made me believe that I am dealing with the right person now. What I really want from you is just sincerity because we are poor refugees. My brother believe me, this Alluvia gold dust is the only hope for us as at now. What we are to do is to arrange the legitimate documents of this merchandise that will enable us uplift it. If you like to come or to send somebody, before the documents can be arranged it is still be okay, but then if you can prefer me to arrange the documents before you come there is still no problem.”
Can you believe my good fortune? Perhaps its just the Karma making up to me my recent $170 million Powerball disappointment? In any event, I expect to have the gold dust in hand shortly after Murphy and I have dispensed with some red tape, in the form of the following documents: 1) insurance certificate; 2) certificate of origin; 3) custom duty stamp; and 4) SGS report and certificate of export.
“All these will be prepared in your buyers name as this will enable us facilitate the uplifting of this merchandise,” Mr. Kamoki assures me. “I will like to here from you soonest. N/B Send me your private phone and fax numbers for quicker communication. Thank you for yo ur corporation. Yours truly,
Murphy Kamoki.”
Just why he would bless me as the sole recipient of $10 million worth of gold is a total mystery. If it is because he subscribes to Black Box and was pleased with my bullish gold forecasts, he made no mention of it. Anyway, I will keep you all apprised. When the gold arrives, there is going to be one heckuva party here in Colorado, and you will all be invited. Meanwhile, let us segue smoothly into a “Yeah, sure” take on Thursday’s 266-point rally in the Dow Industrial Average.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8607.52): Over the very near-term, Thursday’s seasonally unsurprising frisson should continue to at least 8698 -- assuming the Dow can get by a minor pivot this morning at 8611.15. Since the target is closely coincident with obvious round-number resistance, we’ll make no suggestion that you attempt shorting there. If the Indoos go any higher, use 8743.19 – a fibo level – as a minimum objective.
MAR S&Ps (907.40): The closest resistance is a fibo at 921.51, but if it’s breached by more than a point or so we should infer the futures are intent on testing the 953.50 peak achieved on December 2.
OEX (459.50): The Fibonacci resistance analogous to the one we’ve flagged for the Dow and the S&P futures lies at 469.80. We’ll make that our minimum target for now, although we are not recommending that you try to short it.
MAR BONDS (110.06): U.S. manufacturing upticked in December, sending bulls into apparent spasms of ecstasy. Bonds fell sharply, seemingly discounting the inflationary prospect of a U.S. economy once again hitting on all eight cylinders. Since chances of this occurring are as remote as a downpour in Antarctica, we should look for the bonds to give back Thursdays gains and more sometime soon. In the meantime they could fluctuate anywhere between 106 and 114 without implying anything of significance.
QQQ (25.40): Wake us when this vehicle breaches 27.00, since that would be the first sign that the current bear rally has a chance of achieving minor infamy. If so, my in-your-wildest-dreams target would be 33.31, a distant but important hidden pivot.
FEB GOLD (346.20): Gold bulls should welcome days like yesterday, since a few more of them will allow us to get filled on g-t-c bids that are currently below-the-market. Meanwhile, my outlook remains unchanged. The closest hidden-pivot resistance above these levels lies at 355.30, just a hair from the recent multi-year high at 355.70. This double resistance is a daunting barrier, but if and when th e Febs close above it, or print 356.10 intraday, we should infer they are on their way to a minimum 371.60 in this rally cycle.
MAR NASDAQ 100: (1025.00): The resistance of prior peaks looms at 1046.00 and 1057.00, but once they are surmounted the futures should be presumed on their way to a fibo level at 1093.37.
***
IBM (80.57): Until such time as the stock surpasses a major hidden pivot at 93.32, we should greet any rally with cold skepticism and a yawn. Meanwhile, my immediate upside target is 84.26, a fibo level.
$ + CSCO (13.64): We hold four Jan 12.50 puts for 0.20 and continue to offer one of them to close for 0.80, g-t-c. In a couple more months, Cisco will have spent nearly the entire last two years between 10 and 20. The only support important enough to mention lies at the all-to-obvious round number, 10. Above, there is a hidden-pivot resistance at 16.41 that should suffice as our best-case rally target for then next 3-5 weeks.
INTC (16.69): We’d have ignition on a 17.70 print for a rally to at least 19.99. Speculatively, let’s bid 0.25 for four Feb 20 calls (NQBD), day order, contingent on the stock trading 16.60 or higher; if lower, bid 0,20 for the calls, no further contingencies.
C (36.35): The 38.15 high made on December 20 makes an obvious though not especially useful upside target for the near term.
$ + GG (12.69): Still no change. We hold 200 shares for an average 4.35. Our rally target is 14.76, and we are offering a round lot there to close, g-t-c, with the goal of buying it back on a retracement. Goldcorp will be on its way to the target if it can close above a lesser hidden pivot at 13.31.
+ DROOY (4.01): We’ll remain spectators as DROOY, clearly in accumulation mode, plays footsies with $4. We hold 600 shares for an average 4.29, with a minimum price objective of 7.35. To set up the powerful rally that will get it there, the stock will first have to clear a lesser pivot at 4.78 on a closing basis.
MSFT (53.7 2): Microsoft has become the most tediously tiresome stock on the list, reminiscent of the late, great Pfizer, which once appeared on our list. A recent Wall Street Journal story drew bullish conclusions from the fact that Microsoft, Cisco, Intel and a couple of other high tech stalwarts are sitting on billions of dollars of cash. But how bullish is this, really, when these companies can do no better with the money than you or I parked in Treasurys or -- yuck! -- money market funds? Cash surpluses in a deflationary period are a burden, not a blessing – especially for companies that are used to carrying high PE multiples. Meanwhile, concerning Microsoft, I read recently that the only product on which it has ever produced a profit is the Windows operating system. With that kind of track record, perhaps we should view the firm’s $40 billion surplus as a wasting asset, rather than a war chest?
EBAY (69.35): eBay for the umpteenth time appears headed up to 70.50 – 71.00. If it somehow breaks through, we’d be tempted to short 72.05, a hidden pivot with speculative stopping power
Stretching Economic Theory
by Rick Ackerman
I’ll be skiing in Vail with some old chums through Monday, so the next day’s edition will be omitted. Meanwhile, mail from a score of subscribers concerning my would-be plunge into alluvial gold has been quite a treat. I’ll share these wise letters with you on my return. Scam-related messages aside, I’ve built up quite a backlog of items and ideas meant for use in Trading Notes. One of them was clipped from the op-ed page of the December 31 Wall Street Journal. It is an essay entitled “Silver Bullets for the Bear?” by Jeremy Siegel, a finance professor at Wharton, one of America’s most reputable business schools. Like most WSJ op-ed contributors these days, Siegel herniates himself trying to explain why economic recovery lies just around the bend The Journal -- and quite a few other sources of sugar-coated opinion -- has broached several theories, none of them the least bit persuasive, concerning how and when the recovery might occur. The silliest of them is that consumers will continue to spend until such time as corporate profits catch fire. The Austrians explained two years ago why this is as unlikely to occur now as then. For in point of fact, a significant rise in consumption could come only from a precipitous rise in household incomes, or in personal borrowing. Does anyone want to argue that our paychecks are about to soar? Okay, then, that leaves only the argument that borrowing is about to surge. And surge it would have to, at a rate of at least 3-4% a year just to keep the economy creeping along, never mind prospering. So what is Professor Siegel’s brightest ray of hope? Very simply , a falling dollar -- and just a bit of inflation. “A little inflation in an economy where many corporations and individuals are saddled with debt would be an encouraging development,” he writes, fulfilling a prediction I made here more than five years ago -- that economists would someday pray for the return of the inflation they had feared so obsessively for nearly two decades. Siegel continues, “There is a strikingly positive correlation between producer prices and profits in the short run, as pricing power is a key driver of corporate earnings. I think today that a softer dollar is a positive development for both the economy and the stock market.”
Let’s break that down into bite-size chunks. First Siegel says that debtors should welcome a little inflation. No doubt. But would a little inflation be sufficient to make even a small dent in the $100 trillion global debt load? And even if it were, would the relief he predicts come in time to reverse the deflationary forces that now threaten to put the economy down for the count? Siegel’s second hypothesis is even more farfetched – that inflation would give producers more pricing power, hence fatter profits. One need only visit an auto showroom to see how ridiculous this notion is. Dealers are literally paying customers to drive cars off their lots these days, so how could they hope to make a price increase stick? Granted, prices of German and Japanese cars are not likely to soften much in dollars, given the weakness of the greenback. But consumer demand plays a role too, and buyers are so glutted with new or barely used cars that they are unlikely to bid up the price of Chryslers and Fords merely to avoid foreign marques. Siegel’s hypothesis has been stretched to even further extremes in the news pages of the Journal, where it has been suggested that a barely visible upturn in profits will somehow lead to a recovery in capital spending. This is like saying that someone with a New Year’s Eve hangover is ready to run the ‘440’ merely because he has managed to hoist himself to a sitting position on his bed. The notion that inflation could somehow perk up consumer demand is absurd, even if it evidently is endorsed by a many ivory tower economists.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8601.69): We’re still projecting a feeble rally to 8698, though higher prices should not be ruled out. Since the target is closely coincident with obvious round-number resistance, we’ll make no suggestion that you attempt shorting there. If the Indoos go any higher, use 8743.19 – a fibo level – as a minimum objective.
MAR S&Ps (910.40): No change. The closest resistance is a fibo at 921.51, but if it’s breached by more than a point or so we should infer the futures are intent on testing the 953.50 peak achieved on December 2.
OEX (459.20): No change. The Fibonacci resistance analogous to the one we’ve flagged for the Dow and the S&P futures lies at 469.80. We’ll make that our minimum target for now, although we are not recommending that you try to short it.
MAR BONDS (110.09): We’ll remain spectators for the moment, since the futures could fluctuate anywhere between 106 and 114 without implying anything of signif icance.
QQQ (25.68): Zzzzzzzzz. Wake us when this vehicle breaches 27.00, since that would be the first sign that the current bear rally has a chance of achieving minor infamy. If so, my in-your-wildest-dreams target would be 33.31, a distant but important hidden pivot.
FEB GOLD (351.60): Hitting intraday highs not seen since 1997, the near-month contract closed within striking distance of 355.30, a hidden-pivot resistance we’d flagged whose likely breach portends clear sailing to 371.60, at least. Don’t be surprised if the next $20 of upside is traversed within the week.
MAR NASDAQ 100: (1037.00): No change. The resistance of prior peaks loo ms at 1046.00 and at 1057.00, but once they are surmounted the futures should be presumed on their way to a fibo level at 1093.37.
***
IBM (81.65): The closest hidden pivot above lies at 82.33, and that will suffice as a short-term target. If it is breached by more than a few cents , however, we should infer that the rally will continue to at least 84.02. In a bigger picture, until such time as the stock surpasses a major hidden pivot at 93.32, we should greet any rally with cold skepticism and a yawn.
+ CSCO (13.91): We hold four Jan 12.50 puts for 0.20, but you can cancel the offer at 0.80 for one of them, since it is unlikely to be filled over the next few days. Cisco appears bound for the range 14.40 – 14.80, where it did much of its gratuitous bouncing around in early December. More such tedium likely awaits.
INTC (16.54): Intel hasn’t rallied for two consecutive days in quite a while, but that doesn’t mean it can’t happen. Unless I hear otherwise, I’ll assume none of you was able to buy Feb 20 calls on the terms I’d specified. Accordingly, let’s once again bid 0.25 for four Feb 20 calls (NQBD), day order, contingent on the stock trading 16.60 or higher; if lower, bid 0.20 for the calls, no further contingencies.
C (36.11): The 38.15 high made on December 20 is our minimum upside projection, but it is too obvious to have any value to us as a place to go short.
$ + GG (13.07): We hold 200 shares for an average 4.35. Our minimum upside target for the bullish cycle begun early in December is 14.76. In profit-taking mode, we are offering a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Goldcorp will be on its way to the target if it can close above a lesser hidden pivot at 13.31. Note as well that, if it exceeds the 14.76 objective by more than 4 cents, the stock should be presumed bound for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (4.18): We hold 600 shares for an average 4.29, absolutely confident the stock will reach a minimum 7.35 before the intermediate-term cycle takes a rest. To set up the powerful rally that will get it to 7.35, DROOY first must clear a lesser pivot at 4.78 on a closing basis.
MSFT (53.79): A weak pullback from above 55.06 would generat e a minor “buy” signal, but until then any long position entered would be too speculative to suit our day-in-advance brand of advice.
EBAY (69.93): Once again, the stock appears headed into the range 70.50 – 71.00. If it somehow breaks through we’d be tempted to short 72.05, a hidden pivot with speculative stopping power.
I’ll be skiing in Vail with some old chums through Monday, so the next day’s edition will be omitted.
Also kein Ackerman für Dienstag....
Apres Ski
by Rick Ackerman
The past weekend’s ski getaway could not have been more pleasurable. Given the drought conditions that have prevailed along Colorado’s Front Range for more than a year, it was a pleasant surprise to see such dense, ski-able snow pack on the slopes of Vail. Virtually all of the resort’s extensive trails and high-speed lifts were open, and snow-cover from peak to base was uniformly excellent. I met up at Lion’s Head with an old buddy and his son, as well as with a Black Box subscriber, Chas B, whom I’ve mentioned before -- a Vail resident whose canny improvisations on my forecasts have enabled him to consistently beat the newsletter’s unofficial track record. My New Jersey friend had hired a private instructor for the week, so we were able to bypas s lift lines on Saturday and Sunday, and also to ski for the three days I was there without taking the same trail twice.
I started skiing at a relatively late age with the goal of continuing into my eighties. With this is mind, I asked the instructor, Steve De Groat, what pointers he might be able to give me. “First, get some shaped skis,” he said, looking down at my 1980s-vintage boards. So I demo’d a pair on Sunday, and the sport will never be the same for me. Hitting the slopes on state-of-the-art “Atomics” reminded me of the time I first picked up a graphite-frame tennis racket after clinging to a stiff, wooden Wi lson “Kramer” well into the 1980s.
Steve DeGroat has been an instructor at Vail for 23 years and knows his stuff. He was able to diagnose my problems precisely and to make suggestions for correcting them that I implemented without difficulty. For those of you who get to Vail, if you’re approaching geezer-hood as I am and want to learn techniques that take the pain and struggle out of black-diamond trails and steep bowls, you should ask for Steve at the ski school. Meanwhile, if anyone knows where I can unload a paid of Rossignol “Quantum” 185s, please drop me a line.
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I mentioned in the last letter that I’ve got quite a backlog of subscriber mail that I plan to air, but below is something that shouldn’t wait – a superb analysis of why we are about to go to war with Iraq, and why it is essential that we win the war quickly. It was written by Dr. George Friedman for www.stratfor.com, a Web-based intelligence service that provides in-depth commentary to subscribers. The article was circulated with the suggestion by stratfor that it be fo rwarded to friends:
THE WAR OF TIME
The United States is perceived as being overly aggressive against Iraq and in the war on al Qaeda in general. However, a look at events of the past year shows that since major action in Afghanistan concluded, Washington has been relatively inactive. The illusion of aggressiveness covers a reality of caution. Though there was good reason for caution, Wa shington's extended focus on preparing for war in Iraq has created difficulties: Other crises such as North Korea and Venezuela, which would have been readily managed prior to Sept. 11, are increasingly unmanageable in this context. Therefore, Washington now feels pressure to bring the Iraq campaign to a rapid conclusion. Whatever the operational realities in Iraq, the global situation calls for a rapid onset of war and rapid victory.
Analysis: Since the Sept. 11 attacks, the United States has played a long, deep game. Following the reflexive attack on Afghanistan -- and contrary to the claims of most of its critics -- the United States spent the next ye ar biding its time. It built up its covert capabilities around the world, it collected intelligence and, on occasion, it acted. Washington decided that its next move would be to invade Iraq and, having can be found in the origins of the war against al Qaeda. Pearl Harbor stunned the United States, and it took a year for a strategy and capability to emerge. During that time, the United States tried to compensate for weakness through an apparent bellicosity unsupported by power. Raids like the Doolittle raid, speeches by Gen. Douglas MacArthur and real if unintended battles like Coral Sea, Midway and Guadalcanal laid the groundwork for a systematic offensive. In a similar sense, Sept. 11 took the United States by surprise. Washington had neither the strategy nor the force needed to wage the war. It substituted bellicosity for coherent action -- to keep the enemy off balance -- while fighting real, if not wholly intended or planned, engagements around the world.
Shades of Pearl Harbor
As in 1942, 2002 was consumed by debate about strategy. Following Afghanistan, the issue was: What next? Attention immediately focused on Iraq. There are three reasons to attack Iraq: 1) Saddam Hussein is unpredictable and potentially a powerful ally for al Qaeda. Whatever the relationship in the past, the threat of a relationship in the future requires the elimination of Iraq's regime. 2) All wars have a psycholo gical component. There is a real perception within the Islamic world today that the United States is incapable of fighting a war to a definitive conclusion. The United States must demonstrate both its will and ability. Iraq serves the purpose well. 3) Iraq is an extraordinarily strategic country. It touches Jordan, Syria, Turkey, Iran, Kuwait and Saudi Arabia. An occupied Iraq would give U.S. forces the ability to wage covert and overt war throughout the region, setting the stage for the direct engagement and liquidation of al Qaeda, with or without the cooperation of regional governments.
There was never a debate within the Bush administration about whe ther the next campaign would be in Iraq. There was a serious debate over how and when -- and while that debate raged and forces were prepared, the United States created a sense of inevitability of both war and victory that substituted for what Washington in reality was able to do at the time.
The debate was between two factions. One, rooted in the Air Force, Joint Special Operation Command and Defense Department civilians, argued for an early war, using primarily air power and Special Operations troops along the Afghan model. The other faction, rooted in the regular army and State Department, argued for a more systematic buildup of heavier forces, which would be available should the opening gambit of USAF/JSOC prove insufficient. Secretary of State Colin Powell led the campaign for a conventional option. Since this option required coalition partners for basing and logistic support, he also argued for a period of systematic coalition building. In the end, Powell won the fight -- not against a war with Iraq, but for a more cautious and time-consuming strategy. That strategy has been unfolding since last summer; now the needed forces are nearly in place and the coalition is almost secure.
No Room for Failure
The criticism of the rapid attack plan was that it was too risky -- there were no contingencies in the event of failure. The current plan includes a range of complex options. It is a war plan designed to raise the ante if Iraq's forces don't crumble. Forces will be moving toward the theater of operations even as the air war beings -- dramatically changing the Desert Storm model, in which almost all forces were in place before the air campaign began. This plan seems to call for a systematic increase in pressure designed to crack the Iraqis, with the expectation that the crack will happen early and a willingness to allow it to come later. It is in this sense that the buildup to war and the war itself can be called a long and deep game. It assumes that time is on Washington's side and that the war can be executed on multiple, complex levels simultaneously.
And that is where this cautious war plan is most risky -- not necessarily in relation to Iraq, but in terms of global strategy as a whole. The war plan has the United States focusing heavily on Iraq, with parallel attention on covert operations against al Qaeda. It also has opened the door -- during this period and particularly at this moment, when troops are committed but not yet in action -- for other actors to take advantage of the situation or for other events to spiral out of control.
Facing Two Crises
There are two major crises on the table now, both of which involve fundamental U.S. interests and neither of which the United States is in a position to manage effectively because of its long Iraqi game.
1. North Korea clearly has watched the U.S. fascination with Iraq and has calcu lated that a crisis now could extract for it maximum advantage from Washington. Pyongyang has gone out of its way to cause Washington to perceive a nuclear threat, with the perception quite possibly greater than the reality. North Korean officials know the United States can't afford a two-front war, regardless of what its doctrine says. They expect Washington to make political and economic concessions, calculating that it cannot engage in confrontation. Pyongyang's calculation is proving correct. This would not be the case if the Iraq matter were settled.
2. Venezuela is a major supplier of oil to the United States. With the Iraq war brewing and oil prices rising, a disruption of Venezuelan oil is the last thing the United States needs. Yet, because of a crisis between President Hugo Chavez and a large and diverse opposition, Venezuela has ground to a virtual halt, actually importing oil to keep itself going. Normally, the United States would act aggressively to bring the crisis under control; now the Bush administration feels that it can't. If Chavez were overthrown in a coup that could be attributed to the United States, then Europe would hurl charges of overthrowing a democratically elected government in Latin America -- redolent of the Allende assassination in Chile -- and use it as a justification for staying out of the coalition against Iraq. Maintaining the anti-Iraq coalition compels the United States to refrain from action, even as Venezuela collapses along with its oil exports.
Enemies Seize Opportunity
Two major crises now confront the United States. Neither emanates from the Islamic world or from al Qaeda. Neither can be managed effectively by the United States because of Iraq. The situation becomes even more difficult when we consider that the concentration of forces for Iraq has created opportunities elsewhere within the Islamic theater of operations. In Afghanistan, for example, there is a perceptible increase in the tempo of operations of Islamist forces, which continually are probing U.S. and allied fort ifications with apparently growing effectiveness. Moreover, in the coming months, al Qaeda will find opportunities to strike at targets within and without the Islamic world -- as the recent attack on American doctors in Yemen demonstrated.
Therefore, the United States cannot put off an attack on Iraq much longer. The peculiarity is not that the United States has been so eager to attack, but that it has held off for so long that its flanks are exposed. That exposure cannot end until the United States defeats Iraq and occupies it. This means not only that war cannot be put off much longer but also that the war cannot be allowed to last very long. Therefore, a tension is building in the U.S. war fight ing strategy that will define events in the coming weeks and months.
The war plan in place allows for a quick air/Special Ops attack that hopefully will shatter the Iraqi army, force a collapse in the government and permit a rapid occupation. The war plan seeks the best but allows for the worst. If there is not a rapid Iraqi collapse, it allows for a systematic occupation of Iraq from multiple axes of attack. It is a plan designed to minimize risk and maximize the likelihood of success. The price embedded in this plan is time: It trades risk for time under the assumption that time is one commodity of which the United States has a surplus. Time is the one thing that is not conserved under the Powell strategy.
Iraq Focus Saps U.S.
The assumption about time remains true to some extent, but no longer to the extent it was during the summer or fall, when the plans were being devised. The U.S. focus on Iraq has generated problems outside the Islamic world that are not as critical as those arising within the Islamic world, but which normally would be of paramount importance to Washington. There is now a pressing n eed to conclude the Iraq military campaign and to move to follow-on operations, while also bringing order to other areas outside the primary theater of operations.
U.S. power is enormous, but it is not infinite. Therefore, the United States has the ability to play a long and deep game. It does not have to shoot from the hip, because enormous power buys a great deal of time. But because power is not infinite, time is also inherently finite. The war will begin sometime in the next four to six weeks and must conclude quickly; otherwise, things could get out of control on a global scale.
This is something that Hussein certainly understands. His entire strategy has been a delaying strategy: First, he delayed diplomatically; then he delayed on weapons inspections. Inevitably, his war-fighting strategy, if he chooses war over exile, will be to delay the United States, to impose time penalties at every point -- to trade lives for time in the hope that the United States runs out of time before he runs out of lives. For him, it all comes down to Baghdad and the ability to force a drawn-out war of attrition. For the United States, it comes down to smashing Iraq's ability to resist before U.S. troops even reach Baghdad. Now, Hussein thinks that time is his friend, and Washington knows it must deny Hussein time.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8740.59): The Indoos slightly overshot the 8743.19 target I’d projected in the last newsletter, implying the rally has further to go. If I’m correct, minimum upside from here is to 9165.85, a hidden pivot. We’ll consider shor ting up there if and when the opportunity arises. Two places where you could try shorting today on your own initiative: 8874.09 and 8945.45. Tiny stops are warranted, since these inflection points will work out very precisely if at all.
MAR S&Ps (923.80): Monday’s breach of a fibo I’d flagged at 921.50 suggests the current rally has enough wattage to test the 953.50 peak achieved on December 2. Consider this forecast a lock-up if a hidden pivot at 933.70 is exceeded in the first hour by more than 0.35 points.
OEX (467.84): Our minimum upside projection is now to 477.01, a hidden pivot, but if the OEX goes any higher we’d infer that a test of early December’s peak near 488 is imminent.
MAR BONDS (110.09): We’re just bored spectators, since the futures could fluctuate anywhere between 106 and 114 without implying anything of significance. Look for more sound and fury over the next 5-7 weeks, perhaps signifying nothing.
QQQ (26.65): The wake-up call we’d left for 27.00 is about to sound, but there’s no point jumping out of bed, since a move above that price would indicate only that the Cubes are intent on testing the obvious resistance of ear ly December’s 28.79 peak. Such a rally presumably would be day-tradable, though not by way of any day-in-advance entry strategy I could proffer here.
FEB GOLD (347.70): The Feb contract is quietly getting torqued for a move to at least 371.60, lulled for the moment by an outpouring of heartening ideas on the tax front from the White House. The Democrats evidently are intent on using Bush’s proposal to commit hara-kiri, with Rep. George Miller taking the lead most recently on the usual class-warfare themes. In fact, it will be impossible -- not merely difficult -- for the Democrats to end-run such solid winners as Mr. Bush has proposed. Do Rep. Miller and his leftmost-leaning colleagues actually believe they can convince America’s shareholding majority that eliminating the double taxation of dividends is a sop to “the rich”? And will Daschle, Kennedy, Jeffords et al. make political fools of themselves by aggressively attempting to thwart the President’s plan to eliminate the “marriage penalty”? If so, we should expect the party’s 2004 front runners – Lieberman, Gephardt, and perhaps even Kerrey -- to try and tug the Democrats back toward sanity. We’ll know they’re serious when a few of the upstarts agitate to dump Rep. Nancy Pelosi as House minority leader. Perhaps Sen. Zell Miller can get the ball rolling by pulling a “Jim Jeffords” on his Democratic colleagues?
MAR NASDAQ 100: (1075.00): The minimum upside target given here earlier, 1093.37, remains viable, but any movement above it would portend a test of the 1162 peak made on December 2.
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IBM (86.00): Big Blue has bettered the two bullish targets given here earlier and now bids fair to challenge the 89.46 high made on December 2. Once above it, we should expect the stock to reach a minimum 93.31, a hidden pivot.
$ + CSCO (14.60)< SPAN style="FONT-SIZE: 9pt; COLOR: black; FONT-FAMILY: Verdana">: We hold four Jan 12.50 puts for 0.20. Cisco ended the day precisely in the middle of the 14.40 – 14.80 target range given in the last newsletter, but it now looks higher. My target is 16.10, so I’ll suggest bidding 0.20 for four January 15 calls (CYQAC), good on the opening only and with 0.05 discretion. Make the order contingent on the stock trading 14.55 or higher.
INTC (17.36): If any of you bought Feb 20 calls (NQBD) for 0.25 on Monday as advised, pleased let me know via e-m ail so that I can track them as an official position. If you did buy them, offer four Feb 22.50 calls (NQBX) short against them today for 0.25.
C (36.98): The 38.15 high made on December 20 remains our minimum upside projection, but it is too obvious an inflection point to hold any practical value for us.
$ + GG (12.46): We hold 200 shares for an average 4.35. Our minimum upside target for the bullish cycle begun early in December is 14.76, so we are offering a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Goldcorp telegraphed its current bout of weakness by failing for two consecutive days to close above a 13.31 hidden pivot we’d flagged. We’ll rest along with it for now, but please note that if and when the stock exceeds the 14.76 objective by more than 4 cents, it should be presumed headed for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (3.95): No change. We hold 600 shares for an average 4.29, absolutely confident the stock will reach a minimum 7.35 before the intermediate-term cycle takes a rest. To set up the powerful rally that will get it to 7.35, DROOY first must clear a lesser pivot at 4.78 on a closing basis.
MSFT (55.80): MSFT would be an enticing buy on a pullback of 2-2.5 points, but not six days into the current rally cycle. We’ll continue to bide our time.
$ + EBA Y (72.57): Subscriber Russ S. reminds me that we hold four Feb 75 calls (QXBBO) in the stock that were purchased for 1.20 more than a week ago. I’ll assume that those of you who bought the calls later executed the second step of our strategy – offering four Jan 75 calls (QXBAO) short against them for 0.70. This would give us the Feb-Jan 75 calendar spread for 0.50 – a price that will make it nearly impossible for us to lose. We’ll hold the spread officially for half a buck, but if you still haven’t done the short side of the trade, it’s now possible to put on the spread for a nice CR EDIT. Do so today if appropriate, otherwise sit tight with the spread.
Confidence Men
by Rick Ackerman
For better or worse, I’ve heard nothing further from Mr. Kamoki Murphy, the Togo gentleman whose offer of free alluvial gold seemed -- as many of you correctly sensed -- too good to be true. Some subscribers caught the tongue-in-cheek flavor of my feigned enthusiasm for this seemingly fabulous opportunity. One subscriber who says he’s been getting mail from Mr. Murphy for more than a decade implored your editor to “get me off that guy’s mailing list!” Another, apparently fearful that I was about to be swindled, sent several e-mails and even left a phone message at MarketWise warned me to be extremely cautious in my dealings with Mr. Murphy. Not to worry, folks -- I wasn’t born yesterday. Scams have alw ays fascinated me, and I’ve collected books on grifters since college, including a John Scarne rarity that he published with Aubrey Walsh, Three Card Monte: Why You Can’t Win. There are also tomes on counterfeiting, shaving dice, fixing horse races, swindling shareholders and rigging carnival games. The last topic was covered more or less definitively in The Bunco Book, a softbound 1940s classic that not only is one of my very favorites, but also the bedside reading of choice of my ten-year-old, who wants to earn his way through college as a busker. An interesting tale in Money of Their Own concerns a would-be counterfeiter – Jose Beraha, if memory serves -- who made a fortune minting sovereign gold pieces after the British government stopped making them. He was charged with counterfeiting – an irony, since his very successful sales gimmick was to have put just a tad more gold in his coins than the Brits put in the real thing. ; He fought the government’s lawyers while living in retirement in Lugano, prevailing with the seemingly airtight argument that it is perfectly legal to fabricate a coin that the government itself is no longer minting.
I should mention at this point that simply knowing how to gaff a wheel of fortune or a crap table does not necessarily make one less susceptible to the con man’s pitch. As one subscriber noted, “While hope may spring eternal, greed races out front.” Indeed, if you want something badl y enough, you can be conned into paying practically anything for it. How else would I have wound up with an $1,800 Kirby vacuum cleaner? Forget about gold bars, bags filled with stolen money and alluvial gold. What I wanted was a vacuum cleaner powerful enough to suck a cueball inside out. How was I to know that machines costing 75% less can do the job at least as well, and some far better? Or that the Kirby rug shampooer merely deposits suds on one’s rug without removing any of the dirt? I’m stuck with it now, but still able to offer you this one piece of advice: When the Kirby guy rings your doorbell and offers to vacuum and shampoo the rug for free, tell him to take a hike. Or better yet, put him in touch with Mr. Kamoki Murphy.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8595.31): There’s a hidden pivot at 8553.42 that is worth bottom-fishing with a micro-stop, but I’ll leave the details to you, since it could come up fast on the radar if Wednesday’s weakness spills into today.
MAR S&Ps (910.50): The hidden support analogous to the one I’ve flagged for the Dow lies at 903.50 – too close to the round number to be reliable as a precise place to bottom-fish.
$ OEX (460.06): Yesterday’s downtrend indicated a minimum 457.93. We’ll try to buy some January 470 calls (OXBAN), but only if the price is right. In the first two hours only, bid 1.25 for two of them, contingent on the underlying index trading 457.80 or higher.
MAR BONDS (111.01): We’re on the sidelines, since the futures could fluctuate anywhere between 106 and 114 without implying anything of significance. Look for more sound and fury over the next 4-6 weeks, signi fying who-knows-what.
QQQ (25.90): There’s a fibo-based support at 25.27, but we are not so desperate for action – not yet, at least -- to use such a popular tactic for buying against the trend. Remain listless.
FEB GOLD (354.30 ): Our minimum target over the near-term remains 371.60, and we should infer that it’s a done deal once the futures close above a hidden pivot at 355.30 flagged here earlier.
MAR NASDAQ 100: (1045.00): I have only a fibo to offer as our minimum pullback target: 1015.00. A 26-point rally from any low above it would likely be the start of a move to the 1093.37 target given here earlier.
***
IBM (84.19): Our upside target for the next 3-4 weeks remains 93.31, but it’ll take a rally of at least 2.65 points beginning from within the range 79.50 - 82.50 to kick the Beamer into high gear.
$ + CSCO (14.44): We hold four Jan 12.50 puts for 0.20 from earlier, but we would have bought no Jan 15 calls (CYQAC) yesterday if the contingency I advised was rigidly adhered to. Today, in the first 30 minutes only, let’s bid 0.10 for ten of the calls. If last Thursday’s powerful surge was not the silly hoax that it probably was, the Jan 15s will provide tremendous leverage for an expiration week squeeze.
INTC (16.68): I heard from no one who bought Feb 20 calls, so we’ll not track them. Intel needs a rally of at least 56 cents to get back in bullish mode. If it starts from yesterday’s 16.59 low, that would make 17.15 a moderately bullish “trigger.”
C (36.69): Citi remains under tight control by some of the most talented manipulators on Wall Street, hovering effortlessly between 36 and 38 while awaiting the opportunity to leap into Grandma’s portfolio at $42 a share. We’ll avoid the stock for now, since it is nowhere near a tradable pivot.
$ + GG (13.00): We hold 200 shares for an average 4.35. Goldcorp is in its third week of c onsolidation, preparing for a surge to at least 14.76. We are offering a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Once the stock has exceeded 14.81, it should be presumed headed for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (4.20): Relaxed as ever, we hold 600 shares for an average 4.29 while Durban tries the patience of non-believers. We remain confident the stock will reach a minimum 7.35 before the intermediate-term cycle takes a breather. To ignite the booster rocket of the powerful rally that will get it to 7.35, DROOY first must clear a lesser pivot at 4.78 on a closing basis.
MSFT (54.24): The nearest fibo support for this banana slug lies at 53.04. To paraphrase Dirty Harry: Trade this potential inflection point if you feel lucky.
$ + EBAY (71.86): We hold the Feb-Jan 75 call spread four times for 0.50 – an excellent price achieved by legging into the position. Let’s try to cover the short (Jan 75) calls by bidding an absurdly low 0.30 for them today. Make the bid contingent on the stock’s trading 71.00 or higher.
Pivotal Matters
by Rick Ackerman
For the third consecutive day, Mr. Market thumbed his nose at my forecasts. At the opening bell on Thursday I was expecting a moderate decline in many issues to Fibonacci-based levels; instead, the averages stormed higher from the get-go, rendering my bottom-fishing numbers useless. I’ve noted here more than a few times that one might as well toss a coin when trying to predict whether the next day’s opening will be bullish or bearish. It is for this reason that the forecasts in each day’s newsletter are not usually as precise as those which can be attempted intraday using the technical methods that I teach here at MarketWise. It is also why I frequently recommend trades that go against the trend rather than with it. For it is far easier for me to nail an exact cycle high or low where you can go short or long than to provide the convoluted, conditional instructions it would require to have you surf the trend while keeping risk and reward in proper balance. So when I suggest going short at a rally target ten points above the previous day’s close rather than doing the seemingly obvious – i.e., catching a ten-point ride with the trend -- it is because it is too difficult to control risk along the way. By trying to go short at hidden-pivot targets, we can at least keep our stops as tight as a few pennies, as we almost invariably do.
That said, I’ve discovered that the best trading opportunity of the day freq uently occurs at swing points that manifest themselves in the first hour of the session. Moreover, such swing points can sometimes be predicted confidently and with two-decimal accuracy the night before. You’ll have to see this work for yourselves to be convinced, I know, so please stay tuned while we look with renewed diligence for such opportunities, emphasizing the S&Ps. FYI, to those of you who have taken the E-mini course, yesterday’s 908.00 low in the E-mini contract – occurring at 6:20 a.m. EST – should have beckoned your attention with all the subtlety of a Times Square billboard. The hidden pivot lay at 908.12, so there would have been no problem getting long a quarter-point off the actual low. This low was not foreseeable immediately after Wednesday’s close, however, since the lesser hidden pivot that set it up did not occur until 3 a.m. Thursday, during the night session. A Califo rnia trader would had to have been watching the market at 3 a.m. to catch that low. Worth the trouble? Undoubtedly, since the trade could have been cashed out for profits of as much as $1,400 per E-mini contract – and with less than $25 of theoretical risk!
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8776.18): Our minimum upside projection is 8829.65. You can short that price with a very tight stop by interpolating the electronic contract, but you’ll be on your own thereafter.
$ MAR S&Ps (924.75): There’s a juicy pivot at 935.00 that we will make our minimum upside projection for today. In the first hour only, short a sngle E-mini contract at 934.75, stop 935.25. Substitute a 2.50-point trailing stop below 926.50, using 918.00 as a minimum objective. You can stay short below that price, but be sure to tighten the trailing stop to 1.50.
$ OEX (469.92): Our stingy bid for Jan 470 calls missed by a mile, so we ended the day with no position. Today’s upside target is 475.02. Accordingly, you can offer one Jan 475 naked short for 5.30 or better, contingent on the index trading 475.15 or lower. Stop yourself out with a market-if-touched order if the calls trade $6.00. Do not carry the position over the weekend unless the call that you have shorted looks like it will close 4.20 or lower.
MAR 10-YEAR NOTE (112.190): We’ll switch to the 10-Year Treasury Note, since it will provide a more sensitive yield indicator than the 30-year Bond. The futures look ready to test whole-number support near 112, but if it fails, expect a drop to at least 111.230, a hidden pivot.
$ QQQ (26.70): The immediate upside target is 27.42, a hidden pivot. You can try shorting a round lot at that number in the first hour, risking no more than 0.05 on the initial stop-loss. Switch to a 0.08-point trailing stop below 27.27, using 26.68 as a minimum target.
FEB GOLD (352.90): No change. Our minimum target over the near-term remains 371.60, an objective that will be all but clinched once the futures have closed above a hidden pivot at 355.30.
$ MAR NASDAQ 100: (1077.00): Minimum upside objective for today: 1105.50. You can offer a single E-mini contract short at 1105.40, stop 1106.20 (!). Switch to a 6-point trailing stop below 1088.40, using 1072.00 as a minimum objective.
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IBM (87.00): IBM is bound for a test of the 89.46 high made on December 2. If and when it gets by that number, expect the stock to achieve a minimum 93.31 within the following 6-9 days.
$ + CSCO (14.95): We hold four Jan 12.50 puts for 0.20 from earlier, but Cisco’s early-morning strength yesterday denied us the chance to buy ten Jan 15 calls (CYQAC) for cheap. Let’s bid 0.15 for them today, day order, no contingencies. If the stock is merely firm today, those calls could get pounded down to our price ahead of the weekend.
INTC (17.06): Yesterday’s 17.15 print is a moderately bullish sign for the next 2-3 days, indica ting a move up to at least 17.90.
C (37.03): Citi’s talented handlers are waiting for the opportunity to distribute stock above $40, and it will surely come. Between here and there is a hidden pivot at 38.20, but that number should be shorted only if you are a scalper and very bored.
$ + GG (12.97): No change. We hold 200 shares for an average 4.35. Goldcorp is in its third week of consolidation, preparing for a surge to at least 14.76. We are offering a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Once the stock has exceeded 14.81, it should be presumed headed for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (4.11): We hold 600 shares for an average 4.29 as Durban continues to try the patience of bulls and bears alike. We are confident the stock will reach a minimum 7.35 before the intermediate-term cycle takes a breather. To ignite the booster rocket of the powerful rally that will get it to 7.35, DROOY first must clear a lesser pivot at 4.78 on a closing basis.
$ MSFT (55.81): We are now projecting a leg up to 57.16, but without sufficient enthusiasm to suggest buying aggressively. We don’t care for in-the-money options, but a rally to the target would not rouse the Jan 60s from coma. Accordingly, let’s bid 0.85 for two Feb 60 calls (MSQBL), day order, contingent on the stock trading 55.80 or higher. If successful, we’ll offer some Jan 60s short against them next week.
+ EBAY (73.52): We hold the Feb-Jan 75 call spread four times for 0.50. eBay’s strength yesterday did not allow us to cover the short side of our spread – but no matter, since it will be hard to lose, given the price we paid. If the stock eases higher next week, we’ll have a chance to make a quick 300-400% on our money.
Post-Industrial Angst
by Rick Ackerman
Years ago, when it was still possible for American manufacturers to produce goods at a profit, there was a saying on Wall Street, “As General Motors goes, so goes the nation’s economy.” Call me old fashioned, but I still believe this is true. Or at least, should be true; for if not, what then? “As Citigroup goes, so goes the nation’s economy,” perhaps? Sounds kind of scary in a post-industrial way, if you ask me. But then, phrases like “post-industrial” and “post-modern” have always made me a little queasy when applied to any anything but art, which these days is almost too silly to care about. What’s troubling about a “post-industrial” anything else is that the very use of the term highlights our inability to describe just what it is that defines the here and now. But if ethereality is the answer, then Citi is surely the quintessential post-industrial company.
As we know, there was a time when Citibank and other giants of the lending business were seen as serving the capital needs of companies that produced such things as steel and electrical power – measurables that in generations past gave us a handle on the economy’s true size. Nowadays, though, companies that produce actual goods are practically vestigial, throwbacks to a time when work meant “to move something.” I say vestigial because the value of all goods and services produced globally is merely $40 trillion or so per year, versus notional tran sactions in the currency markets alone of more than $250 trillion, and trading in financial derivatives exceeding $100 trillion. One wonders why the grocery chains even bother to deal in spinach, toilet plungers and such, or why a GM strains to make enough profit to service, among other things, the periodontal needs of its work force.
Straining to Profit
But strain they do – and to little avail, if the Black Box subscriber who wrote the following is no t just spoofing us:
“As I've told you, although I take seriously the views of deflationists, I think we are more likely to see inflation than deflation in the coming year. That being said, and having dispelled any notion that I am biased in favor of your view, let me now confirm your worst suspicions about automobile prices.
“I have been sitting on thousands in rebate points on a GM credit card and wa tching the total dwindle a bit in the last two years as I waited for the best possible price on a new car (driving an '89 car in good condition). I've been looking for five years or more it seems but was just waiting for the day when they would be giving the cars away. Now why would someone expecting inflation to come back be waiting for lower prices? Maybe I'm just cheap. The zero percent financing didn't interest me as I wanted to pay cash and besides, zero percent on the part I paid for with my credit card rebate points would be worthless as zero times zero is no less than 4, 5 or 8 times zero. In any event I've got credit card companies offering me cash for zero percent for as much as 12 months and another offers me 3.9% for the life of the balance so who nee ds special financing?
Hammering the Sticker-Price
“In December I finally got off the fence. GM sent me a voucher for an additional $500 over and above the $3,800 I had still had on my credit card. Further, I noticed that $3,000 rebates were in effect on new 2002 models that needed to be cleared out. In addition there was a $1,000 holiday cash bonus. When I got to the first car dealer, on a purely exploratory mission -- one of many I have made over the years to no avail -- I was told I could get a 2002 Grand Am SE with a sticker price of about $21,000 for $19,500, but since the manager knew I was on my first stop and might be looking around he threw in another $1,000 (of $5,000 factory cash to the dealer) if I took delivery by the Monday following the weekend on which I stopped by. That brought the price to around $18,500, then take away the $3,000 rebate and you get $15,500, less the $1,000 holiday cash and we're down to $14,500. They had to see my voucher to give me the $500 but that got me down to about $14,000 and then my $3,800 credit card rebate point s got me down close to $10,000 -- less than half the original sticker price (which was a package discount from over $21,500 for the options separately).
“You still had to add back the sales tax (calculated unfortunately on the car price without the rebates) some rust proofing and other protections I chose to have and an extended warranty for about $1,000 (6 years or 72,000 miles) and the final price was about $13,000, but however you figure it I cut over $10,000 off the price of this car and I haven't had a chance to do that for years.
“I think next year we will not see these kinds of bargains, but only time will tell for sure. For now the facts say we have been having deflation in automobile prices. Oh yes, they offered me only $500 for a trade-in, so I kept the old car and am still driving it until the weather gets better and driving the roads around here isn't so much like taking a salt water shower. I guess I am cheap.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8784.89): A breathlessly bullish e-mail I received from a subscriber on Friday advises that this is no bear rally, but the real thing. While I can neither prove nor disprove this assertion, I can nonetheless test it with a rule that has never failed to identify a significant trend. To wit, any rally or decline worth paying attention to must first exceed, respectively, at least two prior tops or two prior bottoms on the daily chart. Not to dash the hopes of bulls, but the entire rally from the October 2 low has yet to clear even a single prior peak on the daily chart. That would require a print of 9077.02 – a hair above the post-September 11 recovery high. In fact, the highest high achieved since October’s bottom was 9043.37. Looking ahead, the current rally would have to reach 10353.44, eclipsing a high made on May12, to merit speculative consideration as the first leg of a bull market. Impossible? Surely not. But given the technical evidence, there is no reason for permabulls to get excited, at least not yet. And if your goal is to simply trade the market, “bull” or “bear” labels are worthless. We’ll stick with the basics, as follows: The most daunting resistance on the near horizon is not the recovery peaks mentioned above, but a hidden pivot at 9165.85. We’ll make that our upside target for the next 2-3 weeks, and plan on going short there if and when the time comes.
$ MAR S&Ps (926.50): Yesterday’s early-morning rally fell just a tad shy of our 935.00 target, so we did not get off the short that was recommended. My upside projection for today is 939.50, so I’ll suggesting shorting an E-mini contract there, stop 940.25, until the final 90 minutes of the session. You’ll be on your own thereafter, but I would not suggest carrying the position overnight unless it is nicely profitable at the final bell.
OEX (470.41): The Jan 475 calls that we were trying to short plumped up on Friday, but not quite enough to get our 5.30 offer filled. We’ll stay out of harm’s way today, but here for your information are two hidden pivots with the potential to stop the rally: 474.92 and 475.60.
MAR 10-YEAR NOTE (112.180): The futures look ready to test whole-number support near 112, but if it fails, expect a drop to at least 111.230, a hidden pivot. Alternatively, it would take a close above 113.650 to revive the bullish cycle begun in early November.
$ QQQ (27.10): The immediate upside target is now 27.34, a hair above Friday’s top, but if that number is exceeded even slightly it would portend further upside, to a minimum 27.74. If the latter target is reached in the first hour, you should try to short a round lot there, stop 27.79. You’ll be on your own thereafter, but please note that 27.86 print would telegraph a move to as high as 28.92 over the near term.
FEB GOLD (354.90): Close, but no cigar. Our minimum target over the near-term remains 371.60, an objective that will be all but clin ched once the futures have closed above a hidden pivot at 355.30.
$ MAR NASDAQ 100: (1091.50): Our minimum upside target is still 1105.50, although I am no longer recommending that you attempt to go short there. If it is exceeded, the next higher pivot lies at 1107.00. It will be worth shorting via a single E-mini contract offered for 1106.80. Use an 1107.20 stop until 1098.00 is touched, then switch to a 4-point trailing stop enroute to a 1083.00 minimum objective. The trade should be attempted only in the first hour.
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IBM (87.68): No change. IBM is bound for a test of the 89.46 high made on December 2. If and when it gets by that number, expect the stock to achieve a minimum 93.31 within the following 6-9 days.
+ CSCO (15.22): We hold four Jan 12.50 puts for 0.20 from earlier, but missed buying some Jan 15 calls by a nickel. We’ll back away for now, since, if the calls trade at our price today, they’ll be warning of serious weakness in the stock this week.
$ INTC (17.42): Our minimum upside projection is now 17.70, but if Intel trades even two cents higher it will be signaling a move to at least 18.82. You can short a round lot there with an 18.86 stop, but don’t try it in the final hour.
C (37.46): No change. Citi’s oily handlers are waiting for the opportunity to distribute stock above $40, and it will surely come. Between here and there is a hidden pivot at 38.20, but that number should be shorted only if you are a scalper and very bored.
$ + GG (13.01): We hold 200 shares for an average 4.35. Goldcorp is now in its fourth week of consolidation, presumably mustering strength for a run-up to at least 14.76. We are offer ing a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Once the stock has exceeded 14.81, it should be presumed headed for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (4.18): We hold 600 shares for an average 4.29 as Durban coils for a strike. We are projecting a minimum 7.35 for the bullish cycle begun last July. To ignite the booster rocket of the powerful surge that would power DROOY to 7.35, the stock must first clear a lesser pivot at 4.78 on a closing basis.
$ + MSFT (55.92): We bought two Feb 60 calls on Friday for 0.80. Our minimum upside target is now 59.18, but a hidden pivot at 67.10 should be held in mind as a longer-term objective if the lower target should be exceeded. Accordingly, I’ll recommend bidding 0.80 for four April 65 calls (MSQDM), contingent on the stock trading 55.80 or higher; if lower, bring the bid down to 0.70 with no further contingencies. If we buy any calls, we’ll offer Jans, Febs and Marches short against them over time.
$ + EBAY (73.36): We hold the Feb-Jan 75 c all spread four times for 0.50, and at this point it is almost certain to produce a profit. Today only, with the stock trading 72.00 or higher, let’s try to cover the Jan calls with a 0.40 bid.
Prediction: Bush Will Stand Down
by Rick Ackerman
Judging from the extensive coverage that antiwar protests received from the news networks over the weekend, I’m now betting that we will not go to war with Iraq. It is all brinksmanship at this point, and although odds are against Saddam’s remaining in power, it appears that he will be deposed without bloodshed. In standing down, Bush will not find it easy to save face, but we can be sure his speechwriters will find the proper words. For the fact is, unless Hans Blix’s Keystone Cops turn up a smoking gun over the next few weeks, it will be nearly impossible for the President to rally support for a war at home, much less around the world. Great Britain’s backing has been crucial all along, but the antiwar tide there has swelled so precipitously that we should expect Tony Blair -- until now, along with Israel one of our very few steadfast allies in the world -- to begin waffling at any time. We should be re ady to forgive him without qualm, since he spent quite a bit of political capital lending his unqualified support to President Bush when the U.S. could find few allies elsewhere.
As the build-up of U.S. troops has proceeded, I’ve had a running dialogue with a friend and subscriber. Bob M., who served as a Marine pilot during the Vietnam war. He says that he flew far too many deadly combat missions to be labeled a pacifist, but that he still thinks there is no good reason to make war on Iraq. I disagree and moreover am convinced that Saddam’s agents eventually will trigger off a nuke on U.S. or Israeli soil. Bob believes otherwise: "I am as qualified as anyone I know to analyze military threats. I flew 824 combat missions and I was an intelligence officer. There simply is not a fact in the world which would support Saddam having nukes. It just isn't so. I am not a draft dodger or shirker and would happily fight Again -- but against a real threat. Israel is closer to the action and if they were concerned, they have weapons and could handle it themselves. We have no interest or interests at threat from Iraq and I'm sick and tired of the US playing bully to the world. Call me a liar if and when there is even a single indication of a threat. Until then, every rational person should automatically be 100% against war. No one ever wins a war. Period."
Left-Coast Examiner
With Bob’s note was a link to a San Francisco Examiner article, an over-the-top screed published by my old, Stalinist flagship paper under the following headline: "Happy Imbeciles At War: Massive U.S. military buildup, billions of dollars, a useless enemy, and no one seems to know why…" What follows, an essay written by one Mark Morford, lives up to the headline, when he writes: "This is not a war. Iraq will not be a war. Do we understand this? We do not seem to understand this. This is heavily corporatized power brokers killing each other for oil and capita l. Oh yes it is. Let's be perfectly clear. You cannot have a war when the so-called enemy has done nothing to provoke you and is absolutely no threat to your national safety and has no significant military force and has negligible chance of even setting off a firecracker near your own overwhelming death machines, and whose only weapons of minimal destruction are the rusty short-range warheads and biochemical agents we sold him 20 years ago, and kept selling to him, even after we knew he was gassing his own people."
Where I agree with Morford and Bob M. is in their contention that Iraqi oil is not exactly incidental to our designs. But I see this as secondary to Bush’s principled action against an unpredictable, maniacal despot who would not hesitate to annihilate the U.S. and Israel if he could. Morford goes as far as calling Saddam "harmless," but that is where my open-mindedness ends. If I’m right and Bush backs away, we can only pray that he does not return someday in the n ext year or two to tell the world, "I told you so!"
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8785.98): The current rally would have to reach 10353.44 before we’d start to take it seriously; until then it should be viewed as yet one more cruel bear hoax. Meanwhile, the most daunting resistance on the near horizon is a hidden pivot at 9165.85. We’ll make that our upside target for the next 1-2 weeks and plan on going short there if and when the time comes.
MAR S&Ps (926.40): As happens occasionally, yesterday’s high fell exactly on a target that we’d treated as "spent" the previous day, when it was narrowly missed. Since we raised our short offer to a new, higher target, we opened no new position. From here the futures would need to close above a 938.75 hidden pivot or trade above 940.00 intraday to re-energize the short-term bullish cycle. If that occurs, my minimum upside projection would be 970.40, a hidden pivot.
$ OEX (470.83): Yesterday’s high was a hair above the 474.92 hidden pivot we’d flagged, implying the OEX has enough wattage left to reach a second at 475.60. Short there in the first two hours at your complete discretion, but only if you can abide a stop-loss as tight as 476.10.
MAR 10-YEAR NOTE (112.270): The futures came within a small fraction of 112, where we’d expected a test of support. If that number fails, look for a drop to at least 111.230, a hidden pivot. Alternatively, it would take a close above 113.650 to revive the bullish cycle begun in early November.
QQQ (26.94): The Cubes peaked just 0.15 points above our target, 27.34, but that is enough to imply that at least slightly higher prices lie in store. If so, our minimum projection is to 27.86, with 28.92 possible over the near-term. FYI, anyone who followed my recommendation precisely would have been ejected from the short trade by a stop-loss that in retro spect was too tight. The loss would have been tiny in any event.
FEB GOLD (354.90): Once again, the futures came within a hair of the 355.30 closing threshold that I’d said would trigger a rally to at least 371.60. Keep in mind that if the U.S. calls off the war, it will create the best buying opportunity in gold that we are likely to see for a long, long time. In any event, the bull market continues, indestructible and undeniable.
MAR NASDAQ 100: (1086.50): The higher of two hidden-pivot targets given here yesterday missed nailing yesterday’s top by just half-a-point, but I still managed to blow a short from that price with a stop that proved too tight. If you did better by giving the stop an extra few ticks, then you are starting to get the hang of my numbers, which sometimes require a common-sense adjustment by the user. Now, if the futures exceed Monday’s 1107.50 high on a closing basis, we should infer they’re on their way up to at least 1143.00
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IBM (87.51): IBM has begun to probe resistance near the 89.46 high made on December 2. If and when it gets by that number, expect the stock to achieve a minimum 93.31 within the following 6-9 days.
$ CSCO (15.28): We hold four Jan 12.50 puts for 0.20 from earlier, but we’ll write off the $80 trading loss today and focus on other opportunities. The stock could reach 17.54 on a short-squeeze, so let’s bid 0.15 for ten Feb 15 calls (CYQBW), day order.
$ INTC (17.38): Our minimum upside projection is now 18.82, since Intel printed 17.72 yesterday. If and when the opportunity arises, you can short a round lot at 18.82 with an 18.86 stop, but don’t try it in the final hour.
C (37.04): Citi’s snaky handlers are waiting for the opportunity to distribute stock above $40, and it will surely come. We’d planned on shorting a hidden pivot along the way at 38.20, but because yesterday’s top at 38.12 may have "burned" that objective, we’ll dispense with the order.
$ + GG (12.80): No change. We hold 200 shares for an average 4.35. Goldcorp is now in its fourth week of consolidation, presumably mustering strength for a run-up to at least 14.76. We are offering a round lot there to close, g-t-c, with the goal of buying it back cheaper on a retracement. Once the stock has exceeded 14.81, it should be presumed headed for a minimum 15.72. If you choose not to cash out half the position at 14.76, you should use a 15-cent trailing stop above it, enroute to 15.72.
+ DROOY (4.15): We hold 600 shares for an average 4.29 as Durban continues to consolidate. We are projecting a minimum 7.35 for the bullish cycle begun last July. To ignite the booster rocket of the powerful surge that would power DROOY to 7.35, the stock must first clear a lesser pivot at 4.78 on a closing basis.
$ + MSFT (56.39): A subscriber said he was unable to buy Feb 6 0 calls on Friday for 0.80, so unless we hear from someone who bought them on the terms specified, we’ll take down the trade. We’ll nonetheless continue to bid 0.80 for four April 65 calls (MSQDM), contingent on the stock trading 55.80 or higher; if lower, bring the bid down to 0.70 with no further contingencies. If we buy any calls, we’ll offer Jans, Febs and Marches short against them over time. As noted here earlier, if 59.18 is exceeded, a hidden pivot at 67.10 would become our target for the intermediate term.
$ + EBAY (73.97): We hold the Feb-Jan 75 call spread four times for 0.50. We’ll continue to lowball the short Jan 75s with a 0.40 bid today to cover both, no contingencies.
Talk of Empire
by Rick Ackerman
My prediction that President Bush would back away from war with Iraq has unleashed a torrent of mail, some of it concurring and constructive ("Congratulations. I reached the same conclusion this weekend. I expect a change in rhetoric to start immediately by the Rove Whitehouse and a continued rise in equities. Also agree decline in gold will be a buying opportunity, however near-term decline should be playable. Why not offer a strategy to express your opinion?"); some of it filled with venom, especially for your editor ("All of this shows the bankruptcy of the current policy and the lies and crap that are being foisted on the American people by the Administration and idiots like yourself."). There were some strident doves ("War is murder -- and don’t think that only the other side will suffer casualties); and some equally persuasive hawks ("I don't think G.W. Bush will back down. We all forget the co mplicity of Iraqi agents assisting Mohammed Atta in Germany several months before 9/11. We would be suckers to walk away, and who knows what deals Bush has with other nations too afraid to support the U.S. until after Saddam is neutralized."
In the "professionals" category, a subscriber was kind enough to forward a characteristically provocative essay from Prudent Bear’s peerless Marshall Auerbach. As many of you already may have surmised, I tend to think of America as "the good guy" whenever global conflicts erupt. But Auerbach’s piece, from which the following excerpt is taken, subjects my kind of patriotism to a level of scrutiny that is indeed painful to abide. Auerbach writes as follows:
Policing the World
"Talk of empire is everywhere, yet seldom has the word been applied in the context of American foreign policy. That is beginning to change. A recent essay in the New York Times Magazine by Michael Ignatieff makes the connection explicit: " Ever since George Washington warned his countrymen against foreign entanglements, empire abroad has been seen as the republic's permanent temptation and its potential nemesis. Yet what word but ‘empire’ describes the awesome thing that America is becoming? It is the only nation that polices the world through five global military commands; maintains more than a million men and women at arms on four continents; deploys carrier battle groups on watch in every ocean; guarantees the survival of countries from Israel to South Korea; drives the wheels of global trade and commerce; and fills the hearts and minds of an entire planet with its dreams and desires." (The Burden, Jan. 5, 2003)
"Whether one casts this dominance as a benign or malign force is a subject of active debate, but the reality of Ignatieff’s observation is unassailable. Ever since Wilson, there has in fact been a messianic imperial strain in US foreign policy while 'frantically avoiding recognition of the imper ialism that we in fact exercise,' as the theologian Reinhold Niebuhr said in 1960. Speaking before the House of Representatives Sub-Committee on National Security, Veteran Affairs and International Relations Committee on Government Reform last June, Pentagon strategist Franklin ‘Chuck’ Spinney illustrated that US defence spending exceeded the next 20 largest defence budgets in aggregate. These are the needs typical of empire, not a republican nation state. The newly promulgated Bush defence doctrine suggests an attempt to retain this dominant position and ensure that American military power will be strong enough to dissuade potential adversaries from ever trying to challenge the military supremacy of the United States – again, a strategic doctrine which owes more to imperial antecedents, than the security requirements of the nation state.
Expansion Opportunity?
"Iraq lays bare the realities of America’s new role. As Ignatieff notes, this is essentially an imperial operation that would commit a reluctant republic to become the guarantor of peace, stability, democratization and oil supplies in a combustible region of Islamic peoples stretching from Egypt to Afghanistan. Unstated is another motive: the mobilization against Iraq has given the United States a renewed opportunity to expand its power and influence in the region -- this time potentially to use its new Persian Gulf bases to establish even more bases in the ancient territories between the Tigris and Euphrates rivers in Iraq. More importantly, were the oil fields seized as a by-product of this invasion, it would give America a de facto seat in OPEC, with the control of a huge cash generating asset required to fund its massive domestic and overseas debt build-up. Starve Saddam of his revenues, lay siege to him and his Republican Guards in Baghdad, and recycle the oil proceeds (in dollars of course) to buttress the war effort, engage in nation building, and service ever increa sing American debts – a ‘seize and siege’ strategy, if you will."
Here’s a link to the full text, which I would strongly urge you to read. Auerbach’s conclusions will surprise and perhaps even shock you: http://www.prudentbear.com/internationalperspective.asp?content_idx= Meanwhile, keep those e-mails coming, since there is an opportunity for all of us to learn, and to grow, in these very interesting times.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8838.36): Nearly all of yesterday’s action took place within the previous day’s range, so there is no change in my outlook, which was given earlier as follows: The current rally would have to reach 10353.44 before we’d start to take it seriously; until then it should be viewed as standard-issue bear hoax. Meanwhile, the most daunting resistance on the near horizon is a hidden pivot at 9165.85. We’ll make that our upside target for the next 1-2 weeks and plan on going short there if and when the time comes.
$ MAR S&Ps (929.00): Best bet for buying an E-mini contract against a swoon this morning, in the first hour only: 923.75, stop 922.80. You’ll be on your own thereafter. Please note that an overnight or morning tick above 931.00 would invalidate my advice. Otherwise, my forecast is unchanged, given earlier as follows: From here the futures would need to close above a 938.75 hidden pivot or trade above 940.00 intraday to re-energize the short-term bullish cycle. If that occurs, my minimum upside projection would be 970.40, a hidden pivot.
$ OEX (474.31): The OEX didn’t quite make it to our 475.60 pivot, so no short was initiated. Potential stepping stones today on the way up: 476.25 and 478.36. The higher target can be shorted at 478.25, using a naked Jan 480 call tied to a 479.25 stop-loss. You should offer the call for 2.80, contingent on the OEX trading 479.00 or lower. Our call price is rich, but there is no point putting on the position unless we can get a fat price for it. Make the order good in the first hour only and switch to a 2.50-point trailing stop below 471.50, using 466.00 as your minimum target. Because you must use options deftly in executing this trade, it should be considered expert play.
MAR 10-YEAR NOTE (113.070): As noted here earli er, it would take a close above 113.650 to revive the bullish cycle begun in early November.
$ QQQ (27.08): Our minimum projection is still to 27.86, with 28.92 possible over the near-term. Accordingly, in the first hour only, you can short a round lot at 27.85, stop 28.01. Switch to a 0.15-point trailing stop below 27.58, using 27.06 as a minimum objective.
FEB GOLD (352.40): Gold has failed yet again to close above the bullish threshold I’d flagged at 355.30, so we should be increasingly wary of a correction – especially for reasons that I cited here yesterday pertaining to the possibility of an ostensibly peaceful settlement with Iraq. A 0.618 retracement of the rally begun on December 2 at 316.60 would imply a fall to as low as 331.93. (Note: I do not often make specific recommendations in gold futures because, in this vehicle as well as in bonds, I do not have access to very finely nuanced chart data or commodity-option theoreticals.)
< B>
MAR NASDAQ 100: (1092.00): Once again, if the futures exceed Monday’s 1107.50 high on a closing basis, we should infer they’re on their way up to at least 1143.00
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$ IBM (88.58): There are three hidden-pivot targets immediately above that we should keep in mind: 88.84, 89.46 90.45 and 93.31. For purposes of gauging short-term strength, we’ll infer that Big Blue is going to reach the next-higher target if it surpasses any of the above numbers by more than four cents. Let’s bid the Feb 95 calls (IBMBS) cautiously: 1.15 for two, contingent on the stock trading 88.55 or higher.
$ CSCO (15.58): I gave the correct symbol but the wrong strike price for the Feb 17.50 calls we were trying to buy yesterday for 0.15. They traded now lower than 0.20, but we can try again today, bidding 0.20 for ten of them, contingent on the stock trading 15.50 or higher. The bid is stingy but congruent with our policy of never, ever paying up. As someone who has traded options both as a market maker and a retail customer for more than 25 years, I should emphasize that no retail customer who gives up a nickel here or a dime there, can hope to beat the game.
$ INTC (17.79): Our minimum upside projection remains 18.82. If and when the opportunity arises, you can short a round lot at 18.82 with an 18.86 stop, good until the final hour.
C (37.93): My minimum upside objective for today is 38.56, or 38.74 if any higher. Citi’s handlers eventually will succeed in punching the stock past 40, the better to distribute it at those heights to the usual widows and orphans. Meanwhile, there is no compelling argument for buying calls, since the stock has spent most of the last ten weeks faking coma within the range 36-38.
$ + GG (12.80): We hold 200 shares for an average 4.35. Relative to my weekend epiphany about Bush backing down from war with Iraq, we’re a day late on this, but l et’s try to defense a presumably temporary outbreak of world peace with some covered writes. Short one Feb 12.50 call (GGBV) market-on-opening, and offer a second short for 0.95, day order. You should also cancel the g-t-c offer of 100 shares at 14.76.
$ + DROOY (4.15): We hold 600 shares for an average 4.29. There are no listed options on DROOY, so the only way we can hedge a possible "peace correction" is to exit the stock. Accordingly, I’ll recommend that you sell 400 shares on the opening, at-the-market. Our intention is to replace them later at a lower price.
$ + MSFT (56.97): We’ll reinstate the two Feb 60 calls (MSQBL) for 0.80, since a subscriber who is here in Broomfield to take the four-day trading course tells me he was able to buy them at that price on the terms I’d specified last week. Nonetheless, we’ll continue to bid 0.85 bid for four April 65 calls (MSQDM), contingent on the stock trading 55.80 or higher; if lower, bring the bid down to 0.7 0 with no further contingencies. If we buy any of the April calls, we’ll offer Jans, Febs and Marches short against them over time. As noted here earlier, if 59.18 is exceeded, a hidden pivot at 67.10 would become our target for the intermediate term.
$ + EBAY (74.18): We hold the Feb-Jan 75 call spread four times for 0.50. Once again, let’s lowball the short Jan 75s with a 0.30 bid today to cover both, no contingencies.
Hawks and Doves
by Rick Ackerman
We’ll dispense with the usual preliminary comments in this edition and the next, since my two-day E-mini course for January is currently in session. Your thoughts concerning whether we should go to war with Iraq continue to enlighten and will be reported in due time. Hawks appear to outnumber doves, but only slightly.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8723.18): The nearest hidden-pivot support lies at 8699.93, but if the Indoos trade more than a point below that price we should infer they are on their way down to at least 8639.53. Alternatively, if the index moves higher, the most daunting resistance on the near horizon is a hidden pivot at 9165.85.
MAR S&Ps (920.50): A phony rally in the opening minutes invalidated our bottom-fishing strategy, so we just watched. The action left my forecast unchanged, given earlier as follows: The futures would need to close above a 938.75 hidden pivot or trade above 940.00 intraday to re-energize the short-term bullish cycle. If that occurs, my minimum upside projection would be 970.40, a hidden pivot.
$ OEX (466.88): Yesterday’s complicated instructions for selling a naked Jan 480 call went unused, and we are not inclined to try again today. Nevertheless, a move above yesterday’s high at 475.09 would imply the OEX has enough strength left to reach a minimum 488.12.
MAR 10-YEAR NOTE (113.105 ): No change: It would take a close above 113.650 to revive the bullish cycle begun in early November.
$ QQQ (26.74): Our minimum projection is still to 27.86, with 28.92 possible over the near-term. Accordingly, in the first hour only, you can short a round lot at 27.85, stop 28.01. Switch to a 0.15-point trailing stop below 27.58, using 27.06 as a minimum objective.
FEB GOLD (351.10): A 0.618 retracement of the rally begun on December 2 at 316.60 would imply a fall to as low as 331.93, but the futures could also pick up support from some round-number stepping stones just below, at 345 and 340.
MAR NASDAQ 100: (1077.00): If the futures can better Monday’s 1107.50 high on a closing basis, we should infer they’re on their way up to at least 1143.00
***
$ IBM (87.59): The four hidden-pivot targets given here yesterday can be expected to impede the stock’s upward progress. The resistance numbers are 88.84, 89.46 90.45 and 93.31. For purposes of gauging short-term strength, we’ll infer that Big Blue is going to reach the next-higher target if it surpasses any of the above numbers by more than four cents. Today bid the Feb 95 calls (IBMBS) even more cautiously: 0.95 for two, contingent on the stock trading 88.55 or higher.
$ CSCO (15.18): This time bid 0.10 for sixteen Feb 17.50 calls (CYQBW), no contingencies.
$ INTC (17.35): Our minimum upside projection remains 18.82. If and when the opportunity arises, you can short a round lot at 18.82 with an 18.86 stop, good until the final hour.
C (37.45): Assuming our charts are displaying correct data – which they may not be -- Citi’s slimy handlers appear to have squeezed the stock as high as 38.90 yesterday -- just a tad above the 38.74 hidden-pivot target we’d flagged. If so, it’ll create a pocket of supply that will not likely be surmounted unless the broad averages catch fire.
$ +&nb sp; GG (12.39): We hold 200 shares for an average 4.35 and are short two Feb 12.50 calls (GGBV) against them for an average 0.80. On a g-t-c basis, bid 0.30 to cover the calls. The market orders employed on the opening in this stock and in DROOY will be the last such orders that we use, since we have gotten hosed all too often when executing market-on-opening orders.
$ + DROOY (3.84): We hold 200 shares with a 5.11 basis after exiting 400 shares yesterday on a weak opening. Let’s try to buy 200 of the shares back at a lower price – for 3.69, a penny above my current downside target. Make the order g-t-c.
$ + MSFT (56.27): We hold two Feb 60 calls (MSQBL) for 0.80. Today bid 0.75 for four April 65 calls (MSQDM), contingent on the stock trading 55.80 or higher; if lower, bring the bid down to 0.65 with no further contingencies. If we buy any of the April calls, we’ll offer Jans, Febs and Marches short against them over time. As noted here earlier, if 59.18 is exceeded, a hidden pivot at 67.10 would become our target for the intermediate term.
$ + EBAY (73.50): We hold the Feb-Jan 75 call spread four times for 0.50. Once again, let’s try to cover the Jans we are short with a 0.30 bid, no contingencies.
Second-Guessing Gold
by Rick Ackerman
Just one subscriber – can you guess who? – wrote to grill me for reducing our positions in Goldcorp and DROOY after emphasizing for months that we are in gold for the long haul. As indeed we are. Even so, a strategy that we have pursued with some success over time has been to reduce our basis cost by trading in an out of these stocks as they have trended higher. We’ve done far better at this in Goldcorp than in DROOY, since a couple of nicely timed trades in the former reduced our effective cost to $4.35 a share – fully $8 below where the stock is actually trading. DROOY has been another story, though, and we got caught holding the bag a few months ago after the stock failed to reach a rally target where we offering a piece of our position there. On Wednesday we did some covered writes in Goldcorp by selling two Feb 12.50 calls against the 200 shares of stock we own. We also sold 400 shares of a 600-share position in DROOY with the expectation of replacing them at a lower price. For now, though, it appears that might not be so easy, since DROOY turned higher on Thursday.
My very mid bearishness on gold for the near-term was based on a hunch that we will not go to war against Iraq. Thursday’s discovery of a dozen chemical warheads may have shortened the odds of an invasion, however, and that is why bullion quotes spiked sharply higher. My guess is that the discovery will not ultimately increase friction between the U.S. and Iraq, however, since the missiles, some of them empty, do not much advance President Bush's case that Iraq is harboring huge stocks of weapons.
But will the rally in gold continue? By my own technical logic the March Comex futures are now a lead-pipe cinch to reach $371.60, at least – a surge of $13 from current levels -- since they finished Thursday’s session above a hidden pivot we’ve been monitoring for a while. If this is telegraphing stro ng rallies in our gold stocks – presumably to targets that we have been confidently advertising for weeks -- then we erred in reducing our ability to profit from it. We cannot always be right, of course, and the odds of making errors will necessarily increase whenever we set aside the unemotional and precise logic of our hidden pivots, as we did this time. But regardless of whether this trade works out, there assuredly will be many more opportunities in the future to make money, as gold embarks on what we expect to be a multiyear bull market.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8697.87): There is a hidden pivot just below, at 8653.65, that could reverse the downtrend, but if the Dow goes any lower we'd expect the decline to continue to at least 8638.84. Alternatively, a rally from the opening bell would catch fire at 8745.34, signaling a possible move up to at least 8817.64.
MAR S&Ps (916.50): The futures would need to close above a 938.75 hidden pivot or trade above 940.00 intraday to re-energize the short-term bullish cycle. If that occurs, my minimum upside projection would be 970.40, a hidden pivot. If they continue to fall, however, the first support worth mentioning -- though probably not worth bottom-fishing -- is a fibo at 894.81
$ OEX (464.70): No change. A move above yesterday’s high at 475.09 would imply the OEX has enough strength left to reach a minimum 488 12.
MAR 10-YEAR NOTE (113.095): Again, there is no change in my outlook for the near term. It would take a close above 113.650 to revive the bullish cycle begun in early November.
QQQ (26.44): Unless the Cubes print 25.83 first, our minimum upside projection is still to 27.86, with 28.92 possible over the near-term.
FEB GOLD (358.10): By closing above a 355.30 pivot the March futures signaled an imminent move to at least 371.60. If it goes even slightly higher – to, oh, 372.10 – we should infer the rally will continue to a minimum 378.10.
MAR NASDAQ 100: (1064.00): There's a minor hidden-pivot support at 1055.00, but if it is breached the next step down would be toward the presumptive support of a prior low made on January 8 at 1042.00.
***
IBM (86.05): Not much to offer -- only the moderate assurance of support down near 80.60, a Fibonacci-based support. This dou r outlook would be aborted by a rally of at least 3.34 points from anywhere below 85.25. (Note: We bought no Feb 95 calls due to the contingency on the order.)
$ CSCO (14.90): There's a Fib-based support at 13.92, but like IBM, Cisco could reverse strongly higher following a decent booster stage rally of 68 cents from any price above that price. In any event, we'll continue to bid 0.10 for sixteen Feb 17.50 calls (CYQBW), no contingencies.
INTC (17.20): Intel tripped a weak buy signal when it touched 17.58, but the stock would need to close above 19.75 to suggest it's intent on challenging December's six-month high, 22.09.
C (37.11): Citi is being held between 36 and 38 until market conditions are right to move it above 40, where shares can be distributed to those who evidently shied away from the stock when it was trading at $25 not very long ago.
$ + GG (12.94): We hold 200 shares for an average 4.35 and are short two Feb 12.50 calls (GGBV) against them for an average 0.80. There's a small change in our bullish guidance: If the stock closes above 13.77, or trades more than six cents above that price intraday, assume it's bound for a minimum 15.72. If either occurs, I'll recommend covering the short Feb calls immediately at-the-market.
$ + DROOY (4.05): We hold 200 shares for 5.11 and are bidding 3.69 for another 200.
$ + MSFT (55.35): We hold two Feb 60 calls (MSQBL) for 0.80. Today bid 0.50 for four April 65 calls (MSQDM), contingent on the stock trading 54.50 or higher. If we buy them, we’ll offer Jans, Febs and Marches short against them later.
+ EBAY (71.25): We hold four Feb 75 calls for 0.80 after cover four short Jan 75 calls yesterday for 0.30. We'll sit on them for now, since the sacking of the stock yesterday seems a tad overdone given the upbeat earnings report that came out after the close.
Lagging Gold Stocks
by Rick Ackerman
A subscriber has forwarded a chart with implications that should hearten those of you who have been disappointed by the less-than-stellar performance of gold shares relative to the metal. The graph was produced by a firm called Proteus Capital Corp. (www.proteuscapital.com), which has developed a nifty “Gold Stock Fair Value Indicator.” Having compared the London p.m. fixing to a monthly average of the XAU index of silver and gold stocks over the last 20 years, Proteus concludes that gold shares would have to rally 20% to catch up with $350 spot. They offer no guarantees, of course, but the two-decade price history shown by this graph is reassuring on the matter of whether gold prices can long remain out-of-synch with mining shares. Evidently, they cannot. The graph tells us that stocks hav e a way of catching up, regardless of whether ingots are rising or falling in value. Assuming that bullion is in the early stages of a long and spectacular bull market, we would predict that a few powerful rallies lie ahead for gold shares, especially once the price of an ounce of gold has soared beyond the easy reach of the little guy.
In the meantime, what could account for the current price discrepancy? A recent essay by Jim Sinclair, whose work I’ve featured here before, asserts that the main demand for gold these days is coming, not from individuals, but from sovereign nations seeking to hedge their dollar exposure against a Fed that has effectively declared war on the dollar. Sinclair did not use the word “rubes” to describe those who are dabbling in shares rather than ingots, but it is clear that he considers gold bars superior to gold stocks as an investment. No argument from me, although the problems of affordability and storage that attend the purchase of physical gold will always make mining shares an attractive alternative. But if the very big players care not at all about gold shares now or even later, we can still be confident that millions of small investors eventually will care about stocks – voraciously -- as precious metal prices move ever higher.
We’ll let one Felix Zalauf have the final word today, quoted in the Barron’s Roundtable: "The policy of the U.S. central bank is going to destroy the dollar. Confidence in the U.S. currency at some point will collapse, and you'll have a run on dollars. Money can't go to other currencies, because they have to support the dollar. Gold will act as a monetary currency - a currency without the liabilities of ill-guided central bankers.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8442.90): The Dow effortlessly breached a Fibonacci-based support we’d flagged at 8447, suggesting even lower prices ahead. Our minimum downside projection is now 8068.83, a hidden pivot that lies about 4.5% below these levels. You can try bottom-fishing the electronic Dow contract down there according to your own plan, but we’d risk no more than $10-$15 on the initial stop loss, since, if the pivot provides any support at all, it will be precisely at that price.
MAR S&Ps (888.50): The futures not only breached a hidden-pivot support at 892.35, they closed decisively below it, implying there is more downside ahead. Accordingly, our minimum projection is to 849.70. We may attempt bottom-fishing at that price if and when the time comes, but for now we’ll remain uninvolved.
OEX (450.35): The OEX fell 1.5% to close within a half-point of the 450.90 hidden-pivot support we’d flagged. We were trying to buy Feb 480 calls for 3.10, and they did touch that price – the low of the day – but because only ten contracts traded during the entire session, we’ll infer that you were not able to buy the calls for 3.10. We’ll back off for now, since a contingency-type placed on today’s opening would be somewhat riskier and trickier than yesterday’s gambit. I cannot predict with any great confidence whether the pivot s upport will hold this morning, but yesterday’s close slightly below it is a negative sign.
MAR 10-YEAR NOTE (114.020): Yesterday’s close above 113.650 implies the futures are on their way up to a minimum 114.52. If they can close above that price, or trade more than 0.15 points above it intraday, I’d make them an even-money bet to take out the December 31 peak, 115.175. FYI, just above it sits an even more important, multiyear high at 116.100 made last October.
QQQ (25.03): No change. The QQQs are groping their way down to the presumptive support of a cluster of lows near 24.50 that formed late in December.
FEB GOLD (357.50): The Febs continue to ho ld effortlessly above a crucial hidden pivot at 355.70, suggesting our 371.60 upside target will be reached on the next thrust. If that price is exceeded even slightly, however, it would portend additional upside over the near term, to a minimum 378.10.
MAR NASDAQ 100: (1009.00): We expect the Cubes to grope their way down to the obvious support of prior lows that range, approximately, from 980 to 990. With no pivots to offer and round-number mishagas from 1000 more or less assured, we’ll sit back and watch for now.
***
IBM (80.54): Yesterday’s fall slightly exceeded the 80.60 Fibo level that was our minimum downside target. From here we should expect at least a few days of tortured oscillations near 80, since that has been this stock’s equator for nearly three months. If the stock should crash through the suppor t and touch, oh, 78, it would probably have to come down to 75 to find good traction.
+ CSCO (14.18): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. They'll provide us with powerful leverage over the next month in the event that the bear rally begun in October gets second wind. Nothing further is advised for now.
INTC (16.29): Our minimum downside target for the near term is still 15.60, the approximate midpoint of late December's lows.
C (36.14): If the averages get sold down hard over the next few days, expect Citi to fall to 34-35, where it can plumb the artific ial depths of its deftly manipulated range. Otherwise, the stock should continue to oscillate between 36 and 38 until market conditions are right to move it above 40. Above that price it can be retailed to the usual bunch of idiots -- investors who would not even think to buy the stock at current levels.
$ + GG (12.64): We hold 200 shares for an average 4.35 and are short two Feb 12.50 calls (GGBV) against them for an average 0.80. Goldcorp s hows little inclination to retrace, so let’s try to cover the calls, bidding 0.80 for them, day order, no contingencies. Once the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a minimum 15.72.
$ + DROOY (4.05): We hold 200 shares for 5.11 and are bidding 3.69 g-t-c for another 200. The s tock has teased bidders with fleeting feints lower, but it’s looking increasingly doubtful that we’ll be able to add to our position on-the-cheap. Let’s raise our bid to 3.80, still good-till-canceled. If the stock runs higher today, it would meet no resistance whatsoever below 4.19, a hidden pivot.
$ + MSFT (51.33): We hold two Feb 60 calls (MSQBL) for 0.80. The April 60 calls (MSQDL) we were trying to buy for 0.80 traded that low, but volume was so thin that we’ll infer no new position was taken. Today bid 0.60 for two of the April 60s, no contingencies.
'All-In' Bet?
by Rick Ackerman
We made two predictions here ten days ago -- that we would not go to war with Iraq, and that President Bush’s speechwriters would come up with just the right words to allow him a face-saving exit. Although we are still reasonably certain the President will stand down, his wordsmiths will have to craft one heckuva speech to permit him a warrior’s dignity in retreat. For now, though, all we are hearing from the President are war whoops – an increasingly disconcerting sign of his obliviousness to the tidal shift in public opinion. Indeed, public support for a war on Iraq has withered sharply in just the last week. Approval ratings in the U.S. have dropped to 50%, and there is no reason to think they won’t fall even lower. What this says, with painful clarity, is that it is no longer America’s war, but Mr. Bush’s.
Under the circumstances, it’s hard to blame our allies for pulling back. Most recently, Jordan and Turkey ruled out an invasion of Iraq from within their borders, denying us the tactical advantage of a multi-pronged offensive. An ostensible bright side is that Britain has remained steadfast, sending one-quarter of its fighting forces to the Middle East. But perhaps Mr. Blair senses, as we do, that his troops will not have to fight. It’s all brinksmanship now, as we asserted here earlier, but Mr. Bush’s unrelenting conduct begs the question of whether it was necessary for him to push all of his chi ps into the pot, as he clearly has. We can only pray that, if it’s a gamble, the gamble pays off and Saddam goes peacefully into exile. Even then, however, the task of “rehabilitating” Iraq may be more than the U.S can handle, even with the help of our ostensible allies. As one subscriber wrote in an e-mail: “A quick victory or a coup leaves us in Iraq for years (we're still in Bosnia and Afghanistan with no end in sight), with rising Arab resentment and more localized terrorism that will only increase over time. Look at Kuwait, which is a docile and supposedly secure U.S. protectorate. The cost will be staggering. Our economy and stock market will mirror Japan’s. China will be the locus of growth and growing political strength -- certainly in Asia and possibly in Europe. I think we are witnessing the beginning of the dec line of the American Empire. Regards, P.L.”
Another View on Gold-Share ‘Lag’
Yesterday we discussed a graph from Proteus Capital that showed prices for gold shares trailing expanding bullion quotes. A subscriber points out that this conclusion is somewhat exaggerated bec ause of Proteus’ use of the XAU index. He writes: “The fallacy of Proteus Capital's call on 20% undervaluation of gold stocks -- using the XAU -- is that the XAU contains too many hedged, to-be-avoided, underpriced stocks. As such, the XAU index is understated. Gold stocks, as represented by the GOX or HUI show a much truer relationship. They are lagging the price of gold because of widespread fear of a negative correction of $30 in gold, which would bring those gold stocks back near the (clearly feared) July, 2002 lows. Clearly the stocks are dragging -- just not as much as the XAU would seem to indicate.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8318.73): We’ll stick with the target given here earlier, 8068.83, as our minimum downside projection for the near term. If and when the opportunity arrives, you can try bottom-fishing the mini-Dow contract at that price acco rding to your own plan. We’d risk no more than $10-$15 on the initial stop-loss, since, if the pivot provides any support at all, it will be precisely at that price.
MAR S&Ps (877.50): Our minimum downside projection is still to 849.70. We’ll be tempted to try bottom-fishing at that price if and when the time comes, but for now let’s content ourselves with the educational experience of tracking a decline we understand.
$ OEX (445.67): A test of support is likely near 440, where several important lows have been made over the last three months. When it fails, as we expect, the OEX will be on its way down to a minimum 426.72, a hidden-pivot that can be bottom-fished with a very tight stop.
MAR 10-YEAR NOTE (114.175): If the futures can close above 114.52, or trade more than 0.15 points above it intraday, I’d make them an even-money bet to take out the December 31 peak, 115.175. Just above it sits an even more important, multiyear high at 116.100 made last October.
QQQ (24.93): The QQQs are groping their way down to the presumptive support of a cluster of lows near 24.50 that formed late in December. If it fails, expect the decline to continue to at least 23.67, a hidden pivot.
FEB GOLD (359.90): Our minimum upside target for the near term is still 371.60. If that hidden pivot is exceeded even slightly, however, it would portend additional strength over the near term, to a minimum 378.10.
MAR NASDAQ 100: (1004.00): No change. We expect the Cubes to grope their way down to the obvious support of prior lows that range, approximately, from 980 to 990. We’ll remain spectators, since there are no hidden pivots to advantage us.
***
IBM (79.70): We exp ect the stock to spasm near 80 for another 2-3 days, since that price has been IBM’s equator for nearly three months. If Big Blue should break down and touch, say, 78, the stock would probably have to continue down to at least 75 to find traction.
$ CSCO (13.96): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10 – great leverage if Da Boyz can turn this market around in February.
INTC (16.25): Our minimum downside target for the near term is still 15.60, the approximate midpoint of late December's lows.
C (35.90): Citi finished the day beneath its accustomed helipad at 36, suggesting its handlers may be resigned to creating a new bottoming zone between 34 and 35. I am still betting they’ll eventually find a way to distribute the stock above 40, but that would require at least modest support from the tape.
$ + GG (12.74): We hold 200 shares for an average 4.35 and are short two Feb 12.50 calls (GGBV) against them for an average 0.80. Once again, let’s try to scratch the calls, bidding 0.80 for them, day orde r, no contingencies. Once the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a minimum 15.72.
$ + DROOY (4.12): We hold 200 shares for 5.11. DROOY is bound today for a minimum 4.19 if it rallies at all, so I’ll suggest bidding 4.14 for 200 shares, good in the first hour only. < /SPAN>
$ + MSFT (51.00): We hold two Feb 60 calls (MSQBL) for 0.80 as well as four April 60 calls (MSQDL) that quite a few of you wrote to say you bought for 0.80. Let’s try to buy two more, bidding 0.60 for them, day order.
$ + EBAY (75.26): We hold two Feb 75 calls for a 1.50 CREDIT. Yesterday the stock broke lower rather than higher, stranding our closing offer of 4.40 for one of the calls. Today, offer a single call for 3.20, good on the opening only.
Disinfecting the Mailbag
by Rick Ackerman
Writing a Sunday column for a newspaper with half a million readers for a few years taught me that those of us in the opinion business cannot hope to please everyone all the time. To put it mildly. Yesterday’s note on Iraq seems to have touched off quite a few subscribers. There was this note, from Steven J., of Bartlesville, Oklahoma: “You are obtuse without a real geo-political understanding or perspective. Your recommendations reflect a vacuous strain of chaos; i.e. DROOY. Please remove me from this idiocy. Neville Chamberlin [sic] would be proud of your rants. Sell it somewhere else.” Not to put too fine a point on it, Steve, but we are not selling MarketWis e Black Box – it is free to anyone who cares to register at www.marketwise.com. And for the record, you can unsubscribe any time you want, simply by clicking on the “unsubscribe” button on the left-hand side of the newsletter. As to the Neville Chamberlain comparison: I am a war-mongering, pinko-baiting, right-wing troglodyte by nature – someone who would have considered Rumsfeld an unregenerate peacenik just a few months ago. But in this case I am persuaded that war will set in motion a chain of horrific events that we can neither control nor contain. In any event, I’ll stick with my prediction that, no matter how aggressively President Bush is talking now, we will not go to war.
Here’s another note that make’s Steve J’s message seem almost pleasant in comparison. It is from Dave K, whose e-mail address implies that he considers himself some kind of “bond wizard.” I have edited it some, just in case your kids subscribe to Black Box: “Sorry dude, but you're wrong on your ‘no attack Iraq’ view. You are ignoring some key news releases and key White House statements. Who the f__ cares if Russia or France or Germany supports the effort – they are the ones who armed Iraq in the first place (outside of China). Your calls on gold have been horrible also. Please take me off your mailing list. Every time I open my mailbox it smells like rancid baby s___. Thank you.” Dave, if you are as uncivil toward your neighbors as you’ve been to me, perhaps one of them actually has stashed a soiled diaper in your mailbox. Better check it out, dude.
Not everyone was so unkind. Craig C. wrote, “Thanks for a great column. This is one of the most astute and lucid commentaries about the current political situation that I have read all week. I hope you are right about the ‘bluff.’ The current drop in defense stocks has me thinking that the big boys also agree with you.”
DROOY Whiner
But then there was Jim D, apparently still riled by my gentle refusal a few weeks ago to answer his daily pleas for specific advice on some gold stocks: “Several of us were reviewing your market report and maybe you could enlighten us. You say that you make money trading stocks and you sell DROOY for under 4.00 but had over 5.00 invested and bought back in over 4.00 and you still make money, right? Are we missing something?” Or is it I who am missing something? I told Jim D a couple of weeks ago to get lost -- to simply unsubscribe -- but now he apparently critiques the newsletter each day with the help of an ad hoc editorial committee. Perhaps they are new subscribers who will at least find entertainment value in my miserable stupidity and errant forecasts. Whatever your interest, guys, please be sure to tell your friends. And Jim, would you care to bet that we don’t eventually exit DROOY with a profit? For anyone unclear on where I stand, with a $5.11 basis, I still think DROOY is a no-brainer “doubler.” Also, how could you have failed to noticed that our other gold stock, Goldcorp, is trading at three times what we paid for it?
Another subscriber, Phil C, is the kind of dissenter every editorialist loves to hear from: “I thoroughly enjoy your newsletter and often agree with your commentary. Although it is still possible and obviously the desirable outcome if Saddam were to go into exile, what made you do a 180 about Bush standing down? You seem to forget, fellow skeptic that you are -- especially when it comes to politicians -- that this is a man of conviction and belief. This is not Bill Clinton, who had no convictions other than to be re-elected and made policy based on polls. I am not naive enough to suggest Bush doesn't look at polls or not care about public opinion, but on anything of substance and major importance, it is doing what is right that determines his policy decisions. Sure they will try to spin things to their favor, but if Saddam doesn't lea ve nor disarm we are going to war. It would be great if he blinks in the face of our troop deployments being increased, but if he doesn't they were the next necessary step towards implementing his removal. I think you totally missed the ball on this one. Keep up the great work. Phil C.”
Bush a Principled Man
I should make clear first of all that I think President Bush is a decent and principled man as well as strong and capable leader. He is certainly no Bill Clinton, who along with Hillary deserves to be tarred, feathered and pilloried for disgracing the presidency in ways that even political cynics like myself could not have imagined. To return to the point, I do not think the President is trying to bluff Saddam -- that he really is ready to go to war. Nor would I expect Mr. Bush to back down because of fear that a war might cost us the lives of many soldiers, as wars often do. What has swayed me against our rolling into Iraq is the tectonic shift in public opinion that has occurred in just the last two weeks, as well as some particularly persuasive letters from subscribers who have been to war. As one Vietnam vet wrote, wars are won at home, not on the battlefield. This suggests why the widening gap between Mr. Bush and the masses both here and abroad could diminish the odds of a successful outcome, even if we are able to flatten Iraq with a blitzkrieg in the early days of a war.
This doesn’t mean I think that public opinion should determine our course, especially when a groundswell grows out of the simplistic argument that war is morally indefensible. In fact, as Churchill’s unflinching stand against Hitler taught us, war is justifiable unde r some circumstances. But is Saddam another Hitler? Probably not, even if Iraq had a Wermacht to back him up. Is he harboring weapons that pose a grave threat to the rest of the world? Perhaps. Would it be worth going to war if he is? Some would say no, others yes; with the latter I do not stridently disagree, since just a short while ago I was in their camp. But I am no longer persuaded that the potential gains outweigh the risks, especially given our poor track record in trying to mop up the mess in Afghanistan.
Nuking Baghdad
War against Iraq would be justified, in my opinion, if Saddam were to deploy biological, chemical or nuclear weapons. It evidently already has been decided that we will nuke Baghdad if Saddam uses such weapons. But the decision concerning whether to go to war before that happens is far more difficult, since the larger threat is that Saddam will not strike with a WMD, but that he will arm terrorist groups such as al Qaeda, enabling them to devastate us and our allies without risking the kind of retaliation that a missile launched from Iraq would provoke. Unfortunately, it may take a first strike by Saddam to bring the West to the point of agreeing on how he should be eliminated. But absent any overt aggression by the Iraqi dictator, the world remains too bitterly divided to prosecute a successful war against him. President Bush has said all along that the U.S. would be willing to go it alone, but now we really are alone. My strong hunch is that this will ultimately sway the President. He will first bring us even closer to war, but I am still predicting that he will not give the command to open fire.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
(Note: On their respective daily charts, stochastic indicators for numerous issues tracked below – most particularly the Dow, S&Ps and the OEX – are starting to roll up from oversold extremes. My short-term forecasts are mostly bearish, but if stocks can close strongly higher today I’d expect a powerful follow-through next week.)
$ DJIA (8369.47): The Indoos spent the whole day trying to make it back to the fraudulent highs achieved in the first hour, but we’re unconvinced they can go much higher over the near term. Accordingly, 8068.83 remains our minimum downside projection for the near term. If and when the opportunity arrives, you can try bottom-fishing the mini-Dow contract at that price according to your own plan. We’d risk no more than $10-$15 on the initial stop-loss, since, if the pivot provides any support at all, it will be precisely at that price.
MAR S&Ps (883.00): Our minimum downside projection is still to 849.70. We’ll consider bottom-fishing if and when the opportunity arises, but for now we’re on the sidelines. The decline would be aborted if the futures can close today above 893.00.
MAR 10-YEAR NOTE (114.115): We now expect the futures to make a run at late December’s watershed top, 115.175. If they can surpass that resistance our minimum upside expectation thereafter would be 117.15.
$ OEX (450.70): A test of support awaits near 440, where several important lows have been made over the last three months. The OEX would signal a moderately important turnaround, however, if it can close today above 458.20.
QQQ (25.51): The QQQs need only close today above 26.30 to generate a weakly bullish stochastic signal. Otherwise, expect them to grope their way down to the presumptive support of a cluster of lows near 24.50 that formed late in December.
FEB GOLD (364.70): There should be little question by now about w here the futures are headed. For weeks our minimum upside target has been 371.60, an important hidden pivot, and it is about to be kissed. If it is exceeded even slightly, however, that would portend additional strength over the near term, to a minimum 378.10.
MAR NASDAQ 100: (1026.50): A close today above 1041.00 would turn stochastic indicators mildly bullish for the near term. Otherwise we expect the Cubes to continue groping their way down to the obvious support of prior lows that range, approximately, from 980 to 990. Again, we’ll remain on the sidelines.
***
IBM (81.05): My hunch is that today’s action will presage next week’s, with bullish or bearish outcomes determined by, respectively, a close above or below Thursday’s range.
+ CSCO (14.59): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. We’ll sit on them, rooting for Cisco to turn frisky. The stock would scare our calls back to life with a rally to about 16 over the next few days.
INTC (16.67): A clo se today above 17.10 would turn stochastic indicators for the daily chart moderately bullish. Otherwise, our minimum downside target for the near term remains 15.60, the approximate midpoint of late December's lows.
C (37.14): Citi will continue to bounce around between 36 and 38, or between 34 and 35 if it drops into a lower range, until such time as conditions are right to mark it up for distribution above $40. The outside strangle (Feb 35 put/40 call) is a tempting s ale for $1, but we won’t make that an official recommendation because of the open-ended risk.
$ + GG (12.74): We hold 200 shares for an average 4.35 and are short two Feb 12.50 calls (GGBV) against them for an average 0.80. We keep missing covering our calls by a nickel, so let’s buy them both back on today’s opening at-the-market. FYI, once the stock closes above 13.77, or trades more than six cent s above that price intraday, we should assume it's bound for a minimum 15.72.
$ + DROOY (4.16): We hold 200 shares for 5.11 but missed buying 200 more yesterday because of a time-limited contingency on the order. Today, bid 4.12 for 200 shares, day order.
+ MSFT (52.28): We hold two Feb 60 calls (MSQBL) for 0.80 as well as four April 60 calls (MSQDL) for 0.80. We’ll let the position ride for now, since the April 60s are not coming in for 0.60.
$ +< SPAN style="mso-spacerun: yes"> EBAY (75.70): We hold two Feb 75 calls for a 1.50 CREDIT, since we did not sell one yesterday for 3.20 due to a contingency on the order. Since the stock is acting so well, let’s get slightly greedy and offer the call again today, but for a little more: 3.90 or better.
A Trader Weighs In
by Rick Ackerman
: I’ve just emerged from a two-day seminar at MarketWise for the school’s instructors, so I’ll keep my comments brief in order to get Monday’s edition to you in good time. Under the circumstances, I could do not better than to offer you the wise reflections of one subscriber, a veteran trader who evidently has been able to integrate MarketWise Black Box forecasts and recommendations successfully into his own trading regimen. This is one trader who has his head screwed on straight, and I offer you his thoughts not merely for informational purposes, but for inspirational purposes as well. He writes as follows:
“Rick, I have to tell you I'm amused by you readers who seem to look only for opinions that reflect their own and become resentful if your opinion differs from theirs. Perhaps they should apply for the soon to be vacated position now held my one Saddam H. I am amused, too, by your presenting these outrageous dissenters – but I wonder if they really want to squander even a few seconds of their 15 minutes of fame with such unworthy comments.
”Politics is one thing and, for reasons that have always escaped me, many seem to think their constitutional right to voice opinions has become a constitutional obligation. But trading is another matter. I learn nothing from people wh o resentfully disagree with you, but I am in a position to benefit when your comments disagree with my own opinion. That you differ will only become important enough to cancel my subscription when I become obligated to mimic your trades. Right after getting a life, I am thinking they should get their own trading plan -- but I'll refrain from saying so because I'm not really interested with what other people do with their lives.
”As I remarked with DROOY [Editor’s note: He bought it for 4.12 in the pre-market.], I have taken trades you recommended. Have I ever made money on your trades? Of course. Many times. A lot of money. Have I ever lost money because of your recommendation? Never. Not once. Not ever. Never will. You don't do my trading for me. You don't think for me. You don't push my "send order" button. When you take over thinking and trading for me, I'm done. I'll leave the business. ; Until then I'll continue to expose myself to people who help me think and will take your trade recommendations as a short-cut to trades to consider and place them in unmodified form, modified form or ignore entirely based solely on my own technical work.
”The ‘my own technical work’ is a key to my trading. Quite frankly I do not make any trading decisions based on what I think or what anyone else thinks about Saddam, war news – or any news or opinion whatsoever – yours included. As an individual, I have a little interest in information that may affect me and my future – but I tend to just deal with what's in front of me and leave the bigger picture result, er, rather all the results up to God. As a trader I leave all my decision-making up to the technicals specifically because they are not influenced by news, opinions and so forth, but only by the markets’ reaction to the news.
My market timing continues to impress me, even if there's no reason it should impress anyone else. I called for going from long bias to cash between 1/10 and 1/17. I have not yet made a definitive decision to go long or short – but I'm very close to making a short-the-market call again. I'm still getting warning shots across the bow via the point-and-figure anticipators. Like you, I do expect a rally next week – although a week ago I thought the rally would happen by today. I'm hoping to see cause to put my IRAs back into inverse funds when the rally materializes – inverse funds more than doubled my IRA last year. But rest assured of two things: 1) My decision will be my own and based strictly on technical parameters; and 2) I'll let you know, not because I'm looking for agreement or because I anticipate it will change any of your decisions, but because writing to you helps keep me honest in any later boasting.”
__________________________________________________________________________________
[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8131.01): Just a little further to the target we used last week -- a high-confidence hidden pivot at 8068.83. You can try bottom-fishing the mini-Dow contract at that price according to your own plan, but we’d suggest risking no more than $10-$15 on the initial stop-loss, since if the pivot provides any support at all, it will be precisely at that price.
$ MAR S&Ps (860.30): Friday’s low fell just 8 points from our projection, so we should infer the futures have a bit farther to fall before they find decent traction. Accordingly, in the first hour only, you can try bottom-fishing at the pivot, 849.70, using an 849.75 bid for a single E-mini contract, stop 848.75. You’ll be on your own thereafter.
MAR 10-YEAR NOTE (114.220): No change. We expect the futures to make a run at late December’s watershed top, 115.175. If they can surpass that resistance our minimum upside expectation thereafter would be 117.15.
$ OEX (436.14): There’s a very enticing hidden pivot at 426.69. Let’s try to bottom-fish there with a 4.10 bid for a single Feb 450 call (OXBBJ). That would be pretty cheap -- but not implausible -- with the index trading near our target. Make the bid contingent on the OEX trading 426.60 or higher.
QQQ (24.82): The Cubes are headed down to the 24.50 support area we used all last week as a minimum target. If 24.00 is penetrated, however, the next stop lower would be 22.96, a hidden pivot that will be worth bottom-fishing if and when the time comes.
FEB GOLD (368.40): A longstanding target at 371.60 came within less than $2 of being achieved Friday. It will be soon, but if the futures go even slightly higher we would infer the rally is going to continue to a minimum 378.10. That last price is a good place to take some profits if you’ve been long on the way up.
< SPAN style="FONT-SIZE: 9pt; COLOR: black; FONT-FAMILY: Verdana">MAR NASDAQ 100: (1000.00): Friday’s round-number close will not save the futures from testing real support down in the range 980-990, where they’ve made two key lows since November. If support at that level does not hold, we should assume the futures are bound lower, to a minimum 924.50 (a hidden pivot).
***
IBM (78.99): The most obvious support is down near 76, where the stock began a two-week rally in late December. If the stock is going to rally out of the hole, it will probably do so following a false breakdown below the December 30 bottom, 75.60.
+ CSCO (13.86): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10, but they are fast becoming a longshot with the stock sinking toward whole-number support at 13. Below 13, support at 12 would start to beckon.
INTC (15.85): Our minimum downside target for the near term is still 15.60, the approximate midpoint of late December's lows. It is too vague a target to bottom-fish, but we should expect the stock to fall to at least 15.00 if it doesn’t hold.
&nb sp;
C (35.79): Citi bounced from a supportive hidden-pivot at 35.50 on Friday, but if it penetrates that number today we would infer that the stock is on its way down to a more significant pivot support at 33.80.
+ GG (12.95): We hold 200 shares for an average 4.65 after covering two Feb 12.50 calls we’d shorted at the worst price of the day, 1.10. We will rarely use market-on-opening orders, since that is rip-off time for retail customers, but we’d wearied of chasing the stock over the last few days. We’ll sit on the position for now, less inclined than before to tamper with it. FYI, once the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a minimum 15.72.
+ DROOY (4.26): We hold 200 shares for 5.11 but once again missed buying 200 more shares by a few cents. We’ll put a bid in below the market – 4.21 for 200 shares – but otherwise remain content with the position we’ve got if the stock does not come in.
+ MSFT (49.85): We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. We plan to offer some Feb or March options short against the Aprils when the stock rallies, but for now there is nothing more to do.
$ + EBAY (75.28): We hold two Feb 75 calls for a 1.50 CREDIT. eBay has been bucking the trend, but the broad market would have to firm some to allow us to close out one of the calls for 3.90 or more. Today offer it for 3.20 on the opening rotation, but if the order is not filled, raise it to 3.70 and leave it in for the rest of the sess ion.
Useful Idiots
by Rick Ackerman
We bought back some DROOY shares yesterday, but that was before I even knew about this potential source of nitro-methane fuel for the rally cycle:
http://www.mips1.net/MGGold.nsf/UNID/TWOD-5J2SQ3
Seems that short sellers have taken a r ather keen interest in Durban, boosting their positions in November from an average one million shares to nine million – about one-fifth of the company’s float. You’ve heard the expression “useful idiots”? Well, for those who own DROOY shares, these guys are idiots from heaven -- blessed idiots worthy of our thanks, our praise -- and perhaps even our prayers, which they will need when the stock grabs hold of their scrota.
Don’t Bet on Upturn Soon
For those of you whose hope and patience have ebbed as we’ve await signs of economic recovery, here’s a bracing dose of reality from our friend Bob Bronson of Bronson Capital Markets Research:
“With the weak consumer and inventory figures and the trade figures, the Q4 '02 GDP figure could be as low as 0% or even slightly negative, whereas the Q1 '03 year-over-year comparison will be difficult, particularly due to the lack of pent-up demand and the prospects for saturation in the auto and housing sectors. Not only have Wall-Streeters not priced in 2% or slower real GDP for '03, no-growth or recession is completely o ff Wall-Streeters' radar screen, so to speak, and 3% or higher growth is the consensus. If I am correct about a 1%-2% real GDP trend for '03-'04 (and converging real and nominal GDP), the major stock indices and Treasury note/bond yields have much further to decline over the next ~12-16 months.
Hidden Agenda in Iraq?
And finally, here is an excerpt from a very fascinating Stratfor analysis (www.stratfor.com) that may help to dispel mounting confusion over just what it is the President seeks to accomplish by going after Iraq. Mr. Bush has made it sound as though we want to punish Iraq and disarm Saddam, but the following list probably comes much closer to describing our true objectives. The President has been opaque, according to Stratfor, because our allies would never countenance our attacking and occupying Iraq to achieve the following goals: 1) [Remove] a potential ally for al Qaeda, one with sufficient resources to multiply the militant group's threat. Whether Iraq has been an ally in the past is immaterial – it is the future that counts; 2) [Place] U.S. forces in the strategic heart of the Middle East, capable of st riking al Qaeda forces whenever U.S. intelligence identifies them; and 3) most important, [allow] the United States to bring its strength – conventional forces – to bear on nation-states that are enablers or potential enablers of al Qaeda. This would undermine strategically one of the pillars of al Qaeda's capabilities: the willingness of established regimes to ignore al Qaeda operations within their borders.
Stratfor continues: “From a U.S. standpoint, this is the strategic rationale for a war with Iraq. Or, to be more precise, if this is not the rationale, the purpose is the one thing a war's strategic goals should never be -- a baffling secret. This is not the explanation that ha s been given for the war's
strategy. The Bush administration's central problem has been that it has not been able to tie its Iraq strategy in with its al Qaeda strategy. At first, the United States tried to make the case that there had been collaboration between al Qaeda and Iraq in the past, as if trying to prove that a crime had been committed that justified war. The justification, of course, was strategic – not what might have happened, but to prevent what might happen in the future. The administration then settled into a justification concerning weapons of mass destruction, creating the current uproar over whether an empty rocket could be construed as a justification for war.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7989.56): Look for lower prices still, since yesterday’s dive easily pierced an 8068.83 pivot we’d been using for a target for nearly two weeks. The rule is simple: When a trend exceeds a hidden pivot, the next pivot is likely to be reached. So what is the next pivot support for the Dow? Precisely 7668.87. If it, too, fai ls, the next major pivot support below it would be 7305.56. (Note: If you bottom-fished yesterday’s decline, the attempt should have cost you little, since a very tight stop was advised.
MAR S&Ps (847.30): The 849.70 hidden pivot we flagged here yesterday proved to be a precise inflection point but by day’s end it had given way, implying still lower prices ahead. The next pivot lies not far below, at 839.40, but if that too is breached, thena last-ditch Fibonacci level at 837.25, we should expect the futures to fall at least to the round number – 800 – in search of support.
MAR 10-YEAR NOTE (114.120): Still no change. We expect the futures to make a run at late December’s watershed top, 115.175. If they can surpass that resistance our minimum upside expectation thereafter would be 117.15.
OEX (429.47): The OEX fell to within less than a point of our target, a fairly important hidden pivot at 426.69. We were unable to buy a Feb 450 call, though, because it became relatively pricier as the index fell. We won’t bid the call again, however, since the only time we buy options is when they are dirt cheap. If the OEX penetrates the 426.69 pivot decisively, we should infer that this sinking spell will continue down to around the 400 level, at least.
QQQ (24.53): We’ve been advertising a 24.50 minimum downside target for weeks, and the Cubes have finally arrived. If 24.00 is penetrated, as we expect, the next stop lower would be 22.96, a hidden pivot that will be worth bottom-fishing if and when the time comes.
$ FEB GOLD (369.40): By rallying intraday above a longstanding target at 371.60, the futures signaled that the short-term bullish cycle will continue to at least 378.10. Profit-taking between here and there is advised if you’ve been long on your own initiative, but I’d suggest holding no more than 30-35% of any position above 378.10.
MAR NASDAQ 100: (988.50): The futures have come down to the 980-990 level we’d predicted a while back, but if they close below it the next likely stop would be around 950. That’s not a pivot, just a level on the long-term chart that draws the eye, albeit weakly. A breach of 950 would probably doom the futures to a fall down to at least 924.50, a hidden pivot given here previously.
***
IBM (78.42): No change. The most obvious support is down near 76, where the stock began a two-week rally in late December. If the stock is going to rally out of the hole, it will probably do so following a false breakdown below the December 30 bottom, 75.60.
+ CSCO (13.71): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. From a stochastic perspective, Cisco would need to close 14.08 or higher to trigger a possible short-term turnaround. Otherwise, 13 seems like an obvious place for the stock to seek support.
INTC (15.88): Intel made a low 12 cents beneath our 15.60 minimum target, then rallied moderately. It will need to close above 16.14 today to keep the rally alive; otherwise, a fall to at least 15 remains likely.
C (35.09): Look for weakness to continue down to at least 33.80, a hidden-pivot support. The stock could abort the beraish short-term outlook by closing today above 36.10.
+ GG (12.59): We hold 200 shares for an average 4.65. Nothing further is suggested for now. Once the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
+ DROOY (4.16):&nb sp; We hold 400 shares for an average 4.66 after buying 200 shares yesterday for 4.21. Sit tight for now.
+ MSFT (49.17): We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. The stock appears headed for a hidden-pivot support at 46.13. We won’t try to bottom-fish there, since whole-number support near 46.00 could diminish the pivot effect.
$ + EBAY (73.69): We hold two Feb 75 calls for a 1.50 CREDIT, but selling one of them for a fat profit has proven elusive. Let’s offer one today for 2.60, no contingencies.
Fading Into Oblivion
by Rick Ackerman
For what it’s worth, two estimable subscribers, Kip Reich and Jim Davis, have advised that they are fading my bullish gold advice aggressively these days. Kip you all know as a pretty square guy, if a bit of a noodge. But Jim I’ve alluded to only once, about a week or so ago. Lately he’s been checking in almost daily to tell me how badly my forecasts suck. (Some who paid as much as $3,000 for the very same newsletter your are receiving for free would beg to disagree, Jim:
http://www.marketwise.com/MW_WiseG/BBFTestimonials.asp )
In spite of this, the guy evidently cannot bring himself to cancel his subscription to MarketWise Black Box, as I urged him to do weeks ago. Go figure? Here’s a smarmy note from him back in the old days, when he obviously was cultivating me as a potential source of free, one-on-one trading advice (which for legal reasons I cannot provide): “How do you know so well of when to buy and sell a stock? I picked up another 1,000 shares today of DROOY as it passed 3.20. Your pivot system works like magic! Do you have a pivot of when to sell DROOY? I would like to make as much profit as possible and do not want to get caught holding the stock as it starts downhill. I have done that too many times!” Like magic, no less. It’s all pretty obsequious, but I’d be lying if I said I didn’t enjoy hearing every now and again from a fawning subscriber. Now listen to him, all sour grapes after I politely told him to get lost when his too-frequent requests for specific advice began to annoy me: “Looks like you caught the DROOY train just as it started to back up. Sold my 1000 shares today at 4.35 for a hefty gain. I'll wait till it's under 4 and get back in. Since you were buying I guess I made the right choice.” Only time will tell, Jimbo.
Unclear on the Concept?
The Kipper, who unlike Jim is a guy I would probably miss if he stopped sending me off-the-wall notes, is just as eager to go on the defensive in gold: “Rick, I got a chuckle from your letter today, you must know something that the people who went from one million to nine million shorts don't. I learned a long time ago NOT to bet against a heavy short position. It usually comes back to bite you in the ass. You have failed to recognize something, the shorts came in at the top, not the bottom. But the biggest buyers of mining stocks are mutual funds and their buying has dried up. I follow what mutual funds buy and when, more than anything else to correctly know what to bu y and when. If I were you I would take my gold profits now and be a hero later.”
Well, as I told Kip, he is not me – not by a longshot, is my guess -- so he should follow his bliss wherever it may lead, even if away from the most obvious bull market of our lifetime. For our part, we are no longer inclined to trade in and out of gold positions so aggressively, but rather to stick with a couple of stocks that we are absolutely confident will move into the firmament over time. Which raises a point that my fellow guru Steve Saville noted in his most recent update. Steve points out that, although the ebb and flow of tensions related to Iraq seems to be driving bullion prices each day, the much larger and more important force – a bear m arket in the dollar – is likely to continue for a long while. In his words: “The misguided notion that this gold rally is being driven by the impending war against Iraq results in traders buying/selling in response to the latest Iraq news or in anticipation of what the news is likely to be. We don't think the current phase of the gold bull market will end until there is widespread belief in the sustainability of the gold rally as indicated by enthusiastic speculation in the gold shares. This will occur if the gold price continues to defy gravity and just keeps pushing higher. It will also occur if there is a 1-2 week pullback in the gold price followed by a move above the recent high.” I strongly agree, and that is why, when gold sells off for a few days, as it is wont to do in a bull market, we should not lose sight of a far bigger picture that suggests gold will be a solid buy-and-hold bet for years to come.
Arbitrage Skew in DROOY
One more gold-related item comes to us today from Montreal subscriber Brian Ostroff, who thinks the short position I mentioned yesterday in DROOY may have been inflated by an arbitrage situation: “I was just reading your commentary this morning as I usually do (and enjoy). Your comments regarding the DROOY short position might be explained by a $60 million (plus $6 million over-allotment) convertible issue the Company did in mid November. What is common in these situations is that the Convert buyer then shorts the underlying stock and earns his coupon risk-free (pretty much). Obviously I don't know if that is the only fact that drove up the short position, but it probably has something to do with it.
“On another matter, you and I had a conversation about debt. Namely, all debt gets repaid either by the borrower or the lender. That is almost correct. There is on e other entity that may also pay back the debt; the insurer of the debt. That means the government in the case of failed banks,
Fannie/Freddie, etc. or the organizations that insure corporate bond offerings such as MBIA. The debt will be repaid alright, but who gets hammered in the process is the question.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8088.84): We continue to look for lower prices, since an important hidden-pivot support at 8068 has recently been decisively breached. If this bear rally continues, however, there are three places where we would look for resistance: 8306, a Fibonacci level; 8413, a 50% retracem ent of the decline since January 13; and 8527, another Fibonacci level.
MAR S&Ps (854.50): Resistance points analogous to the ones I have given for the Dow lie at the following three prices, respectively: 877.92, 888.75 and 899.66. FYI, tomorrow we will begin using targets and pivots that come from the E-mini chart, since that appears to be the vehicle most actively traded by Black Box subscribers.
MAR 10-YEAR NOTE (114.050): No change. We expect the futures to make a run at late December’s watershed top, 115.175. If they can surpass that resistance our minimum upside expectation thereafter would be 117.15.
OEX (434.65): Resistance points analogous to those given for the Dow and the S&P futures lie respectively at 445.38, 451.06 and 456.73.
QQQ (24.78): If the cubes can get past a Fibo-based resistance at 25.28, they’d be an odds-on bet to challenge the minor peak at 24.84 made last week. This scenario yields no special opportunities for us.
$ FEB GOLD (370.00): Our minimum upside target for the near term is still 378.10. Profit-taking between here and there is advised if you’ve been long on your own initiative, but I’d suggest holding no more than 30-35% of any position above 378.10.
MAR NASDAQ 100: (998.00): Just little stuff. The futures have rallied out of a support range where we’d projected a possible short-term low. The most immediate resistance above, a minor Fib level at 1018.87, wil l serve as our target for now, but if the futures penetrate it decisively they’d be on their way to a test of the January 23 peak at 1041.
***
IBM (80.11): Once again, IBM has homed in on its tediously magnetic “equator” at 80. We have n othing to recommend, since the obvious but relatively risky strategy would be to sell naked straddles or strangles within the range 75-85.
+ CSCO (14.22): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. If Cisco can close above a hidden pivot at 14.92, it’ll be a good bet to test mid-January’s peak, 15.63.
INTC (16.03): A close of 16.27 or higher today would generate a moderately bullish stochastic sign on the 100-day chart. If so, there would be upside potential to 18 over the next 4-5 sessions.
C (35.46): We’ll stick with the downside target at 33.80 given earlier until such time as Citi rallies above 37.20. Meanwhile, there is nothing compelling to recommend.
+ GG (12.65): We hold 200 shares for an average 4.65. Again, nothing further is suggested. Once the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
+ DROOY (4.06): We hold 400 shares for an average 4.66. No changes are recommended at present. The stock could come down to as low as 3.50 without changing a short-term technical picture that remains bullish.
+ MSFT (48.82): ; We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. Microsoft still looks to be headed for a hidden-pivot support at 46.13, but the short-term outlook would brighten some if the stock can rally above 50.60 over the next two days.
+ EBAY (73.43): We hold two Feb 75 calls for a 1.50 CREDIT, but after missing the sale of one of them at yesterday’s high by a nickel, we’ve decided to pull the offer and wait for better days. The first clue the good times may have returned would be a close above a hidden pivot at 75.88.
Microsoft and IBM
by Rick Ackerman
TRADING NOTES: I’ve devoted a lot of ink lately to the Iraq crisis, neglecting a folder that has been filling up with subscribers’ thoughts on a wide variety of topics. Here’s a letter from D.S., who has been waxing bearish on IBM. He also makes some interesting points regarding Microsoft:
“As a general proposition, in a deflationary business environment the lowest-cost provider always wins. The enterprises that buy IBM's services are under financial pressure and can't afford to hire IBM to do the things they are hired to do. Further, the marketplace is full of individual enterprisers who are highly trained surplus from IBM and other companies who can do what IBM does at a fraction of the cost. As users become more sophisticated, they recognize that the supplier market is much larger than just IBM and comparable enterprises. I know of a law firm that had used IBM for training at a six-figure price that fired IBM and hired a small startup group of MSFT alums for about a quarter of what they were paying IBM.
“Further, I don't see how IBM can make it better. They are a very high-overhead, large company that cannot manage activities effectively down at the dirt level where it counts. In competition with [smaller companies run by individuals] – guys who are working to put bread on the table and who in many cases were initially trained by IBM, they lose every time. This is of course the most important part of their business. There is still some (diminishing) volume in the mainframe and collateral hardware business; however if the service end does not work, I question what kind of business they have left that will. In the business environment of the future, large companies with an entrenched, inefficient management structure and high overhead will have great difficulty developing a business plan that will work.
Wrong Approach
“Microsoft has the advantage of having a franchise – the operating system. In my view, their business mistake is in not focusing on the operating system and on the proprietary software (Microsoft Office, etc.), which can be produced and sold at a profit. They also may have a service business that could be managed to make a profit, although as I recall (I may be wrong), I don't think they make money with it now – as a matter of fact, I seem to recall reading that Microsoft has never made a dime doing anything except selling operating systems.
“I think Microsoft is squandering their basic business advantage. The goal of forcing OS customers, software service customers, and basic software users online to a user fee is counterproductive. Their biggest quarter ever came last fall, when all their service customers signed up to renew their old deals early to beat having to sign up for the new deal. That is not an inspiring story. If you and I were running a company, we would do just about anything to buy our software somewhere we could have the whole package on our own machines and under our own control. When you don't do that, you are exposed to having Bill tell you he is going to charge you whatever he feels like; supply it whenever and wherever he feels like it; and you have no control over it under circumstances where firing him is very burdensome. There is nothing sufficiently more effective in the new software to force people into what is an undesirable business/supplier relationship.”
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7945.13): Another close below 8000 will likely have frayed some nerves on Wall Street. Stochastic indicators for the daily chart are itching to turn up from extremely oversold lows, but if the Indoos confound by going lower, the closest prospective support of signifi cance is a Fibonacci level at 7889.69. If it is breached just slightly, we’d look for the decline to continue to at least 7668.87, a hidden pivot flagged here earlier. Worst case over the near term is a still-lower hidden pivot at 7305.56 (also noted here earlier).
E-Mini S&Ps (838.50): A few days ago we gave a fibo level at 837.25 as last-ditch support, but with yesterday’s breach of that number we now expect the futures to continue on down to a test of round-number support near 800.
MAR 10-YEAR NOTE (114.015): The futures found support just above where we’d projected, but they’d need to close above 114.310 to suggest that a test of the important January 31 peak at 115.175 is in the offing.
OEX (426.71): A prediction made here a few days ago that the OEX would fall to at least 426.69, a moderately important hidden pivot, was borne out by yesterday’s decline, which produced an intraday low of 426.26. Any lower and the second part of that forecast, calling for a test of support near 400, will
be in play.
QQQ (24.54): The cubes are fighting for life near levels where several important bottoms were made over the last few months. We expect the support to fail, sending this vehicle down to a potential short-term low at 22.96, a hidden pivot. You can bottom-fish there according to your own plan, but don’t risk more than pocket change on the initial stop, since the inflection point will work very precisely if at all.
FEB GOLD (370.80): It would appear the futures needed hardly any pullback at all to recharge for the next big surge. Our minimum ups ide target for the short term is still 378.10.
MAR NASDAQ 100: (987.00): Nothing to suggest. We should avert our eyes for a day or two, lest this vehicle’s gratuitous ups and downs have a Medusa effect on our brains.
***
IBM (78.30): Any further weakness today will likely send IBM down to around 75 in search of short-term support.
+ CSCO (13.87): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. If Cisco can close above a hidden pivot at 14.92, it’ll be a good bet to test mid-January’s peak, 15.63. Otherwise, look for a pullback to the whole number, 13.00.
INTC (16.66): Despite yesterday’s belly-flop, stochastic indicators for the daily chart still look moderately supportive. If they are buttressed by a firm tape, expect Intel to reac h 18 by no later than early next week.
C (34.20): No change. Our downside target at 33.80 will remain viable unless Citi can rally above 37.20. There is nothing compelling to recommend.
+ GG (12.38): We hold 200 shares for an average 4.65, and no changes are contemplated. When the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
$ + DROOY (4.06):&n bsp; We hold 400 shares for an average 4.66. Stochastic indicators for the daily chart look sufficiently humdrum to favor a holding pattern between 3.80 and 4.40. Accordingly, I’ll suggest bidding 3.82 for 200 more shares.
+ MSFT (48.24): We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. The stock would need to close above 50.13 today to trigger a faintly bullish stochastic signal on the daily chart.
$ + EBAY (74.20): We hold two Feb 75 calls for a 1.50 CREDIT. With eBay’s relative strength holding up nicely, we’l l continue to offer one of our calls to close for 3.80, good till canceled.
Golden Trade
by Rick Ackerman
Would you believe that the late, great Cisco has been boring us for nearly two years? The stock first dipped below $20 in early March 2001 and has moved between $10 and $20 ever since, drifting like a mass of kelp on a quiet tide. The good news is that we have swapped it for a bull-market stock, Royal Gold (RGLD), which has the kind of chart pattern that will help freshen our outlook. The subscriber who drew my attention to Royal is Barney D, who evidently has been having one heckuva good time trading it: "It's been a terrific performer for me over the last year and looks poised to continue on into the future." We agree, and that is why we've added it to our list. Meanwhile, although we will continue to hold a small, very leveraged position in Cisco by way of some Feb 17.50 call options, we won’t comment further on them unless the stock pops above 15. If not, the calls will die a quite death and we will book a small trading loss.
Unlikely Oil Supplier
Below is an item from The Guardian that is going to amuse you. You’re probably aware that a strike in Venezuela has significantly curtailed oil shipments to the U.S. -- by about 1.5 million barrels per day. But guess who is making up for the shortfall:
"Facing its most chronic shortage in oil stocks for 27 years, the US has this month turned to an unlikely source of help - Iraq. Weeks before a prospective invasion of Iraq, the oil-rich state has doubled its exports of oil to America, helping US refineries cope with a debilitating strike in Venezuela. After the loss of 1.5 million barrels per day of Venezuelan production in December the oil price rocketed, and the scarcity of reserves threatened to do permanent damage to the US oil refinery and transport infrastructure. To keep the pipelines flowing, President Bus h stopped adding to the 700m barrel strategic reserve.
Bizarre But Legal
"But ultimately oil giants such as Chevron, Exxon, BP and Shell saved the day by doubling imports from Iraq from 0.5m barrels in November to over 1m barrels per day to solve the problem. Essentially, US importers diverted 0.5m barrels of Iraqi oil per day heading for Europe and Asia to save the American oil infrastructure. The trade, though bizarre given current Pentagon plans to launch around 300 cruise missiles a day on Iraq, is legal under the terms of UN's oil for food programme.
"But for opponents of war, it shows the unspoken aim of military action in Iraq, which has the world's second largest proven reserves - some 112 billion barrels, and at least another 100bn of unproven reserves, according to the US Department of Energy. Iraqi oil is comparatively simple to extract - less than $1 per barrel, compared with $6 a barrel in Russia. Soon, US and British forces could be securing the source of that oil as a priority in the war strategy. The Iraqi fields south of Basra produce prized 'sweet crudes' that are simpler to refine."
Perhaps if we simply asked the Iraqis nicely… Anyway, with enemies like that, who needs friends?
Gangs of New York
If you haven’t yet seen the movie Gangs of New York, I recommend it highly. Like numerous other films directed by Martin Scorsese, it draws its power from the bravura performance of a single actor – here the always remarkable Daniel Day-Lewis. Day-Lewis plays Bill Cutting, aka "The Butcher," a real-life Tammany Hall "Nativist" whose cruelty, ruthlessness and hatefulness is destined to set a new standard for movie villains. The London-born Day-Lewis is one of the finest actors of this generation or any other, and he puts his remarkable talents and imagination to work here by engaging us with an evil-eyed squint and a New York accent that sounds like third-generation Flatbush by way of lower-class London. Even his voice is in an unfamiliar register – ever-so-slightly higher and nasal than usual, so that it literally chills us when he speaks. Not to take anything away from the other great actors who will be nominated for Oscars this year, but Day-Lewis’s performance was so powerful that even Michael Caine and Jack Nicholson are apt to get shut out. Nicholson was superb in "About Schmidt," but in 50 years, when his Schmidt is all but forgotten, Day-Lewis’ Bill Cutting will be recalled by movie-lovers as vividly as Charles Laughton’s "Captain Bly."
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8053.81): We’re in that tiresome loop again where the market zigs meaninglessly each day while my forecasts zag. Be that as it may, stochastic indicators for the daily chart are rolling up steeply from oversold extremes, and that will make us more reluctant than usual to get short. Since upside targets are effectively useless Fibonaccis (useless, because every trader and his mother is watching the same levels) I’ll just say "mildly bullish" and leave it at that.
E-Mini S&Ps (857.00): We’ll go with the flow by suggesting an 899.25 target for the next few days. That’s a Fibonacci-based level and therefore of little value to us for trading purposes. (It can still be traded, of course, but you’ll have to guess for yourselves how far above that number the bottom-fishing by a thousand others is likely to commence.)
MAR 10-YEAR NOTE (114.045): The futures would need to close above 114.310 to suggest that a test of the important January 31 peak at 115.175 is likely.
OEX (432.57): An garden-variety bear rally this week should be able to reach 456.16, equivalent to a 0.618 retracement of the decline from mid-January’s high. Wake me when we get there – assuming we get there at all -- so we can figure out how to get short.
QQQ (24.44): The cubes are struggling to hold their ground at levels where several important bottoms were made over the last few months. With other issues we track seemingly ready to rally, we’ll de-emphasize a bearish, 22.96 target given here earlier and put into play a Fib-based objective above – 26.17, a Fibo level. It holds no special opportunities for us.
FEB GOLD (368.30): Our minimum projection is still to 378.10, but if that price is exceeded by more than a couple of ticks we’d expect the short-term bull cycle to contin ue up to at least 382.90. The move to these targets will be in the booster stage once the futures have traded above 372.80, a hidden pivot, intraday.
MAR NASDAQ 100 (984.50): Stochastic influences are turning bullish, but it would take a close today of 1014.50 or higher for the effect to kick in with some force.
***
IBM (78.20): IBM struggled to rise from its gurney on Friday, but perhaps it was overwhelmed by sellers who’d read our bearish comments. It’s not a ripe short, not yet, but we’ll looking for such an opportunity if it can muster a rally into the low 80s.
+ CSCO (13.87): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. If Cisco can close above a hidden pivot at 14.92 it’ll be a good bet to test mid-January’s peak, 15.63. Otherwise look for a pullback to the whole number, 13.00. I’ll leave this glue horse on the sheets for a while, since it’s become such a familiar old friend. We can always reinstate t he stock if "packets, switches and routers" make a comeback in the pages of some slick magazine like Maxim.
INTC (15.70): Friday’s slippage was not a healthy sign, since it breached an important low at 15.42 that was made in the final day of 2002. Look for the stock to become more or less untradeably antsy between 15 and 17 over the next 2-3 weeks.
C (34.38): Friday’s low slightly exceeded the 33.80 target we’d been using, but perhaps not by enough to send the stock still lower. To get out of stochastic jeopardy, however, Citi will need to end the day above 35.12.
+ GG (12.20): We hold 200 shares for an average 4.65, and no changes are contemplated. When the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
$ + DROOY (4.00): We hold 400 shares for an average 4.66 and are bidding 3.82 for 200 more, day order.< /P>
$ RGLD (27.29): The easy aplomb that has characterized this stock's consolidation above a hidden pivot at 26.49 tells us it will soon be on its way up to the next, 29.74. The Feb 30 calls (MJQBF) closed a bit rich for our taste, but we can bid them cautiously: 0.40 for two, contingent on the stock trading 27.20 or higher.
+ MSFT (47.46): Just a small change. We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. The stock would need to close above 49.25 today to trigger an anemically bullish stochastic signal on the daily chart.
$ + EBAY (75.16): We hold two Feb 75 calls for a 1.50 CREDIT. A friend who is close to eBay tells me the firm’s business is exploding, so let’s not be so eager to sell our Feb 75s. Instead, we’ll bid 1.40 for two March 80 calls (QXBCP), contingent on the stock trading 74.50 or higher. If the stock continues to rise, our minimum target for today is 76.56, a minor hidden pivot.
Captain Nellie
by Rick Ackerman
Trading Notes will be brief today and tomorrow, since the two-day E-mini course is in progress. I will respond to your e-mails when I have time, probably later in the week, but for now I would ask that you hold your messages for a couple of days. I should mention nonetheless that several of you wrote me over the weekend to correct my spelling of Captain Bligh, which came out “Bly” as in Nellie Bly, the early-1900s suffragette and all-around, stand-up gal. I stand corrected.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8109.82): If the Dow is sitting above an 8162 hidden pivot after the first hour, we should infer that it has sufficient strength to reach a minimum 8240 in this minor rally cycle. Short the latter target with a tight stop only if you are exiting a profitable long held on your initiative at that level.
E-Mini S&Ps (859.25): The nearest hidden-pivot support worth mentioning lies at 840.50, so that will be our minimum downside projection if the futures fall hard in the first hour. We won’t suggest bottom-fishing there, however, since the 840 level looks vaguely supportive because of some prior lows near there.
MAR 10-YEAR NOTE (113.310): No change. The futures would need to close above 114.310 to suggest that a test of the important January 31 peak at 115.175 is likely.
OEX (435.70): Just a small addition: The closest pivot, and therefore our minimum upside target if the OEX should rally, is 442.66. In a somewhat larger picture, a garden-variety bear rally this week should be able to reach 456.16, equivalent to a 0.618 retracement of the decline from mid-January’s high.
QQQ (24.49): The cubes are struggling to hold their ground at levels where several important bottoms were made over the last few months. With other issues we track seemingly ready to rally, our slightly bullish bias yields a modest upside target of 26.17, a Fibo level. It holds no special opportunities for us.
FEB GOLD (370.80): Our minimum projection is still to 378.10, but if that price is exceeded by more than a couple of ticks we’d expect the short-term bull cycle to continue up to at least 382.90. The move to these targets will be in the booster stage once the futures have traded above 372.80, a hidden pivot, intraday.
$ MAR NASDAQ 100 (986.50): If the futures move higher, our minimum projection is to 1008.00, a hidden pivot; if lower, 970.25. The latter number can be bottom-fished in the first hour only, using the E-mini contract and a 970.50 bid, stop 969.50. You’ll be on your own thereafter.
***
IBM (78.18): We’re looking for a chance to short IBM if it can rally into the low 80s. More immediately, the stock looks moderately lower. If so, a hidden pivot at 76.74 will make a logical downside target, if not a high-confidence place to try bottom-fishing.
+ CSCO (13.48): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. We’re keeping Cisco on the sheets out of respect for the dead. It has been replaced by Royal Gold (see below).
INTC (15.77): We’re on the sidelines for now, since we expect Intel to flounce around between 15 and 17 until those who care deeply become d izzy.
C (34.65): Just a small change. Stochastic signs on the daily chart portend mild weakness over the near-term, but Citi could turn them favorable with a close today of 35.37 or higher.
+ GG (12.20): We hold 200 shares for an a verage 4.65, and no changes are contemplated. When the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
$ + DROOY (3.92): We hold 400 shares for an average 4.66. Once again, bid 3.82 for 200 more shares, day order.
$ RGLD (27.60): Our immediate upside target is 29.74, but we were unable to buy Feb 30 calls (MJQBF) for 0.40. Today let’s bid 0.45 for two of them, good on the opening rotation only.
+ MSFT (48.56): We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. The closest hidden-pivot support lies at 47.86, but any easy move through it would portend further weakness. Alternatively, the st ock would need to close 49.60 or higher today to pick up a stochastic tailwind.
$ + EBAY (74.04): We hold two Feb 75 calls for a 1.50 CREDIT but were unable to buy March 80 calls (QXBCP) yesterday for 1.40. Let’s bid 1.20 for two of them today, day order, contingent on the stock trading 73.60 or higher.
Pivots Say Lower
by Rick Ackerman
We’re headed bruisingly lower -- but then, I’m probably not telling you anything you weren’t feeling in your bones already. How much lower? The downside targets I’ve been using for the major indexes imply a fall of nearly 5 percent over the near term. But the DJIA objective at 7163.85 implied significantly worse – a fall of about 9 percent, or more than twice what I am expecting for the other averages. A careful search for hidden pivots associated with the Industrial Average has remedied this discrepancy, however, since it allowed me to identify a potential inflection point at 7467.65 that I hadn’t noticed earlier. (Those of you who have taken the E-mini course and want to corroborate this should start with the 10353 high that occurred last May.) This is almost precisely 5 percent below Friday’s close, 7864, and well in line with my forecasts for the S&Ps, the OEX and the Nasdaq 100. Respectively, my downside targets for those vehicles are 4.3%, 3.7% and 3.8% below current levels. If I am right, stocks are about to take a mild header, with the DJIA leading the way down. My specific targets are furnished below, and although they should be considered minimum objectives for the bearish cycle begun in August, they could conceivably provide a launching pad for a decent rally. I am confident about the DJIA target and expect it to work precisely, if at all. If it is exceeded by more than 3-4 points, however, I’d say "Look out below!" The assumption, as always, is that these targets are not chopped liver – that they always work, even when they are easily exceeded. I infer in such instances, not that I have miscalculated, but that the dominant trend is sufficiently strong to make short work of hidden pivot support and resistance points.
Double-Dip Recipe
In the "don’t-get-your-hopes-too-high" department, here’s an interesting note from our friend Bob Bronson at Bronson Capital Markets Research: "With the weak consumer and inventory figures and the trade figures, the Q4 2002 GDP figure could be as low as 0% or even slightly negative, whereas the Q1 '03 year-over-year comparison will be difficult, particularly due to the lack of pent-up demand and the prospects for saturation in the auto and housing sectors. Not only have Wall Streeters not priced in 2% or slower real GDP for '03, no growth or recession is completely off their radar screen, so to speak, and 3% or higher growth is the consensus. If I am correct about a 1%-2% real GDP trend for '03-'04 (and converging real and nominal GDP), the major stock indices and Treasury note/bond yields have much further to decline over the next ~12-16 months."
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7864.23): As we’ve noted above, our minimum downside projection for the short term is to 7467.65, a hidden pivot, but if it’s decisively breached we’d expect the decline to continue to at least 7163.85.
E-Mini S&Ps (830.25): Our minimum downside projection is still 793.75. No bear rally worthy of the name is likely to occur until that hidden pivot is touched.
MAR 10-YEAR NOTE (114.110): I’m going to switch back to the 30-year Treasury for two reasons: I’m not getting any "vibes" from this contract; and, I have a gut feeling that Uncle Sam will start moving further out the yield curve to do his borrowing. We’ll make the switch in Tuesday’s edition, but for now my outlook is unchanged, as follows: The futures would need to close above 114.310 to suggest that a test of the important January 31 peak at 115.175 is likely.
OEX (418.79): We are bearish for the near-term, with a minimum downside projection of 403.75. We’ll consider buying some call options if the target is reached in time to give us at least a six-day play in the February calls, or two weeks in the March series. Meanwhile, it would require a close today above 429.62 to trip a moderately bullish technical signal.
QQQ (23.81): Yesterday’s low came within 0.26 points of our by-now-familiar target, 23.69. If the feeble bounce from that pivot cannot be sustained today, look for the cubes to continue their descent, to a minimum 23.23. You can bottom-fish there until the final hour with a 23.24 bid for a round lot, stop 23.19. Switch to a 15-cent trailing stop above 23.52, using 24.09 as a minimum objective.
APR GOLD (370.50): The April contract appears to be consolidating at significantly higher levels than we’d anticipated. It could still drop to as low as 358.90 before embarking o n a new surge, but we’d rule this out if the futures close even slightly higher today and tomorrow. A single-day close above 374.50 would probably set the next bullish cycle in motion.
MAR NASDAQ 100 (959.50): No change. The fall from mid-January’s high just above 1100 still has a ways to go – to a minimum 924.50 if our pivot analysis is accurate. Stochastic influences are now delicately neutral, so the decline could accelerate if the Naz takes a fall today.
***
IBM (77.10): Zzzzzzzzzzzzzzz.
+ CSCO (12.85): We hold sixteen Feb 17.50 calls (CYQBW) for 0.10. Friday’s low took out a mid-December bottom that we’d have expected to provide more support, solidifying the impression that this stock looks like hell. If it continues to fall, look for the stock to grope for support in the range 11-12.
These are Cisco’s final days on the sheet, since we’ve replaced it with a bull-market mining stock, Royal Gold (see below).
$ INTC (15.05): There’s an interesting-looking hidden pivot at 14.67 that could end Intel’s agonizing decline, at least for a while. If it is hit today, the February 15 calls (NQBC) would be a decent value at 0.30. Let’s bid there for two of them, contingent on the stock trading 14.64 or higher, day order.
C (32.91): My minimum projection for the short-term bear cycle is 28.19, a hidden pivot that comes after diligent scrutiny of the weekly chart. I would not warrant this pivot as a high-confidence spot to go long against the trend, although I’m fairly confident it will be reached.
+ GG (12.16): Goldcorp is quietly biding it’s time in preparation for the next leap. A pullback to as low as 11.00 would be natural, but it may not be necessary. We hold 200 shares for an average 4.65, and no changes are contemplated. When the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a long standing target at 15.72.
$ + DROOY (4.07): We hold 400 shares for an average 4.66. Today, bid 3.82 for 200 more shares.
RGLD (26.27): Stochastic indicators for the long-term charts are bending down from very overbought levels, so we are cautious about initiating a long position up here. That said, it would not be unusual for a stock in a powerful bull market to simply shrug off incipiently bearish stochastic influences and continue higher. Royal’s most recent top, at 28.80, fell within six cents of an important hidden pivot, but if that resistance is exceeded by even a penny, we’d look for the rally to continue to at least 34.23.
+ MSFT (46.58): We hold two Feb 60 calls (MSQBL) for 0.80 and four April 60 calls (MSQDL) for 0.80. What drudgery. We can only waiting for the rally that would help us short some February or March calls against those we already hold.
+ EBAY (72.37): We hold two Feb 75 calls for a 1.50 CREDIT as well as two March 80s for 1.20. Friday’s low at 71.63 came within 18 cents of fulfilling a 71.45 target, but that hidden pivot will remain viable today as our minimum price objective.
Pyrite a-Plenty
by Rick Ackerman
The “Dirty Dozen” list of fools-gold stocks is rapidly taking shape. We received nearly two dozen suggestions on Monday, possibly owing to the wide circulation of MarketWise Black Box at some of the more popular gold sites on the Web, including www.321gold.com, www.gold-eagle.com and www.goldseek.com. So far, one company stands out as purveyor of the gold stock you most love to hate: Silverado (SLGLF). The Alaska-based miner has fluctuated between 8 cents and 90 cents over the last few years, but its rallies to the high end of that range have been relatively fleeting. Most recently, it has falle n from a high of about 70 cents earlier this year to an eight-month low last week of about 20 cents. Small wonder, then, that the stock is foremost in the minds of gold investors who are looking for revenge.
Silverado would appear to be a nice fit with our Dirty Dozen list, since the company claims to be clueless about why the stock dropped like lead last month. In a release dated January 22, its president, Gary Anselmo, had this to say: “The Company knows of n o reason to cause today’s dramatic fall in its share price. There is no material fact or information relating to the Company which has not been fully disclosed. In particular, the Company knows of no adverse fact or information relating to, or which would affect the Company or its share price.” If our Dirty Dozen list turns out as bad as we think it’s going to turn out, Mr. Anselmo will soon have plenty of company on the lower-rungs of public esteem. He might also take heart in the fact that the purpose of our list is to demonstrate that even the gold stocks that investors now revile are destined, in this still-nascent bullion bull market, to soar like the late, great dot-com stocks into the firmament of overvaluation. We promise to keep you posted as the Dirty Dozen list comes into shape.
Radically Pro-War Essay
We’ve written often about the impending invasion of Iraq, both pro and con, but here is the scariest essay we’ve seen to date. It asserts that the root cause of terrorism is the incompatibility of Arab culture with the modern world:
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=18556233
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7920.11): There are two hidden pivots just above that we can use for targets this morning: 7926.41 and 7992.03. If the first is exceeded within the first 30 minutes, we should infer the second is likely to be achieved soon thereafter. Looking at a bigger picture, our bearish scenario calls for a fall to at least 7467.65; or if any lower, to 7163.85.
$ E-Mini S&Ps (836.00): The futures were on their way up to a hidden-pivot target at 842.50 when the closing bell rang yesterday. You can short an E-mini contract at that price in the first hour, stop 843.25. Switch to a 2.00-point trailing stop below 839.25, using 833.00 as your minimum objective. Our outlook for the next 2-4 weeks is bearish, with a minimum downside projection (still) of 793.75.
MAR BONDS (112.08): If the futures can close today above a hidden pivot at 112.22 we’d rate them an even bet to take out late December’s high, 113.26. If it is a flight to quality rather than, say, a reaction to a rally in the dollar, gold quotes will confirm by surging higher.
OEX (422.03): Yesterday’s peak was 422.65, but the more important obstacle to any rally today is a hidden pivot at 422.21. If th e OEX is trading above that number after the first hour, we’d infer the short-term rally cycle has sufficient power to reach 425.92.
QQQ (24.02): Yesterday’s closing-hour rally stalled just below a hidden pivot at 24.18. If that obstacle is penetrated this morning we should assume the OEX is on its way up to at least 24.50, a slightly more important pivot. You can short the higher number on your own terms, but I’d use the narrowest of stops initially – no more than 3 cents.
APR GOLD (364.20): We’ve projected a pullback low near 358.90, a Fibonacci-based level, but with less confidence for purposes of bottom-fishing than if it were a hidden pivot. To keep things in perspective we should mention that a correction to as low as 344.86 would not even blemish the bullish look of the intermediate- and long-term charts.
MAR NASDAQ 100 (969.00): Yest erday’s modest hook in the final hour stalled less than a point from a hidden pivot at 973.25, but if the futures can get past it in the first hour today we’d infer they are on their way up to a minimum 985.50. Our outlook for the longer-term is still bearish, with a minimum downside projection of 924.50.
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IBM (77.91): Our rally target is 78.25, but if B ig Blue gets past it our hope would soar all the way to…79.03, the next hidden pivot above 78.25.
CSCO (13.15): We’ll write off sixteen Feb 17.50 calls bought for $160 and kiss this glue horse goodbye. We’re not particularly bearish on Cisco, just bored.
$ INTC (15.27): Just a small change. There’s an interesting-looking hidden pivot at 14.67 that could end Intel’s agonizing decline, at least for a while. If it is hit today, the February 15 calls (NQBC) would be a decent value at 0.20. Let’s bid there for two of them, contingent on the stock trading 14.64 or higher, day order.
C (32.89): Our minimum downside projection for the next 2-3 weeks is 28.19, but we’d be won over to the bullish case for a day or two, perhaps, if the stock can reach 33.69 today without a pullback exceeding 20 cents.
+ GG (11.58): As noted here earlier, a pullback to as low as 11.00 would be quite healthy. In any event, we hold 200 shares for an average 4.65, and no changes are contemplated. When the stock closes above 13.77, or trades more than six cents above that price intraday, we should assume it's bound for a longstanding target at 15.72.
$ + DROOY (3.83): After purchasing 200 more shares yesterday for 3.82, we own a total of 600 shares for an average 4.38. Today let’s bid for 200 more shares at 3.69, one cent above an important hidden-pivot.
RGLD (24.70): To remain the very picture of health, Royal will need to arrest this pullback somewhere above 24.21, where the stock made a fairly important low on January 21. If not, it would be telling us it needs more time to recharge, implying a possible correction down to 21-22, where it consolidated for a powerful rally thirteen months ago.
+ MSFT (47.38): We’ll write off two Feb 60 calls (MSQBL) acquired for 0.80, leaving us with four April 60 calls (MSQDL) that now have a cost basis of 1.20. The 2-for-1 stock split is effective February 18, so our Aprils will turn into eight April 30s if we are not out of them before next Tuesday.
$ + EBAY (73.56): We hold two Feb 75 calls for a 1.50 CREDIT as well as two March 80s for 1.20. We have no specific target for today, but let’s be ready for a rally by offering one of our Feb calls to close for 2.40, t he other for 3.20. Make the orders g-t-c.
Gold and the Endgame
by Rick Ackerman
We’ve enjoyed a correspondence that began a few months ago with Pierre-Jean L., a Canadian subscriber who shares many of our views concerning the inflation/deflation conundrum. Here’s a piece of that dialogue that I hope will shed further light on the topic, as well as on diverging prospects for gold and the dollar. Pierre-Jean writes, in part, as follows:
Governments cannot go bankrupt, since they have the power to tax. But banks can. It will happen when the monetary system that we take for granted collapses. That is the real definition of the word deflation. We will know deflation has lurched into high gear when banks start going bankrupt. It has not happened yet in this economic cycle, thanks to the way derivatives have spread risk throughout the financial system. But the next time there is a hedge-fund failure on the order of the one that befell Long Term Capital Management, the world will quickly learn the meaning of the word 'domino.' The contributing factors are all in place. Stock market P/E ratios are sky-high and dividends are near historic lows. On a global scale, and, following a supply-side model, we have pushed consumption and credit beyond the edge as never before in history. The question is not whether consumer binging and the real estate boom will collapse, but when. In some developing countries, most particularly Japan, that question has already been answered. It will be our turn when the dollar begins to implode -- a process begun last year. When the process begins to accelerate, everyone will see the game is over. For the investor, what could possibly soften the unwinding of derivatives and government debts? Gold is the only obvious answer, as you have pointed out so forcefully in your newsletter.
Our reply, in part, was as follows:
Banks Thriving Till the End
"You say the banks will continue to thrive until the day they begin to collapse -- an assertion with whi ch I have always agreed. If you accept that the banks' main business lies in 'manufacturing' and 'servicing' dollars, it is possible to infer that business will be good so long as the dollar itself appears healthy.
"Until recently, it appeared that they couldn't lose, since they've been able to borrow dollars for as little as 1.25%, and to re-lend them to businesses and consumers for up to 15-20%. Judging from the number of 0% teaser loans I receive in the mail from issuers of bank credit-cards, I would infer that the banks are using their 1.25% borrowing privilege to expand loans and increase their customer base. They can hope to recoup the difference in several ways: 1) when customers make actual purchases with these cards, rates of 10% or more apply on the new balance until the amount borrowed at 0% is completely paid off; 2) when the 0% teaser rate expires, the entire balance is shifted to a 10-15% rate; 3) if you are late making a payment, the entire balan ce becomes subject to such punitive rates.
"Where the banks lose is a year or so down the road, when the unthinkable happens: the dollar is falling, interest rates are climbing, and 0% teasers are no longer possible. Then, every revolving-credit junkie in America is faced with the prospect of paying off huge debit balances that have been carried for zero but which are suddenly accuring interest charges in excess of 10%. If we are experiencing deflation of 1-2% at that time -- as I believe we will, best-case -- and if wages are stagnant and joblessness soaring, as they almost surely will be, imagine what a crushing burden it will be to pay back a 10% loan. In the end, I fear, the banks are going to face writeoffs that will make the 1930s look like a picnic. Meanwhile, only an imbecile could buy Citigroup shares at their current price. The banks are headed for a fall, and it will be coincident with the fall of the dollar.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8018.11): The Dow managed to slightly exceed an unnoted hidden pivot at 8029 intraday, but that is sufficient to imply the rally will continue today and possibly into tomorrow. Our upside target is 8205.23, but because there is no way we can simplify a day-in-advance strategy and still control tightly for risk, you’ll be on your own in using these numbers.
$ E-Mini S&Ps (847.25): We nailed Friday’s low with two decimal accuracy, but a defect in our instructions could have hindered at least some of you from gathering the fruits of the 23-point rally that followed. We’d intended to advise that no trade be initiated if the futures exceeded 843.25, but, looking at the wrong peak on the chart, wrote 840.50 by mistake. This could have made a crucial difference, since there was a rally to 842.25 before the recommended trade was triggered. Happily, I heard from two subscribers who took the trade anyway, but one noted that he’d been filled on only two contracts of a 20-contract bid. Such are the problems of buying and selling on targets that happen to coincide exactly with actual tops and bottoms. For today, based on the 1.00-point breach on Friday of a hidden pivot at 850.75, we are projecting follow-through to at least 869.75. You can short there until the final hour with an 870.25 stop-loss, but you’ll be on your own thereafter.
MAR BONDS (113.04): We’ll adjust our rally target downward, from 115.30 to 115.07. It will remain viable so long as the futures do not fall below 111.27.
$ OEX (429.87): Based on Friday’s analysis you could have gone long on Friday when the index touched 426.14. If you did, take profits on half the position on the opening, then scale out the rest to a target of 441.46. A trailing stop of 2.90 points is advised.
QQQ (25.17): Like numerous other vehicles tracked herein, the cubes slightl y exceeded a hidden-pivot resistance in the closing hour of Friday’s session. This implies the rally will continue, probably to at least 26.20, a hidden pivot.
APR GOLD (351.80): The futures will struggle to hold their own if non-bullion stocks extend Friday’s rally. Thursday’s low at 349.80 is the closest obvious support, but we cannot predict with any great confidence whether it will endure if tested. Alternatively, a close above a hidden pivot at 360.80 would set the futures on course for a run to 379.20.
MAR NASDAQ 100 (1015.00): A rally to 1062.00 is possible over the short term, but the futures will first need to get by a hidden pivot at 1028.00 – still our immediate upside target. It is a bullish sign that the March contract was able to exceed intraday a lesser pivot at 1019.75.
***
IBM (79.95): The nearest impediment is a hidden pivot at 80.51, but if Big Blue can get by it, especially in the first 15 minutes, we’d rate it an odds-on b et to reach 82.86 straightaway.
INTC (16.78): No change. Our minimum upside projection remains 17.26, but anything above it would make Intel an odds-on bet to reach 18.03.
C (33.20): The scuzzballs who manipulate this stock for a living showed some of their old derring-do on Friday, grabbing shorts by the cajones at the lows of the day, then tightening their grip relentlessly for the next 90 minutes or so. Since, in the process, Citi managed to stick its nasty little head above a 33.31 pivot, we’re inclined to think the rally will continue today -- to a minimum 34.28, another hidden pivot. You can short there according to your own plan, but we would not advise doing so in the final hour, nor would we risk more than 3 cents on the initial stop-loss.
+ GG (11.60): We hold 200 shares for an average 4.65. A promising rally was aborted by strength in non-bullion shares. Now, if the stock can’t get traction at 11.34, a hidden pivot, it is likely to slip down to the n ext at 10.45.
+ DROOY (3.77): We own 600 shares for an average 4.38. The closest support worth noting is a hidden pivot at 3.61 that has already been tested once. If it is touched again and fails, Durban would likely fall to around 3.40 before bottoming.
RGLD (24.13): Friday’s low fell within 4 cents of our worst-case target for the short-term, 21.48. If the support is exceeded today, look for the decline to continue to at least 21.12, a Fibonacci-based level.
+ MSFT (24.61): Still no change. We hold eight April 30 calls with a cost basis of 0.60. A run to 25.77 or higher is possible on the next surge, but it’ll take a 28 print over the next week or so to drive our calls toward profitability.
$ + EBAY (78.35): We hold two March 80 calls for 1.20 and were offering two March 85 calls short against them for 0.90. Today only, let’s offer a single March 80 call to close for 2.50. Also, on a g-t-c basis, offer a single March 85 call short for 1.20. This series w ill explode if eBay can get to 82 or so by Wednesday. Come to think of it, you can also bid 0.40 for six of the March 85s today, contingent on the stock trading 78.00 or higher. If you buy any, cancel the short offer for the single March 85.
Buffett's 'Comeback'
by Rick Ackerman
The current issue of Time contains an interesting article on Warren Buffett, whom the magazine’s editors feature in a headline as the "Comeback Crusader." We wonder if they are aware of the irony of applying this label, since, by airing Buffett’s presently contrarian but rarely off-target views, it is the magazine itself that is making a comeback -- to the world of reality. Time and many other publications that lionized Buffett during the go-go days seem to have lost interest in him for the last couple of years, perhaps because Buffett turned bearish on them and stuck to his guns. This did not exactly enhance his star quality at CNBC, which, to attract a mass audience, has always leaned heavily on frothing-at-the-mouth, showboating permabulls like Abbey Joseph Cohen, Larry Kudlow and Ralph Acampora. By airing a Buffett interview at any time during the last few years, the network risked cratering viewer interest fro m the first: "Tell us which stocks you like right now, Mr. Buffett?" "Frankly, Ron, I don’t see any stocks that represent good value, at least not the kind of value that we typically look for at Berkshire." "Okay, well, um, are there any stocks that you think would become good values if they were selling at lower prices?"
It will be interesting to see how long CNBC et al. can put up with Pimco’s Bill Gross, another major-leaguer who evidently has decided to tell it like it is, and who over the past six months has waxed nearly as bearish as MarketWise Black Box’s dour editor. Bearishness is tolerable when it comes from the ostensible lunatic fringe, or from newsletter gurus who occupy the lower rungs of celebrity in the investment world. But when it is the world’s most successful bond investor who is saying the economy stinks, and that there is not even a glimmer of light on the horizon – which is essentially what Gross has been saying, and for quite a while -- it’s a lot harder for investors and the n ews media to ignore the message, or to shoot the messenger. Both Gross and Buffett deserve plenty of credit for coming out of the closet. They did not make their fortunes by being pessimists, but by betting heavily and correctly on long-term, fundamentally bullish trends. It is testimony to the perhaps unprecedented power of this bear market that two of the most successful money managers of all time are fearful that it has much further to go.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7775.60): We nailed yesterday’s bottom, 7661.32, to within 54 hundredths of a point, so it’s possible some of you were able to load up there, using a very tight stop. Today, assuming the last-hour rally continues, we expect the Dow to rally to at least 7789.82. If it does not top there, it would strongly indicate the beginning of a bullish trend that could run for at least another 2-3 days.
E-MINI S&Ps (830.00): Like the Dow, the S&P futures ended the day slightly below a hidden-pivot resistance that could stop the rally, 832.50. We wouldn’t suggest shorting there, but please note in any case that a move through it would portend further strength over the near-term.
$ MAR BONDS (116.08): Yesterday’s peak fell just a single tick shy of the rally target we’ve been using for a while, 116.13. That could be it for the short-term, but if the futures head still higher (even slightly), our minimum target would be 117.17. If you went short based on our forecast, use a 116.14 stop overnight and Thursday.
OEX (420.30): The nearest resistance worth noting lies just above – a hidden pivot at 421.55. As with several other vehicles we track, any progress above that price would suggest the rally may have at least another 2-3 days to go.
QQQ (24.55): Upside targets are unchanged -- 25.80, or if any higher, 26.13.
APR GOLD (353.20): Yesterday’s erroneous target elicited a torrent of e-mails from subscribers, but here’s the straight skinny: A close today or tomorrow above 355.70 would imply the futures are on their way up to at least 363.40.
$ MAR NASDAQ 100 (989.00): To simplify the outlook, and because the bearish case is too boring to milk, I’ll deal only with the bullish assumption, -- that the futures are on their way up to at least 1037.50. You can trade with the trend any way you please , but any short attempted from 1037.50 – presumably early next week -- should be stopped at 1038.50.
***
IBM (77.73): If IBM is holding above 78.60 ninety minutes into today’s session, we’d make it an even-money bet to reach a minimum 80.95 by no later than Monday.
INTC (16.98): There are three hidden pivots immediately above that we can use for targets if the tape is strong. They lie at 17.68, 17.79 and 18.00. If a target is exceeded even slightly, you should assume the next will be reached.
$ C (33.17): If City can hold above a hidden pivot at 33.61 today it would be signaling further upside, to a minimum 34.92. If that target is hit before the final hour, you can short 200 shares there, stop 34.97. You’ll be on your own thereafter.
+ GG (11.23): We hold 200 shares for an average 4.65. If non-bullion stocks continue to rally, corresponding weakness in Goldcorp should bring it down to a hidden pivot at 10.75, at least. W e won’t suggest bottom-fishing there, however, since it is coincident with a conventional support created by February 25’s low.
+ DROOY (3.56): No change. We own 600 shares for an average 4.38. DROOY will need to close above a hidden pivot at 4.02 to get some breathing room. Once that has occurred, the stock would be an even-odds bet to reach a minimum 4.79 over the near term.
RGLD (15.70): Yesterday’s rally somewhat exceeded our most bullish expectations. The nearest resistance above is a hidden pivot at 15.85, just 10 cents above yesterday’s high. If that number is exceeded even slightly, however, it would portend further upside, to a minimum 16.04, before the stock will be ready to pull back for a day or so.
+ MSFT (23.44): We own eight April 30 calls with a 0.60 basis. Nothing further is advised for now, but we’ll need a decent rally – it would be the first in nearly five months – to allow us to sell some premium against our dwindling "apes."
$ + EB AY (78.87): We hold two March 80 calls for 1.20 and are offering two March 85 calls short against them for 1.20, g-t-c. eBay continues to show impressive relative strength, and another two days’ worth of support from the tape will probably get us filled on those short calls.
Two Iraq Scenarios
by Rick Ackerman
Gary North’s Reality Check is always interesting and provocative, but his latest, in which he advances a peace scenario “brokered” by the Saudis, perhaps exceeds the limits of our hopefulness. In North’s scenario, the Saud family issues a statement to the effect that Saudi Arabia will withdraw all of its deposits in American banks if America invades Iraq. The Saudis would further stipulate that the deposits not be transferred to banks in nations that have voted with the U.S. in the Security Council, and that, henceforth, Saudi Arabia would no longer accept dollars for oil, only euros. Talk about shooting oneself in the foot! This would be more like turning a shotgun on one’s navel. North concedes that this ultimatum would sent the dollar plummeting 15 percent against the euro in a single day, but he implies the greenback would rebound smartly once the U.S. came to its senses and Colin Powell announced on television how very delighted he was with the progress of Hans Blix’s inspection crew (“…and guys, please take all the time you need!”)
There is a chance this gambit could work, and it might even sound appealing to those who are hoping most fervently that we avert a war with Iraq. But a risk that North neglects to mention is that the dollar might not rebound – that it could get knocked off its pegs and bring the whole global edifice of dollar derivatives tumbling down. There are other problems as well, but in detailing them I will defer to a B lack Box subscriber, Hawaiian Peter Lee, who offers a penetrating analysis as well as a scenario of his own that seems far more plausible than North’s. He writes as follows:
Too Much to Lose
“North's scenario has crossed my mind in some form or other in the past as a sort of wishful and wistful intellectual exercise. Would that it could happen! But it won’t, for a number of reasons. One is that the U.S. would and could put enormous pressure on any producer nation having the temerity to refuse to accept fiat $$. Institutions like the BIS and IMF would refuse to cooperate and would bring their own tremendous political and economic power to bear. (They have too much to lose in prestige and power.) And the Saudis - corrupt, fat, morally depraved - have no reason and no ability to face down their American masters. They, too, have too much to lose if the U.S. were to withdraw military and political support from them in the face of their defiance. Their people would not support them because they do not trust them, and it would take too long to explain a matter of power politics via finance to them (the people) as a method of standing up to the U.S. The mullahs would p robably see it as a ploy to make the House of Saud richer and more powerful internally. The Sauds lack the physical, intellectual and moral courage to do the deed.
“The only hope is the long run, starting with settlement of accounts with the gold dinar (keeping in mind that this would start only among Muslim nations, and also that these nations represent a miniscule part of world GDP - but it's a start) sends a message to other nations which have to accept fiat $$. You can bet that the Chinese & other Asian nations are already well aware of the dollar's vulnerability, and the start of something by the Muslims may well snowball over time. (The Chinese by the way have written much in their long history about the use and abuse of paper money, having in fact invented it.)
Suppose Saddam Flees
“My Iraq scenario goes like this: Saddam knows that his military is pathetically weak. When, not if, the invasion starts, he skedaddles across the border to say, Syria, in order to escape death and minimize civilian casualties (remember, some of the dead will be his faithful supporters - there are an estimated 2 million Baathist Party supporters). Syria, or any other Muslim country, cannot turn him away as a guest and refugee from an illegal invasion (assuming no U.N. sanction). From Syria, or wherever, Saddam then preaches to the rest of the Muslim world the message of Western aggression, oppression, thievery, rape, etc. He will be listened to by the masses as the unjustly usurped, legitimate leader of Iraq, and he will be much more effective as a Muslim leader as a result.”
Note on Crude
Crude update: We predicted here a while back that crude oil prices would top near $45 – well above current levels. A recent selloff has brought the April contract down to 33.85 following recent life-of-the-contract highs of $40 per barrel. We think the correction has run its course, since Friday’s lows came close to touching a 33.51 pivot. Accordingly, we expect prices to start heading higher again, presumably toward our hidden-pivot target at $44.90.
STILL SHORT…
We never cease to be awed by the technical savvy of some of our subscribers. Here’s a fascinating and timely market analysis from one of them, a seasoned chartist who also is an alumnus of the MarketWise Trading School here in Broomfield. He has been short, but earlier this week had broached the possibility of reversing the polarity of his positions to take advantage of a seemingly imminent bullish turn. However, on Thursday he wrote as follows:
“I did nothing. That's right. I'm still short. It's not easy getting rich. It's even less easy when you only get to make one trading decision a day -- and then only after the action is just about over. I'm writing, of course about the most serious shortcoming of mutual funds. If only there were Exchange Traded Funds that went short or I could short in my IRA's ----------- but then I must remember that I was able to achieve over 100% in my IRA last year and that far surpassed my results as a ‘Master Trader.’
Why, though did I endure the pain without trying to amputate? Because the damage has been done and in spite of this being the actual date I've be forecasting since last October as the beginning of a rally through July 4 -- I'm not convinced we have achieved the near term bottom. Certainly it would have been nice to be in cash going into today and yes, serious damage was done on the half point per box PnF charts I've been viewing and suggesting to others -- but since I couldn't exit mid day I'm going to now require confirmation that the move I've been predicting is truly underway.
More Downside
Here's why I'm not yet convinced:
1. Options expire in seven days. Today could well be the typical pre expiration rally that has been moving earlier and earlier in the month for years. Last month we had a significant rally on 2/13 off the low of the day and then two more long white candle day s -- only to wind up going nowhere thereafter.
2. You know I watch the one day dollar volume of OEX calls and QQQ calls. The OEX players almost always get it wrong when at extreme of call/put ratios -- but the QQQ trading usually gets it right -- short term. This is probably because the pros use the QQQ calls, for instance, move the market up and squeeze the shorts and put holders. Today there was a buck and a half of calls to every buck of puts -- but the real sign this was from the pros is that the total dollar volume off QQQ options was 69% of the OEX volume -- and that's at 4 to s ix times normal.
3. Breadth today was only nominally positive on the NYSE and also NASDAQ compared to a 270 Dow rise, 28 point SPX hike and a whopping 60 point NDX surge.
4. Worse, my Bullish Percent charts were unchanged as to signal -- but some like the HiLo for the NYSE actually turned down.
5. Broad Market measures were muted compared to the NDX. The NDX rose over 6% but the Value Line only 3 ½ percent and the Small Cap Index didn't even make percent.
Smells Like a Squeeze
This smells like a professional short squeeze and bear market oversold bounce that could be quickly retraced or at least suffer Fibonacci reversals of 1/3 1/2 or 2/3 before the real countertrend rally gets going. Watch the Naz. I still think it will go down first and then bottom first. I said last night I won't try to pick the bottom. I'll be happy to switch long after I see the bottom is confirmed. Even though I have long predicted today to mark a significant bottom that bottom might not occur until the March 28 - April 2 window. Stay tuned. I'm not always right. I've been wrong before. But I don't mince nor hedge my words. -- SBR
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7859.71): No change. An 8158.03 print will be necessary to signal a probable end to the grinding correction of the bull cycle which commenced last October.
JUN E-MI NI S&Ps (834.25): The E-mini would need to top January 29’s peak, 866.25, to get back in bullish gear for 3-5 weeks. If it succeeds, the pullback could generate a follow-through leg to as high as 930 or so.
JUN BONDS (115.16): Last week’s high of 117.05 came within less than half a point of a longstanding upside target at 117.17, so we have inferred that the current correction could last for a while – perhaps 2-3 weeks or more.
OEX (424.07): No change. The threshold for triggering a bullish signal for the intermediate term lies at 441, just above the January 29 top. More immediately we expect the OEX to head up toward the first visually obvious resistance zone, 430-435, the range where numerous distributions took place since late January.
QQQ (25.72): Friday’s rally was not nearly so powerful as the previous day’s, but it was nonetheless sufficient to push the cubes past a bullish threshold at 25.84. If they are above 25.75 after the first 30 minutes, we’d infer immediate upside potential to at least 26.15. A breach of that hidden-pivot resistance, however slight, would suggest still higher prices, to a minimum 26.94. Short that last inflection point only if you’ve made money being long on the way up.
APR GOLD (336.60): We wrote recently of a bullish, reverse head-and-shoulder pattern on the long-term charts, but our instincts tell us to go with a more bearish interpretation for the near-term that derives from our hidden-pivot methodology. Seen in this light, the correction appears to have further to go – to a minimum 312.20. The good news is that, wherever this pullback ends will become the launching pad for a run at life-of-the-contract highs near $400. In the meantime, watch for a struggle near 336.40, since that is where the damaged pivot lies.
$ JUN NASDAQ 100 (1037.00): Friday’s penetration of a 1037.50 peak made back in January implies the rally will continue. If the futures are trading above 1039.00 after the first hour they’d be an odds-on bet to reach a hid den pivot at 1055.00. Short there with a 1056.50 stop only if you’ve exited a profitable long position at or near the target. You’ll be on your own thereafter, but we would advise using a 2.50-point trailing stop below 1048.00, and a 1039.00 target.
***
IBM (79.00): The stock will have to top 81.30, a peak made on January 30, to give the bull “legs” into April. Once above 81.30, IBM would be a lead-pipe cinch to reach a minimum 82.42, a hidden pivot.
$ INTC (17.17): Just a small change. Intel has just a little ways to go, to 18.02, to touch a bullish tripwire that could buoy the stock for the next 2-3 weeks. Since that number is also a hidden pivot that could reverse the rally for a few days, let’s try to get short there by bidding 1.05 for two April 17.50 puts (NQPW), contingent on the stock trading 18.04 o r lower.
C (33.75): Citi’s handlers will need to push the stock above the February 5 peak at 34.66 to convince us they’ve got sufficient moxie to dent a major supply zone ranging from 36 to 38.
+ GG (10.36): We hold 400 shares for an average 7.20. No further action is contemplated fo r the moment. If the stock can get above a Fibonacci level at 10.78 it would be a positive sign for at least the near term.
+ DROOY (2.84): Just a small change. We own 600 shares for an average 4.38. The stock will need to close above 3.06 today to turn short-term stochastic influences moderately buoyant.
RGLD (14.05): Royal’s rally was not strong enough to turn short-term stochastic influences favorable, but the stock could do so today with a close above 14.16. If it fails to reach this declining threshold over the next 2-3 days, a relapse to around 12 would become increasingly likely.
+ MSFT (24.86): We’ve temporarily returned MSFT to the list to keep track of eight April 30 calls that we’d given up for dead. Stay tuned.
XOM (34.39): XOM just missed triggering a bullish stochastic signal by failing to close above 34.40, but if it can finish today above 34.65 that would do the trick. The stock would then be on its way to at least 35.57, where it could stage for a shot at higher levels, in the range 37-38.
EBAY (83.91): We can enjoy watching this bird soar, but there is no compelling reason to chase it higher after taking profits last week on some March calls we’d held for quite a while. eBay remains the best stock to be long on our list in anticipation of the occasional but inevitable bear rally.
Dawn in Baghdad
by Rick Ackerman
With all-out war perhaps just hours away, we should expect little in the way of decisive activity on Wall Street over the next few days. The U.S. is expected to hit Iraqi defenses with massive firepower in the opening days of the war, but the world-shaking question is how aggressively the enemy will retaliate. Your editor will be headed to Florida to teach some classes over the weekend and next week at MarketWise's Boca Raton facility. Black Box updates will be sent to you as warranted over that time, but until then, we would suggest that you use the pivots we have proffered below to trade cautiously, if at all.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
$ DJIA (8265.45): A modest rally brought the Dow to within 17 points of our target, 8294.71. If that number is breached and the index is holding above it after the first hour today, we'd infer it's on its way to a minimum 8339.58, a hidden pivot that you can short at your complete discretion until the final 90 minutes of the session. Risk no more than pocket change on the initial stop.
JUN E-MINI S&Ps (875.75): The intraday high hit our target, 877.00, precisely. Above it the closest rally resistance is a hidden pivot at 881.50, but if the futures close above that price they'd become an even-odds bet to reach a minimum 906.75 by early next week.
JUN BONDS (111.12): It would take a 109.14 print to turn the intermediate-term trend bearish, and 105.16 to signal the likely onset of a bear market.
OEX (444.84): We'll stick wi th the 448.09 target given here earlier as our minimum upside projection. With war imminent, no new positions are advised.
QQQ (26.70): Follow-through to at least 27.96 is likely if the cubes are holding above 27.14 after the opening hour.
APR GOLD (333.40): The trashing of a crucial hidden pivot at 336.40 implies a correction leg to as low as 312.20. Look for a struggle between bull and bear near that pivot over the next 2-3 days. It would take a close above 341.40 before next Friday to abort the short-term-bearish outlook.
JUN NASDAQ E-MINI (1080.50): Just a small change. A run to as high 1117.00 over the next 2-3 days is possible, but the futures will first need to close above 1092.00 either today or tomorrow.
***
IBM (82.00): Our immediate upside target of 84.15 is based on purely technical factors, but we remain skeptical that so powerful is brewing ahead of the war.
+ INTC (17.98): W e hold two April 17.50 puts for 1.05. Our forecast is for a slightly higher high – 18.72 – before the stock turns lower.
C (35.46): Based on yesterday's upside penetration of a 35.09 hidden pivot in the first hour, we no rate Citi an odds-on bet to reach a minimum 36.95 over the next 2-3 days.
+ GG (10.28): We hold 400 shares for an average 7.20. No further action is contemplated for now. If the stock can get above a Fibonacci level at 10.78 it would be a positive sign for at least the near term.
+ DROOY (2.83): We own 600 shares for an average 4.38. The stock will need to close above 3.11 today to turn short-term stochastic influences moderately buoyant.
RGLD (14.24): Just a small change. If the stock can surpass a hidden pivot at 15.52 by Friday, we’d infer it’s on its way to at least 16.80 in this minor rally cycle.
$ + MSFT (26.32): MSFT has be reinstated to our list so that we can track eight April 30 calls we’d given up for dead. We're o ffering four of them for what we paid, 0.60, g-t-c.
XOM (35.59): The rally somewhat exceeded our targeted minimum, a hidden pivot at 35.61. We expect the stock to consolidate here briefly before moving up into the range 37-38.
EBAY (87.87): We now expect this rally cycle, begun in October, to top at 92.74.
Signs Point Higher
by Rick Ackerman
I am unable to access the March 20 edition from my current location in Florida, so I will forego the price targets it contained and start with fresh ones derived from Friday’s rally. Generally, the charts suggest that the rally will spill into this week. Accordingly, I have provided minimum upside targets to gauge the bull’s strength.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8522.18): To keep things in perspective, the current rally, strong though it may seem, remains well shy of turning the intermediate-term trend bullish. That would require a print above 9077, and it would need to be achieved without a correction of m ore than a day’s duration. Between here and there, the first significant test of the Dow’s mettle would be at 8702.67, a hidden pivot. If the Indoos can close above that price, or trade more than10 points above it intraday, we would infer that further strength lies ahead.
JUN E-MINI S&Ps (893.25): The rally shows considerable promise, since, in the space of two weeks and without pausing for breath, it has surpassed two prior highs visible on the daily chart. A pullback to at least 856 would be a healthy sign for the long-term now, although it’s possible the futures will move still higher before a such a retracement occurs.
JUN BONDS (109.22): The futures look to be pulling back to visually obvious support near 108, whence could begin a lengthy consolidation between 108 and 110 that would yield little in the way of trading opportunities.
OEX (456.37): If last week’s rally spills over into Monday it will encounter the resistance of a hidden pivot at 462.71. Any move beyond that price intraday -- or a closed above it, however slight -- would portend still higher prices later this week. If 462.71 is surpassed in the first hour, it would be an especially bullish sign for the remainder of the day.
QQQ (27.16): The closest hidden pivot resistance lies at 27.80, so any move through it would imply further strength to come. We can try to intercept the rally by shorting two round lots at 27.79, stop 27.82. You’ll be on your own thereafter, but please note that the resistance will be felt very precisely if at all, so a 3-cent stop is appropriate. If the cubes blast through it easily, take it as a sign that the bull is very much in charge, at least for the short term.
APR GOLD (326.10): Still no change. The breach of a crucial hidden pivot at 336.40 implies the futures could now correct down to as low as 312.20. What would it take to kill the long-term bull? A decline to below 285, in our estimate. About as likely, we think, as a Martian invasion.
JUN NASDAQ E-MINI (1094.50): Friday’s cl ose above a minor hidden pivot at 1088.50 implies the rally will continue. If so, our minimum upside projection for the next two days is 1121. You can short there at your discretion, but only if holding a profitable long up top that level.
***
IBM (82.47): IBM closed above the 84.15 pivot target we’ve been using as a minimum rally objective for the past week, so we should infer it’s now on its way to the next, at least -- 86.30.
+ INTC (18.90): We hold two April 17.50 puts for 1.05. Intel has just a bit more rally room before it reaches a hidden-pivot obstacle. The resistance lies at 19.08, but if it is easily swept aside, that would portend still highe r prices – probably to 20 or so.
C (37.02): Citi has slightly exceeded our 36.95 target, suggesting its devilish handlers plan to squeeze the stock still higher for purposes of distributing it to orphans, pensioners and widows. They will face a hidden but nonetheless formidable resistance pivot at 37.46. We won’t suggest shorting there unless you can handle a 3-cent stop, but the resilience of that number will tell us whether the bulls will remain in charge for at least a few more days.
+ GG (9.96): We hold 400 shares for an average 7.20. The stock would need to close above 10.43 today to turn short-term stochastic influences bullish.
+ DROOY (2.33): We own 600 shares for an average 4.38. DROOY’s dismal performance of late suggests it could go as low as 1.70, a hidden pivot, before this exceptionally vicious correction ends. There are no put or call options to protect us from the ravages of the expected washout, so I’ll suggest attempting to exit our position today with a 2.42 offer. Our intention is to reenter the stock later, establishing a lower basis cost.
$ RGLD (13.08): Royal looks to be headed toward a hidden -pivot support at 11.47, where we can attempt to establish a position in the stock – our first since we listed it a while back. Accordingly, we suggest that you bid 11.48 for 200 shares, g-t-c.
$ + MSFT (26.58): MSFT has be reinstated to our list so that we can track eight April 30 calls we’d given up for dead. We continue to offer four of them for what we paid – 0.60 – g-t-c.
XOM (36.01): XOM is headed into supply in the range 37-38 – a prospect which holds no compelling opportunities for us.
EBAY (89.79): Our minimum upside projection is now 91.48, but any progress above that number would suggest further upside, to a minimum 93.50.
Bird-Land
by Rick Ackerman
Stress levels are particularly high in the investment world these days, but here’s a sunny note from one Black Box subscriber who seems to have mastered the art of finding repose in the moment. The subscriber, a newlywed as well as a long-time friend, runs his own hedge fund and typically makes just a few big trades per year: “I am sitting in my beloved's house in the Gold Country foothills, enjoying an early warm spring. The hummingbirds are guzzling sugar water while guarding it jealously from other hummingbirds. Finches cling in dense bunches around a column of thistle seeds while blue jays hop purposefully around the trees, a vulture soaring overhead. Now, despite all the evil stench coming from Washington, and all the failed schemes of stupid ambitious men, I can s avor this moment that only a generous and Happy God can give.” May his oasis of calm come to engulf each of us, from time to time, in our idle moments!
Second-Guessing DROOY
Readers have weighed in on DROOY, which we exited for a loss a short while back, for better or worse, with the goal of repurchasing the s tock at lower prices. Will we have the opportunity? It’s impossible to say with any great confidence, especially considering that our long-term, maniacally bullish outlook for gold is unchanged from a year ago. This will come as scant consolation to those of you who bailed out of the stock on our say-so, but our best attempt to bottom-fish it last week would have come up empty-handed, since the stock’s rebound came off a $2.11 low that was three cents above a hidden pivot we might have used to pick the bottom. No sense looking back, though. Now, if DROOY can close above the $3.03 peak made on March 17, it would trigger a buy signal for the intermediate term. It would also scotch any notions we might have about bargain-hunting near the $2 level. We rarely chase stocks higher, but DROOY may yet become the rare exception. Did I mention that most of the subscribers who wrote claimed to have made profits being short DROOY in the weeks that we rode it to its recent dep ths? If true, all I can say is – congratulations, guys. The important thing for you now – for us all -- is not to play for a mere bounce, since the next rally could be the one that reaches the moon.
THE DIRTY DOZEN
A few of your wrote to ask what became of the Dirty Dozen list of out-of-favor gold stocks. We got sidetracked in recent weeks by a heavier than usual course load at MarketWise, but efforts to compile the list are now complete, and all that remains is the logistic al problem of tracking it. Here is the list, with special thanks to you, our readers, for your entertaining comments. If any of you would like to track this list yourselves, we will officially use today’s (i.e., Tuesday’s) opening prices and assume an initial investment of $1,000 in each stock:
Sons of Gallia (SOGAY): Should be called Sunk of Gallia. Hedge book buried them.
Crystallex (KRY): Their gold deal at KM-88 in Venezuela stinks to high heaven. The company sued to enforce what they claimed was their property and before any legal action took place, they carried the property on their books as an asset. They count funny.
Silverado Gold Mines (SLGLF): The stock drops 50% based on a hatchet job but management still doesn't know why the stock went down.
Barrick Gold (ABX): Over the last 15 years they have created what they thought was a 17 million ounce lifeboat. Turns out a 17 million ounce gold lifeboat has all the characteristics of a 17 million-ounce anchor.
Coral Gold (CLHVF): It’s been downhill for all since late 2002, when shares peaked at a lofty 48 cents
Placer Dome (PDG): In the midst of a name-change to Placer Dumb.
Ashanti Goldfields (ASL): Still suffering from the effects of a giant hedge book loss from 1999. Should have fired their bullion bankers who were making money on both sides.
Vanessa (VNVNF): This definitely looks like a one-time pump-and-dump operation. Often moves contrary to most gold stocks - i.e., rises when they fall and falls when they rise. Perfect for the list.
Stillwater Mining (SWC) - faced SEC investigation.
Canyon Resources (CAU) - slipped below 200-day line.
Vista Gold (VGZ) - a cult stock, but volatile bet, since it could take off.
Richmont Mines (RIC): They destroyed millions of dollars in ultra-high-value specimen gold because they couldn't figure out how to market it -- and lost money for years as a result. This is a great example of numbers which look great and management by stupidity.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (7992.13): It’ll take a booster-stage rally of at least 276 points to revive the bear rally begin on March 12. The rally can begin from anywhere between yesterday’s low (7929.31) and no lower than 7831, but it should start by no later than mid-week to deliver the most bang for the buck. Assuming the Dow doesn’t breach 7929.31, the signal would come on an 8206 print – or more reliable, on a close above that number.
JUN E-MINI S&Ps (863.50): Yesterday’s low occurred just half-a-point above a hidden pivot at 839.50, but the jury is still out on the question of how long that support will endure. If it is breached even slightly, however, we’d infer the futures are on their way down to a Fibo level at 827.95, at least.
JUN BONDS (112.24): Look for the futures to consolidate over the next week or two in the range 110-113. A strong sign that the correction may have ended: a close above a hidden-pivot resistance at 113.17.
OEX (429.13): Assuming yesterday’s low of 427.29 is not breached first, a print at 441.30 today would trip a moderately bullish signal, and a close above that number would clear the way for an effortless run to at least 455. Alternatively, if the index contin ues to give up ground today, we’d look for a bottoming attempt in the range 423-425, where significant consolidation occurred not long ago.
QQQ (25.25): The stop on our bottom-fishing attempt proved a bit too tight, but the fact that it was hit suggests that still lower prices lie ahead. If so, 24.50 or so looks to be a likely place for short-term support to develop.
APR GOLD (337.10): Our outlook is bearish for the intermediate term (i.e. 3-5 weeks), but we’ll lower the bar from 358.90 to 345.40 on a closing basis for purposes of determining whether things may have turned for the better, short-term.
JUN NASDAQ E-MINI (1017.00): A 39-point surge beginning from anywhere between here and no lower than 1006 would be the likely booster stage of a more significant rally with an additional 120 points of potential. Failing that, we should expect the futur es to pick up traction in the range 980-1000 over the next several days.
***
IBM (78.43): It’ll take a leap of at least 3 points from no lower than 77.56 to jump-start the bear rally begun on March 12; otherwise, expect the stock to continue lower, to visually evident support near 76.
$ + INTC (16.28): We hold two April 17.50 puts for 1.05 and are offering two April 15 puts short against them for 0.70. Let’s cancel the short and simply try to cover the long puts by offering one to close for 1.80, the other for 2.10, both day orders.
C (34.45): We’re steering clear of Citi for now, since its handlers have been manipulating up a storm lately. We note nonetheless that a close above 35.23 would touch a bullish tripwire for the near-term.
+ GG (10.61): As noted here earlier, an intraday move through 11.50 would turn our proprietary technical indicators bullish for the intermediate term. Stochastically speaking, the stock will have to hurry, since it has just about played out its string for the immediate up-cycle.
DROOY (2.55): We remain as confidently bullish as ever on DROOY’s long-term prospects, but we still think there will be a chance to buy back the stock for less than the 2.46 we received in bailing out of it recently for a significant loss. For now, remain on the sidelines.
$ RGLD (14.70) : Unless the stock moves above 15.45, we’ll continue to bid 11.48 for 200 shares, g-t-c.
MSFT (24.21): Sayonara, MSFT. We'd delisted this issue for reasons of boredom but temporarily returned the stock to the list when it threatened to emerge from coma and revive our April 30 calls (carried at zero). It is dying once again, so this will be the last time you’ll see the stock on the sheets unless it moves above 30.
XOM (34.95): The most recent rally failed by 3 cents to exceed late December’s 36.22 peak, so we have turned bearish on the stock, at least for the near-term. The dour outlook would be remedied by a move above 36.50 over the next 3-5 days.
EBAY (85.31): We should root for eBay to fall hard, since that would provide us with an opportunity to load up on calls once again at bargain prices. In any event, a rally of at least 4.70 points from a low in the range 78.68 – 87.44 (already achieved) would fully rejuvenate the bull for the near term.
Damned Lies and Statistics
by Rick Ackerman
On the subect of President Bush’s handling of the economy, here’s an inspired excerpt from a partisan screed disseminated last week by Democrats on the House Appropriations Committee. It was concocted by one David J. Sirota and forwarded to us by a subscriber whose wife, a CNN producer, received it on the job:
“As you will see, the report provides a city-by-city, state-by-state analysis of how many jobs have been lost since President Bush took office. I hope this will be of use for coverage of the latest unemploym ent numbers tomorrow. As you will see, 173 cities overall have lost jobs since Bush took office, with 24 cities having lost over 4% of their entire workforce. Nationally, Bush has overseen the loss of more than 2.3 million jobs - the worst rate of job losses in the last two decades.”
Don’t Blame Bush
The Nazi Goebbels said infamously that if you repeat a lie often enough and brazenly enough, people eventually will come to regard it as fact. But we wonder if anyone – excepting perhaps Oscar-winner and erstwhile beatnik Michael Moore and his small but vociferous band of egregiously misguided followers – could possibly believe that Mr. Bush has even remotely been a cause of the nation’s swelling unemployment?.We’ve maintained stridently otherwise since well before Mr. Bush took office, averring that the economic sickness in which America remains mired became well entrenched long before Mr. Clinton vacated the White House.
At the time, we also went to great lengths to show that it was no ordinary recession taking root, but rather the beginnings of a secular downswing with the potential to deepen eve n more painfully than the 1930s Depression. We did not blame Mr. Clinton for this once-in-century bust, nor did we credit him with the 1990s boom. In our view, politics and policy are mere captives of epic cyclical economic forces that lie beyond institutional control.
As such, it is beyond absurdity to suggest that Mr. Bush has had a negative impact – make that, any impact – on employment. In point of fact, he is on his way to becoming the most fiscally expansionary President since Lyndon Johnson. Meanwhile, Sirota's message is on a par with the kind of hyper-partisan bil ge that I imagine spews from Sen. Tom Daschle's office each day. Hard to believe even the President’s most strident detractors would buy into Sirota's misuse of the latest unemployment statistics.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8197.94): Potential exists for a rally to as high as 9035 over the next 2-3 weeks, but it would require a close above 8482 to clinch it. If the downtrend continues, however, there are two hidden pivots below where we could look for a bounce: 8184 and 8152. If both are easily breached, we should infer that the bear will continue to hold sway over t he near term.
$ JUN E-MINI S&Ps (866.75): Our minimum downside projection is to 858.25, a juicy little pivot whose precise location and resilience we are sufficiently confident about to suggest that you try bottom-fishing there. Accordingly, in the first 90 minutes of the session, you should bid 858.50 for a single contract, stop 857.75. Switch to a 2.50-point trailing stop once above 864.75, and use 873.25 as a minimum target. In a bigger picture we still see upside potential over the next 2-3 weeks to as high as 948.50, predicated on a close above 894.25. (Both numbe rs are hidden pivots and therefore short-table at your complete discretion.) The target will remain viable unless the futures trade below 840.00
JUN BONDS (111.10): The futures continue their consolidation in the range 110-113 as forecast a while back. The process should take another week or so to complete. A strong sign that the correction may have ended: a close above a hidden-pivot resistance at 113.17.
$ OEX (440.53): Our minimum downside objective for the near term is 436.52. Let’s try to bottom-fish by way of a 1.70 bid for two April 450 calls, no contingencies. If you buy the calls, offer one of them to close for 3.40, g-t-c, immediately thereafter. In a bigger picture, if and when a hidden pivot at 455.37 is surpassed on a closing basis, odds will shorten for a move to at least 483.46.
QQQ (25.46): Our upside target for the next 2-3 weeks is still 29.04, but it would take a close above 27.13, or an intraday print at 27.31 or higher, to suggest the finishing stroke is imminent.
APR GOLD (327.10): Yesterday’s spirited rally brought the April contract to within shooting distance of a bullish trigger threshold at 330.80. We are rooting for the futures to hit that mark, since it would lengthen the odds against a fall to 312.50, a projection we’ve been featuring here for several weeks.
JUN NASDAQ E-MINI (1026.50): As implied here yesterday, the short-term decline has further to go – to around 1015, where the futures double-bottomed last week. If and when they are able to close above a hidden pivot at 1086.50, we’d look for the rally to continue to at least 1158.
***
IBM (78.71): IBM slipped below what was becoming a tediously familiar plateau near 80-82, presumably bound for the next visually obvious comfort zone centered at 78.
$ + INTC (16.68): We hold two April 17.50 puts for 1.05. Let’s raise our offer for them to 1.25, day order.
$ C (37.04): Once again, bid 0.80 for four June 40 calls, contingent on the stock trading 37.00 or higher. If the stock is trading below 37.00 bid 0.70 for the calls, no further contingencies.
GG (10.73): We hold 400 shares for an average 7.20. With yesterday’s close above 10.60 Goldcorp has become an odds-on bet to reach a minimum 11.31. No changes in our position are contemplated.
$ RANGY (11.88): As implied here yesterday, our minimum upside target is now 12.96. We hold no position in the stock officially, but if you’ve got tradeable shares we’d strongly suggest taking some profits at 12.94. A very likely pullback from our target will give you an opportunity to buy back those shares at a lower price.
$ + RGLD (15.30): We hold eight July 17.50 calls for 0.90 and are now short eight April 17.50 calls against them for 0.15, since they actually traded that high yesterday. If you remain unfilled on the order, continue to offer the “Apes” for 0.15 on a g-t-c basis.
$ + XOM (34.47): We hold ten July 40 calls for 0.20. Now offer ten May 40 calls short for 0.10, g-t-c. We’re a ways from getting filled, but it can’t hurt to be ready in case the stock thrusts higher one day.
$ EBAY (86.96): We have no hidden pivot target for this correction, so any buying of calls will have to be done in seat-of-pants fashion. $85 looks like a logical downside target, so let’s try to buy some May 90 calls when the stock gets there. Bid 1.70 for two of them, day order, no contingencies.
Creeping Insanity
by Rick Ackerman
Investors showed more than the usual derring-do yesterday, pushing stocks exuberantly higher while the dollar was getting gang-raped on the world’s currency bourses. What on earth could they have been thinking? The greenback lost significant ground to nearly every currency but the Zambian kwacha, but this evidently was of little concern on Wall Street, where they bid up the Dow Industrials nearly 200 points intraday. Even more bizarre, perhaps, was the steep plunge that gold futures took after trading sharply higher on the Comex earlier in the day. The June contract was up as much as $6 before hitting an air pocket that left it down a dollar on the day.
Through it all, the 30-year bond was a relative island of sanity, recording one of its steepest selloffs since January. Perhaps it was institutional holders from euroland who were doing the dumping, since it was only a matter of time before they were going to wise up to the double-whammy of holding interest-bearing assets denominated in dollars. One wonders why they would stake so much on U.S. Treasurys, since comparable europaper is yielding nearly twice as much. Moreover, the dollar itself has lost nearly 13% relative to the euro in less than two months, transforming merely meager yields into disastrous losses for foreign holders. The question now is whether stocks will continue blithely higher. I very seriously doubt it, but we should be prepar ed in any event to toss common sense aside if we need to get in bullish gear. We already hold low-risk bullish positions in a couple of vehicles, however, and that will allow us to at least root for the crazies even if we choose not to get down and party with them.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8781.35): As implied earlier, our minimum upside projection is 8819.96, a hidden pivot. If that number is exceeded intraday by more than 11 points, however, or if the Dow closes above it, we’d infer it’s on its way to at least 9034.85. That’s a hidden pivot that we’ll want to short aggressively, even if with a very tight stop.
$ JUNE-MINI S&Ps (949.50): Our minimum upside target is still 960.50, a hidden pivot that can be shorted with a 961.50 stop, provided you do so in the first two hours of the session. Switch to a 2.50-point trailing stop below 955.00, using 946.00 for a target.
JUN BONDS (121.09): Let’s see how this correction goes before we think about jumping aboard. My outlook for the next three weeks remains very bullish, with an upside target of 124.14.
OEX (478.99): The OEX chewed through dense resistance between 475 and 480 with unexpected ease, implying this rally has farther to go. If so, the obvious upside target is around 488, where two important peaks that were made last year.
+ QQQ (29.10): We hold twelve June 30 calls for an average 0.33 and 24 July 23 puts for an average price of 0.175. Some subtle pivot calculations suggest this vehicle may have upside potential to 32.35 over the next 2-3 weeks. If so, it could breathe some life into our calls. We’ll sit tight for now.
JUN GOLD (365.20): Shorts won a round. They can ill afford to have the futures hovering above 370, sinc e that’s where people will start to get crazy ideas about gold testing resistance at $390. Once that number is breached, as we expect it eventually will be, we’d rate a move above $400 shortly thereafter as 90% probable, with a minimum target of 409.00 for the minor cycle.
$ NASDAQ E-MINI (1172.50): There’s an important hidden pivot at 1190.50 where we can try shorting with a tight stop. Until the final hour offer a single contract short there, stop 1191.50. Switch to a 3-point trailing stop below 1181.00, using 1168.00 as your target
***
$ + IBM (87.69): We hold eighty July 105 calls for an average 0.13. Let’s offer 80 June 105s short for 0.10. We’re a bit premature, since the stock will need to rally another 5-6 points this week to get us filled, but it can’ t hurt to be ready just in case.
FNM (72.30): No change. Fannie would need to close for two consecutive days above 72.75 to somewhat alleviate a bearish prognosis for the next 2-3 weeks.
$ C (40.18): Citi rallied to close above heavy supply, but the real test could come today, since there’s a hidden pivot at 40.45 capable of stopping the bulls in mid-charge. Accordingly, I’ll recommend shorting 200 shares at 40.44, stop 40.51, good until the final hour. You’ll be on your own thereafter, but please note that if the stock makes it past 40.45 within 15 minutes of first touching it, shorts had better run for cover.
+ GG (11.64): We hold 400 shares for an average 7.20. My minimum upside target for the next 2-4 days is 12 50 and thereafter 13.50, where this vehicle topped earlier this year.
+ DROOY (2.68): We hold 200 shares for 2.41, and again no changes are recommended. If DROOY can close above 3.03, or trade above 3.07 intraday, bulls would have the wind behind them.
+ RANGY (13.68): We hold 200 shares for 10.35. Our immediate upside target is 14.85, a hidden pivot. In a bigger picture, the stock’s impressive close above a major hidden pivot at 13.48 suggests it is bound for at least 18.76 over the next 4-5 weeks.
+ RGLD (21.52): No change. We hold the July 17.50 – June 17.50 call spread eight times for a 1.00 CREDIT, yielding a profit range of $800 to $1,680 regardless of what the stock does between now and mid-July. The closest hidden-pivot resistance lies at 22.54, so use that price as a pla ce to take profits on any longs held outside of our spread. Here’s something to look forward to: If and when Royal has closed for two consecutive days above 22.54, it will become an odds-on bet to reach a minimum 32.42.
$ + KLAC (42.11): We hold four June 42.50s for 0.80. Let’s try to lock in a winner by offering four June 45 calls short for 0.90. Make it a day order.
EBAY (103.05): Whatta guy! eBay is rampaging as expected, but we are watching from the sidelines because call options have been too richly priced throughout this bull cycle. An eventual test of 2000s all-time high at 127.50 seems inevitable.
A Pause for Gold?
by Rick Ackerman
: A friend and mentor has kindly provided me with some finely nuanced charts from which it is possible to draw interesting conclusions about gold’s and the dollar’s immediate prospects. Although I remain maniacally and unapologetically bullish on bullion and mining stocks as long-term investments, my outlook for the intermediate term has been relatively subdued, as you will already know. This is because a bear rally in the dollar has appeared imminent for at least two weeks.
In earlier forecasts I was somewhat vague about where the implied support for the greenback would materialize, speculating only that it would occur around 92-95, basis the dollar index (DXM). With the help of my mentor’s intricately detailed charts, however, I am now able to calculate a more precise inflection point whence a potentially powerful bounce in the dollar could be expected to begin. As it happens, the hidden-pivot target lies at 92.84 -- exactly three cents from Tuesday’s V-shaped bottom. This is a major downside target, representing the culmination of a trend begun last November. As such, we should expect a strong dollar rally of at least several weeks’ duration, and possibly longer. The accuracy of this hidden pivot is corroborated by action in the euro, which on Tuesday precisely reached an upside target of com parable importance.
If I am right, the dollar’s energetic rally off Tuesday’s lows is merely the beginning of a correction that before it has run its course will raise doubts in those who had written off the greenback as dead. They are not mistaken, I hasten to add, only premature. Meanwhile, to those of you who have stuck by gold through thick and thin, I can only counsel further patience. I still consider bullion to be the no-brainer investment of our lifetime. But if it takes another few weeks for the June Comex contract to make a serious run at $400+, it will have been well worth the wait, since the bull market will take wing above that threshold. But don’t expect the dollar price of gold to come crashing down, since quiet accumulation of the metal is occurring now on a global scale. More likely, we’ll see just a moderate retracement as the dollar rises from the mat to throw some last, desperate body blows at a euro that itself will eventually succumb to gold’s irresistible power.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8793.12): Yesterday’s moderate rally exceeded the 8819.96 hidden pivot I’d flagged, implying still higher prices ahead. My minimum upside target is now 9034.85, and it’ll be a good place to try shorting against the trend if the opportunity should arise.
$ JUNE E-MINI S&Ps (953.00): The futures topped exactly one point from my target, 960.50, but that was not quite close enough, nor did it happen early enough in the session, to get us short. We’ll back away, since there’s a possibility of a retracement over the next day or two. Alternatively, if 960.50 is exceeded even slightly, we should expect the futures to continue on up to at least 965.50, a hidden pivot that you can short on your own terms.
JUN BONDS (119.17): The June contract is in the throes of the most substantial correction since early April, so we’ll remain on the sidelines. My outlook for the next 4-6 weeks (please note that time frame has been extended) is still bullish, with an upside target of 124.14.
OEX (479.65): Our upside target is more vague than usual -- around 488, where two important peaks were made last year. If the OEX can close above that number for two consecutive days, however, it would become a decent bet to reach 500.38 (a hidden pivot) within 3-4 weeks.
+ QQQ (29.19): We hold twelve June 30 calls for an average 0.33 and two dozen July 23 puts for an average price of 0.175. There is upside potential to 32.35 over the next 2-3 weeks that could spell new life for our calls. For now, though, we’ll continue to sit tight.
$ ; AUG GOLD (365.00): If the futures have not traded above 366.50 overnight, you can bottom-fish a hidden-pivot support at 361.20, stop 360.90. Use a single contract and switch to a 1.80-point trailing stop above 364.00. Minimum target: 368.20.
$ JUNE NASDAQ E-MINI (1174.50): We’d looked to go short at 1190.50, but you should cancel that offer today, since it’s too close to yesterday’s high to be our kind of obscure. If the futures simply fall, the first place we should expect support to materialize is at 1170.50, a hidden pivot. Until the final hour you can bottom-fish by bidding 1170.50, stop 1169.50, but you’ll be on your own thereafter.
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$ + IBM (87.57): We hold eighty July 105 calls for an average 0.13. Continue to offer 80 June 105s short for 0.10. If IBM falls, the closest support looks to be 86.08, a (very) hidden pivot whose provenance is perhaps to fuzzy to risk bottom-fishing there.
FNM (73.96): Fannie’s unexpectedly strong showing yesterday triggered a long entry that we will ignore, since my gut is telling me the stock has not yet corrected the March-April sufficiently. However, a close above 75.90 would be a strong sign not only that the rally is real, but that it is hell-b ent on achieving a minimum 81.26 (a hidden pivot).
C (41.14): Any shorts attempted at 40.44 were stopped out for a tiny loss in the opening minutes of the session. The stock took wing thereafter as expected, and now bids fair to reach 44.67, a hidden pivot that is important enough to short if and when the opportunity should arise.
+ GG (11.07): We hold 400 shares for an average 7.20. We were using a minimum upside target of 12.50, but the wind has shifted, leaving us now to expect the minor bear cycle to continue to at least 10.84. Do nothing further.
+ DROOY (2.50): We hold 200 shares for 2.41, and once again no changes are advised. DROOY still needs to close above 3.03, or trade above 3.07 intraday, to light the fuse.
+ RANGY (12.82): We hold 200 shares for 10.35. We’ll put aside an upside target of 14.85 by way of acknowledging a minor-cycle downtrend with the potential to reach 12.47, a hidden pivot. No changes to the position are advised.
+ RGLD (20.22): We hold the July 17.50 – June 17.50 call spread eight times for a 1.00 CREDIT, yielding a profit range of $800 to $1,680 regardless of what the stock does between now and mid-July. There are two supportive hidden pivots just below – at 19.98, then at 19.46. If the first is breached by more than 3 cents, expect the latter to be touched. We’ll do nothing further for now.
$ + KLAC (42.13): We hold four June 42.50s for 0.80. Once again, let’s try to lock in a winner by offering four June 45 calls short for 0.90, day order.
EBAY (101.18): We’re spectators as eBay continues to shred its way up, down and sideways.
Pivot Was 'Golden'
by Rick Ackerman
Yesterday’s forecasts zigged into a market that brazenly zagged, mooting much of what I had to say by way of analysis. But I did get a couple important things right, locking in a riskless call spread in KLAC with more than $1,000 of profit potential, and buying August gold futures a single tick off a bottom from which the biggest rally since early February ensued. The nice timing of the gold trade was somewhat ironic, since the headline on yesterday’s edition of Black Box was: “A Pause for Gold?”
Concerning KLAC, we already owned a few June 42.50 calls for 0.80 and had been waiting for the rally that would allow us to short some June 45s for more than we’d paid for the 43.50s. We got that rally yesterday, our goal easily accomplished with the help of exploding relative strength in the stock. KLAC, a favorite of day-trading cowboys, was up nearly 5 percent on the day as the Dow languished in negative territory, and this helped the June 45 calls more than double in price. We didn’t get the day’s richest sale, but the 0.90 premium we did receive effectively gives us a 2.50-point vertical spread for a 0.10 CREDIT. This means that, no matter what the stock does between now and the June 20 expiration, we will make as much as $1040 of profit on our four spreads with no possible loss.
The gold strategy was pegged to a hidden pivot that worked very precisely. At Wednesday’s close, the August contract appeared to be headed into a 5-point retracement that semmed likely to carry to a minor pivot at 361.20. In fact, the pullback reversed at exactly 361.10, allowing us to get long from a single tick above the start of an explosive 10-point rally. The pivot was sufficiently well defined that we were able to enter this trade with minimal risk, placing a stop-loss at 360.90 -- just 0.30 below where we’d sought to enter the trade.
A Tip from the Inside?
I’ve repeatedly stressed that, with the stock market at these levels, downside risk vastly exceeds upside potential. It would appear that at least a few key insiders agree. As my friend and trading colleague Rusty Stratton points out, insider selling has been running at an astounding clip lately. For one, Michael Dell recently sold ten million shares of his company’s stock; and for two, Microsoft honcho Steve Ballmer unloaded a billion dollars worth of MSFT . Do you think these guys might know something? The bullish interpretation – the one we might expect to hear from, say, Maria Bartiromo :lach :lach :lach – is that these guys sold millions of insider shares not because they are bearish on their companies’ prospects, but simply because they’ve got some bills to pay. We gravitate toward a less sanguine view, however – that at current prices, two crucial bellwether stocks make for an irresistible sale.
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[The + symbol means we have an open position, while $ means there is actionable advice.]
DJIA (8711.18): The Indoos had fatal problems getting aloft yesterday – a fact made even more disconcerting by a cautious opening, well staged by Da Boyz, that seemed calculated to shake loose some bargains before a short-squeeze. We’ll nonetheless stick with the 9034.85 upside target, but it would be cause for concern if any correction this morning tak es out a hidden-pivot support at 8638.42 easily.
JUNE E-MINI S&Ps (949.00): Like the Dow, this vehicle has a hidden-pivot support we can monitor for signs of further weakness. It lies at 940.25, and if that number is breached decisively, the next place the futures could find traction would be in the range 929-932, where a consolidation took place last week.
JUN BONDS ( 120.19): My outlook for the next 4-6 weeks is still quite bullish, with an upside target of 124.14. However implausible and illogical this may seem, it comes from a purely mechanical reading of the charts that I trust. We’ll want to back up the truck and load it with shorts at that level, assuming the opportunity arrives.
OEX (477.42): The key support to watch today is a hidden pivot at 473.29, but a decisive penetration of that number (i.e., more than 1.50 points) would imply additional downside to at least 468.76, a Fibo Alternatively, once above 488, the OEX would become a decent bet to reach 500.38 (a hidden pivot) within 3-4 weeks.
+ QQQ (29.31): We hold twelve June 30 calls for an average 0.33 and two dozen July 23 puts for an average price of 0.175. The cubes closed well below their intraday peak, suggesting further weakness today. If so, a Fibo level at 28.30 will make a logical target, though not one we’d risk bottom-fishing.
AUG GOLD (370.70): Yesterday’s advice was good for a hugely profitable 7-point ride, since you were told to bid 361.20 -- just one tick off what proved to be a powerful inflection point that launched a 10-point rally. The take-no-prisoners demeanor of the rally has impelled me to consider an alternative to the unexciting picture I painted here yesterday – of a muddled correction into late June or early July. Under the new scenario, the most bullish reading I can extract from hidden-pivot analysis keys off the futures’ apparently unstrained ability to maintain altitude above an important long-term resistance at 363.05. This suggests that the current rally cycle will carry to at least 405.60 over the next 3-4 weeks. The target is a few dollars beneath a 409.00 target that itself is a significant hidden pivot.
JUNE NASDAQ E-MINI (1180.00): We will grow warier each day hence if an upward-bound Nasdaq index continues to diverge from a falling Dow. Were the two to begin falling in tandem – a scenario that would feel right as rain to me at the moment – the Naz would likely grope its way down to at least 1147.50 (a Fibo) over the near term.
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$ + IBM (87.36): No change. We hold eighty July 105 calls for an average 0.13. Continue to offer 80 June 105s short for 0.10. If weakness continues, the closest support is 86.08, a (very) hidden pivot whose provenance is probably too fuzzy to risk bottom-fishing there.
FNM (73.09): Fannie needs to close above 75.90 for bulls to regain the upper hand. Once that happens the stock would be an odds-on bet to achieve a minimum 81.26 (a hidden pivot). Meanwhile, any weakness today would likely send this stock down to at least 72.17, where a minor, Fibo-related support awaits a test.
C (40.77): Citi’s adr oit handlers could manage no better than an inside day, one that will have at least mildly bearish implications going forward. If I’m right, there’s a Fibo at 39.68 that will serve as our minimum downside target for today. No action is advised.
+ GG (11.41): We hold 400 shares for an average 7.20. We were using a minimum upside target of 12.50 while allowing for the possibility of a pullback first to 10.84. No changes in our position are warranted.
+ DROOY (2.52): We hold 200 shares for 2.41. The nearest resistance worth mentioning is a hidden pivot at 2.72. If the stock closes above that number, or trades more than 4 cents above it intraday, we should infer it’s on its way to at least 3.06 in the current, minor bull cycle.
+ RANGY (13.30): We hold 200 shares for 10.35. Randgold bottomed some what below our 12.47 target, but the subsequent bounce has brought back into focus a 14.85 upside target we were using earlier. We’ll make that our minimum projection while noting that no changes are necessary in our position.
+ RGLD (20.08): We hold the July 17.50 – June 17.50 call spread eight times for a 1.00 CREDIT, yielding a profit range of $800 to $1,680 regardless of what the stock does between now and mid-July. No changes are suggested, although it’s worth mentioning that a 29.70 print today would trip a theoretical “buy” signal.
+ KLAC (44.30): We are long the June 42.50s – 45.00 call spread four times for a 0.10 CREDIT after shorting four of the June 45s yesterday for 0.90. Sit tight for now, since this is a position on which we cannot lose. Our immediate upside objective is 46.42, a hidden pivot that should be shorted with a 6-cent stop, provided the trade is cushioned with profits made on the way up.
EBAY (100.15): We’ll remain spectators as eBay continues to shred traders unable to parse its wicked wildness of late.
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