Commentary for the Week of March 8

Refreshing.  Exhilarating, even!  But will it last?  Our gut feeling is that this is not The Big One – that investors will soon be throwing money at stocks again with the same reckless abandon they’ve shown since 2009. But it never hurts to dream. Imagine what a whole month of days like yesterday would do to clear the fetid, toxic air from Wall Street.  The effect would be positively cathartic if the capitulation phase were to lop, say, 2000 points from the Dow in just a few days. From that point forward, even the most churlish permabears  would recognize that the stock market was in recovery mode, too devastated to attract the quasi-criminal element that has controlled price action in recent years. High frequency trading circuitry would be fried, yields on dividend stocks would fatten and interest rates could seek their own level. Who knows? Perhaps even the $3 trillion-plus in dubious assets carried by the Fed would come available at market prices? Meanwhile, although our very bullish Dow target at 16800 remains theoretically valid, the burden of proof has shifted to bulls for a rare change. From a technical standpoint, we can see in retrospect that late May’s record high at 15542 was precisely predictable and therefore shortable. The reason is shown in the weekly chart accompanying today’s DJIA tout, which can be accessed by non-subscribers via a free trial subscription. Those familiar with Hidden Pivot Analysis, including your editor, might want to kick themselves for missing the opportunity. Less easy to miss in the days ahead would be the creation of a bearish “impulse leg” on the weekly chart. The last time this occurred was in July 2011, and it signaled the onset of a 2147-point decline, or 17.6%. If a selloff of similar magnitude were to occur

We could not have improved on Bernanke’s speech yesterday, although investors appear to have found it more than a little unsettling. Don’t worry, they’ll soon be back in droves, snapping up stocks as always, without so much as a moment’s pause as to why. Meanwhile, everyone knew beforehand that even the vaguest hint about cutting back on the Fed’s monthly purchases of Treasury debt and mortgage securities would be enough to send global markets spasming.  Look at the damage that’s been done already.  In the case of so-called emerging markets, they have gotten crushed in recent weeks as hot money has fled for safer venues.  And China’s financial system has begun to totter on fears that domestic credit speculation will not easily abide even a slight U.S. shift from easing. Under the circumstances, Bernanke talked his book about as well as he might have, suggesting that the U.S. economic recovery is proceeding well enough that it may be possible to end QE sometime next year. Yeah, sure. The official line has been that unemployment could be at 7% or lower within a year and that the real estate market will continue to firm. As Goebbels famously said, if you tell a lie big enough and keep repeating it, people will eventually come to believe it. So it is with a U.S. economic “recovery” that has rested solely on inflated home prices and shares driven by untold $$ trillions of funny money. Gold’s Usual Reaction Wall Street’s conniptions in response to Bernanke’s latest variation on a theme was at least amusing, with traders slipping and sliding in their own excrement, so to speak. The chart above shows this. The initial feint was higher, but it proved to have been a bull trap when DaBoyz pulled the plug, sending the Indoos into

[Note:  August Gold's $23 dive yesterday brought it closer to the 1353.70 red zone identified when the commentary below was published Monday night. The intraday low was 1360.20, but you should keep in mind that the futures would need to close below 1353.70 for two consecutive days to become at least an even-odds bet to fall to a longstanding correction target at 1219.40. RA] We’ll shun jargon for a moment and make it as simple as we can for bulls who have patiently stood by gold since it began its long dirge nearly two years ago.  Looking at the picture below of Comex August futures, the weight of selling in recent months should be apparent even to those who know nothing about charts. It projects a potentially important low at 1219.40 that would imply a nearly 12% fall from current levels. That outcome, our worst-case scenario for the next 3-4 weeks, would become an odds-on bet if August Gold were to settle for two consecutive days beneath the red line at 1353.70. There would be no guarantees at that point that 1219.40, a major “Hidden Pivot “support, would hold, but we would be prepared to bottom-fish there aggressively in any event, albeit with a very tight stop-loss.  More specifically, we would use our proprietary “camouflage trading” technique to hold theoretical risk as low as possible. If you would like more information about this method, which we use daily to trade and forecast, click here or consider taking a free trial subscription by clicking here. Looking on the brighter side, the very best that bulls could hope for over the near term would be a strong bounce from 1368.20, which lies just below. Although that number is a minor “hidden” support according to the technical system we use, it is the

Are U.S. stocks in a bear market?  Although we don’t pretend to have a crystal ball, the chart below could soon give us enough information to quote odds on it. From a technical standpoint, using our proprietary method of analysis, the key feature is the 14953 low made last week.  Thursday’s swoon to that number overshot an important “Hidden Pivot” correction target at 14962 (aka ‘p’) by a hair – i.e., nine points, or 0.10 percent.  That’s not enough to regard the support as having been violated, nor to provide a solid basis for predicting the direction of the next big move. It the move is higher, however, then a 16800 bull-market target broached here earlier will be back on the marquee.  Alternatively, if the Indoos decisively breach last week’s low, we would expect the sell-off to continue to at least 14624, a three percent decline from Friday’s settlement price and a 6% fall from mid-May’s all-time high at 15542. That would be little more than a stumble, of course, since it would fall well shy of the 20 percent threshold needed to signal a bear market. A 20-percent decline would imply a 3108-point selloff to 12433.  Again, Hidden Pivot Analysis should be helpful in determining whether an initially mild selloff to 14624 – what bulls will undoubtedly regard as a healthy correction – is likely to snowball into an avalanche to 12433 or lower.  How will we be able to predict this in advance? Very simply, by closely monitoring price action at the two numbers given above: 14962 and 14624.  If the first is exceeded by more than 10 points intraday, then the second will become an odds-on bet. And if the second is exceeded on a closing basis for two consecutive days, then look out below. At that

The chart below was posted in the chat room yesterday by a Rick’s Picks subscriber evidently at the point of despair over the stock market’s inability to muster a sell-off worthy of the name. The three-day downtrend reversed by yesterday’s swoon is a case in point.  This was the first time this year that the Dow average had fallen for three consecutive sessions. And yet, the drop from high to low was a mere 250 points -- barely enough to placate beleaguered permabears, let alone satisfy them.  And although some of them may have experienced a little tingle Wednesday night when index futures were down the equivalent of an additional 250 Dow points, the exhilaration was short-lived, since DaBoyz engineered a low at around 2:30 a.m. Eastern that served as a launching pad for the ballistic rebound that was to hold sway for the next 14 hours. The Dow finished the day up 180 points -- a roller coaster ride of 430 points. While few would challenge the assertion that the stock market has become a sleazy midway game rigged for the benefit of a relative handful of shadowy, high-tech arse bandits, it is not the so-called algo-traders who are doing most of the manipulating. While it is indeed possible for these thimble-riggers to push stocks higher or lower via quote-stuffing and other strategies developed by digital trading's netherworld (aka “dark pools”), the most significant rallies have come, as always, from old-fashioned short-covering. As we have pointed out here many times before, mere buying by bulls will never be powerful enough to push stocks through heavy supply to new record highs.  But short-covering is easily up to the task, since it is impelled by margin calls on traders who are getting eaten alive by every uptick. To set them stampeding,

Well, that’s two straight Tuesdays that U.S. stocks have fallen. Has Wall Street finally noticed that the real estate sector – the only big winner in American’s sham “recovery” besides the stock market itself – is starting to deteriorate?  Hard to say, although lately we’ve had our doubts that yield-crazed U.S. investors would lose a beat even if an epidemic were to wipe out half of the world’s population. They barely flinched a couple of weeks ago when Japan’s stock market was freefalling. And if deepening recession in Europe and a steep drop in China’s output bode trouble head for the global economy, neither factor has yet to have a significant impact on U.S. stocks, which touched record highs as recently as two weeks ago. Now, however, comes a worry that will literally hit investors where they live: a steep increase in long-term yields that has pushed 30-year mortgage rates up by 56 basis points in just the last five weeks.  As our colleague Michael Belkin notes, this is equivalent to two rate hikes by the Federal Reserve. An immediately visible result, he says, is that mortgage applications dropped 11% last week and mortgage lenders are starting to lay off brokers. If home sales start to cool even slightly, we wouldn’t be surprised if the “wealth effect” mirage that the Fed has struggled so hard to create over the last five years vanishes in a trice, since Americans have precious few things these days, other than inflated home values, to make them feel wealthier. (Certainly not higher real incomes, which have stagnated since the 1970s.) From a technical standpoint, T-Bond futures still have a little room to fall before they hit our red zone.  That would imply a drop to around 137-7/32, basis the September contract. (Note: yesterday’s low was

[A recent commentary here, Pass Line Bettors Finally Seven Out, drew a spirited response that included the post below. It is from Robert Moore, a forum regular and gold bull whose online profile describes him as “the obvious Pragmatist.” Mainly, says, Robert, its all about trying to protect one’s savings from theft-by-Government. RA] Regarding the following, commonly held scenarios expressed within this lively discussion:  1) Catastrophic deflation, debt diminishes and debt-derivatives implode, versus 2) hyperinflation, as the the money masters print feverishly to prevent #1 above; or my personal favorites: 3) one, followed by two, which is nearly always countered with:  4) “No, you idiot, it will be two, followed by one.” There is the obvious fifth option that everyone overlooks, and yet not one person in a thousand will be honest with themselves as to why they overlook it. The fifth option is the unfettered (i.e., unencumbered, free-market) revaluation of that most contentious of non life-critical physical assets (yes, I mean Gold). All the central banks need to do to restore faith is to get out of the way and let markets do what they have always done: clear themselves. The message that humanity is sending the Keynesian water-carriers is that “more debt will not restore confidence,” and I dare any of you to try and play God with me and declare that more debt will restore confidence. No Debt Will Go Unpaid There is a point where a burned lender will refuse to lend more, and there is likewise a point where a burdened borrower will refuse to accept any more burden. We (i.e., humanity) have passed that event-horizon. It is in the rear view mirror. The debts must be paid, forgiven, or defaulted, in order to start the process of restoring confidence. Period. The only reason this

Although our technically derived target for the Dow is still a very bullish 16800, we wrote here recently that we were keeping one foot out the fire escape.  Given yesterday’s display of bravado on Wall Street, however, we’ve now put the other foot out as well. After being down 116 points, the Industrial Average rallied nearly 200 points to end the day 80 points higher, at 15040.  We had anticipated the initial weakness with a bearish forecast for Thursday of a 15-point drop in the E-Mini S&P futures. This equates to a Dow fall of about 120 points.  At the lows, which occurred midway through the session, both came close to hitting their respective targets. Although the rebound therefore came as no surprise, the relentlessness of it did. After bottoming, the broad averages ratcheted steadily higher for the remainder of the session, strongly suggesting with each new upthrust and shallow pullback that the rally was being driven solely by short covering. If so, bears will still be on the hook when stocks begin to trade Friday morning. We’ve told subscribers to be ready to short into whatever illusion of strength a bear squeeze might create, so convinced are we that the insanity that has been goosing shares has reached an unsustainable extreme.  There were plenty of reasons for the broad averages to have exceeded our downside targets yesterday and kept going.  For one, the U.S. dollar was in the throes of its worst day in recent memory. This suggests that at a psychological level, at least, all was not right with the world. Couple that with the horrific slide in T-Bond prices over the last month, and the very sharp, upward skew in mortgage rates that has resulted, and one could almost believe the Fed is starting to lose control.

Bears may have been pleasantly surprised yesterday when stocks closed lower on a Tuesday for the first time since January.  Has reality finally found a foothold in the fetid, bad-news-is-good-news precincts of Wall Street?  We shouldn’t get our hopes too high about this, since the herd still seems to believe that the uglier the economic news, the more likely central banking’s feather merchants are to continue pumping fraudulent money into shares and real estate. Still, you have to wonder how much harder the central bank will need to push on the string in order to compensate for a growing list of economic woes that now includes deepening recession in Europe, signs of serious economic fatigue in China, sharply rising U.S. mortgage rates, a cooling in auto sales and, most recently, news that America’s manufacturing sector is in its steepest slump since the recession allegedly ended in 2009. The Great Recession (upper case) continues nevertheless -- if not statistically, then at least in anecdotes drawn from the day-to-day lives of our friends, neighbors and former co-workers.  How ebullient could we be, given that statistical recovery has been far too feeble to have had much of an impact on jobs, wages or – here’s a concept seldom discussed any more -- capital investment?  In fact, the lion’s share of investable dollars has gone mainly into housing, stocks and Treasury debt, creating just enough of a wealth effect to distract us from the actual economy’s persistent miseries.  But with home prices up 11% since last March, who cares about $5 gas, surreal increases in the cost of health insurance, the imminent bankruptcy of Detroit, and other trifling details of economic life in America? Lowering Expectations With Bernanke behind the curtain, and his lazy, economically ignorant lackeys in the news media ever eager to