Commentary for the Week of March 8

We often tell subscribers to leave options trading to the experts, since, for retail customers, the game is almost as tough to beat as betting on horses.  But not quite.  We’ve been at it for 40 years ourselves, and the knowledge we’ve accumulated over that time, including a dozen years making markets on the floor of the Pacific Exchange, has helped push us just past the 50 yard line that divides winners from losers.  Which is to say, we come to each trade with a positive expectation.  A case in point is a bull play in Goldman Sachs that we recommended nearly three months ago.  Back in March, we reckoned that if the stock market were to go bonkers, as it indeed has, then Goldman would almost surely be one of the stocks leading the charge. This idea proved flat-out wrong, but as you’re about to see, not fatal. We had told subscribers to buy far-out-of-the-money Goldman calls to leverage the scenario, but because we were attempting to buy them at fire-sale prices, the options stayed just out of reach. Until one day, that is, when the stock got sacked. That was on April 1, and when the dust had settled, we were able to write as follows:  “With Goldman shares at a precipice, the July 195 calls we’ve been attempting to steal came cascading down on us yesterday like summer rain.  I’ll treat the order to buy 20 of them @ 0.15 as filled, but as long as DaBoyz are jumping out of windows, let’s try to suck up another dozen, bidding 0.12 for them, good-till-canceled.  Be warned that I am suggesting this because it looks like the stock will fall a further $3, to at least 143.58 (see inset), before it can turn around.” [This is in fact

With yesterday’s wilding spree, Tesla Motors joined a growing group of mania-driven stocks whose price has arguably gotten years ahead of reality.  Johnson & Johnson, Best Buy, Yahoo, Netflix -- and, for a while at least, Facebook – are other hysteria outbreaks that we’ve tracked here recently, trading them from both the long and the short side. In the case of TSLA, permabears though we be, we were confident about going along for the ride until yesterday, when the stock, powered by a fury of desperate short-covering, kissed a 104.44 rally target. That number, a “Hidden Pivot” resistance, had been disseminated to subscribers when the stock was trading near $73 several weeks ago. At the time, we recommended getting long ahead of a possible blowoff, then to reverse the position and go short when the target was reached. Early yesterday morning, the strategy appeared to be working perfectly. Tesla shares topped on a $7 gap to 104.63, just 19 cents from our target. Moreover, within the next hour those who had bought put options on the opening had an opportunity to cover some of them profitably when the stock retraced $3 of the rally. Via an intraday update, we further advised subscribers to tie their remaining puts to a stop-loss that would kick them out of the trade with at least a small profit no matter what happened next. This precaution saved the day when TSLA resumed its ballistic trajectory after stalling for a few hours. The stock went on to hit 110.75. Ask Them Yourself For those not acquainted with Rick’s Picks trading tactics, they are fined-tuned so that even permabears who hate the market can enjoy playing both sides of it. The Hidden Pivot rally targets frequently work with such precision that it’s possible to lay out speculative

U.S. stocks barely flinched last week as shares trading elsewhere in the world got shellacked. The global selloff began with a 7% plunge in the Nikkei early Thursday.  Asian markets dove in sympathy, then Europe followed suit with a 2.1% drop in the FTSE 100. But when it came time for Wall Street to show a little fear, bears were nowhere to be found.  The Dow closed off just 12 points, demonstrating yet again the old adage that if you can keep a cool head while everyone around you is panicking, then perhaps you don’t understand the situation. Then again, why should U.S. investors even care about Europe and Asia? Home prices are soaring, not only stimulating the all-important “wealth effect,” but also creating new collateral that presumably will help catalyze the next consumer-credit binge. That’s assuming one occurs.  For it could happen only after Americans have dealt with a trillion dollar mountain of college loans, staggering increases in the cost of health care, stagnant incomes; punitive new taxes at the federal level; and in ultra-blue states like California, Minnesota, Massachusetts and New Jersey, tax increases implemented by lawmakers who evidently view the fraudulent economic recovery as a great opportunity to enlarge the scope of government. T-Bond Blowoff Coming Meanwhile, there seems to be a growing consensus among my fellow gurus that this market really is different.  Indeed, nothing seems to make U.S. stocks go down -- at least, not for longer than a day or so. Overnight selloffs reverse before the opening bell, and when there is weakness intraday, losses are recouped via short-squeeze buying in the final hour. If there is no good news to lift shares, then bad news is simply ignored. Europe’s deepening slide into intractable recession is no longer even talked about in U.S. newspapers,

Yesterday’s rally recouped a 200-point overnight selloff in the Dow, but because it was unpersuasive from a technical standpoint, we expect the week to end on a whimper at best. At worst, the selling could carry into next week, and if it persist so that shares fall on a Tuesday – something that has not occurred in more than four months – then we would view that as further evidence that Wednesday’s high was an important one.  Regarding “weak technicals,” notice in the chart below how buyers of DJIA index futures failed to surpass even a single important peak on the hourly chart after devoting an entire night and day to the task. From our perspective this is telling, since, according to our Hidden Pivot Method of analysis, rallies destined for greatness, or even just goodness, must exceed a new peak on the hourly chart with each new thrust.  Not this time, though, and that’s why we would classify yesterday’s rebound – all 200 points of it – as a bust. Wednesday night, index futures had gotten pounded into a deep hole after bulls got trapped celebrating Bernanke’s latest appearance on Capitol Hill. The man had said absolutely nothing of importance, as usual, and although that has rarely troubled investors in the past, this time it evidently did. The result was that U.S. markets appeared to be in avalanche mode in the wee hours, gaining momentum following the previous day’s bull-trap reversal. Although, as we have noted above, yesterday’s ascent from the depths was not impressive by itself, the ability of DaBoyz to arrest a slide that should have carried strongly into the opening was a pretty good trick. We doubt the Plunge Protection Team was involved, although it would have been a cheap trick for them to turn the

Today’s list of trading “touts” includes tracking guidance for three new positions initiated yesterday. First was a short in the Diamonds (DIA) based on a 155.30 rally target that had been posted on May 8, when the DJIA itself was trading 600 points lower. Our ‘Hidden Pivot’ caught yesterday’s high within 16 cents, just in time to enjoy a subsequent 2% plunge to 152.40. The equivalent reversal in the Dow Industrials, which had risen sharply while Bernanke blathered away on Capitol Hill, amounted to 242 points, or 1.4%.  In Johnson & Johnson, although we’d backed away from a short recommendation a while back, giving wide berth to the institutional lunatics who have binged on the stock since December, an 89.46 target was good enough to position subscribers within 53 cents of the 89.99 top.  JNJ subsequently reversed down to 88.20, finishing the day at 88.43 on a weak bounce. Finally, subscribers reported buying GLD August 160 calls for 0.21, a penny off the intraday low, based on a 131.83 correction target. The target had been aired intraday in the chat room in response to a timely query. The short positions are speculative and go against our very bullish, 16800 rally target for the Dow.  However, based on Hidden Pivot Analysis, if the predicted blowout rally was going to fail, it was likely to occur precisely at yesterday’s highs. Shorting into the Bernanke-induced wilding spree that began the day was undeniably speculative and even a little scary, but anyone who did so was a winner by the final bell. Taking Partial Profits Is Key Our practice when going against a bull market now in its fifth years is to take a partial profit on any position that has gone even modestly in-the-black, and to tie the rest of it to a

Repeat after us: There is zero chance the Fed is going to tighten…zero chance…zero chance…zero chance.  We’ve made this point so often here that it is has practically become a mantra at Rick’s Picks.  It has also been amplified, refracted and explicated – though not hotly debated – in our forum, where there are apparently few who expect any change in Fed policy. As how could there be?  For even the slightest hint that easing is about to taper off, let alone end, would bring on the Second Great Depression faster than you can say “Hooverville!” The prospect of hard times might have superficial appeal, since the legacy of the 1930s with respect to art, architecture, cinema, public works, automobiles and other monuments to creativity and human endeavor is quite impressive. But the downside is that the illusion of prosperity would be gone, and with it much false wealth that could never withstand the discipline of unrigged markets.  Also gone – overnight – would be the global banking system, buttressed as it is by a nearly quadrillion dollar edifice of hyper-leveraged derivatives.  Subject that sum to even a few more basis points of vig and you’re talking about trillions of dollars that would have to be coughed up in real money. Fat chance. The foregoing is in response to a CNBC story out Tuesday evening under the headline Bernanke Expected to Deliver Dovish Message.  This is about as dog-bites-man as news gets – a space-filler intended to pump up the press-release version: Bernanke will testify before Congress today.  Here’s the opening paragraph:  “Federal Reserve Chairman Ben Bernanke is expected to maintain his dovish tone when he speaks to Congress Wednesday, and he is likely to dispel any notion that the Fed is ready to cut back on its easing policy.” 

[Breaking news:  I knew we would be richly entertained by Obamagate, but who could have imagined the slapstick would start so soon? In fact, we now know that the IRS and certain unnamed "White House aides" sat on the scandal for several weeks while they mulled ways to spin it.  In the meantime -- and this is where the Liar-in-Chief has really kicked off the show -- Obama maintains that he only found out about the IRS witch-hunt against Conservative groups when he read about it in the papers.  And this just in: The IRS-official-in-charge says she will plead the Fifth rather than testify before Congress. Is this spectacle going to be fun, or what! RA] With new revelations of scandal surfacing almost daily, there are apt comparisons to Watergate, of course. But say this for Richard Nixon: at his worst, the man’s political ambitions never went much beyond stealing an election and settling an old score with the press. The political career of Barack Obama, on the other hand, has been animated by an overweening vision that seeks nothing less than the further enlargement of Big Government so that even the most ardent disciples of the New Deal might someday stand in awe of His achievement. But would they? FDR at least had a Keynesian excuse for ramping up fiscal stimulus and expanding Washington’s reach, since the U.S. had been wallowing in depression for more than a decade.  We’ll concede that Obama was dealt a bad hand, economically speaking, but his response has made FDR look like a piker. For in fact, the gargantuan deficits he has piled up to push housing and share prices higher have put the U.S. on an inexorable path toward bankruptcy. Moreover, the suspicion grows that this has been his intention all along, since

Based on the S&P 500’s brash behavior lately, effortlessly blowing past Hidden Pivot resistance points major and minor, we wrote here recently that the fuse could be lit for a 130-point explosion. That would be equivalent to a Dow move of about 1000 points – a spectacular surge, especially if it were to occur over a period of not months but weeks. However, a coldly dispassionate look at the Dow’s monthly chart bolsters the case for an even bigger rally – a 1600-point moon shot.  That would bring the Dow to exactly 16810, and although the target promises to be a great place to fade buyers, we’re not going to risk the farm on it. Nor do we plan on wasting our breath cursing bulls every inch of the way up. If they’re intent on pushing the blue chip average to nearly 17000, there’s no reason to fight the tape, especially since a pile of money could be made betting the pass line. We are hardly alone. Some noted gurus have confidently been predicting Dow 20000 for some time. We would lump them together as publicity-seeking windbags who picked the number 20000 out of thin air simply because it sounds good. Wouldn’t you feel more comfortable buying into such a scenario when it has been endorsed by a forecaster who not only has a very precise target in mind, but who gets nauseated at the very thought that it might be achieved? Too Bullish on Goldman Some will say we’re throwing in the towel, but consider the facts. Although we’ve hated this bull since it took off from 6470 in March of 2009, as traders we have played both the ups and downs of the move -- profiting more, actually, from bullish positions than from bearish ones. Sometimes we have

[Buyers on Wednesday made short work of the 1647 target noted below, pushing the futures as high as 1660. This implies that a further rally of 130 points -- equivalent to more than 1000 Dow points -- is likely gestating. RA] The 1647.50 rally target shown in the chart below looked until recently like a good bet to contain the bullish stampede, at least for a while. As of early Wednesday morning, however, it seemed to be giving way. Even though it has been exceeded so far by just 2.50 points, that’s enough to imply that the resistance has been fatally compromised, given the clarity of the technical pattern that produced it. If this “Hidden Pivot” is in fact easily brushed aside, it would be yet one more casualty of a bull market that in its fifth year is growing more relentless by the day. And freakish. Yesterday’s rally marked the 18th straight week that the Dow has closed higher on a Tuesday. Market watchers have been trying to make sense of this, since nothing remotely like it has ever happened before. But they might as well be trying to explain Stonehenge. The mere fact that betting that stocks will finish higher on a Tuesday has become all but a sure thing is reason enough for it not to happen again.  That’s because “knowing” what the Dow will do on a given Tuesday would make it possible for “everyone” to make money on the same side of the market.  That cannot be, of course. And yet, who would dare fade next Tuesday’s action, assuming it’s a rally? Another 1000-Pointer? And now, what if buyers simply blow past the 1647.50 target shown above?  According to our technical runes, that would put in play a 1779.75 target of higher degree whose attainment