Commentary for the Week of March 8

The Dow got sacked for 250 points yesterday, but consider the chart below if you think it’s too late to jump on the bearish bandwagon.  Of course it isn’t. On the daily chart, the bar graphically representing Thursday’s selloff barely stands out. It’s not even as bad as the 275-pointer that occurred on June 1. A thousand-point rally followed, turning the downdraft retroactively into a bullish swoon.  So don’t despair about missing a great opportunity. This bear market is just getting rolling, and it is all but certain that there will be plenty of chances to get short down the road with stocks rising. Not that it will be easy, since every Tom, Dick and Harry will be trying desperately to get on the right side of the move. More on that in a moment.  Concerning yesterday’s mini-avalanche, we were a day late ourselves, having challenged subscribers the night before to help us pick the top.  We figured it would be as easy as shooting fish in a barrel, since nearly 800 traders, many of  them regulars in the Rick’s Picks chart room, have taken the Hidden Pivot Webinar.  (Click here to find out about the next class -- and get a $50 discount.) Keep this well-trained army of chartists in mind as you read the following excerpt from a DJIA trading “tout” that went out to them Wednesday night: My goal is to short a top that will be distinctively recognizable as such after-the-fact.  The risk, of course, is that I will miss this top while greedily attempting to milk the rally for that last oh-so-satisfying inch. In attempting to [short the top], I’d welcome some help from chat-roomers, since the next thousand-point move in the Dow has home-run potential in comparison to whatever base-hits you may be pondering

As the Great Recession drags on, albeit without official sanction, each and every silver cloud of economic news continues to harbor a dark lining. Most recently, amidst the mainstream media’s hubris over a supposedly stabilizing housing market, we read yesterday in the Denver Post that the region is bracing for yet another painful round of foreclosures. “Despite reports of a thawing housing market,” the paper noted in a front-page article, “yet another wave of foreclosure appears to be looming.” The fact that lenders are gearing up for this is apparent in the sharp spike in deed-of-trust assignments in Colorado. Compared to 2011, they’ve more than doubled in the first five months of this year.  Deeds of trust convey ownership rights of mortgages and the ability to foreclose on them, and they are therefore a reliable indicator of foreclosure activity to come.  According to the Post, if only half of the filings become actual foreclosure cases, foreclosures could spike to 2007’s crisis levels. We have long predicted that home prices would eventually fall by at least 70% as debt deflation ran its course globally. This would imply that, despite the unprecedented drop in residential real estate values since 2007, residential values in the U.S. are only halfway to a bottom. Meanwhile, spotty signs of recovery in the housing market have caused the news media to hallucinate about the return of  good times, In Las Vegas, for one, home prices have fallen to levels so low that even real-estate pessimists would have to concede that there are great bargains to be had:  three-bedroom homes with swimming pools for $100,000, according to a friend of ours who lives in such a home herself. She paid $325,000 for it, though, and although Nevada’s underpriced housing will be a long-term plus for the local economy,

In yesterday’s commentary, we cited the punk performance of Apple shares in recent weeks as evidence that the stock market as a whole may have entered a bear market.  “Apple as a barometer? That’s a big stretch,” wrote a regular contributor to the Rick’s Picks forum. We disagree.  After all, Apple is the most valuable publicly traded company in the world – bigger, even, than Exxon Mobil. Given the extraordinarily high expectations that investors (and consumers) have for the company, even a small disappointment – a downtick in sales, perhaps -- could hold serious implications for Apple shares. That in turn could precipitate a major trauma on Wall Street, since so many portfolio managers owe their bonuses in recent years more to Apple’s steep rise than to any other factor. Investor sentiment aside, Apple’s continued success as a retailer is crucial to a segment of the economy that has been devastated by competition from the Internet. As brick-and-mortar stores have fallen one-by-one, Apple’s showrooms have thrived, with lines out the door whenever new products are released. Under the circumstances, the much-awaited iPhone5 had better be stellar in every way, since Samsung will be breathing down Apple’s neck with strong new products of its own. Nor are consumers likely to be impressed by merely incremental improvements. It takes a lot of Wow! factor to get them to pay up for Apple’s relatively pricey hardware.  They are going to be even more demanding as new pricing schemes being rolled out by the phone companies effectively reduce or eliminate the subsidy that has made many smart phones a giveaway item when tied to service contracts. Bear Still ‘Speculative’ From a technical standpoint, the presumption of a bear market in Apple shares is still speculative. Rallies have lacked their characteristic oomph in recent weeks,

Evidence continues to accumulate that the Mother of All Bear Rallies begun in March of 2009 may have breathed its last. Yesterday, for instance, the all-news-is-good-news shtick so beloved on Wall Street laid an egg when markets around the world shrugged following Greek voters’ decision to stick with the euro. Ordinarily, Asian and European markets wouldn’t even have waited to breathe a sigh of relief before putting a death-lock on the cahones of traders reckless enough to have gone home short over the weekend. What we got instead of the obligatory short-squeeze was feeble rallies around the world, culminating with a reversal on the NYSE Monday that left the Dow Industrials 25 points lower.  Worse yet, the news media quickly buried the story from Greece on the inside pages, focusing instead on how Spain’s borrowing costs have shot into the red zone above 7% once again. To put this in perspective, most hedge funds aren’t returning anything close to 7% these days. Imagine having to pay lenders that much just to cover fixed expenses. Another sign that stocks have returned to Kansas after more than three years in Oz is that bellwether Apple’s shares have looked punk ever since the stock hit an all-time high at $644 in mid-April. Minor rally cycles are failing to generate the kind of robust “impulse legs” on the intraday charts that we had become accustomed to. And the shares of another key bellwether, IBM, look just as heavy. Even If We Are Wrong... Are we perhaps premature in our bearishness? There’s always that possibility. We never claimed to have a crystal ball. But even if we’re wrong, Rick’s Picks will be looking to get short every chance we get, buying index put options at the targets of minor rallies, shorting the E-Mini futures outright

[The following was written a day before Greece's election. Although the outcome seems unlikely to live up to its cliffhanger billing, it'll be interesting to see how U.S. markets react when index futures begin to trade Sunday evening. Our guess is that the institutional provocateurs who control the markets will use the outcome, whatever it be, to short-squeeze the bejeezus out of stocks. If they do, you should be ready to sell this last-gasp bear rally short. Click here to join us as we attempt to pick the Summer of 2012's exact top. RA] As the weekend approached, the outcome of Sunday’s election in Greece was being touted by the news media as “a cliffhanger,” a “Lehman moment, and “too close to call.”  But does anyone actually believe the ultimate outcome is in doubt? The drumbeat reminds us of the sensationalized news coverage that froths up every time America’s do-nothing Congress approaches a budget deadline. Greeks have been rioting in the streets for the better part of a year, and so it seems likely that even if they vote to stay in the EU, they will struggle in vain to fulfill the terms of future bailouts. Under the circumstances, political sentiment will continue to shift left, ultimately giving the radical Syriza party effective control of the nation’s political and economic machinery. A Marxist takeover of a deadbeat nation that owes everyone would be bad news for Europe, but it is predictable that stock markets around the world will turn riotously bullish no matter what the outcome. Bad new is good news on Wall Street these days, and good news -- i.e., a vote on Sunday to retain the status quo -- would be even better. Our hunch is that even if a military junta were to seize control of Greece’s

[From his new headquarters in a fashionable district of Shanghai, our friend and frequent contributor Mario Cavolo, a communications consultant, recently surveyed the passing parade.  Bullish thoughts on the global economy ensued. For, who can doubt that the dawning Asian Century will help balance out the difficulties that seem likely to hobble the economies of the West? For an uplifting, long-term view with a global perspective, read his essay below. RA] Does it not occur to any pessimist that a massive region of the world is expanding, not contracting, and that this statistical fact portends well for the future demand of all "stuff" across the globe? While assuredly not discounting disturbing global financial and economic pressures, pessimists and permabears seem to relish discounting the powerful, upward expansionary forces across the global economy that also clearly exist. Here in Shanghai, I now sit in the new upper middle class mall called Kerry Parkside, where we have a marketing location for our various services. Forget the fact that prices are annoyingly high and that the mall is still packed on the weekends. Let's consider right now only of this part of the story which gives us a glimpse of the future: Observing every family that enters this mall, every woman I see is either with a baby/toddler in tote or pregnant. Did I say “every”? Apologies. Of course not, and I readily confess such an exaggeration. Yet it boggles my mind to note how many pregnant women and under-three-year-olds are here, appearing very much as the rule, not the exception. The same exact observation is easily made across China's twenty or so major urban centers, now totaling a population well over 300 million family dwellers. Ladies and gentlemen, embrace and gladly welcome the greatest baby boom in history, unprecedented in world history,

While Fitch’s was prudently downgrading 18 Spanish banks on Tuesday, U.S. stocks were thundering higher, recouping about two-thirds of Monday’s sharp losses. Wall Street’s irrational exuberance aside, news sources around the world seem to be catching on to the fact that rising share prices do not necessarily portend a solution to Europe’s deepening financial crisis. Our favorite headline of the day came from the London Globe and Daily Mail, atop a column written by one Michael Barad: Uh oh, Italy swears it doesn’t need a bailout.  Nothing like a little humor and a dab of cynicism to put things in proper perspective. Elsewhere in the news, even the usually "Ray-rah, economy!" front page of the Wall Street Journal seemed to have noticed that swelling yields for Spanish debt seem to call for an even bolder solution. Rates on the 10-year were at 6.72% Tuesday, up a steep 6.52% from the day before.  This is a euro-era record for Spanish paper, and it makes clear that investors are not willing to suspend their skepticism that a mere $125 billion loan can somehow tide things over for more than a day or two, if that long. In fact, this token sum has bought just a fleeting blip in share prices around the world – a blip powered almost entirely by short-covering bears, not by investors who actually believe Europe is getting a grip on its problems. Granted, that doesn’t explain Tuesday’s 163-point rally in the Dow Industrials two days after-the-fact. But even if the buying continues for another day or two, pushing the broad averages marginally higher, we’ll be looking to get short every good chance we get. Mainly, that will entail buying put options on the QQQs, a proxy for Nasdaq shares; or on SPY, an equity-based vehicle that tracks the

We speculated here yesterday that the latest eurobailout, a $125 billion package for Spain’s zombified banks, would prove too chintzy to ignite much of a celebration on Wall Street. As it turned out, that was putting it mildly. Once the OPM-mongering dolts who sent stocks soaring in Europe and Asia had finished jerking their knees, the party lasted for all of about 20 seconds in U.S. markets -- as much time as it took for the pros to fleece short-covering bears Sunday night with a vicious gap-up opening in the index futures. The Mini-Dow shot up the equivalent of 210 points on the first bar, putting a squeeze on bears that is likely to make them think twice about going home on a Friday with open positions. The 12715 peak was as high as the electronically traded Dow ever got in this run-up; moments later, it began a 407-plunge that continued until the closing bell. Yikes! Keep in mind that buyers covering short positions gone awry are arguably the best friends (other than a promiscuous central bank) that Wall Street has any more, since they are the only buyers left with a reason to bid up stocks aggressively. However, the roughing up they received on Monday will only add to their skittishness about betting the “Don’t Pass” line. At the very least, the 12700 area where they got sandbagged will impose a leaden layer of supply on any attempt DaBoyz make to goose the broad averages new highs. Using QQQs Puts to Get Short From a purely technical standpoint, however, we are not ready to write off the bull market entirely. Notice in the chart above that Sunday night’s head-fake followed a thrust that had already exceeded a key peak at 13137 recorded five years ago.  The rally was therefore

Another eurobailout, this time for Spain. Here’s how two politically useful idiots who cover business news for the Associated Press – Paul Wiseman and Peter Svensson -- saw it, abetted by the perfect quote from a third:  "This move will come as a relief to the Obama administration as it suggests that European leaders are finally beginning to take significant actions to ease the intensifying pressure on the euro zone's peripheral economies" such as Spain and Portugal,” said Eswar Prasad, professor of trade policy at Cornell University. Finally? Significant?  All three of these guys must have missed the news a few months ago that a trillion euros’ worth of  no-strings credit – about ten times the amount extended to Spain over the weekend – was put at the disposal of Europe’s commercial banks. But to do what?  Hey, let’s not be impertinent! Don’t ask, don’t tell has become the omerta of the global banking system and its news-media lackeys.  And anyway, it’s not the purposes to which such “money” will be put that we are supposed to think about – only that the “money” itself is there – in this case materialized, somehow, by 17 European countries most of which are themselves bankrupt. We’re not referring to just the PIIGS, either.  Has anyone taken a close look at France’s books lately? The Seattle Times headlined the story thus:  “Bailout for Spain’s Banks Buys Time for Europe”. That’s a gutsy way to slant the story on a Saturday night, considering that the world’s stock markets would be voting their confidence, or lack thereof, in less than 24 hours.  Suppose stocks open flat-to-down in Asia, and then Europe follows with a thud? There goes a hundred-and-twenty-five bil, as fleetingly impressive as a shower of white sparks on the Fourth of July.  Our