Rick's Picks
Monday, October 18, 2004
For investors who'd rather be smart than lucky
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If You Snooze,
You…Win?
Like the vast majority of equity puts and calls that have expired in the last ten months, the October options went to their grave asphyxiated by tedium. Such are the dubious pleasures of covered writers, who thrive on the sort of boredom that can make holding U.S. savings bonds seem like a romp in the trading pits by comparison. Option-premium sellers have been the big winners month after month during the Snoozefest of 2004, even as sellers of more mundane things such as toilet paper, thumb tacks, shoelaces, shaving cream and computer hard drives have been fighting for their lives to match their competitors discount-for-discount.
It was in January that the stock market went trendless following a steep bear rally begun nine months earlier. Or at least, we assume it was a bear rally, since anecdotal evidence strongly suggests that the economy never really recovered - except statistically, perhaps -- from the last, allegedly mild recession. Ever since, the presumptive top-building process has been looking more like it will eventually be the equal of the epochal bull market that went before it. But skeptical as we once were that election year-hubris and the easy-credit policies we expect from an incumbency would do the trick, it appears that they actually have, sustaining a kind of low-grade fever on Wall Street that has kept the bear at bay.
To be sure, the stock market's performance of late is not going to fatten the bonus checks of the Street's best and brightest. But it had the virtue, at least, of lowering the bar to ankle-level so that these erstwhile Masters of the Universe finally had a decent shot at beating the indexes in an up year. But will we beat them? In fact we have - handily and notwithstanding my costly reluctance to have you bail out of some gold stocks in April before they shed half of their value. I know now, if I didn't then, that when I am tracking upwards of 30 gold stocks and holding positions in nearly two dozen of them, I am simply incapable of putting out the kind of "SELL EVERYTHING!!!!!" bulletin on which legends are built in the world of guru-dom.
As far as I'm concerned, a little profit-taking now and then will keep us out of trouble and make the experience of winning not so much routine as boring. That's the way it should be as we tread gingerly on the groaning trestle that somehow still supports Mr. Greenspan's dubious edifice. When it finally fails, as it must, the damage will mount faster, probably, than any of us could now imagine. Those who hold put options at the time will finally have their day. But probably not much more than that. After waiting months or even years for the Big One, no serious student of the stock market could believe that there will be time enough to savor it.
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Pessimists, Take Note…
DOW INDUSTRIALS (9933.38)
My minimum downside target for the near-term is still 9757.51, but the long-term picture is more interesting. I've included a monthly chart (above) that puts what many of us have assumed is a massive top in perspective. But can we be sure it's a top? If so, I cannot recall a pattern such as this one, in a chart of any degree, leading to an outright collapse. Perhaps a technically savvy reader, or perhaps a market historian, would be so kind as to enlighten me on this point?
From a hidden-pivot perspective, there is an even more difficult fact for the would-be pessimist to explain away -- namely, what about the bullish impulse leg that was formed when the rally begun in March surpassed the 10673 peak made almost exactly a year earlier? This created an impulse leg of grand magnitude, since, in accordance with my rules, it surpassed two prior discrete (i.e., single-bar) peaks on the monthly chart. Printing the chart upside down and reversing it proved somewhat helpful, since, from that perspective, the chart looked pretty bullish, as though the Dow were carving out a violent bottom with the potential to send it flying one day. If true, the mirror image holds the real truth: big trouble ahead, though not necessarily imminently.
Again, to my eye, what comes across most clearly in the reversed, upside-down chart is that a big decline -- which is to say, a big rally -- is extremely unlikely. See if you don't agree: Print out the chart, flip the page and hold it up to the light so that you can judge for yourself.
NYBOT Dollar Index (87.12)
For the second consecutive week, the dollar index has seriously abused the hidden-pivot support at 87.50 that I'd flagged, raising the odds that a big decline lies in the offing to at least 82.72. Friday's low even managed to take out a key low at 87.00 that was recorded in July -- a conventionally bearish sign that few chartists will have failed to notice. Gold bugs should regard this as promising news, although it's difficult to imagine who other than the Japanese and Chinese will be big losers.
December Comex Gold (420.20)
Gold didn't linger for long at recent lows so there will be relatively fewer profit-takers to impede its further progress this week. Recent price action has generated a chart pattern that I find very difficult to read, but my hunch is that once the futures have closed above the recent top at 426.00, they'll be a shoe-in to achieve a minimum 430.70 (a hidden pivot). Anyone who attempted to short 422.60 Friday as advised would have been stopped out for a loss of no more than four ticks. The fact that the upside target was slightly breached is yet another sign that the rally has further to go.
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Rick Ackerman
October 18, 2004
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com
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