-- Posted Thursday, 24 January 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, January 24, 2008
“Phenomenally accurate forecasts”
Could that deafening smacking sound be the lips of a million traders waxing ecstatic over the prospect of shorting into this rally? Three words of advice: Be very careful. Like you, we would absolutely love to get short somewhere near these levels, since it seems beyond argument that the rally, powerful as it has been, is a short-squeeze destined to end badly for buyers. But that doesn’t necessarily mean the illusion cannot continue for long enough to ravage every last bear before the inevitable downturn comes. We warned of this in our trade analysis yesterday of the E-mini S&P futures, writing as follows: “[Tuesday’s] deftly manipulated short-squeeze had ‘fraud’ written all over it, but that doesn't necessarily mean the rally can't mutate insidiously into the real thing if other bears become as cocksure as we are that stocks aren't going much higher.”
The sort of mutation we had feared took a Frankenrally turn yesterday when stocks exploded higher in the final hour. They’d been noodling around for most of the day after testing the previous day’s abysmal lows around mid-session. But few could have been prepared for what happened next: The clock struck three at the NYSE, and bears evidently freaked at the realization that, with just 60 minutes left in the day, stocks were showing no propensity to give up their ill-gotten gains. The panic hit full-bore within minutes, pushing the Dow Industrials 360 points higher in just under an hour. Measuring from the intraday low, the gain was 631 points. Not bad for a stock market staring into the maw of what promises to be the most severe recession since 1973.
Citi Is Toast
For our part, we were keen to short the shares of Citi as it made its way higher yesterday against a morning tide of selling. Our upside target was 26.85, and Citi would have needed to rally $2.85 to get there. This seemed unlikely with the Dow off 100 points and Citi up a mere $1.00. But when the end-of-day short-covering mania kicked in, Citi, along with other financials and some homebuilders, led the charge, peaking at 26.90, a nickel above our target, before dropping back to a low of 26.28 in the final seconds. (The stock went even lower in night trading, hitting 25.50 on what looked like pre-arranged trades between the sleaze buckets who operate in the after-hours.)
Was 26.90 the top? We’d like to think so, since it came so close to our Hidden Pivot target. But we should never underestimate the irrational power of a short-squeeze and the ability of a doomed stock like Citi to run up 25%-35% in just a few days. It is only when the very last, die-hard bear finally covers, removing the final mote of buying power, that a squeeze finally ends. Anyone who would deign to pick the top of this short-squeeze should do so only when it is evident that no bear could have survived. If you have held a short position this week and are still short yourself, then the rally probably has further to go.
***
Seminar Filling Up
The Hidden Pivot seminar scheduled for February 9-10 is already half-full, so if you’re planning to attend, we’d suggest registering soon. Click here for a $50 discount and instructions for signing up. The class will be held on Saturday/Sunday from 9:00 a.m. to 12:30 p.m. Mountain Time. If you want to learn how to forecast stocks and commodities as confidently and precisely as top pros, this is an opportunity you should not pass up.
***
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 © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 24 January 2008 | Digg This Article | Source: GoldSeek.com
