Rick’s Picks

Wednesday, August 15, 2007

“Phenomenally accurate forecasts”

More signs that we’ve entered a bear market: The downdrafts are growing increasingly predictable, and the swoons no longer give way to quick, complete recoveries. By “predictable,” we don’t mean to imply that one can now short stocks on the close and sleep like a baby, for one cannot. Indeed, since no one knows what will occur on the opening bell, to act as though you do is to subject yourself to open-ended risk. However, we have observed recently that once stocks get a mind to move lower, they move with a relatively high degree of fidelity to our Hidden Pivot targets.

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The same has always held true when stocks were thrusting in bull markets. The more powerful the bull trend, the easier it was to forecast short- and intermediate-term highs precisely. It’s been a long time, though, since we’ve seen stocks trace out price patterns typical of bear markets. What types of patterns? Using the ABCD pattern that provides the basis for Hidden Pivot analysis, they are patterns in which the C-D “follow-through” legs typically fail to reach their ‘D” targets. That is no longer the case, however, and individual stocks are not only reaching their ‘D’ targets, they are in many instances exceeding them.

Riding Bear Rallies

“Knowing” where the turns are most likely to occur can help us catch powerful bear-market rallies from their inception. And because quite often we are able to predict the turns with a high level of accuracy, we can use very tight stop-losses to limit our risk. It is another trick, however, to attempt trading with the trend, since, in a bear market, that implies shorting correction highs. Such highs tend to be more elusive than downside targets, reason being that “everyone” is trying to find a good place to get short in a bear market. The competition breeds deviousness in stocks, if you accept the premise that stocks always move in such a way as to thwart easy opportunity.

As this bear market unfolds, we expect the breathtaking volatility of the last few weeks to be eclipsed by even more-astounding price action. One reason for this is that the NYSE has done away with the “downtick rule” that prevented bears from shorting stocks when they were falling. Now, one can short stocks on downticks as well as upticks, and that freedom is likely to embolden short sellers in ways that should cause bear rallies to be more spectacular than any that have ever occurred in the past. It will also put the Plunge Protection Team to the test, since the “uptick rule” was one way in which the powers that be conspired to make the market do the bidding of optimists rather than pessimists (i.e. those nasty short-sellers). With the uptick rule out of the way, it is not inconceivable that concerted sellers both short and long might one day rout even the Plunge Protection Team and its prodigiously deep-pocketed friend, the U.S. Government.

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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 i ss ues 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 unle ss expre ss written permi ss ion has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com