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March 25, 2018 | Wall Street’s Worst Nightmare: Bears (Finally) Keeping their Cool

Rick Ackerman

Rick Ackerman is the editor of Rick’s Picks, an online service geared to traders of stocks, options, index futures and commodities. His detailed trading strategies have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders. Barron’s once labeled him an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. His professional background includes 12 years as a market maker in the pits of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader.

If DaBoyz were going to reverse the blood-dimmed tide last week, it was most likely to have occurred in the final hour on Friday, when bears typically grow antsy about taking short positions over the weekend. Short-covering, as we know, is by far the most potent and dynamic source of buying power — not only in bull markets, but in bear markets as well. Rooted in panic, short-covering is the only source of buying strong enough to push stocks through heavy layers of supply and to new record highs. In comparison, the steady flow of institutional money into a bull market is a relative trickle — supportive of stocks, but insufficient to spike them to unaccustomed new levels.

Alas, the broad averages ended last week only ticks off their lows, unable to summon even a weak flurry of short-covering to save face. As such, stocks will confront the same problem they did last Sunday when index futures opened for trading: i.e., a dearth of good news.  Still worse for investors is that the single kind of news they have been forced to care about — i.e., mostly-meaningless blather from the Fed — laid an egg Wednesday with a well-discounted announcement about tightening that literally no one bought into.

Dollar’s Role in Triggering a Bear Market

It’ll be a while before we hear anything more from the Fed, and ordinarily we might expect shares to drift trendlessly for the next few weeks.  The trouble is, the broad averages have not been drifting lately; rather, they have been falling hard and threatening to gain momentum. That is my expectation, and I have precisely qualified it with a 22,544 (or alternatively 22,822) Dow target that lies 989 points below.  The selloff could steepen, as I noted here earlier, if the dollar starts to rally strongly.  That could signal a sea change in institutional mindset: one that would make the possibilityy.

 

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March 25th, 2018

Posted In: Rick's Picks

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