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July 13, 2020 | Stimulus Has Metamorphosed into a Mushroom Cloud

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.

Lord knows, I’ve tried to be extravagant with my rally targets, since I don’t want the permabear in me to queer profit opportunities just because the stock market has been rallying against every molecule of instinct I possess. But I could scarcely have imagined that when I put out a technically-derived rally target at 1803.69 Sunday night that lay 255 points above the stock’s previous close, that it would achieve this height the next day. As the chart shows, the forecast didn’t do too badly, since the stock topped Monday just four-tenths of a percent below the target before relapsing an exhilarating 300 points.  In my TSLA ‘tout’ (see below), I’d noted that an 1803 top might actually disappoint some investors who think in nice, round numbers. $1800 is so close to $2000, how can the stock possibly miss, right? But it may actually have done so, since the large number of bulls who got badly trapped whenTSLA plummeted from its fleeting highs now constitute huge, and perhaps increasingly desperate, supply. If TSLA is to exceed Monday’s peak, it will entail quite a struggle.

AAPL, the second biggest-cap stock in the world, performed with similarly reckless abandon, blowing away a seemingly ambitious target at 391.08 by nearly $9.  This would have put about $40 billion of fresh paper profits into the hands of those with sufficient daring to still be aboard. Much as we’d all like to think anyone holding onto TSLA and AAPL at these levels shares DNA with a hubcap, it’s hard to argue with the estimated $40 billion they made on paper.  Of course, they’ll have to sell the stock sooner or later to realize those gains, and they’d better not all try to do it at the same time.  It is nearly inevitable they will try, actually — almost as predictable as that the sun will rise in the east. No one can say when common sense will achieve the requisite black-hole mass, but there is every likelihood that the selling panic this causes will get just as overdone as the current, psychotic buying binge. For the record, I’ve forecast that AAPL will eventually trade for under $100.

Shock Wave, then a Firestorm

Although I did not comment here yesterday on the headlined, bullish letter from an investment advisor to a wealthy friend of mine, I think anyone trying to make a case that investors should stay in stocks at these heights is either lug-nut spawn, a Wall Street shill or a wealth manager with no compelling alternatives. I’m wondering whether even Wall Street’s #1 shill, Larry Kudlow, actually believes this rally. One should think it’s becoming increasingly difficult for Kudlow, the President or any of his economic cheerleaders to shamelessly assert, for the presumptive benefit of the herd, that the stock market’s psychotic behavior reflects an economy on the mend.  In fact, it seems clear that commerce, very broadly speaking, is headed into a second shutdown as the pandemic threatens to go out of control. If we could have foreseen this in April, a bet that Dow was headed to 10,000 or lower would have seemed reasonable. Instead, what has in fact occurred was beyond imagining at the time.  And what lies beyond imagining now?  That’s the question we should be pondering, since this mushroom cloud of stimulus cannot but be followed by a massive shock wave and a firestorm.

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July 13th, 2020

Posted In: Rick's Picks

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