If Anything Can Stop This Bull, It’s Obamacare

Spin control cannot conceal the fact that Obamacare is the worst policy disaster in U.S. history. For scores of millions of Americans, the hardship it has already inflicted on them is too acute to assuage, much less refute. It has put a choke hold on the economy the effects of which are being felt by virtually every business and household. That is why mere political debate must soon give way to more urgent measures that will effectively kill the law. If so, it can’t happen soon enough. Healthcare costs consume nearly 20% of the nation’s GDP and are a key concern of every employer. How long can businesses survive the ponderous uncertainties that Obamacare has placed on them?  How long can spending by America’s middle class continue to hold up if household incomes are being depleted by soaring insurance premiums and policies with five-figure deductibles?

Given the huge new tax represented by Obamacare and the chaos it has visited on businesses both small and large, it seems inconceivable that the economy will grow in 2014.  If a slowdown is coming, however, the prospect doesn’t appear to be troubling Wall Street’s tiny, fevered brain. Although the Dow Average got off to a horrendous start in 2014, dropping 1248 points in the first five weeks, two-thirds of that has been recouped in the last eight trading days. This was to be expected, since short-covering rallies are typically far more ferocious than those sustained by merely bullish buying.  But is this one sufficiently overdone that prudent bears should be thinking about getting short again?

A Timing Problem

The answer is yes, but with an important caveat. Although we’re convinced that any rally to new record highs is Mr. Market’s way of setting a trap that will ultimately inflict as much carnage on bulls as it already has on bears, it is dangerous to get too aggressively in its way. A particular problem with timing right now is that so many gurus and market-watchers seem to be expecting a nasty correction following a surge in the next few weeks to at least marginal new highs. Whatever happens, the majority cannot be right. So how do we position ourselves against the expectations of the herd?

There are a few possibilities.  One is that the Dow will fail to confirm last week’s Nasdaq rally to record highs and the one that seems likely to occur in the S&Ps this week. That would make the DJIA especially scary to short – but also a fetching opportunity for the contrarian with the guts to step in front of a speeding freight train. Another possibility is that the broad averages will get short-squeezed to much higher levels before the bear turns savage. If so, we can time our entry using the 17622 Dow target that I disseminated here earlier. Finally, there is the possibility that stocks will collapse from unspectacular new heights, even though ‘everyone’ expects it. If the stock market does none of these things, we will still have minor Hidden Pivot targets that we can try to leverage in either direction. This might be called the hair-trigger approach, and it is increasingly on display in the Rick’s Picks chat room, where the tempo of tradable ideas has picked up in recent weeks. Click here for a free opportunity to visit the room, which draws experienced traders from around the world.