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A Billion Dollar Game of Texas Hold 'Em

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The last seven weeks have been a billion-dollar game of Texas Hold "˜Em high stakes poker.

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Bobby: "Yeah, now all you have to do is hold the chicken, bring me the toast, give me a check for the chicken salad sandwich, and you haven't broken any rules."
Waitress: "You want me to hold the chicken, huh?"
Bobby: "I want you to hold it between your knees."
--Jack Nicholson in Five Easy Pieces


The poker player knows that somewhere both science and common sense are wrong: that the bumblebee can fly; that, perhaps, we should never trust an expert; that there are more things on heaven and earth than are dreamt of by those with an academic bent.
-David Mamet



I got a call from Boo after Wednesday's rebound. "Did you ever feel like the world was a tuxedo and you were a pair of brown shoes?" he said.

To be sure, the bears were all dressed up with nowhere to go by Wednesday's close.

Be that as it may, July has been frustrating and nail-biting for the bulls as well. There has been a lack of follow-through on each new swing for the last seven weeks with the S&P flopping around like a fish out of water.

There have been five difficult swings to navigate since the June 1 intraday high on the S&P at 1540.55.


Click to enlarge.


The action has carved out triple tops near this 1540 level. However the fourth time through on any tradable almost always leads to a directional bias– at least for a while. In other words, price may extend but the duration of the move is less predictable.

The last seven weeks have been a billion-dollar game of Texas Hold 'Em high stakes poker. We had the "Flop" at the end of June as the S&P broke its 50 day moving average on subprime slime. We had the "Turn" back up on Wednesday as the S&P recovered Tuesday's break of the 50 dma yet once again. Now comes the "River" card. It's do or die. There are no more smoke and mirrors.

Why?

On Wednesday the S&P made three attempts to recapture the 1520 pivot, the breakdown point from Tuesday. A ten minute chart and hourly chart of the S&P show the three moves up to this 1520/1521 pivot (which is thirty-nine squared). "It's all in."


Click to enlarge.



Click to enlarge.


The pivot is 1520/1521 which coincides with the breakdown from support on Tuesday. Was Tuesday's action (A) a bluff? If 1521 is recaptured it opens the bet for a new high.

Was Wednesday a pause day before a continuation of Tuesday's carnage? Will Hoofy "Do Dallas" as the S&P "Calls" 1520 on its way up to a win over 1540 causing Boo to exclaim "Houston, we have a problem here".

The die should be cast today. Whether a new high is dealt or not, it does not change the cyclical set-up spelled out in this space.

In fact, an incremental new high of one to two percent would be a picture-perfect mirror image of the undercut in October 2002 of the July 2002 low. This would serve to flush out the last of the shorts and allow the smart money to trade short with the shorts.

With bonds and equities de-linking over the last few days it's been hard to read the dealer's poker face. Be that as it may I would not discount Boo's wherewithal to draw to an inside straight should a new high occur.
No positions in stocks mentioned.

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