October 2006

I'm in New York, attending to final arrangements for this weekend's Hidden Pivot seminar at the West Side 'Y' conference facility. I am also tanking up on sundry pleasures that will not be available on my return to Colorado -- great pizza and in-your-face tabloid newspapers, to name two. Cory Lidle's flaming death has been splashed across the front page of the New York Post, with the Yankee pitcher's photo on the left, a stock photo of a Cirrus SR20 airplane on the right, and the upper East Side high rise that he and his instructor crashed into ablaze in the middle. On the inside pages, there are at least a half-dozen sidebars to arouse mourning Yankees fans to a dervish-like pitch, but also to send the ace reliever out in true Bronx Bomber style. For most local papers, coverage of such a tragedy would deplete the resources of both the sports and city desks. For Rupert Murdoch's Post, though, Lidle's spectacular swan song was just a warm-up. And that's too bad for Madonna, as well as a dozen other celebrities who were grist for Thursday's gossip mill. 'Shameless Star Buys an African Souvenir' was a Post columnist's take on the Kabala Diva's adoption the other day of a one-year-old African boy: 'No word ' yet ' on whether Madonna plans to nail her brand new bouncing boy to a crucifix, live, in concert,' wrote the Post's Andrea Peyser. 'Madonna, the sluttish , egomaniacal mother-of-the-century has topped even her most revolting self. She plans to remove a baby from the loving arms of his dirt-poor father, in one of the most desperate nations on earth [Malawi]. Madonna has traveled far beyond her bra-baring, intercourse-simulating, public girl-kissing, Jesus-emulating loser antics to grab attention ' and flesh.' (Click on image to enlarge)

The outlook for Gold is a pressing concern in the Rick's Picks chat room on most days. Indeed, if bullion prices move merely a few dollars either way, I'm likely to be asked whether my outlook has changed significantly. Take yesterday, for instance. The December Comex contract was in the throes of a $10 rally, seemingly bucking my prediction in the day's commentary that gold would continue to move more or less in tandem with oil. But with oil down and gold up around mid-morning, did this mean the two had un-coupled? In a word, no. I still think that lower crude oil price over the near term are going to pull the POG down, notwithstanding occasional periods when these two commodities will appear to be going their separate ways. (In fact, gold got back in step with oil by day's end, giving up most of the gains from earlier in the session.) Readers will already know that I have flagged a Hidden Pivot target at $513 as my minimum downside objective for the December contract. That's a little more than 10 percent below current levels, and I estimate that the target has about a 75 percent chance of being achieved. Could I be wrong? Of course I could. But even if so, we would not necessarily miss much of the next big rally, provided I am able to see it coming. (Click on chart to enlarge) The 'Bull-o-Meter' The chart above shows exactly how subtle a turn it would take to register on my 'bull-o-meter'. Read the comments below before you peruse the chart. For me, at least, the coldly objective criteria I use to determine which way the wind is blowing provides a worry-free outlook not just on gold, but on the entire precious metals complex, as well

As mentioned here earlier, a 589.60 print is all it would take to jump start gold. So far, though, the December contract has acted like that's a leap to the moon. Far from it, in fact. The futures actually got as high as 585.50 early Tuesday morning, close enough to our bull trigger price that just a little nudge from the oil patch probably would have done the trick. Alas, oil weakened in the wee hours, putting the kibosh on any attempt gold bulls might have made to mount even a modest rally. Oil and gold are now joined at the hip, with swings in the price of crude determining the direction of gold rather than the other way around. That may change someday, but it is scary to imagine what might bring it about. The implication is that financial jitters at that point would have come to outweigh whatever fears we have about $100+ crude. It seems likely that a serious disruption in the flow of oil right now would have a significantly greater impact on oil prices than on gold. How much is hard to say, but imagine how global markets might react if a missile were to scuttle a tanker in the Persian Gulf. While the price of oil might rise by 50% in a matter of weeks, it's doubtful that the POG would receive as big a jolt. Big-picture worries aside, is there anything to suggest that the price of oil, and therefore gold, is near a bottom? A pair of Hidden Pivot supports in November Crude may hold a useful clue: The first lies at 58.51, and although it's been breached by 16 cents, that's not quite enough for us to write off the support entirely. If it is exceeded today by just a few

Seismographs and satellite cameras may have registered the force of Sunday's nuclear explosion in North Korea, but it barely caused a ripple on the world's stock exchanges. U.S. shares were narrowly mixed, while Asian stocks barely budged. South Korea's Kospi index suffered the biggest loss of all, but it was only 2.4%. Perhaps the further a bourse from Seoul's ground zero, the less affected it was by the news? Meanwhile, gold, once considered a sensitive indicator of global jitters, was down a little more than $2 on the day. Does that mean it no longer works as a barometer of geopolitical tensions? Not necessarily. My guess is that it gold is as sensitive as ever; it is the geopolitical nervous system that has grown numb, almost to the point of deadness, over the years. There was a time when precious-metal traders could make a good living staying on top of the news, especially bulletins that crossed the tape in the middle of Wall Street's night. If you were up at 3 a.m. when, say, Soviet tanks rolled into some Eastern bloc country, you could have made a pile of dough betting that the price of gold would shoot up momentarily, then keep on rising for the rest of the day. These days, even a nuclear explosion can no longer be relied on to push precious-metals quotes higher. Would it perhaps have to occur above an urban center to rattle investors? On the evidence, they seem to have become inured to anything less, like third-generation New Yorkers who have had the startle reaction bred out of them. *** Free Hidden Pivot Calculator The Hidden Pivot seminar in New York City is sold out, but there are still some seats left at the three others that are planned: Vancouver (October 28-29); San

So much for my prediction here yesterday that bulls would celebrate the release of payroll figures on Friday no matter how many new jobs were alleged to have been added to the U.S. economy. As it happened, the number fell well shy of estimates ' 51,000 new non-farm jobs versus an expected 125,000. Ordinarily we might have expected such a big shortfall to send stocks soaring, since weak employment figures tend to make the usual bunch of idiots salivate over the prospect of more Fed easing. Perhaps this scenario has become too pat to work? In any event, stocks struggled all day to say above water, finally closing moderately lower on the day. The Rick's Picks chart room was abuzz with rumors all the while, including some deep-throat stuff concerning a couple of our favorite gold stocks. Subscribers can access the discussion thread which identifies these stocks simply by clicking on the 'Chat' button at the bottom of the main page. The source of much of this hearsay is a chat-room denizen who seems to have more connections to the world of financial and geopolitical intrigue than Knights Templar insiders in The DaVinci Code. A GM Bankruptcy? One decidedly non-insider piece of news that may have weighed on stocks Friday was Kirk Kerkorian's announcement that he won't be buying any more GM shares. In the chat room this catalyzed speculation that he might be fixing to bail out entirely, pending GM's supposedly imminent declaration of bankruptcy. If so, it sounds like the kind of news that would drive stocks wildly higher, since even the most spectacular corporate disasters these days - think Amaranth -- seemed to be perceived on Wall Street as little more than a salubrious cleansing of the air. A GM bankruptcy is something I have long expected -- with our

Payroll figures will be out today, but we should expect stock market bulls to run with them no matter what they show. Wall Street is expecting a Commerce Department report due out this morning to say that 125,000 jobs were added to the economy in September, slightly more than in August. But if stocks continue to climb today as they've been doing on most days since mid-July, expect the jobs data to be spun as the best of all possible worlds regardless of the actual number. If the figure comes in at 125,000 as expected, it will be bullishly interpreted as confirming that the economy is holding steady. If the number turns out to be somewhat higher than expected ' say, 150,000 new jobs ' it will be seen as evidence that the economy is stronger than some may have thought, though not quite so strong that the Fed will need to initiate another round of tightening. And if the number is below estimates shorts are going to be scrambling for cover, since any such sign of weakness will prompt speculation that perhaps more easing is needed. Whatever the news, it is the tail that will continue to wag the dog, since the cyclical forces that have been driving stocks higher for more than three months seem far too strong to admit any doubts. The best evidence of this is investors' apparent ability to shrug off the Amaranth trading disaster as though it were no big deal. In fact, the dollar amount that the firm lost making bullish bets on natural gas dwarfs the Long Term Capital Management debacle, which, you may recall, threatened to take down the entire financial system in 1998. More to the point, Amaranth's demise may be catalyzing the rally in stocks and bonds by freeing

The silliness has quite a ways to go before our DJIA target at 13045 is reached, but yesterday's show of exuberance will surely have earned the bulls the benefit of the doubt, if not the heart-felt respect of bears, for the time being. By way of earlier Rick's Picks recommendations, we'd been riding call options in two high-beta performers ' Merrill Lynch and Citigroup ' but yesterday seemed like a good time to take some profits. In the case of MER, we exited the last of our position in October 80 calls outright, intending to jump back in on a pullback. This was not to be, however, since the stock's biggest pullback of the day was just 57 cents ' barely enough to cause the call options to soften much. In fact, calls were so hard to buy on the bid intraday that it seems obvious in retrospect that the market was destined to move higher. In Citi, we were long December 50 calls coming in but used the rally to turn the position into a calendar spread, shorting October 50 calls 1:1. We did so when the calls were trading 50 cents above the previous day's close, but they went still higher, peaking at 1.50 before settling at 1.45. The adjustment to our position will lock in the December 50 'October 50 call calendar spread for 0.80, at which price it will be very hard for us to lose. The adjustment also implicitly erases earlier losses we had imputed to our December 50 calls, which we carried at 2.10. When we shorted the October calls against them yesterday, we were not exactly shooting in the dark, since the sale was predicated on a rally in the underlying stock precisely to a hidden Pivot target at 50.95. As it happened,

Skepticism continues to be our most potent defense these days against losing our shirts in the precious metals sector. That, and more than the usual amount of caution, since Gold's worst correction in many a year shows no sign of ending. How else to trade an asset class that in mere weeks could be down a further 15 percent -- or up 25 percent, for that matter? (Click on chart to enlarge) Using the December Comex contract, we earlier identified downside risk over the near-term to as low as $513, an important Hidden Pivot support. But suppose we are flat-out wrong and bullion is about to complete a double-bottom launching pad near $546, equal to an important low recorded last June, or perhaps even more imminently near another support at $576? Is it possible to be prepared for either scenario ' fly or die ' and to profit no matter which pans out? The answer is a qualified yes, but only if we go about it with as much discipline and caution as we can bring to the game. Bottom-less Yesterday, for instance, some chat-room denizens went bottom-fishing in Newmont Mining, using a worst-case downside target of 41.17 that had been highlighted in the Current Touts section of Rick's Picks. The stock would have needed to fall by at least $2.02 yesterday to bring NEM down to our level. As it happened, Newmont plummeted from the opening bell, eventually falling almost precisely to the pivot. There, the stock noodled around for a while -- about half an hour -- before the floor gave way, sending it still lower, to an intraday bottom at 40.86. Judging from the play-by-play discussion in the chat room that accompanied Newmont's dive, traders who used the 41.17 pivot as a place to nibble didn't stick

The chat room at Rick's Picks continues to be a great place to hang out for anyone wanting to keep close tabs on bullion and precious-metal shares intraday, or to manage the risk in either. Consider the following snippet, reproduced almost exactly as it appeared on the Web site. (Note: All names have been changed for reasons of privacy.) The dialogue was posted to the chat room shortly after 11 a.m. Eastern. Gold was trading slightly north of $601, having fallen sharply from an opening that ranged as high as $607.50: (Click on either image to enlarge) Now check out the chart: An Australian in the room, trading at the bedtime end of his day, announced that he was filled at 599.60, using a stop-loss at 599.10 (!) -- so tight that an outside observer might have chastised him for breaking a conventional rule: 'Give yourself some room!' But in this case, the microscopic, 50-cent stop-loss proved to be more than enough, since the actual low was just 10 cents (one tick) below where the Oz trader said he'd gotten in. He announced that he was raising his stop-loss to break-even when Gold started to move higher, and then he and another trader posted that they had exited intraday, presumably with a profit. A third trader said he had been short the December Gold futures but covered and went long three contracts at the very bottom. 'I will tell everyone I know who trades,' he promised. Some Caveats Of course, these apparent successes offer no guarantee that things will go anywhere near as well for Rick's Picks chat-room traders in the future. And no matter how accurate the forecasts, there will always be substantial risk connected with trading futures contracts and other vehicles under discussion, including stocks, options and indexes. To be