September 2008

Will the expected passage of a bailout package suffice to push Citi up to the nearest important Hidden Pivot resistance, a midpoint at 22.96 (shown in the inset)? If so, we should be ready to intercept the craziness by shorting there, using November 20 puts (or the 15s for more leverage, assuming they are not priced too far above the 0.21 fair value that would obtain with the underlying shares trading at the target).

There are two promising benchmarks to monitor that can tell us how much thrust short-covering will be able to provide in the wake of a Congressional rescue vote. The first lies at 1257.75, a Hidden Pivot broached here previously that should serve as a minimum upside objective over the near term, as well as place to try shorting with a stop-loss as tight as 1.50 points. The second, its 'D' sibling at 1335.25, seems farfetched given the nation's apparent lack of enthusiasm for a taxpayer-dependent bailout. However, we should save some ammo to buy more puts in the unlikely event that we are given the opportunity to do so with the futures at the higher pivot. _______ UPDATE: The thrashing the futures received Sunday night left the bullish targets given above theoretically intact, since the 1180.25 point 'C' low used as derive the target survived. However, if the E-Mini S&P should succumb to a few more days of adversity and indecision, we should use a Hidden Pivot support at 1167.25 as our minimum downside objective. It comes from the point 'A' high at 1218.75 recorded on Friday. _______ FURTHER UPDATE: A new target of 1137.25 has been posted in the chat room, but now that we've gotten a sense of investors' feelings about the alleged resuce package, no target below these levels, no matter how extreme, should be regarded as implausible. The ease with which these targets are penetrated can tell us how likely it is that the downtrend will continue.

I've stipulated that December Gold close for two consecutive days above a midpoint pivot at 921.60 before the futures would become an odds-on bet to reach the 'D' sibling of that resistance at 1014.70. A caveat is warranted here, since, as you can see in the accompanying chart, the rally that we are calling an impulse thrust missed taking out a look-to-the-left peak that should have egged on the rally rather than repel it.

The easy ability of the futures to tread water above a Hidden Pivot midpoint at 13.040 suggests they are marking time for a fresh thrust to at least 14.355, a Hidden Pivot target broached here earlier; or to 14.990 if any higher. However, it is the 15.230 peak recorded on August 14 that will separate merely promising rallies from that which promises to reverse the bear trend that has prevailed since mid-March.

The recent two-day plunge created a commanding impulse leg on the daily chart by surpassing three prior lows, two of them external. By monitoring the next down-leg, we should be able to tell whether this weakness will mark the end of the rally begun in March or merely correct it. If the bull trend is still intact, the correction should go no further than the CD midpoint. The dotted line in the accompanying chart shows how such a hypothetical pattern might play out. _______ UPDATE: See my Intraday Note concerning "All-Out War on Gold".

A pattern identical to the one flagged in the E-Mini S&P projects to 11322, a Hidden Pivot midpoint associated with a final target of 11893. Shorting the lower number looks like an enticing play and could be done with a stop-loss as tight as 7-10 points. _______ UPDATE: The futures never got any higher than 11199, mooting our lust for the short.

Assuming last week's high at 110.45 remains intact, the futures should grope their way down to at least 95.30, a midpoint support, before finding traction. If that pivot is breached, however, it could spell more weakness down to as low as 80.15 over the next 3-4 weeks. ________ UPDATE: Oil's $15 slide has brought it to within pennies of the 95.30 target given above. If it fails to hold here, look for at least $5 more downside over the near term.

Before going into last week's slide, the Gold Bugs Index cleared a late August peak to create a fresh impulse leg on the hourly chart. This suggested that HUI was headed to at least 372.75, a Hidden Pivot target that lies 13 points above the so-far recovery high, 359.79. There were no clear markers to use for bottom-fishing on this correction,, although the right-most portion of it pointed to a potentially tradable low at either 326.83; or if any lower, 316.18.

Like Citigroup, Merrill's next short-squeeze should be expected to sputter out at the Hidden Pivot midpoint of the ABC rally begun from 16.28 on September 16. The actual resistance lies at 31.81, and I'll therefore suggest getting short very near that price using November 30 puts and a tight stop-loss that's suited to your temperament. Although I doubt the stock has the wattage to push up to 38.80, the next Hidden Pivot above 31.81, we should plan on shorting even more aggressively there if the opportunity should arise. _______ UPDATE: The fat pitch we were looking for failed to materialize, and MER shares are instead getting slaughtered today. We'll set aside our put bid for now, recognizing that a juicy shorting opportunity has become very unlikely in the current flux of uncertainties.