Wednesday, October 15, 2008

The futures eased lower after the regular session, but buyers galloped to the rescue shortly before midnight, putting a so-far mild squeeze on shorts. The rally would become impulsive on the hourly chart with a 1023.25 print, which would also invalidate all of the downside targets given here earlier: 969.75, 962.75, 951.00, and 918.75. Night owls could try getting long on a "hidden breakout" at 1012.00. I am introducing this term to describe a thrust that takes out two prior peaks (or lows) without surpassing a more obvious one. In this case, the obscure peak-let we are using to signal the breakout is visible on the 3-minute chart and occurred on the way down Tuesday at 1:48 p.m. It is shown in the accompanying chart. _______ UPDATE: Still nuttier than a fruitcake, the futures dove overnight after wafting no higher than 1008.50. They seem to understand what the pundits do not -- i.e., that this morning's devastating retail numbers actually mean something, whereas the alleged bank-system "rescue" does not. If you want predictability in this vehicle, I'd suggest hunkering down on the 3-minute chart and pretending your babysitting it. The very slight breach, at 9:42 a.m., of a midpoint support at 969.75 hints of more downside today to as low as 928.25. This ugly scenario would be invalidated, however, by a rally that exceeds 1011.50, the point 'C' of the pattern. _______ FURTHER UPDATE The futures fell 40 points, bottoming so far at 926.25 -- two points from where predicted. They are currently at 944.75, a tradable 18 points off the low. (Note to pivoteers: The Sept 18-19 rally provides a well-settled B-C pairing for calculating downside targets. You need only work backward on the daily chart to find successive points 'A' as each new 'D' is obliterated. Right now,

The December contract has been skating on thin ice, picking up support from multiple bottoms made over the last month between 820 and 830. This has not invalidated a by-now ancient rally target at 1014.70, but it wouldn't take much -- i.e., a dip below 822.50 -- to do the job. To turn the intraday charts speculatively bullish today would require nothing less than a thrust exceeding 906.90. Otherwise, the 806.50 target given here yesterday still looks like the best place to put in a stink bid.

If Citi can close above 20.48 for two straight days, I'd infer it's capable of getting to at least 23.61 in this manic burst. That would represent a near-doubling of the stock's price since it bottomed last Friday. Let's try to cautiously leg on a calendar spread, bidding 0.57 for eight December 25 calls (CLE), good on the opening only. If the order doesn't fill, lower the bid to 0.41 and leave it in for the rest of the day. UPDATE: Our bid on the opening allowed us to participate in the wholesale rape of retail customers who'd placed orders to sell at-the-market. We are the proud owners of eight December 25 calls for 0.43, the so-far low of the day. Now let's try to reduce our cost basis, offering four October 20 calls (CJD) short for 0.39, day order.

We could try bottom-fishing on a pullback to 25.73, but GDX is not likely to be so obliging. My suggestion is to tune to the chat room, since there are other ways to get aboard, including buying a bullish breakout before it is noticed by chartists who use other methods. Call options in this vehicle are in the stratosphere, so I would caution against simply jumping on them at random. ______ UPDATE: GDX has gotten whacked for nearly 8% today and looks primed to fall to at least 24.74 over the near term. We should be ready to attempt tightly stopped bottom-fishing if and when it gets there. My worst-case forecast for the next 3-5 days is 21.93.