Monday, November 10, 2008

The chart shows why, since October 27, our short-term outlook has been faintly bullish. On that day, the futures signaled a push up to at least 776.40; in fact, they bullishly over-achieved by hitting 778.30. They also surpassed a minor look-to-the-left peak at that time, hinting of more upside to come. However, what has occurred since is not the rally leg we might have anticipated, but an agitated scuddle sideways. Now, from a Hidden Pivot standpoint the futures must either rally to 788.40, a target broached here earlier, or they must fall to the 628.10 target billboarded in today's commentary. For the bullish scenario to play out, we'd first need to see a two-day close above 749.30, a midpoint resistance discernible on the lesser charts that began with the 722.50 low recorded on November 3.

A midpoint support at 9.850 is my minimum downside projection for the near term, but it's useless for bottom-fishing because it coincides with a presumably supportive low created by last Thursday's downdraft. If it's breached on a closing basis, that would probably spell more weakness to at least 9.410. Alternatively, there is upside potential over the near term to as high as 11.330, a Hidden Pivot, if the futures can break free of its sibling midpoint, 10.265.

We hold four December 36 calls (QQQLJ) for 0.75, but the November 36 calls we were trying to short against them barely budged in the face of Friday's moderately strong short-squeeze. It'll take another just as strong to get us filled, so let's leave the order in just in case, offering four November 36 calls (QQQKJ) short for 0.20, day order. If you're working this one keep your bulletin launcher switched on, since I might have to adjust the price intraday. Immediate upside potential is to 32.98, a midpoint Hidden Pivot. _______ UPDATE: We closed out the position on the opening, since the option markets were not "buying" the feeble, phony short-squeeze that began the day. With the Dow up nearly 200 points, out-of-the-money calls barely budged. Our loss was 0.31 per contract, or $124 plus commissions.

The next air pocket in Citi should bring it down to 7.75, an outcome that suggests something financially frightening going on in the real world. The midpoint associated with that number is 13.50, and it is near that price where we should look to get short if Citi accommodates for once with an especially lively dead-cat bounce.

In Sunday night trading, the futures have suspiciously failed by a hair to surpass Thursday's mildly daunting peak at 958.00. However, if that changes before sunrise, it would give DaBoyz ammo to short-squeeze the opening. Hidden Pivots would become less significant at that point than the magnetic pull of the 1000 threshold that should kick in above 980. If 958.00 has not been exceeded by the opening bell, though, regard any rally from the overnight low with skepticism. _______ UPDATE: The futures have given up most of their spurious overnight gains, breaching minor pivots on the way down. At 10:12 a.m., with ES trading 942.75, the nearest downside target is 935.75, a Hidden Pivot that can be bottom-fished with a very tight stop-loss. It will remain viable as long as 949.25 is not exceeded to the upside first.

The highest short-term target I can project using the lesser charts is 90.83 -- enough to create a bullish impulse leg that would make a shallow pullback from that price a "buy". I cannot anticipate how a trade might set up, but I am mentioning it for the guidance of chat-roomers who will be tracking DIA in real time after the opening bell. The chart shows how, from a Hidden Pivot perspective, an opportunity could develop. _______ UPDATE: DaBoyz short-squeezed the opening to 91.75, and this will generate some synthetic buying power for the next couple of hours. However, I seriously doubt that the minor-trend follow-through rally will reach its 'D' target, since this morning's action has the smell of desperation about it.