If you view each and every rally as a short-squeeze, the stock-market begins to make sense. We should assume there are no bulls out there, only bears trying to avoid getting impaled by the next thousand-point thrust-from-nowhere. No such threat was evident Sunday night and in the wee hours Monday morning. That’s typically when some of the canniest predators in the game stress-test traders who went home Friday either too long or too short. This past weekend, however, unless you bet on the Eagles, there was little news to cause remorse �' certainly not the kind of news that the Sunday night sleazeballs use to stampede short sellers. And so, by the time stocks opened Monday morning, the 200-point rally had detumesced by about a third. (Click on chart to enlarge) For our part, we had recommended shorting some November QQQ calls against Decembers already owned. However, call premiums in the Cubes were so heavy at the bell that we decided to bail out of the initial position rather than dig ourselves in deeper. As we noted at the time via an early-morning bulletin, “the option markets were not ‘buying’ the feeble, phony short-squeeze that [had begun] the day. With the Dow up nearly 200 points, out-of-the-money calls barely budged.” Anyone who has traded options will know that puts and calls are usually pretty smart when it comes to reading the market’s mood. Thus, if call options that you are trying to sell fail to get excited when the week begins with a 200-point rally, as occurred on Monday, you should take it as a sign that whatever excitement seems to exist in the broad averages has been ginned up by a bunch of dirtballs keen on unloading their unwanted inventory on widows and pensioners. The Price of Tuition For
Tuesday, November 11, 2008
E-Mini S&P (919.50)
– Posted in: Current Touts Free Rick's PicksA crucial test awaits not far below, at 887.50. That's an important midpoint support, and it can serve as our minimum downside objective for the near term. If it is breached decisively -- say, on a closing basis for for two consecutive days -- I'd infer more weakness over the near term to as low as 766.50. If that were to occur, the Dow would be trading around 7600.
QQQQ Nasdaq 100 Trust (30.12)
– Posted in: Current Touts Free Rick's PicksIf stocks are about to fall apart as projected in today's E-Mini S&P tout, this vehicle could plunge to 25.95 in a hurry. Let's make a small speculative bet by buying two January 27 puts (QAVMA). Enter a 1.35 bid to begin the day, and a 1.22 bid for two more, but stay tuned to the bulletin launcher, and check back ten minutes before stocks open, since I may modify these prices if it looks like we can do better. _______ UPDATE: The selloff that began the day did not allow for lazy put bids -- nor did a short-squeeze in the afternoon, even if it brought the January 27s within a dime of our bid. We'll try again later.
Dollar Index (85.96)
– Posted in: Current Touts Free Rick's PicksDueling impulse legs on the hourly chart suggest that this vehicle intends to flagellate bulls and bears alike for yet a while longer. I expect the eventual breakout to be to the upside, but in order for that to happen as early as today, DXY would need to print 86.51.
December Gold (734.20)
– Posted in: Current Touts Free Rick's PicksThe selloff from yesterday's highs was brutal, but the day must be viewed as net positive for gold, since the most robust portion of the rally surpassed two prior peaks on the hourly chart before slipping back. Night owls keen on bottom-fishing should try it around 738.00, the nearest Hidden Pivot support below. (Note: There's a midpoint at 744.70 associated with it, and if it holds, providing a base for a move to 754.30, that would be very bullish for the near term.) _______ UPDATE: The futures broke below 738.00 easily, a negative sign that augurs further deterioration to at least 723.30. The weakness must stop there or else, since any lower and the December contract will be in jeopardy of taking out two "external" lows on the hourly chart at 717.10 and 707.00.
