Wednesday, November 12, 2008

Yesterday's short-squeeze racked up 300 points in the space of just 60 minutes, so we should not assume that the bozos doing the buying are now so completely cured of anxiety attacks that they could not do it yet again today or tomorrow. That said, it should not go unnoticed that the literal height of yesterday's hysteria failed to surpass the look-to-the-left peak shown in the chart. That is usually a reliable sign that buyers lacked the guts to turn a phony short-squeeze into something we might have to take more seriously.

We'll continue to use 887.50 as the threshold at which jeopardy to as low as 766.50 would threaten. Yesterday's decline penetrated the support by five points, but that is a permissible margin on the weekly chart whence the number came. To repeat: It would take a two-day close beneath 887.50 before we'd become seriously concerned. More immediately, the futures looked eager Tuesday night to probe a minor midpoint resistance at 903.25. Any higher would hint of upside potential over the near term to as high as 920.00. _______ UPDATE: With the futures currently at 861.00 off an 850.50 interim low, here's a sequence of HP supports you can use for tightly stopped bottom-fishing or to gauge the strength of the downtrend: 859.75, 851.00, and 837.25.

The promising uptrend begun via a short-squeeze thrust on October 28 looks close to sputtering out, but we'll reserve judgment until we've seen how GDX performs on retracements. The current one should go no further than 20.14 if we are to assume the best, but certainly no lower than 19.58 if the two-week-old bull trend is to stay alive. The best place to attempt bottom-fishing today lies along the path lower, however, at 20.43. Officially, we'll do so by buying two December 23 calls, stop 20.29, when the stock reaches the target. At the moment, I cannot estimate within 5 cents how much the calls should be selling for with the stock trading around 20.43, but keep your bulletin launcher switched on if you're interested in the trade, since I'll put out price guidance in real time if it looks like it could be crucially useful._______ UPDATE We stopped ourselves out of the calls for a small loss when the stock dipped 15 cents below our buying point. GDX is tenuously holding above 20.14, having touched a low today of 20.10. A two-day close below the support would be a serious negative for the near term, but in any event, GDX apears to be fighting for its life.

A Hidden Pivot support at 187.31 looks clear and compelling, so we should use it as a minimum downside objective for the near term. A sharp bounce from that number would be bullish and unsurprising, but any significant slippage beneath it, especially within minutes of the first time it is touched, would be a very negative sign. What makes the down-pattern so enticing is the fact that its point 'B' exceeded two "external" lows to the left. _______UPDATE The easy breach of 187.31 foretold the weakness that followed. Now, if the HUI fails to hold above a Hidden Pivot support at 182.69, it would hint of more downside to at least 167.82. Anything below that midpoint pivot, and, hey, you really don't want to know. The coordinates off the hourly chart are A=268.06 (October 14); B=150.27 (October 24).

A short squeeze worthy of the name should be able to push Citi up to at least 13.50, a midpoint resistance mentioned here earlier that comes off the weekly chart. If such a scenario is going to play out, it would likely be in conjunction with some pseudo-momentous announcement arising from this weekend's economic summit. As a longshot speculation, let's bid for some December 12.50 calls (CLZ) -- 1.01 for two of them, day order. They should be in reach today with the stock trading around 10.24. That's the Hidden Pivot midpoint of the down-pattern begun on 11/10 from 12.28. _______ UPDATE: My apologies, for it was January 12.50 calls that were intended, not the Decembers. In any event, no bottom-fishing should be attempted until the stock itself comes down to the 10.24 target. If you bought December calls on the opening for 0.81, I'll recommend selling them now for a small profit -- the current bid is 0.90 -- so that you can get a fresh start at the even better price I'm expecting. _______ FURTHER UPDATE: Dump any calls bought with the stock at 10.24, since Citi may be going into its death dive. Not only was the minor HP support at 10.24 obliterated, but also another at 10.16 that comes off the weekly chart. Perhaps this is a response to the wanton recklessness of Paulson's latest excuse for a bailout. In any event, it is clear that the Captains of Finance have completely lost control of the U.S. financial system.

We haven't traded this vehicle much, but a Hidden Pivot support at 57.62 looks like easy pickings. This trade's for crude oil aficionados only, and it comes with the caveat that even the loveliest targets in this vehicle need just a little more leeway than we typically give the E-Mini S&Ps and the E-Mini Dow. About 15-20 cents on the stop-loss would be about right, but you'll be on your own if the order fills. _______ UPDATE: Although crude took a 44-cent bounce from 57.36, that would not have been quite enough to justify a long from the target low, 57.62. That's assuming you used the minimum 27-cent stop-loss implicitly required to hold onto the position. Bottom line, you could have experienced anything from a break-even trade (if you'd raised the initial stop-loss on the rally to 57.80) to a loss of around $220. FYI, the breach of the pivot implies that weakness is now likely to continue to at least 53.71.