Thursday, January 8, 2009

We hold 200 shares with a cost basis of 39.69, having clung stubbornly and without discipline to Newmont as it experienced its worst one-day decline in memory. My take on the stock, that knowledgeable buyers appeared to be manipulating it lower, was as wrong-headed as could be. There may be more selling today, too, since the stock has an unachieved Hidden Pivot target at 33.50 that feels magnetic. Accordingly, I'll recommend shorting two Jan 35 calls (NEMAG) on the opening for 1.88, but check back before the opening, since I may need to adjust if the mini-indexes are freefalling. _______ UPDATE: Stocks open in a few minutes. For now, raise the offer on the short Jan 35 calls to 2.20. _______ FURTHER UPDATE: There was a bid of 2.38 at the opening, but no trades until it came down to 2.20, so that's the price I'll use. The only logical explanation for this is that no subscribers held the recommended position when stocks opened this morning. Officially, though, we hold a covered write that will help ease the pain and give us more downside protection. _______ FURTHER UPDATE: The covered write expired, with the stock settling against options to leave no net position. Our loss was $250 per round lot, or $500 total. This was the largest loss we've experienced on an equity trade in more than four years.

The futures were scuddling cluelessly in a tight range Wednesday night, evidently too frightened to extend the feeble dead-cat bounce that had ended the day. A midpoint support beckoned not far below at 897.50, but if were to fail, further selling would probably bring ES down to at least 887.75. Both targets assume that a point 'C' peak at 907.50 will survive overnight. _______ UPDATE: Overnight, an 8-point bounce came from 899.50. That was bullish, but the futures relapsed down to 891.50 before the opening. With a mixed picture 15 minutes into the session, it looks like DaBoyz have put in a shaky bottom.

We bought the Feb 95-Jan 95 calendar spread twice yesterday for 1.50, not far above the low. If we can steal the Jan 95s back this morning we should try, since they cannot trade much lower between now and next Friday's expiration. Accordingly, I'll recommend bidding 0.15 to cover them. Check back ten minutes after the opening for further instructions, since it may be possible to exit the Feb 95s, and therefore the spread, at a favorable price. _______ UPDATE: We covered the short Jan 95s for 0.15. Adding that to the price we paid for the Feb 95 calls gives us a cost basis of 1.65. Close them out if they touch 1.50 today. Note: We later exited the Feb 95 calls for 1.50 before the stock tanked, realizing a small loss of about $30.

Shortly before midnight, the futures were laboring to reach an 850.70 rally target that had looked like it was in-the-bag following the breach of its sibling midpoint, 846.30, earlier in the evening. That last number will hold the key to the short-term picture, since buyers must get past it to test the mettle of the higher number. Most bullish of all for the near term would be an uncorrected thrust that exceeds peaks at 850.00 and 855.00. The location of each is shown in the accompanying chart.