A Hidden Pivot resistance at 912.00 looks shortable, stp 913.25, but the trade is recommended for night owls only, since the pivot looks too delicate to survive Friday’s opening. I have included a chart because the pattern from which the target was derived is idiosyncratic but still compelling. It is attractive mainly because point ‘B’ poked marginally above the look-to-the-left high. _______ UPDATE: Not long before the opening, the futures turned violently erratic on news of yet another record-breaking leap in unemployment. The initial, brainless spike upward hit 914.75. That target corresponds, not to the one-off low (‘aka point ‘A’) shown in the chart, but to the lowest low, 891.50. Losses on the trade would have been small — less than $75 — but I should point out that no action should have been taken to begin with. The idea behind night-owl trades is to leverage promising, sometimes relatively delicate, pivots during the quiet hours of the night. The quiet was bound to have been shattered by the unemployment news, which came 40 or so minutes before the opening bell, and the trade should therefore have been canceled ahead of the announcement.
From the monthly archives:
January 2009
A thrust today exceeding the 871.40 peak recorded early this week is needed to put the futures in the mood to test October’s key high near 940. Incidentally, the chart also shows why 766.60 would be a back-up-the-truck number for buyers. There is nothing to suggest that such a nasty plunge is imminent, but if it did occur, the resulting pattern would point very persuasively to an opportune low at 766.60. That’s a “middle-of-nowhere” midpoint pivot with no competing supports to the left of it.
Has the dollar bounded from mid-December’s lows with such seeming feistiness, only to punk out without taking on the scrawny pocket of supply highlighted in the chart? It certainly looks that way. And although this will not necessarily doom the dollar, it should temper our enthusiasm for the buck in the days, and perhaps weeks, ahead. To negate any suggestion of cowardice, DXY would need to pop above the two peaks etched in the last few days sometime very soon.
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.
I had expected 2009 to begin with gold sharply on the rise and stocks in retreat, but so far both seem to be taking direction from a headless chicken. Stocks lurched higher last Friday on a short squeeze but have since gone erratically flat. As for commodity gold, it has been pretty wild these last few days but is still trading somewhat below its New Year’s peak, even after yesterday’s trampoline recovery.
That may be about to change, however, since there were bullish signs in the price action of precious-metals bellwether Newmont Mining. Specifically, the broad-tossers who make their living rigging the stock were able to turn an 86-cent profit in the early minutes of the session by deftly working the “buy” side. This they accomplished by fading sellers on moderate weakness, then running up the stock by about 2%, All of this occurred, probably, before many of those sellers realized they’d been had — filled at what turned out to be some of the worst prices of the day.
We’ve legged into a covered write: long 200 shares from 40.41, short two January 40 calls for 1.20. Do nothing further for now. We could have done better on the calls, as you will already have surmised. It is usually risky for me to recommend a price at which options should be bought or sold on the opening, since that is when professional predators are at their most brazen. However, in some situations I would rather try to second-guess the opening than suggest that you return to the website during trading hours for further instructions. In this case, second-guessing caught a whipsaw. _______ UPDATE: Newmont’s mini-crash this morning portends further slippage to 36.36, a Hidden Pivot support. If and when the stock reaches 36.41, cover the short calls. _______ FURTHER UPDATE: Newmont appears to have bottomed for the time being at 36.32, four cents beneath the target. This would have allowed one to cover the short Jan 40 calls for around 0.48. We’ll apply the 0.72 profit to the stock, giving us an adjusted cost basis per round lot of 39.69. No further action is suggested right now.
Tough Love For Gold Bugs
by Rick Ackerman on January 8, 2009 4:42 am GMT
Today and tomorrow we will be featuring the thoughts of two erstwhile gold bugs who are having second thoughts. Although both evidently believe in their hearts that gold is honest money, neither is certain that that will suffice to push its price into the stratosphere, as some seers are predicting.
First up is our friend Erich Simon, an occasional contributor to Rick’s Picks whose dispatches on the bird flu epidemic have kept us a few steps ahead of mainstream news. Here is the letter I received from Erich yesterday morning:
Music Has Stopped
The most precious commodity is time, then land — in a finite world. The currency of the future, here today, and maybe even yesterday, is power, not money. The population of the planet from 1929 until the NASDAQ collapse in March 2000 doubled. The dot.com blow-off nearly ten years ago was “the last dash for a place in the sun.” It was the final mass exodus out of fiat for the accumulation of stuff, mostly “essentials,” not unlike musical chairs. The investment landscape today is desperate and imploding. The music has stopped.
The mining equities collapsed because they are subject to the same corruption as the broader indices. “Corruption” is one man’s quest to secure a larger piece of real estate. The primary corruption in all the issues was stock dilution through share-printing and marketing through Wall Street under government sanction. Shares were exchanged for currency, and currency is a claim against man-hours of work so that governments can apportion scarce resources.
Paper Falls Short
So the government, Wall Street and corporate insiders absorbed all of the prevailing man-hours of work and laid claim to all of the scarce resources, foremost among them, time — yesterday’s, today’s and tomorrow’s. This is the main reason why no amount of reflation will suffice: because paper-printing will not create the time needed to grow an ear of corn to prepare a meal at supper time, let alone create a barrel of oil out of thin air.
In 1983, when I was in Japan studying international business, I concluded that there were just two possible economic outcomes for the world: peaceful integration, with the U.S. as lead sled-dog and the dollar as world reserve currency; or, a failed U.S. business model and subsequent rescinding of the dollar as reserve currency.
Vestigial Support for Dollar
In the late 1990s, Alan Greenspan’s credit boom turned bust, causing the global village to implode. Sadly, it has become clear that the dollar is going to collapse and that all claims against it will be forfeited. Despite this, there remains in the Western World a vestigial instinct to support the dollar. Indeed, the global financial system that connects the Bank of England, the European Central Bank and the Bank of Japan insures that their respective currencies are interchangeable with the greenback. Thus, when the U.S. “fails,” so do the interlocking markets. The desire to prevent this is the main support under the dollar at this time.
Meanwhile, mining shares have been looted along with the rest of the publicly traded issues. They have an underlying value, but a great deal of that value will not be available to U.S. investors because these global ventures have been targeted and are being absorbed by foreign ownership: “passive” investment by China, and more aggressive takeovers by others. Governments like Japan, with their own imperialistic mandate, are securing ownership at the expense of greedy insiders who have been bankrupted by financial deleveraging. Against the growing tide of East versus West, a hungry and focused discipline versus wanton excess and division, a battle is raging that the West seems likely to lose.
Frivolous Tangibles
As to the spoils, all that is tangible — gold, silver, platinum, fine wine, collectible automobile, artwork, real estate — can be ranked according to its value in the investment arena. At this time and against the backdrop of credit collapse and deflation, “frivolous” tangibles �’ vintage muscle cars come to mind — have suffered immensely and will continue to do so. But against the larger reality of institutionalized historic inflation and resource depletion, tangibles are paramount.
Gold’s desirability can be ranked by category. Jewelry demand is one weakening category that will detract from the metal’s value for years to come. In Japan, frivolous tangibles like jewelry never recovered to pre-1989 levels and probably never will in real terms. And in the latest downturn, jewelry-related stocks have suffered more than most.
The international race for ownership of metals mines, however, is testimony to the worth of these metals — for industry and value (money). Gold is strong and gaining as a monetary unit accepted by both East and West in spite of the loss of jewelry demand. While ideological skirmishes roil the borders of an overcrowded planet, the larger investment reality is resource depletion.
What was left of the dot.com bust rocketed into real estate. A part of that remaining wealth is today moving into gold.
A System in Collapse
It is fashionable these days to anticipate market bottoms based on contrarian indicators. The greater the number of bears, the closer to a bottom. But this is not an economic truism. Indeed, if you take the quantity of bad news and the pace at which it is assaulting the system, this indicator now is telegraphing a system in collapse. We have only to look to the droves of Madoffs coming into view, swindlers who operated under the umbrella of the SEC, the Enrons and the Tycos of yesterday. Nearly every publicly traded issue is now being exposed as a post-GAAP sham.
How big a sham? If you take the total number of shares outstanding in every publicly traded company (using the Wilshire) and divide it by gross money supply (never mind debt comparisons) one can gain insight into the worthlessness of equities — and the insulting charade of liquidity injections at any level.
In an inflation, money is worthless (we’ve been mired in an inflation from the start; the evidence is in the evolution of the relative prices of everything, including the metals… POG was $35). In a deflation, assets (wealth) are worthless. This is semantics. In the end, broke is broke. For Bernanke to sell inflation is pure tomfoolery, an ultimate sleight of hand that at this point appears to be nothing more than a stall to buy time for the insiders to high-tail it out of Dodge.
Usefulness Begets Value
The value of gold lies in its place in time. And the problem with gold is its quasi-existence as a monetary unit during flight to safety. The final and ultimate security is not a “worthless’ metal,” one that adorned the bodies of kings and queens. Ultimately, the tangibles that are most in demand are functional — like tickets to a sold-out show, or respirators when the volcano erupts.
Gold has its place in time. But at the time of lowest common social denominator, an investor has to produce something of barter value. Because the more dire the landscape the less use for a “frivolous” tangible like gold. It is this competition from other tangibles and the perception of this conundrum that has kept a leash on the yellow dog. (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.)