February 2009

Ten hours of trying failed to knock gold down more than a couple of bucks after Tuesday's sharp surge. As of midnight EST, the futures were working on a minor rally target at 981.60, but it held little value for trading purposes. Another Hidden Pivot at 995.10 promised one last show of resistance before $1,000, but it too is not a place where bears should contemplate taking an aggressive stand. The futures need only achieve 991.50 to refresh the bullish impulse on the daily chart and set up JP Morgan & Friends for the haymaker.

We're long the Feb 30-Feb 27.5 put spread twice (or a multiple thereof) for a net credit of 1.30 per. This guarantees us a profit of at least $260 come Friday, when the puts expire, but we could make as much as $760 if BBY settles 27.50 or lower. One way to lock in a profit, and to eliminate any stock position that might arise from the exercise/assignnment of our options, is to buy the Feb 27.5-Feb 30 call spread twice. Let's try to leg it on, bidding first for the Feb 27.5 calls @ 0.30, good through Thursday.

We stand to make as much as $1286 on our two covered writes if GDX settles $35 or higher on Friday. To lock in the profit, let's spend $20 (or $10 for each covered write held), bidding 0.10 for two February 35 puts (GBJNI). This will turn our position into a riskless "conversion," and if you work the numbers you'll see why it would lock in our considerable paper gains. Make the bid good through Thursday, contingent on the stock trading 38 or lower. Note: The covered write was legged on, effectively, at 31.12 for 200 shares of stock and 2.55 for each of the two short calls.

We were quite bullish on gold as a new trading week began yesterday, but is there perhaps more to it than merely bullish charts would have us infer? Here’s the message that went out the night before to Rick’s Picks subscribers who may have been disappointed by gold’s quiet finish last week: “Anyone who thinks gold is about to stall out without taking on $1000 should read today's tout for Comex April. Although the futures have hesitated within 1.70 of our longstanding target [a hula number!] at 952.30, the shallow pullback so far suggests the pivot will not prove to be a serious impediment.” When the dust had settled yesterday, 952.30 proved to have been no serious obstacle at all. In fact, April Gold shot up $28 to $971, and the futures were giving up almost none of the gain as the evening session got under way. The charts now say that 995.00 should be easily achievable over the very near-term, but we wonder if we’re not being too conservative, considering how spooked the currency markets have been acting. No one who trades gold could have missed the fact that bullion’s sharp rise yesterday came with the Dollar Index also in a steep ascent. This should be disquieting to market observers, but also to gold bugs. While the latter may have reaped substantial trading gains on the move, it suggests that all is not right with the world, to put it mildly. Someone Wants Dollars! One observer at Market-Ticker.com noted that there was fierce selling of currencies Monday night originating in Asia. Here’s the post: “Someone, apparently someone in Asia, wants dollars. A LOT of dollars. There is a forced-liquidation event underway that is massive, it is against all asset classes and it is spreading. All of the primary currency

There is little to trade on the daily chart, since the futures seem bound for a test of last autumn's thick band of consolidation (which began around 1.2350). The hourly chart is another matter, however, and a dip to 1.2583 should be viewed as an excellent buying opportunity. use an initial stop-loss at 1.2569, switching to a 20-tick trailing stop at 1.2616. _______ UPDATE: The numbers would have worked perfectly for anyone who traded them, since the targets precisely bracketed the morning high and low. After bottoming at 1.2571, two ticks shy of our stop-loss, the futures rallied to 1.2621, triggering the trailing stop (and/or partial-profit taking) by five ticks. They have since traded as high as 1.2638 this morning, yielding a theoretical profit of as much as $550 per contract for a 90-minute hold.

I'm resisting the temptation to say the hell with pivots, let's just short this hoax. We'll stick with our usual, disciplined approach nonetheless, initiating trades only at Hidden Pivot rally targets (of which there are unforunately too many at the moment). The nearest worth a shot looks to be 100.55, so let's try to buy one July 80 put (GSSP) if and when the stock closely approaches the target. I estimate the put will be selling for around 10.45 then (see snapshot of calculator; I've plugged in a Tradestation volatility of 84). Option volatilities for GS are in the stratosphere, and that is why we are taking a cautious approach. Even so, there is some edge in acquiring July puts for anything close to fair value, since they do not routinely come in for sale. ______ UPDATE: GS scorned our timid attempt to get short, opening lower on a huge gap. The stock is currently down $8.55, 20 cents off the so-far intraday low.

Selling has been drying up recently on most days when it looked as though bulls might get routed. That raises the odds that November's lows near 800 are going to provide buoyancy if the futures probe for support there this morning. However, if support fails, look for a potential buying opportunity at 780.00, an appealing Hidden Pivot. Use a 780.25 bid and an initial stop-loss of 779.75, switching to a 2.50-point trailing stop if 789.00 is touched on the bounce. Minimum objective: 793.00. _______ UPDATE: As of 1:20 p.m., the futures have traded as low as 786.75. The 780.00 target is still valid and should induce a bounce, but I'm going to suggest lowering the bottom-fishing bid to 773.25, a tick above a promising (and more conservative) Hidden Pivot support. You can stop this trade as tight as 771.75, but don't attempt it with less than an hour to go in the session.

Whenever gold's uptrend stalls for more than a couple of days, as it now seems to be doing, disappointment never fails to surface in the chat room. Let me reassure you, however, that impulsive rallies such as the one shown in the chart seldom simply sputter out before getting second wind. Notice how the 954.00 peak recorded last Thursday exceeded four prior peaks, including a daunting "external" high created last October, and another -- a look-to-the-left-er -- before the rally went into a so-far three-day consolidation. This is unambiguously bullish, and it would take a swoon this week exceeding 875.70 to make it any less so. Under the circumstances, a test of $1000 would appear very likely. The challenge will be to catch a ride north on the lesser charts. The least risky way I can see to do this would use a b-c pullback from just above a tiny, 948.70 peak made on the way down last Thursday. It is easily visible on the 15-minute chart, if you're interested. ______ UPDATE: Gold blasted sharply higher overnight, hitting 975.40 so far today. My minimum upside projection for the near term is 995.00, a minor Hidden Pivot 'D' whose sibling midpoint has already been surpassed.

“They know that this bill is not stimulus. They know that this bill will not do anything to create long-term, sustained economic growth.” Rep. Aaron Schock (R-Illinois), quoted in the New York Times, referring to his constituents.   Is this so? Do voters in fact “know” what many politicians are evidently afraid to admit – that the nation is about to squander $800 billion of precious capital on the biggest piece of pork ever to work its way through Congress’s perennially irritable bowel? Our guess is that, yes, the average voter – even the voter who fervently supported Obama in the November election – is skeptical that the stimulus bill will put the economy back on track. But if Americans appear to have suspended their disbelief about this for the time being, it is only because the news media have set aside the legislation’s many unsettling details so that they might trumpet the President’s recklessly unrealistic goals with the same unquestioning zeal that they brought to his message of “change” and “hope” during the campaign.   Could it have been just two weeks ago that the news media were zeroing in on such alarming facts as that each job created or saved by the bill will cost taxpayers $275,000? So much for yesterday’s news. Whatever misgivings we may have had a week ago, we are now being asked, simply, to believe. Although we doubt that Congress is any more believing than the voters, we can sympathize with the Democrats who had to enact the measure at the point of Nancy Pelosi’s gun. Virtually all of them voted for the bill, creating a legislative phalanx that shattered nearly unanimous Republican opposition. The bill garnered a total of three Republican votes, all of them in the Senate, but we doubt the Republicans