Sunday, April 26, 2009

May Silver looked bound for at least ____ when the bell ended Friday's session, but the rally will probably need to do a smidgen better, surpassing a prior peak at _____, to rattle the nerves of shorts.

_______ UPDATE (11 a.m): The futures topped overnight at 919.70 -- four ticks from the target. We've lost count of the number of rallies that merely met the minimum requirement without going the extra inch that would have signaled real strength.

A Hidden Pivot at _____ still looks compelling as a minimum upside target. The midpoint sibling of this number is _____, so any pullback to that number should be viewed as a possible buying opportunity. One way to take advantage of this conservatively would be to place a tightly stopped bid at a minor-retracement 'd' target or c-d midpoint,

We've masked the salient details, but can you guess which NYSE-listed stock owns the powerful rally shown in the chart below?  There are two things to notice: 1) the company's shares are trading above $100 - a rare distinction at a time when many erstwhile blue chip companies have been reduced by the Great Recession to penny-stock status; and 2) the stock has nearly doubled in value since early March - a far better performance in these hard times, even, than Apple, whose shares have appreciated by "only" about 50 percent over the same period. Moreover, the stock has risen 278% percent since November. Give up?  Here's another hint: It is a financial company whose program trading in recent weeks has accounted for more than half of the transactions done by NYSE member firms in their own accounts.   We are talking about none other than Goldman Sachs Group, which has become such a dominant force in U.S. equity markets lately that one might infer it is the de facto trading arm of the Federal Reserve. Not exactly the kind of stock one would want to bet against, at least not right now. Some readers may recall that Rick's Picks went on record with a prediction that Goldman shares eventually would trade for less than $30. But that would obviously be well down the road, assuming it happens at all. For the moment, and notwithstanding our extreme long-term bearishness, we regard Goldman as the bellwether for the stock market, since its daily ups and downs perfectly mirror the hubris and folly that have been driving the broad average higher since early March. So how high can Goldman go?  Our current outlook calls for a rally to at least 144.05, a Hidden Pivot that lies about 18% above Friday's settlement price of

We hold the Sep 84 (DAVIF) -May 84 calendar spread four times for 3.45 and a September 76 put purchased for 1.49 on the opening last Thursday. Our maximum theoretical gain would come with the underlying stock trading around $84 when the May calls that we are short expire on May 15. The theoretical gain for the position would be about $779, based on a 5.77 price for the September calls, a price of zero for the May calls, and a price of zero for the May 76 put. If you work the numbers, you'll see that this position yields a theoretical profit over a very wide range of prices. I've included a snapshot of an option calculator that shows how I estimated the value of the September 84 calls as of May 15 with the underlying trading for $84.