Tuesday, June 9, 2009

I'll try to cover the tradable angles in Tuesday morning's briefing, but the big picture has turned disappointing with August Gold's recent failure to create a bullish impulse leg on the weekly chart.  As you can see, although the thrust to peak #1 got past two prior peaks, it died in a two-stage correction; now, the second thrust is dying/correcting after failing to take out a second peak. These are squandered opportunities, and although the long-term picture is most surely not bearish, neither does it offer much evidence that Gold is ready for a blast into the next galaxy.  That could change with a quick surge touching  1020.80, but until that occurs we should look for more consolidation in the days and weeks ahead.  

We hold the June 43-45 call spread for 0.55, although our best opportunity to unload it for a gain may have come and gone when GDX topped last week at 45.10 after a two-week run-up from 35.7.  Let's shoot for a modest gain on the exit, offering the spread for 0.60, g-t-c.  That price is out of range at the moment, but it would become easier to fill if the stock moves higher this week.  It would be a lay-up to simply close out the 43 strike first on any strength, leaving the 45 naked-short, but we don't work that way, since not all subscribers' accounts are enabled for such allegedly risky transactions. ______ UPDATE: GDX rallied on the opening, pushing the spread up to 0.65 (i.e., at the same time the June 43 calls were peaking at 1.15, the June 45 calls we are short could have been covered for 0.50, their intraday high.  A fill at 0.60 was easily possible, so I'll record this one as a scratched trade -- in and out with no loss after commissions.

We hold a single September 270 put acquired a while back for $8 that is about as useful and pleasurable as a hangnail. Before it goes to its reward, let's look for a way to offset the likely loss, since this stock, a throwback to the Dadaists,  has a chance to move up to 507.24 within the next 4-5 weeks. Our strategy will be to leg into a calendar spread at the 510 strike, starting with the long call first.  September 510 calls (GOPIU) are currently trading for around 7.00, and the September 510-July 510 call spread for about 5.00, but we'll try to put it least somewhat better by buying the calls when the stock corrects to a Hidden Pivot low. Our goal for purchasing the spread is $3 or so, and if we can get in at the price, our odds of recouping the loss on the put and then some will be pretty good.  For now, bid 5.20 for one September 510 call, good for the remainder of the week. ______ UPDATE: Google swooned $7 this morning, but the calls we were trying to buy traded no lower than 5.90. We're on the right track, but we won't pay up. Continue to bid 5.20 for the calls, which are too prized by market makers to  come easily. For your own purposes, keep in mind that our efforts are premised on a powerful rally. _______ FURTHER UPDATE (June 3, 10 A.M.):  The order filled this morning when the Sep 510 calls traded down to 5.10. At the time, the stock was bottoming near 430, down nearly $6 (although it eventually went $4 lower, recovering partially by day's end).  For now, do nothing further. Keep in mind that our rally target for the stock is above $500, and that our goal is to spread off the call on the way up.

Two minor Hidden Pivots just above will  not be worth much to us, since both coincide with highs recorded, respectively, yesterday and Friday. For the record, the higher of the pivots lies at 957.00, two tick off Friday's peak. That makes resistance there doubly daunting, so any thrust that makes short work of it, pushing through granite within 30 or so minutes of first touching it, should be presumed a warm-up for more bullish action. ______ UPDATE (1:47 p.m.): I suggested shorting 944.75 with a three-tick stop-loss during this morning's online briefing, and the trade would have worked nicely, since the futures dropped 10 points thereafter from a 945.25 top that is still holding. The failure of the futures to reach the 955.25 'D' target associated with 944.75 telegraphed the day's weakness, although Wednesday will likely be a different kettle of fish. 

Putting aside the speculative bias of today's commentary, we'll trust Goldman about as far as we could heave a Hummer.  That's why I advised covering all but 100 shares of our 400-share short position near what turned out to be the intraday low. If the stop at 149.97 gets hit -- and I wouldn't lay odds against it -- that would yield a hypothetical gain of about $700 for two days' work.  It will also put us on alert to try shorting again -- 400 shares at ____, stop _____, good through Wednesday.

The dollar extended its winning streak yesterday, rallying overnight to narrowly exceed the bullish benchmark we'd set for it just a day earlier. If the dollar is indeed reversing direction after three months of steady weakness, it could darken the economic picture. The reason is that it would put pressure on all who owe dollars, intensifying the effects of a global debt deflation that has been  tightening its grip for nearly two years.     The greenback's rally is just four days old and therefore still fragile, but there are signs that there is yet more buying power percolating beneath the surface. Notice in the chart above how Monday's rally exceeded the three labeled peaks. The first of those peaks was nothing to get excited about; however, the breach of #2 and #3 was more impressive, since those were more daunting "external" peaks made on the way down. By popping through all three of those highs yesterday without pausing for breath, the Dollar Index created a short but powerful "impulse leg" on the hourly chart. Such rallies usual presage follow-through thrusts of equal magnitude, which in this case would suffice to generate yet another impulse leg, renewing the bullish trend.  Missed by a Penny Another market-related event that hints of a possible tone change is the recent weakness in the shares of Goldman Sachs, which we have viewed as a stock-market bellwether in recent months. More recently, we were looking Goldman to peak at exactly 151.24, a Hidden Pivot resistance. On Friday, after surging $10 in just two days, the stock apexed a penny above our number, at 151.25, then retreated to a low of 146.19 yesterday. We covered 300 shares of a 400-share short position from 151.24 and are holding the last hundred shares for a possible home run.