Tuesday, June 30, 2009

The July contract is stealing up on a shortable rally target at 17.69.  Use a stop-loss of 6-8 ticks if you play this one.

There's a Hidden Pivot resistance at 1.422 that you can attempt to short with a stop-loss as tight as 7 ticks. If the futures stall at 1.4192, that number could eventually become a launching pad.

The chop-and-slop the last few days has rendered any Hidden Pivot targets that I might proffer useless, if not to say meaningless.  I might be tempted to bottom-fish a swoon to _____ if it were to occur early in today's session, but otherwise I'll be expecting a labored ascent to _____ if that Hidden Pivot's midpoint sibling at 940.00 gets brushed aside.

The rally died a couple of ticks shy of our 119^05.5 target yesterday, but I wouldn't suggest shorting there if buyers get second wind this morning, since we nearly always prefer to initiate trades on the first pass. The futures are due for a significant rest, but it would be quite impressive if they were able to eke out a little more upside first. Ideally, they would pull back to at least 116^28 to recharge, then signal a new leg up with a booster rally of at least 1^11 points.

We thought it would be a good time to look in on our favorite bellwether, Goldman Sachs (GS), since the extraordinarily well-connected banking firm's shares have been sharply on the rise lately. As long as this is the case, it makes a stock market selloff most unlikely. GS has rapidly emerged from a funk after having spent nearly a month in purgatory - its penance for a wilding spree that that culminated a penny above an important Hidden Pivot resistance we'd flagged in late May at 151.24.  The stock yesterday closed on a recovery high at 149.41 but looked feisty enough to keep moving higher. Most immediately, this would imply a leap of nearly 3 percent, to 153.44, but the stock has a shot at as high a 160.44 if the lower number fails to contain demand.   If the more bullish scenario were to play out, it would imply that the uptrend is likely to continue till at least July 10, a Friday, or possibly into the next week. There is nothing directly comparable in prospect for the Dow Industrials, since, for the last week or so, the blue chip average has been relatively weak in comparison to Goldman. But if financial shares should catch fire and the heat spreads to the broad averages, a run-up in the Dow to 9005, or perhaps even to 9333, is possible. Those targets represent bullish moves, respectively, of 5.5 percent, or of 9.5 percent, from yesterday's closing price of 8529. Gold 'Comfortably' Aloft A bullish period for stocks would likely intensify the tedium that has characterized the precious metals sector lately. We forecast dull action in Comex Gold as the new week began yesterday, and the futures did nothing to surprise us. We see bullion's tiresome action as bullish on balance, since there

Crude has rallied nearly 8% in the last week, but I see no evidence on the daily chart that the surge is likely to continue.  Rather, we find dueling impulse legs and therefore the likelihood that quotes are going to bog down in the 65-75 range for a while. The picture would turn very bullish, however, if a thrust were to breach the two look-to-the-left peaks shown in the chart. The higher lies at _____. 

Here is a trade that has worked for me over the past several expirations.  Long FAS and long FAZ.  This is done as a ratio of long 2 FAZ, the 3x ultra short financials ETF, and long 1 FAS, the 3x ultra long financials ETF.  The FAS is currently trading just below $10 and the FAZ is trading just below $5.  The reason for the ratio is that they both move the same percentage in price so a drop of $1 in the FAS is only a gain of 50 cents in the FAZ.  Once you have this position on you sell 1 $10 call against the FAS and 2 $5 calls against the FAZ.  I have this position on in a small size and it seems to always end up with both positions out of the money.  I roll to the next expiration a day or two before expiration.  One caution.  You have to be able to take in the short calls when you get a buy signal on either side.   The old high on the FAS was over $60 and the old high for the FAZ was over $204.  Unless they change the makeup of these two ETFs they both can't go to zero.   I doubt that either will reach those extremes in the near future.  If the FAZ starts to rally and the prices of the FAZ and FAS approach even the ratio might have to change.