Wednesday, September 2, 2009

My analysis for gold, financial shares and the dollar go against the grain today, so I could wind up looking like either a hero or a fool an hour into the session.  My gut feeling is that the bank stocks will continue higher as long as they are able to operate effectively without rules or constraints.

The rally looked altogether unimpressive until late in the session, when a fleeting spike surpassed a look-to-the-left peak at 78.91 that I'd flagged in the chat room. That gives the rally nominal appeal on the lesser charts, although we should require _____ today to validate it. The location of the obscure but important peak-let this would surpass is shown in the accompanying chart.

Silver effected a promising spike yesterday afternoon, but the futures were struggling to hold onto the gain early in the evening.  If they go no lower than ____ overnight, however, any rally exceeding the relevant midpoint resistance at _____ would suggest additional upside potential over the near term to as high as _____.

Below 999.75, there were no more Hidden Pivot targets to project yesterday using the hourly chart. That is still the case, although we can use the breach of a look-to-the-left peak at 1009.50 to signal us when ES is turning around.

Yesterday's savaging did no damage whatsoever to the bullishness of the daily chart, although there is still room to fall on the lesser intraday charts. Specifically, a Hidden Pivot target at 158.90 looks like a good place to try bottom-fishing. Officially we'll bid 158.93 for 200 shares, stop 158.79.  We continue to hold the Jan 130 - Oct 130 put spread four times for 3.40 and a September 170 call for 2.00. _______ UPDATE: The bottom-fishing gambit worked out nicely, since the stock rallied $1.08 after making a low at 158.90 around midway into the session. You would have needed to apply a trailing stop, though, since Goldman subsequently relapsed to 158.14 before the closing bell.

The futures spent the day struggling to go lower, failing in the end to overpower a midpoint support at 947.60 whose breach would have greased the skids down to 938.70. The bearish pattern is shown in the accompanying chart, and as you can see, the pre-dawn bounce came from a low that lay within a single tick of the pattern's calculated midpoint. The reactive rally was no world-beater, to be sure, but on balance the picture is at least mildly bullish for the near term.  A _____ rally target given here earlier remains viable, but like you I am growing a bit impatient about it.

A run on a major U.S. bank?  Who could have been spreading such scurrilous rumors? They surfaced yesterday in the Rick's Picks chat room, and elsewhere, not long after we'd done some personal banking ourselves in an online account at the very same bank. We experienced no delays or problems with the transaction, notwithstanding reports of a "default situation" and "elevated" buying of put options on the shares of the bank.  We were able to confirm that there had indeed been a flurry of put-buying, but the action was not so frenetic as to suggest that the bank was in any serious trouble.  To the contrary, banks are operating under such loosey-goosey rules right now that they shouldn't have a care in the world. Imagine having a notarized letter from your local police chief authorizing you to loot and plunder any store in the neighborhood without fear of arrest. That's how the banks are doing business these days - which is to say, however they want.  And if a deal should turn sour it's no problem, since the U.S. government has assured banks that it will pay 100 cents on the dollar for any securities that ultimately fail to clear the market. Smoldering Ruins Tuesday's rumors of a big bank on the ropes evidently were prompted by general weakness in banking shares. The selling had been attributed to nervousness over the prospect of more losses to come in the banking sector. A few analysts added to the stresses of the day by speaking cautiously about bank shares.  Has the spectacular rally begun last November finally run out of steam, they asked? We seriously doubt it. More likely is that those who have been accumulating bank shares hand-over-fist simply backed off their bids for a day, allowing the stocks to fall