April 24th, 2014
Published Daily
Topic of the Week

Rick’s Picks Weekend Edition

by Rick Ackerman on September 5, 2009 12:01 am GMT

Ultimate Bottom Lies Far Below

Because we never shared investors’ wild enthusiasm for Cerberus, its near-collapse in recent days hardly came as a shock. The once-huge private-equity firm specialized in distressed assets at a time when even the bluest of blue-chip companies – the name Lehman Brothers springs to mind – have fallen into mortal peril literally overnight. Cerberus’s biggest gambles were in GMAC and Chrysler. The latter company’s future looked as bleak to us five years ago as it did in May, when the automaker went belly-up. What could…

Read the Rest of the Article | Comments

***

Treasury Default Not So Unthinkable

Although we can be certain Americans and their government owe far more than they will ever be able to repay, the question of how this debt eventually will be discharged is the economic conundrum of the day. Some think hyperinflation is the only way out, since it would allowing debtors to repay all that they owe with worthless bank notes that would be in copious supply. However, this is hardly a solution, since those on the receiving end – i.e. the lenders — would be ruined, as would the bond markets, banks and all other…

Read the Rest of the Article | Comments

***

Bank Scare a Ruse to Shake the Tree

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.

Read the Rest of the Article | Comments

***

Surfing the Trend in Silver Wheaton

We occasionally recommend option trades designed so that even the village idiot could hope to make money on them. These minutely detailed “Pick of the Day” selections are intended to make back one’s annual subscription cost at the very least, but also to help traders get over whatever trauma they may have suffered trying to profit with puts and calls. This is quite a feat, even for us — and we’ve been at it for more than 35 years. Truth to tell, it…

Read the Rest of the Article | Comments

***

With $1000 Looming, Gold Fever Is Back

We’re no fans of head-and-shoulder formations, since they are everywhere the amateur chartist might want to find them. But there is something to be said for the bullish reverse head-and-shoulders pattern that gold futures have been tracing out for the last year-and-a-half. The pattern is shown in the chart below, and it is predicting that December Gold, which settled yesterday at 997.70, its highest close since February, is about to run up to $1060. Trouble is, just about everyone we know thinks gold is about to pop to 1060, give or…

Read the Rest of the Article | Comments


TODAY'S ACTION for Friday

Too Sexy to Pass Up

by Rick Ackerman on September 4, 2009 3:06 am GMT

 Member-only content. Please Login or get a free trial of Rick's Picks to view.


Rick's Picks for Friday
$ = Actionable Advice + = Open Position
Hidden Pivot Calculator   Education Page
All Picks By Issue:

SLW – Silver Wheaton (Last:13.04)

by Rick Ackerman on September 4, 2009 2:30 am GMT

All our ducks are in line now that we’ve successfully legged into the December 12.50-15.00 call spread eight times for a net CREDIT of 0.15 per.  The short sale of some December 15 calls for 0.45 yesterday morning clinched it, allowing us to capture premium in this series when the options were fat and juicy. Let’s put in a stink bid of 0.20 to cover the December 15s, good through Wednesday. It would be worth our while to get ’em in at that price if we can do so within the next few days. Our goal would then be to re-short them on  rally. _______ UPDATEWe weren’t able to cover the short December 15 calls, since they never traded below 0.35.  However, with the stock pushing toward $13 our position is looking better than ever.  We have a chance to make as much as $2120 with SLW trading $15 or higher at expiration, but even if SLW plummets we’ll still make at least $120.

DIA – Diamonds (Last:94.46)

by Rick Ackerman on September 4, 2009 2:49 am GMT

I usually ignore hot tips, but a pen-pal of mine, Phil C., sent me a breathless note predicting that the Dow would rally 100-150 points this morning, forming a top from which it will collapse when traders return after Labor Day.  Putting aside the details, this sounds so absolutely right to me that I’m inclined to speculate modestly.  Mr Market loves to spring dirty, nasty surprises whenever possible, and what could be nastier — or more surprising — than a tsunami to greet us as we return from summer’s final fling?  To get short, we can use the midpoint resistance at 95.07 shown in the chart, buying two September 93 puts (DAVUO) if and when the Diamonds get there. _______ UPDATE (11:52 a.m.): Stocks are only modestly higher today after an other-then-depressing unemployment report, so a short-squeeze to the levels where we’d wanted to get short seems unlikely. We’ll do nothing officially, but personally I’m going to take a couple of puts home with me over the weekend. My hunch is that the best prices of the day will obtain near the close. (Note: I bought some September 93 puts — DAVUO — for 0.86.)

SIZ09 – Comex December Silver (Last:16.130)

by Rick Ackerman on September 4, 2009 3:13 am GMT

The futures pushed slightly above a 16.265 pivot that had served as a short-term, minimum upside objective. The overshoot hints of further upside progress, presumably to the next Hidden Pivot resistance worth noting, 16.640.

$AAPL – Apple Computer (Last:524.65)

by Rick Ackerman on April 24, 2014 7:46 am GMT

Although the 525.27 midpoint support of the pattern shown evinced no discernible support, the pattern itself offers an attractive bottom-fishing opportunity that experienced Pivoteers will appreciate (see inset).  Without going into detail, I’ll suggest simply that you acquire a bullish stake near 522.91 in whatever way suits your style.  In this case, ‘near’ 522.91 means within four cents, since this set-up looks like it will work that precisely.  Stop yourself out if the stock touches 522.82, and don’t pass up an opportunity to take a partial profit if the bounce expected from 522.91 hits 523.24.  Thereafter, you’ll be on your own. (Note: If you buy options at the predicted low, stick with calls priced under $2, and plan on holding them for no longer than an hour, since they will be melting away quickly because of time decay. Ideally, you should try to spread them off by shorting calls of a higher strike against them for at least as much as you paid.)  ______ UPDATE (10:19 a.m. ET):  Boy, did I ever pick the wrong day to try stealing a few shares of this stock on-the-cheap! Apple took a psychotic, short-squeeze leap on the opening bar to $569 (!), goosed by news of the following: 1) a $30 billion increase in its stock buy-back plan; 2) an 8% boost in its dividend; 3) and a 7:1 stock split. Those who bought into this morning’s effusion should be asking themselves, Why is Apple being so nice to me? My guess is that it’s because the company knows that in the months ahead, especially with wireless carriers weaning customers off phone subsidies, price competition is about to impact Apple’s bottom line more than before.  FYI, the rally projects to exactly 626.60, where p=560.59 on the weekly chart, and A=447.22 on 9/20.

$+CLM14 – June Crude (Last:101.91)

by Rick Ackerman on April 23, 2014 4:41 pm GMT

The midpoint pivot at 101.28 that I’d flagged yesterday in the chat room as a place to try bottom-fishing appears to have served subscribers well. Several subscribers have reported getting long at that price ahead of the so-far 88-cent rally that has ensued. This morning’s low never exceeded the pivot by more than eight cents, and the rally since could have produced a gain of as much as $800 per contract for anyone who was aboard.  Because of the fills that were reported, I’m going to establish a tracking position for your further guidance. Assuming four contracts were entered initially, you should take partial profits on half now if you haven’t done so already. For tracking purposes, I’ll assume an exit at 101.80, a dime below where the futures are currently trading.

I’ll further suggest using an impulse leg-based stop on the 30-minute chart. This implies that a swoon now to 101.19 would take one out of the position. The stop-out price will rise to 101.45 if the current bar’s low, 101.72, becomes a point C low (where A=101.46 at 9:00 a.m. ET). _______ UPDATE (10:40 a.m. ET):  A very nasty downdraft has erased most of the rally in a single bar on the 30-minute chart.  Stick to the 101.19 stop for now, but use a breakeven stop if you held only one contract. _______ UPDATE (April 24, 1:06 a.m.): There were four swings in excess of 70 cents yesterday — not quite violent enough to dislodge us from our position.  For tracking purposes I am assuming that two contracts remain, with a profit adjusted cost basis of 100.48.  Exit one of the contracts now for around 101.70 (or catch-as-catch-can when you wake up, assuming you slept on the position); then, use an impulse leg-based stop-loss on the hourly chart to create a stop-loss for the last contract.  At this moment, that would imply stopping yourself out on an uncorrected plunge exceeding Wednesday’s 101.20 low.  _______ UPDATE (1:33 p.m.): Profit taking has lowered the costs basis on the remaining contract to 99.26.  As of this moment, using an ‘impulsive’ stop based on the hourly chart, the stop-loss for the remaining contract (or 25% of the original position) lies at 101.39.

ESM14 – June E-Mini S&P (Last:1878.50)

by Rick Ackerman on April 23, 2014 3:24 am GMT

The leaps have been opportunistic, powered by short-covering whenever the mood is right. Most of the time these days, however, the futures are taking mincing steps in both directions, creating a challenging environment for profit-seekers in the middle hours of the day. One thing to notice, however, is that the rallies, particularly in this vehicle, and whether weak or powerful, seldom proceed from the first signaled entry point.  Instead, the ‘money trades’ launch from a second or third point-C lows of ABCD patterns, and they do it with such repetitious reliability that one can practically discard the first signaled entry opportunities routinely. This is the kind of price action we might expect when ‘everyone’ thinks that stocks will move higher on a given day. ‘Everyone’ can be right, but that doesn’t necessarily mean they can make money easily. For your interest today, I am including a chart that shows a modest rally target at 1895.00. I’m guessing it will be easier to get short there with a tight stop than to get long for the ride to it. However, because the futures will be in record territory at that point, we shouldn’t want to impede their progress too aggressively. _______ UPDATE (April 24, 12:50 a.m.):  With yesterday’s rally — nearly all of it achieved in a single, short-squeeze bar toward the end of the session — bears are now trapped between the all-time high and a lesser peak just below it. Their acute, growing discomfort will likely be tradable, but not by way of any specific guidance I am able to provide nine hours before the opening bell.  New record highs are coming, but for most traders, the process of getting there promises to be more pain than pleasure.

$PCLN – Priceline (Last:1230.18)

by Rick Ackerman on April 22, 2014 4:00 am GMT

 Member-only content. Please Login or get a free trial of Rick's Picks to view.

Since March 20, when GDXJ was trading for around $40, I have been looking for a potentially important low at 34.00.  More recently, I revised that target to exactly 33.76, a ‘Hidden Pivot support’. Yesterday it came within a single penny of nailing the exact low of a vicious swoon. The low may or may not prove to be the last gasp of a correction that has been in progress for the last five weeks, but it stood to be an opportune place to try bottom-fishing.  In that regard, quite a few subscribers reported getting aboard at or near the low, and so I’ve established a tracking position for their further guidance. It consists of 200 shares with a cost basis of 33.58. The price takes into account an initial purchase of 400 shares for 33.79, then the taking of a partial profit on half the position at 34.00.  The bounce so far has hit 34.90, meaning GDXJ has trampolined $1.14 cents since hitting my three-week-old target.  For now, traders should stop themselves out of the position if GDXJ breaches two prior lows on the 5-minute chart without an upward correction.  As of this moment, that would imply placing the stop at 34.37 (and remember: it must be exceeded by an unbroken, downtrending leg).  You should also offer a round lot (or half of the remaining position, whichever is greater) to close for 36.80, good-till-canceled. _______ UPDATE (11:38 p.m. ET): The herky-jerky spasms in the first 90 minutes altered our stop-loss so that it would have taken a 34.07 print to stop us out — 23 cents beneath the actual low. I’ll now suggest raising the bar by using an impulse leg-based stop-loss on the 30-minute chart. That would imply a fall today touching 34.29.  Please note, however, that the stop could change if zig-zag action early in the session creates any distinctive new lows on the intraday charts. Our target for the next profit-taking interval is still 36.80. _______ UPDATE (April 23, 1:38 p.m. ET): A powerful surge today has hit a so-far high of 36.89, allowing anyone who was long to take a partial profit at 36.80 as suggested.  For tracking purposes I’ll assume 100 shares with a profit-adjusted cost basis of 30.36.  In practice, you should still be holding 25% of whatever position you acquired initially, with a 30.36 cost basis. For now, use no stop-loss. _______ UPDATE (April 24, 1:20 a.m.): For each round lot you hold, short one May 2 38 call if GDXJ gets within about 15 cents of 38.00.  At that price, the calls should fetch around 1.10-1.20.

$DXY – NYBOT Dollar Index (Last:79.89)

by Rick Ackerman on April 21, 2014 5:25 am GMT

 Member-only content. Please Login or get a free trial of Rick's Picks to view.

$USM14 – June T-Bond (Last:134^01)

by Rick Ackerman on April 2, 2014 3:21 am GMT

We don’t pay much attention to this vehicle other than at key turning points, but the short-term pattern shown looks like a lay-up for traders who see futures contracts as no more than bouncing dots on a chart, waiting to be exploited. There are actually two trade possibilities here: 1) a ‘camouflage’ short as USM slips below the 132^13 midpoint; 2) and a very tightly stopped long from within a tick or two of the 131^17 target. Good luck!  Please report any fills in the chat room so that I can establish a tracking position for your further guidance. ______ UPDATE (3:17 p.m. ET): The short was tricky to initiate, but once aboard, your reward came quickly with a drop to a so-far low at  131^26. As noted above, the short should be covered and reversed near 131^17. ______ UPDATE (April 6, 3:57 p.m.): The low of Friday’s violent price swings was 131^21 — not quite close enough to have gotten you long easily. Although this could prove to be an important low for the short- to intermediate term, under the circumstances I’ll assume no subscribers were filled. _______ UPDATE (April 11, 1:03 a.m.): Next important stop on the way higher: 135^17. _______ UPDATE (April 20, 11:10 p.m. ET): Last week’s fleeting stab to 135^10 came within less than a quarter-point of my target — close enough for us to consider it fulfilled. It took the futures more than a month to get there, so we should expect this correction-or-worse to last for at least a week or so before bulls attempt to push T-Bonds to new recovery highs.


This Just In... for Friday

About My Option Strategies…

by Rick Ackerman on September 4, 2009 12:01 am GMT

The following questions about my option strategies came up in the forum, but I am republishing them here because they may be of interest to a wider audience:

What is the advantage of going long one call, and then locking in a given spread via shorting another call, versus “locking-in” the spread by going long on puts instead?

My answer below is more generalized, but to address your specific point, we should prefer to “lock in” a profit by shorting a wasting asset rather than buying one ourselves.  For most option traders most of the time, shorting calls is MUCH more profitable than buying puts.  Indeed, in the several decades I have been trading options,  I cannot recall a instance when put buyers were happy for more than three consecutive days.  Even those who owned puts ahead of the 1987 crash had just two days of sheer bliss to get rid of them.

Is it that in the latter scenario, one is long twice, and can thus get screwed twice by the pros? I always thought the latter scenario would be a good one in cases of low implied volatility, where the loss on one is mitigated, and the gain in the other is increased when implied volatility rises during larger underlying moves. (That may just be retail-customer theory, which the pros have long beaten. But what do I know? I’m still waiting for someone to start offering straight options on the VIX. Thanks!

&&&&&

The spreads I prefer are intended to provide a highly leveraged shot at big profits, but without the usual, horrendous time decay. This tactic is especially useful if we expect a stock to rise (or fall) over a period of several months. We also seek to take advantage of fleeting spikes that goose option volatilities to the moon. If, for instance, SLW opens on a gap this morning (it did), we may have a chance to short Dec 15 calls when they are hugely overvalued — sell them, perhaps, for even more than the 0.45 we’d intended. (They topped at 0.50 before receding with the tide.). And, of course, we do so with the expectation that Silver Wheaton will be strong in the coming months, but not so strong that the December 15 calls will go in-the-money. We may ultimately decide to exercise our December 12.50s, a step in building a long-term position. RA

The Real Unemployment Rate

by Rick Ackerman on September 4, 2009 4:38 am GMT

Were you aware that the Bureau of Labor calculates unemployment in various and sundry ways that are not shared with the press?  Neither were we — until we heard about ‘U-6,” which reckoned U.S. joblessness at 14.8 percent back in February.  We would assume it’s much higher now, but unfortunately February was the last month given.  Incidentally, if 1933’s rate of 24.7 percent had been calculated using today’s dubious metrics, it supposedly would have been lower by at least five to ten percentage points. Click here  for the link.


Hidden Pivot Webinar & Tutorials
The Hidden Pivot Webinar is two-day event is designed to teach you the risk-averse trading strategies Rick has taken to his seminars around the world. Once you have learned his proprietary secrets, you will approach trading and investing with enough confidence to make your own decisions without having to rely on the advice of others. The next Webinar will take place on May 21-22, 2014. For more information, or to register, click here.