Yesterday morning, an hour into the new trading week, we covered a small short position in the Diamonds, booking a loss of $92 on some September put options. This speculative bet, initiated on the closing bell Friday, was inspired by a hunch that if Mr. Market really wanted to catch investors with their pants down, the Tuesday after Labor Day would be a perfect time to do it. Alas, even with news that should have been helpful in catalyzing a stock-market plunge, stocks trudged higher. The news concerned consumer credit, and it could have left no doubt about the dire condition of the American consumer. He in fact » Read the full article
The 1053.00 target given here yesterday remains valid, but the bullish case for the near term was weakened by the fact that all of yesterday’s action took place below a 1027.75 peak recorded on the way down a week ago. Because the plunge from that peak would have trapped many bulls, we should regard it as daunting if not impermeable. If the futures take a stab at it today, the effort should be considered ineffectual unless it exceeds the look-to-the-left peak at 1031.00 recorded on August 30.
Yesterday’s breakdown was serious, although I’d stipulated that DXY close for two consecutive days below 77.54 before we assume the worst. Tentatively, however, we’ll look for a quick drop to at least 76.05, or to 75.57, the Hidden Pivot given here originally, if any lower. My worst case number for the period preceeding the G-20 meeting in Pittsburgh at month’s end is 72.93. My hunch is that such pronounced weakness in the dollar is unlikely ahead of the meeting, but if it comes, stocks are going to fall too, and steeply.
Silver’s most recent peak at 16.860 fell 8 cents shy of a clear Hidden Pivot at 16.940, so we should assume the December contract has at least a little further to go before it hits something solid. Position traders should consider lightening up, with the goal of replacing on the pullback any shares sold near the target. If the futures close above 16.940 for two consecutive days, or trade more than 10 cents above it intraday, that would be a very bullish sign going forward.
Yesterday’s patently spurious plunge should look more like a swoon by Wednesday mid-morning, when I expect gold will have recovered. The sell-off was very obviously caused by the nasty bull trap that ran stops placed slightly above a 1008.80 high made shortly after 4 a.m. In a bigger picture, the 1074.50 target given here earlier remains valid, although I should introduce another, lesser one at 1016.60 that looks capable of showing some stopping power. The less stopping power it displays, the more quickly and powerfully the next thrust is likely to develop.
A subscriber reported success yesterday legging into the 1340/50/60 August 16 call butterfly that I’d advised. He did so 32 times at no cost, as suggested, but it took a $10 move in the stock between legs to get filled so advantageously. His maximum profit would be $32,000 with the stock trading at 1350 come August 16. Since he owns the position without cost, no loss is possible, even if PCLN should all to zero or rally to $1000. We’ll do nothing further for now, but I’d suggest that those of you who were unsuccessful keep trying. We’ll shoot for a partial profit if the stock rallies $40-$50 in the next few weeks, but otherwise we’ll doing nothing further. I’ve reproduced a chart that shows why our expectation of a $120 rally from current levels, to a 1358.18 Hidden Pivot target, is not exactly farfetched. Toward that end, a pop above the 1270.59 midpoint pivot would be most encouraging.
I’m tracking a single contract short from 1982.50, based on the following post by me in the chat room at 1:45 p.m. EDT: “Aw, screw it. Just for the hell of it, let’s offer a single contract short at 1982.50, stop 1985.25, risking a theoretical $137.50 plus commissions. I’d hate myself if we actually missed a great short up here.” Actually, it looked like we had missed the short, since I’d suggested initiating it at a longstanding Hidden Pivot target at 1984.25 that was missed by three ticks when this vehicle topped for the day at 1983.50 in the first hour.
The futures subsequently crept back up to 1982.75 later in the session, and it was then that I advised getting short for the hell of it. We remained short at the bell, but anyone who did the trade is advised to monitor it overnight, and to use the 1985.25 stop-loss suggested. That implies that were are risking a theoretical 2.75 points to stay in the trade. If we use the fixed risk:reward of 1:3 that I always advise, we need a move our way of at least 8.25 points, to 1974.25, before we implement a trailing stop. (Had we initiated the trade with multiple contracts, we would take a partial profit there on half the position.) I may suggest an impulse leg-based stop-loss if ESU falls straightaway to 1974.25, so stay tuned to the chat room if you’re unclear on how to do this. It is my intention to come out of this trade with at least a small profit even if ESU blows higher, as is likely. That will be possible if we get the pullback to 1974.25, since a 1981.25 stop-loss would become automatic at that point, subject to the substitution of a trailing stop. Meanwhile, I’ve reproduced an hourly chart (see inset) that shows the sinewy perfection of the pattern we’ve used to get short just beneath its 1984.25 Hidden Pivot.
The futures looked like they could go either way as Monday’s session drew to a close. However, the stall within 0.70 of the 1318.30 midpoint resistance I’d flagged implies that a decisive move past it would reach its D-target sibling at 1331.60. Alternatively, my worst-case target for the near term would be the 1278.20 Hidden Pivot support in the lower-right quadrant of the chart — or possibly even 1271.70 if any lower. The accuracy of this target would be affirmed by a bounce, possibly tradable, from within two or three ticks of the 1302.00 midpoint support. ________ UPDATE (9:57 a.m. EDT): Gold has bounced $14 this morning from a low just two ticks (0.20) from the 1302.00 midpoint pivot flagged above. Now, if the futures breach the support, we’ll know EXACTLY where they are headed. _______ UPDATE (July 23, 12:01 a.m.): Someone in the chat room said that because everyone seems to be bearish on gold right now, perhaps we should take the other side of the bet. I’m a bit bearish myself, and thus this response: “Rather than take chances and let gold disappoint us for the zillionth time, we should simply stipulate that the August contract close above 1318.90 before we get excited. That’s the midpoint resistance, on the 180-minute chart, of a=1292.60 on 7/15; b= 1325.90 on 7/27; and c=13-02.20 on 7/22. At that point, I’d lay even odds of a move to at least 1335.50; above 1337.00, the futures would be a good bet to hit 1381.40. Whatever happens, bulls will have to prove their case.
Netflix’s so-far $37 selloff has followed a peak last week at 475.87 that slightly overshot a Hidden Pivot at 474.50 I’d characterized as ‘a big-picture target where an important top is even more likely.’ A chat-roomer who evidently took this prediction to heart reported buying puts last Thursday for 1.24 that he cashed out for 8.90 yesterday. This could be just the start of NFLX’s comeuppance for all those who inflated this gas-bag to undeserved heights. If you took a position and are still holding it, please let me know in the chat room and I will update guidance. For now, though, let me suggest that you take profits on half of any short position entered near the recent top. _______ UPDATE (July 10, 10:23 p.m.): Bears failed to achieve a Hidden Pivot target yesterday, presumably because DaBoyz shook the stock down so hard on the opening bar that it exhausted sellers prematurely. The missed target suggests that traders will enjoy decent odds bottom-fishing the midpoint pivot shown at 433.62 (see inset, a new chart) with a stop-loss as tight as 8 cents. If it’s hit, expect the selling to continue down to at least 423.05, a Hidden Pivot that can be bottom-fished with as tight a stop-loss as you can abide. _______ UPDATE (July 14, 11:07 p.m. EDT): A turn from 428.20, precisely between the two pivots flagged above, left our bid high and dry. The bull leg that has followed could be the start of a rally cycle with the potential to reach 486.86. First, though, let’s see whether buyers can tackle a midpoint pivot at 457.53 that is associated with the target. _______ UPDATE (July 16 at 6:47 p.m.): Let’s not overlook the downside — specifically, the 433.69 midpoint pivot and its D sibling at 411.67. Bears can short the break for a move to either, and both can be bottom-fished with the tight stop-loss you can abide. ______ UPDATE (July 22, 12:15 a.m.): The stock turned higher from $2 above the midpoint support, implying that bulls are about to dominate once again. Call prices are on the moon, however — way too expensive for a straight directional bet. Instead, I’ll suggest buying the August 2 – July 25 calendar spread eight times for 1.50, day order, contingent on the stock trading 451.00 or higher. Please report any fills in the chat room. _______ UPDATE (July 22, 12:05 p.m.): With today’s huge air pocket, the stock obviously remains in the grip of DaBoyz. My assumption will always be that steep declines in NFLX are brazen shakeouts, engineered by strong hands to steal stock at fire-sale prices from weak hands. In this instance, the downdraft appears likely to hit 413.00 before DaBoyz run it up again. If and when that number is hit, you can bottom-fish there with the tightest stop-loss imaginable. (Note: I’ve revised the target downward by 0.96 since the original update. Also 435.25 is the midpoint pivot and therefore worth a tightly stopped short on a rally to it.)
The Dollar Index turned higher yesterday an inch from a correction target that had been three weeks in coming (see inset). This portends a bullish change for the intermediate term. The actual target is 79.74, and there is always a chance it will be breached. If so, there’s an alternative target at 79.62, but if it fails as well, especially without a fight, the implication would be more slippage to as low as 78.91, where a key low recorded in early May would thereupon beg to be tested. _______ UPDATE (11:17 p.m. EDT): Yesterday’s low occurred at 79.74 exactly. If the dollar is about to reverse and move higher, it will have to happen here, and now. _______ UPDATE (July 9, 2:33 a.m. ET): The dollar rallied strongly for a few days, but it is still not out of the woods because the move narrowly failed to clear an important ‘external’ peak at 80.38 recorded on 6/26. _______ UPDATE (July 16, 6:55 p.m.): DXY came within an inch of a clear and important Hidden Pivot rally target at 80.60 yesterday (see inset, a new chart). However, it will have to push past it to imply that the rally from the July 1 low (which had been predicted to-the-penny) is more than just a flash-in-the-pan.
A minor Hidden Pivot resistance at 10.57 is the nearest impediment, but if UNG gets past it and a peak at 10.75 made in late August on the way down, it would be clearing the path for yet more upside. The implications will not affect the daily chart, however, until 16.27 is touched.