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.
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.
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.
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.
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.