September 2009

Gold hasn’t made much headway since the beginning of the month, when COMEX futures surged $50 in the space of two days. With the dollar suffering from the vapors, there’s no compelling reason why the December contract should have loitered near $1000 ever since.  Granted, that’s a nice, round number, and it probably works smoothly with put-and-call hedges that allow bullion dealers to borrow as much of the stuff as they’d care to without risk. It is the same thing we see on expiration Fridays in the equity options market. When a stock gets “pegged” to a strike price, it’s possible for even small players to transactquantities of stock with notional values in the millions or even tens of millions of dollars. Their tactics go by such names as conversions, reversals, jelly rolls and buy/writes, and they usually yield relatively small profits over short periods of time, albeit with nearly zero risk. That’s about the only reason we can think of for gold to have turned flaccid at $1000:  It is a price that is beautifully suited to arbitrage.  Although this may have caused gold futures to flatline on the intraday charts (see above),  it has set traders’ otherwise stony hearts palpitating with anxiety:  over Barrick’s decision to cover its short hedges; over the G-20 meeting in Pittsburgh at the end of this month; and over the latest Commitment of Traders report, which showed the smart money to be betting the “Don’t” line heavily. In fact, relative to open interest in gold contracts, Big Four traders are long 18.5% versus short 28.9%. The figures are even more bearish in Silver, where the big commercials are short more than four contracts for every one they are long.  Are these guys ever wrong? someone asked in the Rick’s Picks chat room yesterday.

Index futures seemed to be getting traction around midnight after a mild battering earlier Sunday evening, but it would probably take some pseudo-bullish news to trigger a rally strong enough to reverse the tide on the opening bell.  I'd be wary of any attempt that fails to clear the peak made in the final 15 minutes of Friday's session.

Silver died after topping last week just above a 16.940 target I'd flagged, but the pullback will do no damage to the hourly chart unless it exceeds 15.850 in a downdraft today or tomorrow. Alternatively, the first hint of recovery would come today on a print exceeding 16.730.

The rally in the long bond must have a little ways to go, since this inverse vehicle has an unachieved downside target at 43.18, roughly 6 percent below these levels.  If TBT gets there it could provide an excellent camouflage opportunity for bottom-fishing, so stay tuned. Note how the target falls in-between two prior lows, one of them an important one.

Because I've hung out a bullish target in the _____, we should watch closely to see how stubbornly the little sonofabitch bucks weakness in the broad averages.  We may have an opportunity to observe and learn Monday morning, since Goldman had already begun to sell off on Friday, well before there were any clues that stocks would get hit Sunday night. If the market drags GS lower, the first Hidden Pivot support where we could try bottom-fishing would be at 172.77, stop 172.66. You'll be on your own if the order fills and initially goes your way.  You should also be watching for signs that a recalcitrant Goldman is keeping the market from falling apart, as might be the case. _______ UPDATE (10:28): After falling shy of our downside target by a relatively paltry 40 cents, Goldman suspiciously did NOT participate in this morning's phony selloff, thereby telegraphing the broad rally currently under way.

Gold is feigning weakness Sunday night -- or perhaps not -- but its downward drift will have no significance, even on the lesser charts, unless it takes out a Hidden Pivot support at _____.  Ordinarily that would be a good spot to try bottom-fishing, but not this time due to it close proximity to a visually obvious low made Friday on the way up. There may be an opportunity for night owls to board with "camouflage," so I've included a chart that shows how just in case.

The futures are getting whacked a bit harder than usual Sunday night, hinting that it may be more than a garden-variety shakedown.  That doesn't mean DaBoyz will not find a price at which they can rape fearful sellers -- only that the process may require a little more sneakiness than usual. In any event, the hourly chart will remain undisturbed as long as the futures hold  above 1027.00. A print below that number would create a bearish impulse leg, however, and it would be especially significant because it would follow a peak that had missed a Hidden Pivot target (i.e., 1053.00) by nearly five points.

We’ve always believed that the stock market’s ups and downs are driven not by anything so mundane as news events or the economy, but by the same mysterious cyclical forces that govern the physical universe. Nevertheless, two rapidly evolving news stories threaten to abruptly reverse Wall Street’s heedless bear rally, which recently entered its seventh month. The first story concerns the impending collapse of the Obama presidency. Although he ran a very impressive campaign, Mr. Obama appears hell-bent on committing political suicide.  The President is clearly obsessed with radically revamping the country’s health care system. But his relentless efforts to do so have turned many voters against him,  including some who supported his election bid. Most recently, a Republican congressman drew heat by calling Mr. Obama a liar during a health care address to the nation. However, it bears mentioning that there are some in his own party, most notably U.S. Sen. Dianne Feinstein, who have said the same thing, more or less, but more tactfully – i.e., that Mr. Obama’s numbers are not to be believed or trusted. Russia No Ally The other developing story is the looming showdown with Iran, which last week said it will not be persuaded to give up a uranium enrichment program that’s making the rest of the world extremely nervous.  Mr. Obama had stated during the campaign that the U.S. and its allies would not stand by idly as Iran developed nuclear weapons. However, it is now clear that Russia, an absolutely crucial ally in any sanctions that might have been used against Iran, will not lift a finger if the mullahs continue to churn out weapons-grade uranium. Last week, Russia’s foreign minister asserted that Iran’s nuclear program posed no threat to the rest of the world, echoing thoughts believed only by America’s enemies

Recently, I told the story here of Louis Piro, a Mountain View barber who made millions by plowing every dollar he could save into the shares of growing companies that paid generous dividends. Following is another uncharacteristically bullish column that I wrote for the Sunday San Francisco Examiner around that time, in the late 1990s. It ran under the headline “New Global Middle Class Fuels Stocks,” and its thesis is that U.S. multinationals stood to benefit hugely from the rapid rise of an Asian middle class. This scenario was delayed by the collapse of the Thai baht in 1997 and the severe Pacific Rim recession that followed. It now looks like it will be delayed even longer by a looming : Second Great Depression in the U.S.  You can judge for yourself whether such optimism is still warranted. U.S. stocks have been in a scorching, vertical climb for months, confounding the bears and effortlessly vaulting the immediate expectations of the most ardent bulls. What factors might account for this powerful rally? Could there be forces at work besides the steady... Read the Rest of the Article | Comments *** 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 Rest