Wednesday, December 23, 2009

Despite my bullish outlook for the E-Mini S&Ps,  the 45.44 rally target flagged here a while back still looks sufficiently persuasive to justify our risking small change to short it.  I'll suggest buying two January 46 puts (QQQMT) for around 1.02 ( instead of the original four January 45 puts) when the Cubes get within a few pennies of the target.  Stop yourself out if the puts trade 0.15 below their purchase price.  If the stop is hit, the Cubes are signaling more upside to at least 46.00, another place where we would attempt to get short.  The last stop, Hidden Pivot-wise,  would be at 46.91, where I'll be more eager than ever to lay 'em out.  Bottom line: Save some ammo for later, just in case.

Targets posted for gold and silver today should see us through Christmas, at least.  In any event, Thursday's edition will be abbreviated, with updates for gold and the E-Mini S&Ps, though not for my daily rant.  I will be in the chat room briefly Thursday morning, but to all who will be away from their desks that day, let me wish you a merry Christmas and all good cheer in the holiday season.

A while back, I identified a Hidden Pivot at 607.28 as a minimum rally target, suggestion that you short this chazzerai when it hit our number.  That day has nearly arrived, and the bet is still on.  Short by buying two January 570 puts  (GOPMN), day order.  You can use a 1.90 limit order today if you want to park the order with a broker. However, this estimate is subjective and may go unfilled if put-option volatility rises as GOOG rallies toward the target.  I've included a snapshot of an options calculator with a 21.1 implied volatility that closely approximates the option's actual volatility with the stock trade about $6 shy of our target.  The best way to get a fair price on the option, however, is to eschew calculations and simply position your bid so that it is in line with the spread as GOOG approaches the target. _______ UPDATE (1:00 p.m.EST):  I've issued a "sell" order in the chat room, since GOOG trashed the target after slightly exceeding it on an opening gap.  A chat-roomer reported paying 2.35 for the puts -- reflecting a volatility explosion as GOOG climbed, and so there would be a $50 loss on the trade if exited on a 2.10 bid.  It was possible to avoid the loss, however, and perhaps to come away with a small profit, if you used the initial pullback to 605.00 after the target was hit to take a partial gain.

Someone in the chat room mentioned the prospect of Silver leading Gold in the next rally cycle.  I won't quote odds on this bet, but I am pretty confident about where March Silver is headed over the next 4-6 days if it closes below 17.070 for the week:  to 16.325, a Hidden Pivot extrapolated from the nice pattern shown in the chart. That would be a back-up-the-truck buying opportunity were it not for the pivot's close proximity to some supportive lows recorded in late October and early November. But it is a buy-able pivot nonetheless, as well as my minimum downside target for the near term.  Please note that the odds of a further correction would be significantly diminished, and bulls returned to parity if not immediate dominance, if 17.605 is exceeded today.

This soporific excuse for a rally has been paradoxically fascinating to watch over the six weeks during which it has metastasized.  The observable fact is that there are practically zero died-in-the-wool bulls buying shares. Instead, even if an inch shy of brain death, the stock market remains oh-so-coy, impelled higher mainly by two factors:  too much financial liquidity chasing too few investment alternatives; and, short-squeeze opportunism driven by whatever shred of economic news could conceivably be spun as even faintly positive.   And what of the sell side?  Actually, there are no sellers.  Would you short this market? Neither would I.  Is there a speculator even financially able to short this market?  Probably not. Anyone with the brains and the guts to do so aggressively would have been beggared by the rally months ago.  Considering the foregoing, we shouldn't be surprised to see the broad averages continue to climb even as the U.S. edges toward the next, presumably spectacular, economic cliff.  To wrap up today's analysis, let me mention that it is for a reason that I would not short the E-Mini S&P at these levels: to wit, every pattern save the one associated with the long-term bear market is pointing higher.  I now see no end to the rally till at (the very) least 1146.50. We can short there till our heads cave in -- of course with a stop-loss as tight as a miser's squint in the noonday sun.

Here's a 240-minute chart that clearly shows the provenance of the 1059.80 target drum-rolled in today's commentary. Pivoteers should find some things to love here, including a "sausage B"  that was followed by another down-leg that exceeded no fewer than three (!) external lows.  The 'A'  is an over-the-falls, single-bar gem as well, and that's why I find the pattern so very compelling. If and when the futures fall to the pivot, you can bottom-fish there with a stop-loss as tight as $1.00.  If this should occur on Thursday, I'd suggest exiting the trade if it has not gone at least $6 in-the-black by the bell.  Please note:  The bullish benchmark at 17.605 that I've flagged in Silver has an analog at 1122.75 in February Gold. That would be quite a rally, for sure, but it would take no less than that to dispel all doubts that bulls are back in the driver's seat.