Tuesday, January 26, 2010

The long-term target at 27.15 that we used to protect our gains on stock acquired for 11.01 seems to have caught a major top very precisely. We bought a put and shorted a call just as the stock was apexing, and now we can try to further enhance the risk:reward on the option position. We're long a Feb 24 put for 0.35 and short a February 29 call for 0.60, and I'll recommend offering a February 21 put (UMUNT) short for 0.35, good through Friday. (Note: If you hold the position in bigger size, you should short as many options as you are long Feb 24 puts.)

The dollar is taking its sweet old time to consolidate, but there is no mistaking the energy that is building for a follow-through to last week's impulsive thrust.  The main impediment at the moment is a Hidden Pivot midpoint at 78.54. If and when it gets swept aside, look for a run-up to at least 79.05,  or perhaps to  79.40 if any higher.

Officially, February Gold is still headed down to at least 1074.50, but in practice it is putting up too respectable a fight for us to consider the target a done deal. Also in practice, the futures could create a potentially explosive impulse leg with a relatively minor thrust. Notice in the chart that there are three peaks, two of them external, that are spaced just $1.60 apart. An unbroken push surpassing all of them would be just the thing to energize bulls, but they would rampage on a breach of peak number four on the same push. Camouflage entry on a pullback from just above #3 might be possible, but any rally above #4 is bound to be noticed. The trick will be to use a hair-trigger buy-stop to enter if there's a quick, shallow b-c pullback from just above 1104.80.  Alternatively, if bullion falls, a minor midpoint at 1089.90 should evince support, although the pivot doesn't look sufficiently compelling to bottom-fish.

The market's failure to fall yesterday came as a surprise to me, but perhaps because there are no sellers around who still have their genitals, stocks simply needed a day to work off a mildly oversold condition. In any case, heavier-than-usual selling Monday night was creating numerous Hidden Pivot targets below.  My favorite is the 1051.00 target of the pattern shown in the chart.  The sibling resemblance between k-A and B-C is what drew my eye, and we may get confirmation of this relationship when ES hits the 1077.00 midpoint -- my minimum downside target for the near term.  Night owls are advised to try bottom-fishing there with a very tight stop-loss, since DaBoyz only rarely take stocks down more than that overnight unless they are expecting a selling avalanche at the opening bell. Keep in mind that the oh-so-coy strategy of the klismaphiliacs who work the night shift is to find a level at which selling dries up, and then to hold stocks at that level or above until the opening bell.  Occasionally they guess wrong, however, and they get buried by the unanticipated onslaught of sell-at-the-market orders that have built up just prior to the opening.  (Note to Harry and other eagle-eyed pivoteers:  Yes, I know the k-A segment I've notated in the chart ignores the true point 'A'.  However, when I speak of a sibling resemblance between k-A and B-C, it is the length and breadth of the overall patterns that I am comparing.)

Nothing like a good road trip to clear stock-market and newspaper rubble from the mind. I spent the weekend in Telluride with a college buddy, Peter Ricciardelli, who has lived there for nearly 30 years.  I couldn’t keep up with him on the slopes, since he’s in even better shape now than when we were at the University of Virginia in the late 1960s.  Hiking, biking and plenty of skiing have kept him as fit as a collegiate wrestler. That and plenty of cross-country skiing. He and his significant other, Lisa, a native Coloradan who lives in Montrose, made fresh tracks on Nordic skis Sunday while I took another crack at Telluride Mountain. I had the use of a lift pass that belonged to a friend of Peter’s -- a gold medallion that can be used by the bearer to access nearly every ski trail in North America.  Sort of like the “Letters of Transit” that got Ilsa Lund and Victor Laszlo out of Casablanca, no questions asked. It snowed intermittently the whole time I was there, leaving about two to three feet of fresh powder. The snow fell much harder in the San Juan Mountains south of Telluride, and there were reports that Durango was practically buried in flakes. In Telluride, the locals were ecstatic, since there hadn’t been any snow since just before New Year’s. By all accounts, business during the Christmas holidays was strong, notwithstanding a two-day power outage that left quite a few restaurants temporarily dark. Telluride is not easy to get to, especially in bad weather, and that’s why it appeals so strongly to corporate execs who can fly there in Gulfstreams. Arnold Schwarzenegger was the first big-time celebrity to arrive on the scene, and Tom Cruise followed.  Regular folks in Telluride don’t gawk at