January 2010

We'll use a cost basis of 0.72 for the two March 44 puts that I recommended buying yesterday.  They opened at 0.75, but the underlying stock was a tad shy of our 46.04 rally target at the time.  (The intraday low on the puts was 0.68.)  Now, offer two March 39 puts (QQQOM)  short for 0.77 apiece, good-till-canceled.  If successful, we'll hold two bearish put spreads with the potential to produce a gain of as much as $1000 with no possible loss.

This is the nastiest break we've seen in two months, and we should treat it as though it were a possible resumption of the Mother of All Bears.  The low of yesterday's plunge slightly exceeded a 0.618 retracement of the rally leg begun in mid-December, creating a bearish impulse leg on the 240-minute chart in the process. This is doubly bearish and suggests the selling has yet to even warm up. There are no useful Hidden Pivot targets that I can offer you at the moment, but I'd suggest using 1139.25 on the 240-minute chart for a point 'A' when the down-pattern now evolving develops a usable corrective rally.

Brace for more weakness, since it looks like the futures are about to fall to at least 1075.40 over the near term, or perhaps to 1068.00 if any lower.  The latter number, a Hidden Pivot, looks pretty compelling on the 240-minute chart that I've included.  Alternatively, it would take a pop today to 1107.00 to turn the lowly one-minute chart bullish. That would exceed a very subtle look-to-the-left peak recorded yesterday morning on the way down.

A link to John Hussman's lengthy but promising "Inflation Myth and Reality" came via e-mail at the tail end of this 16-hour work day, but I lacked the energy to imbibe it as bedtime reading.  To anyone who is  interested, or who wants to get a head start on the discussion,  click here  to access the essay.

A bearish pattern analogous to the one I've identified in Gold projects to 17.170, a target whose attainment will be subject to a possible midpoint bounce near 17.590.  Both numbers will remain viable as long as 18.015 has not been exceeded to the upside.

Apple is struggling to reach a midpoint target at 216.39, but we should continue to use it nonetheless as a minimum upside objective unless 204.10 is exceeded to the downside. If the stock gets past the resistance and closes above it for two second days, we should infer that buyers are capable of pushing AAPL to 228.69,

In after-hours trading, the Dollar Index was creeping up on the 78.69 midpoint resistance flagged here earlier. Its ability to resist the trend should tell us whether we are likely to see a renewed surge to 80.78, its 'D' sibling.  If today's settlement is above the midpoint pivot, a move to the higher number over the next 7-10 days would become no worse than an even-money bet.

Since I'm feeling no fear whatsoever about the possibility of a stock-market collapse, it's probably time to buy some speculative puts.  So that it is not mere "feelings" that inform this trade, we'll use a 50% retracement of the decline from Tuesday's high as a place to get short.  The corresponding number is 46.04,  so buy two  March 44 puts (QQQOR) if and when that number  is closely approached. The puts should  be trading for around 0.72-0.76 if you want to simply enter a limit bid before the opening.

The pattern shown in the chart leads nowhere no matter how you slice it.  That's two weeks' worth of paint drying that you see, and far be it from me to guess when something is going to change.  A semblance of a rally reappears if you take a few steps back, and it even produces a rally target of sorts:  1163.50, a tad below an earlier target at 1166.00 (same pattern lower point 'C'). I'd infer the futures are on their way there if they can close above the 1144.50 midpoint for two consecutive days.  More immediately, traders can try bottom-fishing at 1129.25, stop 1128.50, provided  1138.25 is not exceeded to the upside first.  If the stop-loss is hit, consider it a warning of more slippage to as low as 1120.50. _______ UPDATE (9:17 a.m. EST): A thrust to 1138.25 overnight invalidated the trade as given, although not the downtrend. The futures would now have to pop to 1143.25 for bulls to take charge.