January 2010

My immediate outlook is bearish, but there's not much to work with on the hourly chart to predict how bad the next leg down will be.  Assuming yesterday's bounce from within a tick of the featured pivot at 1106.90 is a distribution, it doesn't looked sufficiently developed yet to engender an equally nasty C-D follow-through.  However, since this assumption is all we've got at the moment, I'll go strictly by-the-numbers, using the obvious abc coordinates shown in the chart.  They yield a 1090.30 target, subject to a bounce at the 1103.20  midpoint support.  Both numbers would be invalidated by a wee rally surpassing the 1116.20 point 'C' overnight.   Alternatively, and once again, we'll use 1154.00 as a benchmark to alert us if bulls have sprung back to life.

A forecast for Comex Gold sent out to subscribers Monday night came within a dime of nailing the low of yesterday’s $33 plunge. That’s the good news, and some subscribers evidently were able to make hay with the prediction. The bad news is that it looks doubtful that the 1106.80 print that marked the February contract’s intraday low will hold, given the recent strength in the U.S. dollar. You can see how powerful the greenback’s uptrend is in the chart, below, of the NYBOT Dollar Index.  Yesterday the index scored its most impressive gain in six weeks, rallying to within a hair of a “Hidden Pivot resistance” at 78.69. The actual high was 78.45, and although it could turn out to be an important top, this looks doubtful given the shallow pullback that has occurred so far. If the resistance point is decisively exceeded today, however – say, by 0.10 points or more – or if it is exceeded on a closing basis for two consecutive days, we’d infer that the rally is bound for at least 80.78 -- roughly three percent above current levels. Gold (and silver) would likely come down hard if that were to occur, continuing a correction begun in early December from around $1227 an ounce. The correction has already gone as low as $1075 (basis the February contract), but renewed weakness in the precious-metals sector could easily create a lower low. We’ve provided a specific price target for such a correction in Thursday’s “Touts” section of Rick’s Picks, but if you are not a subscriber, you can gain access to this proprietary information, along with entrée to the 24/7 chat room, by clicking here.  Suffice it to say, if the Dollar Index were to reach the 80.78 target mentioned above, the corresponding pullback we might

With precious-metal futures getting sacked, we looked at a chart of the NYBOT Dollar Index that pointed to even more weakness ahead for gold and silver. The dollar is following through on a very impressive A-B impulse leg and appeared likely to blow through midpoint resistance within the day or perhaps the next. However, on the longer-term charts, the dollar’s surge over the last couple of months, powerful though it may seem, looked like no more than a middling bear rally. We also looked at the E-Mini S&P chart as it was breaking down in real time, but the lesson here was to not read more into the chart than it is actually revealing. The final chart we considered showed March Coffee to be slowly emerging fom the ravages of a bear market, though not yet a buy.

Having waited out our fanciful January 230 calls, Apple now appears hell-bound for the lofty target we'd originally bet on. I'm now looking for a pop to at least 228.69, subject to possible midpoint interference at 216.39.  Camouflage will be tough to come by in the wake of yesterday's 8.47-point short-squeeze, but I'd suggest shorting the target only if you've caught a piece of the rally to it.

Silver is still acting more bullish than Gold, although that doesn't necessarily mean it can go its separate way higher. Regardless, we're stuck with an 18.715 rally target until such time as the target's point 'C' at 18.475  has been exceeded to the downside. For Silver to get in bearish gear with gold, the March contract would need to fall below 18.400 today.

The 1106.90 downside target broached here yesterday is looking increasingly magnetic, along with another at 1111.30 that can be used as a minimum downside target through Thursday.  Alternatively, the futures would still need to hit 1154.00 today or tomorrow to suggest that the tide is about to turn again in bulls' favor.

Against the round lot of stock we hold for 11.01, we shorted a February 29 call yesterday for 0.60 and bought a Feb 24 put for 0.35.   The price we received for the call was less than I'd anticipated, but because it's a covered write, and because have such a large profit built into the position already, the extra dime we did not receive won't make much difference. Now, I'd suggest working the P&L numbers with the stock at various prices on February 19, when the options expire.  As you will see, our gain on the position will increase under a wide variety of circumstances, and if Akamai falls apart we'll be well protected.

The bullish pattern shown in the chart projects to 11048, and although the target isn't so compelling that I'd suggest shorting up there with the usual ultratight stop-loss, it will do just fine as a minimum upside objective.  Its sibling midpoint lies at 10639, implying that an 86-point selloff from here should be viewed as a buying opportunity.  More immediately, however, we should watch for signs of a top at 10739, just a hair above yesterday's high. That's the target of a smaller bullish pattern, and it could prove to be more than just a minor impediment.  If the futures close above it for two consecutive days, though, I'd infer that 11048 had become an odds-on bet.

My expectation of a big stock-market rally in the wake of a Coakley loss appears to have been a step behind Wall Street.  Index futures are down slightly at 10:35 p.m., even though Scott Brown has been declared the winner.  It's a clear case of  "buy the rumor, sell the news," although I can't imagine the selling accelerating overnight, since the news itself, with its implication that a do-nothing balance has been restored to Congress, could not possibly be construed by investors as any worse for America than a filibuster-proof Democratic majority.   In any event, the path of least resistance is bound to be higher, which would put in play an 1164.50 rally target. It's midpoint sibling, a Hidden Pivot resistance at 1145.50, is putting up a fight at the moment, but I doubt that it will be able to resist the bullish tide come morning.