February 2010

In trading Sunday night, the futures were frolicking above the midpoint resistance shown in the chart, but they'll need to close above it on Friday to significantly shorten the odds of an easy finishing stroke to 1167.75.  More immediately, a push above a minor Hidden Pivot midpoint at 1111.25 -- a tick above Friday's high -- would open a path to at least 1117.25. DaBoyz are unlikely to stick their necks out overnight unless there is news enough to slap shorts around with impunity, but if they can keep the chop shallow in the meantime -- above 1103.00, say -- goosing the futures to 1117.25 at the bell should be a piece of cake.

The price of gold has corrected 15% since Comex futures hit an all-time high of $1229 per ounce in early December. How much more weakness will it take for gold to finish basing for the next big move -- a rally that we expect to carry into the mid-$1400s?  A definitive answer could come this week, since the U.S. dollar, which has been in a bear rally since Thanksgiving, is close to some key Hidden Pivot resistance points. If the dollar were to blow past them it would be akin to the groundhog seeing his shadow – i.e., yet more weeks of winter for gold investors. However, there is evidence to suggest that it might be winter of the mildest sort, since gold has begun to show resilience whenever the dollar rallies. The graph above shows this.  Note that the price of gold declined more or less proportionally when the dollar started to rally in early December. Their inverse movement stayed pretty close until recently, with the Dollar Index rising 9.5% off its lows as gold futures fell by 8.7%. But starting about two weeks ago, gold began to rise even when the dollar was firm. To be sure, the dollar’s steep upward trajectory has flattened some since early February. But it has risen about 0.25% nonetheless, presumably consolidating for another thrust.  Despite this, gold has managed to eke out a 6.5% gain over the same time – a performance that should hearten investors who have patiently awaited an end to a correction that is now in its third month. $1085 ‘Worst Case’ For the time being, though, the dollar appears bound higher. Hidden Pivot analysis suggests that the immediate upside potential of the Dollar Index is about 3.3%.  A corresponding decline in gold would bring the April Comex contract

My friend Larry Amernick's "Trinity Indicator" has just turned bearish on stocks:   "The Fed’s announcement comes at an important technical juncture," writes Larry. "The recent bounce from the 9% correction sent the market into overbought territory and fired off a short-term sell signal from the “Trinity Indicator.”  This indicator combines signals from my market breadth Oscillator, option sentiment indicator, and Rydex sentiment indicator." If you'd like to sample his fortnightly newsletter, The Amernick Report, and find out how far Larry expects stocks to fall, e-mail him at Amernick@comcast.net  and tell him I sent you.

Is the Fed clever enough to engineer a $1.5 trillion bailout of Fannie/Freddie without a Congressional vote?  You bet. Read how  in this fascinating analysis from Hussman Funds.

The Dollar Index has unfinished Hidden Pivot business just above yesterday's high, and that's why I've weighted today's Gold forecasts with a dollop of skepticism.  Index futures were off significantly in night trading, but when was the last time anyone can recall such manipulated selling begetting still more selling on the opening?   Bear in mind that the very purpose of such shakeouts is to create a dependable floor at whatever level the selling dries up. DaBoyz will buy at that price all night long if the volume appears to be tapering off.

Let's roll our covered write into March, shorting the March 17-February 17 call spread for 0.40 or better.  We currently hold 800 shares with a cost basis of 12.55 against eight February 17 calls shorted for 0.40.  They can be covered for 0.01-0.02, but I'd suggest shorting the March calls first, since there is little risk of the Febs running away.  Check with your broker before doing so, though, since, technically speaking, it would leave you naked short calls intraday.

Just a little more upside will max out a pattern begun on Feb 3 from 78.68. The Hidden Pivot lies at 81.56, just 0.26 points above yesterday's spike high, and it can serve as our minimum upside projection for the near term. A decisive move through it intraday, or a close above it, would be hinting of more upside over the near term to as high as 83.33. That's the C-D midpoint of a pattern that looks compelling on the weekly chart.

Some chartists like to work ABCD patterns in the manner shown -- and so shall we for once, although I'd suggest using the 'D' target analytically rather than for bottom-fishing.  Other potential swing lows for today lie at 1083.50 and 1077.75.  Those numbers represent, respectively, a 50% retracement, and a 61.8% retracement, of the rally cycle begun  on February 12 from 1060.00.

Silver has lagged Gold since the February 5 bottom and is now in a nascent corrective pattern that could yield a low-risk buying opportunity at 15.180.  This is a Hidden Pivot midpoint, and its provenance is shown in the accompanying chart. Bids should be placed at 15.185, stop 15.170, good through Monday.