Monday, March 29, 2010

The futures surpassed our 82.17 target by just 0.07 points, then slid steeply into week's end.  That doesn't tell us much by itself, but we'll have a better idea of how much weakness may exist below the surface if and when DXY interacts with a Hidden Pivot correction target at 81.37.  Sunday night's low was holding 0.06 points above it, but it would take a reversal and a print today exceeding 82.03 to put bears on the run.

The daily chart yields a mildly bearish picture for the near-term -- in this context, meaning the next 4-7 days. The outlook would change to very bullish if the futures can hit 1148.25 this week, a feat that would surpass no fewer than three external peaks.  There are no compelling camouflage opportunities in this environment, although a rolldown from around 1120.00 would set up a possible bottom-fishing opportunity near 1089 later in the week.

We hold two April 48 puts for a profit-adjusted 0.56.  The Tradestation platform is ignoring my request for put-option prices at the moment, so I'm flying in the dark as far as the recommendation to close out one of the two puts for 1.32 is concerned.  Leave the order in for now, but check back an hour into Monday's session to see if there are any adjustments. My current downside target is 47.63, somewhat higher than the 47.09 target we had been using.

Now that we have Sunday Night Opportunism figured out, meaning we "know" that it always pays to fade the trend just ahead of a new week, we can hoot and guffaw as shares move higher tonight. With the futures currently up 3.50 points, the implication is that DaBoyz are reading weakness, backing away from their offers so that widows and pensioners can foolishly chase the index futures higher.  So what to do? Although I rarely suggest playing fast and loose, because we are short one contract, effectively from 1220.00, we can afford to gamble a little. Continue to use a fixed stop at 1171.25, but make it o-c-o with an order to cover the short at 1144.00.  The worst we can do, in theory, is come away with a $2400 profit. If you are on board, continue to check for updates, since I may decide to let our profits run if the futures come down hard. _______ UPDATE (1169.25):  The futures rallied overnight to within a single tick of our stop-loss, but the selloff since has been too shallow to suggest DaBoyz are about to loosen their iron grip on shorts' cahones. In any case, we'll simply stick with our plan, using the stops given above.

Gold has made its move relative early for a Sunday night, spiking to a high on the opening bar before selling back down to unchanged.  I've looked at a bigger picture in Monday's touts -- one that portends at least mild weakness this week. Index futures are higher as of around 1:15 a.m. EST, but the rally feels like a fake.

Although Bank of America has won praise from the news media for offering to reduce the mortgages of tens of thousands of underwater homeowners, Rick’s Picks readers were less kind in their assessment of the new relief program. One reader who posted in the forum saw it as an act of desperation – B of A’s only hope of keeping foreclosed assets from being liquidated at street value. “[The bank is] leveraged so highly that they have no choice but to write down twenty percent rather than take one in the teeth,” wrote Mark L.  We ourselves had called mortgage modification the most consumer-oriented idea to come out of the banking sector since the real estate crash began in 2007. We hadn’t intended to sound so kind, since, no matter what kind of rescues are tried, we still expect real estate prices to fall by a further 35 percent before deflation has run its course in perhaps five to seven years. We also think that by bailing out homeowners directly, the banks have inadvertently made the underlying fallacy of mortgage relief transparent – so much so that even such as Paul Krugman, the aggressively obtuse economics writer at the New York Times, is likely to recognize the plan’s fatal flaw before too long. Krugman and his colleagues have come only halfway in describing the problem, noting the moral dilemma of rescuing homeowners who bit off more than they could chew with the tax dollars of those who were prudent enough to stay out of trouble. What the pundits have failed to point out, however, is that the prudent will pay an even bigger price when their homes drop in value by tens of thousands of dollars overnight after their “rescued” neighbors’ homes have been marked down by lenders. $250k Markdown