Wednesday, March 31, 2010

The Russell 2000 is near a midpoint pivot which can be shorted with a tight stop, using the exchange-traded fund IWM.  On March 23 we identified a weekly pattern with a "D" target at 70.67.  Since then a daily pattern has been confirmed whose midpoint is at 70.23, a pivot which is more likely to give us tradeable precision.  Traders can go short at 70.17 with a stop at 70.31, risking $70 on a 500-share position.  Futures traders can sell the June Russell 2000 contract at 697.70 with a stop at 699.10, risking $140.  For the futures, the pivot is at 698.35.  (Posted by Doug McLagan) _______ UPDATE:  The index has gone sideways with a vengeance and is about to extending the tedium into a second month.  Although you should keep the tradable numbers given above in mind if this vehicle interests you, we are taking it off the "Actionables" list.

The weekly chart yields a potential rally-stopping target at 252.17  (A=195.71 on February 26) that became an odds-on bet with yesterday's push above the midpoint pivot, 236.16.  If boarding for the ride up, I'd suggest using the 5-minute chart and the peak shown as a breakout number for camouflage.  I've sketched out a hypothetical trade, which would work best (i.e., with relatively little risk) if there's a slight breach of the  236.54 peak followed by a relatively quick  tracing out of b-c-x. _______ UPDATE (10:34):  The mindless herd is out in force this morning, wholly unaware that their panic-stricken actions and reactions are being governed by a Hidden Pivot.  Because 236.16 is obviously the key to today's swings, we can be confident that a decisive move above it will terminate precisely at 252.17.  _______ FURTHER UPDATE  (April 5):  Set an alert at 252.17 for your own purposes, but please note that the stock has been removed from the list of "Actionables."

We can use a midpoint resistance at 81.85 as a minimum upside target for now. DXY got within 0.15 points of it yesterday, but if it should close above the resistance, that would signal more upside over the near term to at least 82.69.  The pattern is shown in the chart (inset) and looks clean enough to make the midpoint a reliable benchmark.

We hold 800 shares with a costs basis that has been reduced to 11.75 by several covered writes done in succession.  The stock is working on a minor bullish impulse that could hit 16.01 if a midpoint impediment at 15.63  gives way.   Let's be prepared by offering eight April 17 calls short for 0.26, good till Friday. That price is a bit rich, so be prepared to adjust on-the-fly if I give the signal intraday.  ______ UPDATE (11:11 a.m. EST):  Cancel the offer, since time decay ahead of a three-day holiday weekend is causing the April calls to shed premium too fast to make them worth selling.  Instead, offer eight May 18 calls for 0.66, good till canceled.  The sale is predicated on a 17.25 target. _______ UPDATE (April 7, 10:13 a.m. EST):  Short the calls on the current bid of 0.65, taking a penny's discretion. (Note: With SLW on the move at the time of the update, the worst you could have done was 0.64, so we'll use that price officially.)

The trendline that we used as a rally objective yesterday comes in around 1122.20 today, and it still looks like the number to beat.  A push above it -- or even better, a close above it -- would light a fire under buyers.  However, if the futures simply roll over, look for a tradable bottom at exactly 1090.10, a midpoint pivot that we can use for now as a minimum downside objective.  Please note that its breach would portend more downside to as low as 1065.50.

We've exited short positions in the QQQQs and the E-Mini S&P because the tedium of waiting for a significant price movement, whether up or down, had become unbearable.  The QQQQ trade would have produced a theoretical loss of about $15; the E-Mini trade, a theoretical gain of about $2,400.  We'll look to do it yet again just as soon as the opportunity arises, but in the meantime there is only monotony to ponder.

(Editor’s note: Is economic recovery slowly emerging? And is there perhaps a benign side to the alarming expansion of the nanny state under President Obama? Readers aggressively rejected both of these ideas in responding to yesterday’s essay by “Donniemac.” Following are the comments of Chris T., whose thoughts mirror our own, especially where they pertain to the steepening decline in America’s standard of living.) I could not be as sanguine as [Donniemac]. We always read about all this being caused by the general profligacy of an entire generation. To some extent of course that is true. However, what is the backdrop to all of that? A few generations of Americans grew up in a generally sound economic environment, where the norm was that the next generation would do as well or better than their forebears. It is this situation that finally went under about 40 years ago, as demonstrated by the real median-wage “growth” ever since. In order to cope with this development, meaning finding a way to keep that “normal” alive, Americans adopted coping mechanisms. First was the double-earner family, but when that failed to suffice, it was credit, credit, credit. Those that benefit(ted) from this were happy to oblige. Both changes had their costs, and they were not only financial. The loss of a stay-at-home parent (usually the Mom) had many non-economic costs as well. (To those women who chose to work instead of mother, this was not a loss; but many had no choice but to work). Coping Mechanism Now, of course, even the credit coping mechanism has failed, so that at some point the bitter realization of having to do with less than our parents had will have to sink in. This should have happened long ago, of course, but paradigm shifts of this nature are