March 2010

 The pattern from which the 1073.20 target disseminated yesterday was derived looks too pretty not to play out as drawn (see inset).  You can bottom-fish aggressively, and this time I'll leave the stop-loss up to you.  It can be as tight as 4-6 ticks.  If the target gets bombed, we'll need to consider the 1044.50 structural low -- early February's bottom -- as a minimum downside objective.

Just as we can attempt to understand this crazy world by asking ourselves what Brian Boitano would do, we can try to understand the market on a given day by asking what will happen if there is absolutely no one selling shares.  Under the circumstances, and as should be obvious to all, the broad averages would rise on the buying of Larry Kudlow alone.

In the absence of even a speck of buying interest, the 1175.75 rally target is still the most compelling choice we've got. Short there with an 1177.25 stop-loss -- a pittance if you were on board for the nearly $2800 ride we got from Monday's 1146.75 low. Alternatively, the futures would need to fall to 1157.25 today to turn the (very) lesser charts bearish.

We exited a bullish position in the E-Mini S&P yesterday on a trailing stop, expecting to reverse our strategy and get short at a slightly higher price.  The futures need only have tacked five points onto Tuesday’s highs to trigger the new trade; alas they spent all of Wednesday going nowhere as we sat on our thumbs, bored half to death. The charts suggest the market is tied up in knots -- and what’s a trader to do? We are given to infer once again that there is virtually no buying interest right now other than from bears covering shorts; moreover, when demand from that source is absent, stocks cannot make even an inch of headway to the upside. Just as obviously, there is no selling power whatsoever, and any market that has declined even moderately for a few hours is ripe for bottom-fishing. Under the circumstances, our most successful trades have involved buying or shorting futures contracts at, respectively, swing lows or highs. It is in fact possible to short repeatedly into a strong rally and make money consistently, provided your timing is right and you are quick to take relatively small partial profits on pullbacks. We have done this over and over – not so much because we expected to catch the Mother of All Tops, but because we might have; because it’s easy to do; and because we risked little or nothing in trying. Time Decay But attempting the same trick with put and call options is another matter, since time is always working against the retail customer, who is more or less forced by margin rules to be on the long-premium side of option trades. While there is no way for option buyers to eliminate the problem of time decay, we can try to mitigate its

Let's add the Dow Industrials to the list of major stock indices that we would like to short.  This can be done using a midpoint pivot of 111.50 from the weekly Diamonds chart.  We recommend selling at 111.37 with a stop at 111.77, risking $40 per 100 shares traded.  The equivalent of the pivot in the June Dow futures contract is estimated to be 11087.  (Posted by Doug McLagan) ________ UPDATE (2:40 a.m. EST, March 31):  In reconsidering the risk/reward characteristics of this trade, we have decided to cancel the recommendation.  Should the target be reached, however, traders should be alert to hidden pivot-based opportunities to get short if a reversal there appears to be underway.  For the Dow Jones Industrial Average, the midpoint is at 11156.44. 11156.440

The corrective pullback missed my minimum target by a few hundredths of a point, but we shouldn't let that deter us from acknowledging the power and potential of the thrust that appears to be under way.  Just one small change is warranted:  My initial rally target was 82.09, but I have raised it to 82.17.  Shorts can use that number aggressively, but you'll need to interpolate it to fit your vehicle of choice.

The E-Mini S&P has rallied 30 points off Monday's low, but I am not backing off the 1175.75 rally target we've used to manage the risk of our long-futures position. In fact, I've advised shorting there with a tight stop-loss, since, from a Hidden Pivot standpoint, it looks like a good place for the buying mania to take a breather.

On the 3-minute chart, the corrective pattern from Tuesday's high, 17.150, looks like it could find tradable support at exactly 16.860. The abc coordinates are delicate enough that I'll recommend using a stop-loss no wider than four ticks off a 16.865 bid.  If the order fills you'll be on your own, but you should try to take at least a small profit early on if it comes available. _____ UPDATE: Silver took a three-cent bounce from within a tick of the Hidden Pivot support noted above, so traders who bought on the way down could have booked a nice profit on a day when sellers prevailed.  The new downside target is 16.365, a Hidden Pivot support we can use as a minimum projection for now.

Gold has been screwing the pooch since Christmas, really, and there is therefore no point in getting worked up about intraday swings of $20 or less -- especially when they fail to create fresh bullish or bearish impulse legs on the hourly chart.  Today, that would require, respectively, a print at either 1127.00 or 1088.40.  Bulls looking for something subtler, albeit riskier, can infer a breakout at 1108.90, since that's where the 3-minute chart would turn positive. _______ UPDATE:  The April contract has dipped below 1088.40, creating a bearish inmpulse leg on the daily chart. Although I am not inferring any significant weakness at this point, neither does it portend an imminent rally to new all-time highs. What gold is telling us is that, even though there is good supportive buying underneath, a period of consolidation lies ahead. I wouldn't be surprised to see Gold trading a month from now about where it is today. Most immediately, the futures appeared bound for a minimum 1073.20.