March 2010

Friday's sharp decline in the oil price kicked off a pattern which projects to three-week lows, just as the Commitments of Traders report informs us that the commercials have built up their short holdings substantially.  Traders should look for a smaller bearish pattern to emerge, possibly from the grey "A" marked on the attached chart, to enable a low-risk short entry.  Another possibility might come from a bounce from just above the midpoint pivot of the main pattern, at 79.97, creating the appearance of support and thus providing camouflage.  Traders who are unable (or unwilling) to get short should consider buying the "D" target of 78.80 with a bid at 78.82 and a stop at 78.66, risking a hypothetical $160.  (Posted by Doug McLagan)  _______ UPDATE (09:25 a.m.):  Traders who found a way to get short have been rewarded with a drop to 78.86 thus far.  That is four ticks above our recommended long entry, and with the subsequent bounce, we think it's time to invoke the "no sloppy seconds" rule and cancel the order to buy at 78.82.

The 15.555 downside target shown in the chart, a midpoint pivot that comes from the weekly bars, looks compelling enough to take seriously. We'll use it as a minimum downside objective for now and plan on bidding aggressively if the futures approach it.  More immediately, it would take a print at 17.165 today to turn the very lesser charts bullish.

Gold futures look too flaccid Sunday night to suggest they'll get much of a boost from the healthcare vote.  Although the scary package will create new outlays estimated honestly at $2.4  trillion, the implications for taxpayers are anything but inflationary.  Traders can use  a 1090.00 downside target, with possible resistance to the upside at 1112.00, the target's midpoint sibling. alternatively, bulls could take modest encouragement from a print exceeding 1109.90, since that would create a bullish impulse leg on the 3-minute chart. _______ UPDATE (10:33 a.m. EST):  The futures have been playing toe-sies with the range I'd provided, topping at 1108.60, then plummeting to 1092.10 overnight. The current target is 1082.70, subject to dithering near 1095 60, its sibling midpoint.

Although passage of the health care bill will have catastrophic consequences for a U.S. economy that was already a dead duck, the effects are going to be too long-term to be of much value to swing-traders. We should look for volatility to pick up beginning this morning, but I'd caution against jumping to conclusions based on gyrations that are liable to take a tortuous path initially.

Although the futures are currently down the equivalent of nearly 70 Dow points, it has become routine for me to issue a warning each Sunday night that it is bulls who are manipulating prices lower, the better to exhaust sellers and create a safe bottom for themselves.  We also note routinely that we cannot remember the last time that a Sunday night selloff showed any follow-through on Monday morning. That said, the move thus far is impulsively bearish on the intraday charts, though presumably bound no lower than the Hidden Pivot midpoint. It lies at 1146.75 and can be bottom-fished, presumably by night owls,  with a stop-loss no wider than 1.00 point.  Please note that if the stop is hit, the futures should be considered bound for 1142.00, the target of the larger pattern shown in the accompanying chart. That's a Hidden Pivot too, and it too can be bought with an 1142.25 bid, stop 1141.75.  _______ UPDATE (10:22 a.m. EST):  Traders who followed my advice caught the exact low overnight, 1146.75.  With the futures currently trading 9 points higher, I'll recommend taking profits on half  the position and implementing a four-point trailing stop once 1157.00 is hit. That will refresh the bullish impulse on the lesser charts.  If you initiated the trade on a single contract, use an 1151.00 stop-loss until 1157 is hit, then a five-point stop-loss o-c-o with an order to exit at 1160.25.  ______ FURTHER UPDATE (1:22 p.m. EST):  Single-contract positions exited at 1160.25 for a $650 profit on the trade.   Those who initiated the trade with four contracts should cover an additional contract now, on a 1062 bid.  Imputing the gains so far gives us a cost basis of 1113.00 for the single contract (or a fourth of the initial position) that we will continue to hold.  For now, use an 1175.75

Friday's commentary, "How Home Prices Will Find a Bottom," elicited responses over the weekend that were both provocative and insightful.  For one, there was this common-sense suggestion for investing during the very challenging times that lie ahead: "Buy real estate to rent out to people making their money in crisis-resistant jobs." We agree with this approach, as well as with the author's conclusion that better opportunities may be difficult to find if, as seems possible, the economic environment combines the worst features of deflation and inflation. For the most part, inflationists took the hind quarter in this discussion, although we would caution that it was not altogether favorably disposed toward gold as a long-term play.  To access the forum, click here. We have culled one post in particular because it brings considerable evidence to bear against a sunny view of Canada's economic prospects espoused by one “Bobtor.”  The gist of it is that Canada is so dependent on trade with the U.S. that it will not be able to avoid getting dragged into the morass that has all but asphyxiated America's economy. Here is the post, from a forum regular who goes by the handle "Cameroni": Well Bobtor, my fellow Canuck, we are indeed reading different newspapers. Or perhaps we just interpret the data differently. Last time I checked, Canada's (official) unemployment rate was still above 8%, and although there was the appearance of strong jobs gains in January and February, it is clear that many, many thousands of those jobs were generated by the Winter Olympics. How many? Well, enough to thoroughly skew the statistics, that is certain. Government stimulus measures (i.e., taxpayer-created jobs) still comprise a large portion of new hires, and that program is slated to end. What do you think will happen to those positions when

From an original position of four April 48 puts purchased when the QQQs were topping on Friday, we hold two contracts with a cost basis that has been lowered by profit-taking to 0.56. Now let's offer another put to close for 1.32, where I estimate they should be trading if the Cubes fall to a 47.09 target.  That's a Hidden Pivot, and it can serve as our minimum downside objective for the near term. I've included a snapshot of a calculator that helped me determine a fair value for the puts.  The 15.7 volatility came from Tradestation OptionStation Analysis and represents implied volatility for the "offer" side of the spread.

The Indoos are wafting effortlessly above a midpoint resistance at 10771 (60m chart, A=10641 on March 16), implying that a finishing stroke to its 'D' sibling at 10835 is imminent. That would put the Dow up just 64 points on Friday before a stall becomes likely.  Plan on shorting there using the Diamonds or the June Mini-Dow with a very tight stop-loss. If you choose the latter, a Hidden Pivot at 10790 is equivalent to the one given above for the DJIA. _______ UPDATE (12:11 p.m. EST): The Dow and related vehicles head-faked on the opening, recording highs that fell somewhat shy of our short offers.

Thursday's powerful impulse wave down in the Yen futures and the breach of the pattern's midpoint suggest that the D target of 1.1003 will be reached.  Although this is near the very round number of 1.1000, it might produce a tradeable bounce as it is otherwise "in the middle of nowhere" on the chart.  If the pivot gives way, the area around the prior low of 1.0984 will tell the tale.  That low was a bounce from just above two convergent hidden pivots, including the one pictured here on March 17.  A print below 1.0960 will leave no doubt that both of those pivots are broken and that we should expect the Yen to continue falling.  (Posted by Doug McLagan)