Thursday, April 8, 2010

Today's E-Mini S&P tout implies that downside risk will be limited, but even if that proves to be wrong you should try bottom-fishing with the tight stops suggested. In so doing, you will remain in control of your destiny no matter what Mr Market may have to offer.

Although we had our hearts set on shorting the little sonofabitch at 1196.50, yesterday's dive has turned us into reluctant buyers.  The pellucid abc down-pattern shown in the chart yields a 'p' midpoint and downside 'D' at, respectively, 1173.00 and 1166.50.  The higher number is unusable for bottom-fishing because it closely coincides with Wednesday's panic-stricken low;  however, you can bid the lower number with a three-tick stop-loss.  If it's bombed, notice that the obvious high at 1188.00 can be used as a proper 'A', providing us with a possible second chance for tightly stopped buying down at 1164.75. If that number is achieved with at least 90 minutes left in the session, you should buy it aggressively, stop 1163.75.

In order for this so-far phony little short-squeeze to mutate into a real rally, we'd need to see a pop above 116^26.5.  Technically, a move merely exceeding 116^12 (aka point 'C") would invalidate the downside target at 114^06 as well as the downtrend itself, but we're setting the bar just a tad higher so that the impressively vicious price action in this vehicle does not give us a false bullish signal.

Our 800 share position is showing a paper profit of more than $5,500, and we'll have the option of letting it run regardless of whether the eight May 18 calls we sold for 0.64 against the shares expire in- or out-of-the-money. By exceeding our Hidden Pivot target at 17.25 yesterday, the stock is implying more upside potential to as high as 18.94.  We'll have left $240 of would-be gains on the table at that point, but that sum would  represent less than five percent of our total profit at that price. _______ UPDATE (April 8, 10:07 a.m. EST):  Stay tuned for further guidance, since it may be worth our while to cover the calls if volatility gets pummeled.  At the moment, however, option volatility has shot up as a result of today's weakness.

Eagle-eyed pivoteers may have noticed that the #4 peak in the chart accompanying today's gold commentary is a counterfeit, since there is no stick-down low preceding it.  No matter, since it looks and quacks like a duck at first glance, and because it is certain to offer the kind of resistance that only a real rally could surmount. Our target is 1245 (A=1030.00, from 10/28), and it will be in-the-bag if buyers can muster the same enthusiasm today that they showed yesterday.

Having spent more than a month in limbo, gold now lies just inches from triggering a potentially explosive rally. Before yesterday’s sharp surge, disappointment in the form of leaden price action had dogged bulls since early March, when Comex futures failed by a hair to surpass an important prior peak after trending higher for five days. A Formula 1 racer might as well have blown a head gasket a hundred yards from the checkered flag. According to our proprietary Hidden Pivot forecasting method, a healthy rally re-energizes itself by surpassing two prior peaks with each new thrust.  So far in 2010, however, gold has conspicuously failed to do this on its daily charts. Now, however, the June Comex contract has a chance to blow past no fewer than four prior peaks without taking a breather, and to develop enough thrust in the process to all but clinch a test of last December’s all-time high at 1230.00. To be sure, we have detected no underlying weakness in bullion, even if it has been reluctant to pop to the next level. If it were otherwise, pullbacks would have reached their Hidden Pivot targets.  Instead, selling has dried up well short of the targets, and the subsequent rebounds have been relatively strong. The recurrence of this pattern in recent months has bullish implications, and they are corroborated by anecdotal evidence suggesting that physical gold has been difficult to buy in quantity whenever prices have dipped below $1100. What to Look For Now to specifics. The chart above shows that June Gold has risen without correcting since March 30, when it bottomed at 1102.40. With yesterday’s push to 1154.20, the rally has surpassed two peaks, but it need rise only a further 17.70 to exceed two more. That would create a powerful impulse leg

Gold was as strong as we’ve seen it in a while, up nearly $18 on the day and trading just above an 1148.00 rally target we’d used as a minimum upside projection. Our focus was not so much on marquee numbers and drum-roll targets, however, but on certain analytical details that can tell us whether the underlying trend is healthy. The answer was an unqualified yes in bullion, although, as we saw, not in such commodity staples as corn and wheat. Crude’s surge shows no signs of relenting, and so we should expect to see prices top $100 in this cycle.