Friday, April 23, 2010

A Pick of the Day trade anticipates a head-fake at day's end, but it does so conservatively enough that you can use a limit-order, lowball bid for some put options. As of around 8 p.m. EDT, the index options were offering few clues concerning how stocks will open on Friday.

Pick of the Day: We'll try to short a Hidden Pivot rally target today, but using two tactics that I usually do not advise. First, we'll be using a limit bid of 1.15 to buy two May 111 puts (which closed yesterday at 1.63).  Ordinarily, we would buy the options based on the price of the underlying stock.  I will also suggest that you not attempt this trade unless the opportunity arises in the final 90 minutes of the session; usually, I avoid trades late in the day.  We are breaking the rules for two reasons: 1) with DIA at 111.79, my rally target for today, the options would be fire-sale priced at 1.15;  and, 2) our low-ball bid anticipates getting the puts dumped in our lap at the tail end of a late-Friday short-squeeze.  (Note:  No one should have to pay for Rick’s Picks, and that’s why I offer a Pick of the Day:  to make back the cost of your subscription, at the very least, over the course of a year -- or a week, or even a day. )  ________ UPDATE (11:01 a.m. EDT):  Although the 111.79 target nailed the top of this morning's spiky rally to within a nickel, the trade was a non-starter for two reasons.  First, the target was hit, not in the final 90 minutes as specified, but in the first hour; and second, the  bargain-basement option price of 1.15 was based on the time decay that we might have expected toward the end of day on a Friday.  In actual fact, the puts traded no lower than 1.30.  (Premium values sometimes dive in anticipation of the weekend, especially when the option expires that month ; I ran theoretical values for April 26 to determine how much the puts would be worth using a very conservative estimate.)

The nasty chop of late has not diminished the likelihood of a shortable thrust to 1219.25, although it may have dampened the ardor of traders looking to ride the uptrend, such as it is. As of around 7:40 p.m. EDT, there was little for night owls to do, although a minor downtrend hinted of a potentially tradable bounce from 1199.50, give or take two ticks. _______ UPDATE (2:21 a.m. EDT):  As of the moment, this trade is working nicely, since the low so far tonight fell at 1199.25.   If you risked two ticks on the initial stop-loss , half the position could have been covered as soon as 1201.00.  I'll assume two contracts were acquired, however, and that only one remains.  Use an 1199.00 stop for now, switching to a 2.50-point trailing stop at 1206.25. _______ FURTHER UPDATE:  The futures stopped out the initial point 'C', making their eventual low at 1197.50 overnight before spiking to a so-far high today of 1210.25. Our position would have recorded a small loss of perhaps 4-5 ticks on the exit (or perhaps no net loss if partial profits were taken early in the trade).

A rally surpassing 18.325 is needed to turn the hourly chart bullish again, but failing that, we should use 17.750 as a bearish benchmark.  Yesterday's downtrend held above that midpoint support, but look for the futures to fall to at least 17.335 (or perhaps even 17.245) if it's breached.  Pivoteers may have noticed that there are several possible peaks we could have used as 'A', depending on which time frame is observed.  Paying close attention to action at the Hidden Pivot midpoint associated with each is the best way to produce a winner for bottom-fishing at the final 'D' low. ______ UPDATE (11:27 a.m. EDT):  After a wild end-of-night, the futures reversed sharply to begin the day, exceeding by two cents the 18.210 rally target we might have projected.  This is bullish going forward.

A trendline noted in the chat room yesterday by erstwhile cheese farmer 'Nutcase' looks magnetic, so we shouldn't be too surprised if June Gold tests the line before the next rally.  With an upward slope of about $7 per day, trendline support will come in around 1115.00 today and 1122.00 on Monday. If the rally occurs without such a test, however, it would still need to get past the 1171.80 resistance noted here earlier to get seriously airborne.  More immediately, the futures were in a minor uptrend at day's end with the potential to reach 1150.50.  The move would be subject to midpoint resistance at 1145.60. Alternatively my worst-case number is 1119.90, a Hidden Pivot support that can be bottom-fished with a stop-loss as tight as 80 cents. ______UPDATE (7:15 p.m. EDT):  The 1150.50 rally target has been trashed by a nasty downdraft that took out the point 'C' low at 1140.70. The nearest support is 1138.30, a Hidden Pivot midpoint. _______ FURTHER UPDATE:  Gold got quite a goosing this morning and was up $15 when it peaked at 1157.90.  The rally was not sufficient to create a bullish impulse leg on the hourly chart, however -- that would have taken a print at 1158.90 -- so let's be pleased but unexcited and leave it at that.

(Last time we heard from “Cameroni,” his downbeat economic forecast for Canada drew a deluge of responses in the forum, both pro and con. Things have only gotten worse since, he says, and Canada has now edged perilously close to the deflationary abyss that threatens to engulf so many other countries. Below is Cam’s up-to-date assessment of Canada at-the-brink. RA) Several weeks ago I wrote a letter that was published on Rick’s Pick’s under the headline “Canada Won’t Escape Drag of a Slumping U.S.” Since that time there has been a torrent of media analysis of Canada’s housing bubble from both within this country and from U.S. media. There has been a surprising and candid response by the Chief Economists of TD Canada Trust and the CIBC, two of Canada’s large banks. Who knew that Rick’s site was that influential? There is clearly a keen interest in the U.S. about the state of the Canadian economy, and until now few have questioned how we Canadians have achieved so much, so fast and turned in such an impressive economic performance, particularly as it occurred during a major global downturn. These additional remarks will hopefully shed some light on those questions and, while written for a Canadian audience, will likely resonate with our Southern neighbors who have already seen this story play out in their own backyard. Within days of the publication of my letter to Bob Tor, a Rick’s Pick’s contributor, U.S. bondholders of Canadian bank debt began demanding a risk premium as it became clear that a housing bubble was indeed forming in this country. The big four Banks here in Canada have now responded by twice raising mortgage lending rates over the past three weeks in order to cool the real estate market. The Governor of the Bank of

At www.blue-eyes.com, a terrific Web site created by one of my oldest friends, Rick Apt, our own Michael Johnston has weighed in with his picks for the Top 10 Worst Sinatra Reprise-Era Songs. Too bad the selections didn't cover the Columbia era ten years earlier, since that's when Frank cut a track that surely marked the bottom of his illustrious recording career.  I am referring, of course, to the infamous "Mama Will Bark," which Frank did as a duet with...Dagmar.