Friday, May 7, 2010

We hold 800 shares with an adjusted cost basis of 11.75 against eight May 18 calls shorted for 0.64.  We''ll let the options ride for now, since their volatility has exploded with the wild moves lately in the underlying stock.  The May 18 calls are currently trading for around 1.06, but if their implied volatility were lowered to what it was just two weeks ago, the calls would be hovering around 0.77.

Although some might choose to believe that yesterday's spectacular stock-market collapse was caused by a mis-keyed "sell" order in Proctor & Gamble, we'll assume that the psychotic swoon in fact manifested a deeper truth concerning the stock market at this moment in time.  These are extraordinarily interesting times in which we live, and no one should be shocked when the stock market deigns, on occasion, to imagine that all will not turn at well.

There was grumbling in the chat room yesterday because of Silver's disappointing performance relative to Gold, but no one should doubt that the former remains in a bull market, even if one that is sometimes manipulated against all logic. If it's any consolation, JP Morgan and the usual bunch of dirtbags failed miserably to push the future down, even, to the midpoint support of an in-your-face downtrend on the hourly chart. That would be at 16.870, but we shouldn't sweat it, since it will take only a rally exceeding 17.895 to put bulls solidly in charge once again.

The Hidden Pivot rally targets furnished here yesterday provided useful benchmarks to gauge the strength of the uptrend, since each in its turn very precisely defined a minor-cycle peak.  The highest of those targets,  1208.90, was eventually exceeded by $3 -- enough for us to infer that buyers will continue to dominate in the days ahead. If so, look for the next thrust to carry to as high as 1224.70.  That target would be corroborated by a pullback to around 1190.40, its sibling midpoint. You can try bottom-fishing there with a stop-loss as tight as 1189.90, but the officially approved tactic would be to initiate at 'X' of the first uptrending ABC pattern on the lesser charts (i.e., via camouflage).  If this occurs during regular hours, I will be in the chat room to guide you.

We'll need to see how things unfold over the next few days to determine whether there's another shoe to drop.  In the meantime, take a mental snapshot of the hypothetical price action I've sketched on the hourly chart, since it imagines a couple of Hidden Pivot midpoints that might form roughly as shown.  There are no high-confidence targets for today, just a 10633 midpoint resistance from the one-minute chart that lies slightly above yesterday's recovery high.

The panic we’ve all been waiting for hit like a tsunami yesterday, sending the Dow Industrials into a thousand-point dive, 700 of it occurring in under ten minutes. We’d warned of this just a few days ago when we wrote that the market was “vulnerable to a sudden, even spectacular, selloff.”   Yesterday’s selling was indeed so ferocious that it might have gone on for another thousand points if not for Mr. Market’s addiction to round numbers.  With the Dow down almost exactly a thousand points, the broad averages turned from their lows like a cattle stampede encountering a wall of fire. We should consider it a warm-up for the real panic that surely lies ahead.  Thursday’s hysteria will be just a sound bite by the time it is replayed on the evening news, but when a truly destructive panic finally hits, it will run its course on Main Street as well as Wall Street. Safeway shelves will be stripped bare as quickly as stocks were stripped of value yesterday afternoon, and branch banks will run out of dollars before even a half-dozen customers have had a chance to deplete their accounts. In this scenario, it’s hard to imagine that things would return to hunky-dory the next day. Grocery stores would find it impossible to keep certain crucial items, such as toilet paper and batteries, in stock. The same goes for the banks, which hold but one crucial item in inventory. But what of the stock market?  Although the Dow had recouped 650 points of yesterday’s losses by day’s end, even the chirpiest news anchor would not deign to suggest that this warrants a sigh of relief.  Anyone who watched the stock market come unraveled on a monitor yesterday could only have been infected with a sense of foreboding. Under the