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COMMENTARY for Monday
TODAY'S ACTION for Monday
Rick's Picks for Monday
Early Sunday evening, index futures were caught in a vicious short-squeeze that bids fair to recapture all of last Thursday’s losses. It would seem to be drawing its energy from the latest — and rather large, even by American standards — European bailout package. The loan guarantees just announced amount to some $560 billion, offered to the EU’s most troubled economies. This PR hoax could have legs, but from a trading standpoint it will lay an egg if it fails to push the E-Mini S&Ps above 1136.00. That is Thursday’s recovery high, and it lies somewhat above the 1130.75 peak achieved so far this evening. The futures are currently trading for 1122.50, equivalent to a 140-point rally in the Dow above Friday’s settlement price. _______ UPDATE (2:32 a.m. EDT): DaScumballs are doing what they’ve been doing so very deftly since March 2009: lifting index futures as high as they can get away with on razor-thin Sunday night volume. From a Hidden Pivot standpoint, DaBoyz can get away with as much, perhaps, as 1170.75.
Friday’s robust thrust fell ten dollars shy of a 1224.70 target, subjecting Gold to a little more bullying than usual Sunday evening. We can ignore it as long as the futures hold above 1189.20, but anything below that number will create a mildly bearish impulse leg on the hourly chart. If there’s opportunity brewing for night owls, it would likely come from the 15-minute chart (shown). The modest downtrend has a midpoint pivot at 1195.80 that you can bottom-fish with a three-tick stop-loss, and another Hidden Pivot at 1188.90 that deserves the same treatment. Both lie just below “structural” supports whose breach will be read by most traders as breakdowns. _______ UPDATE (2:21 a.m. EDT): A rally Sunday night invalidated the two downside targets but created two new ones. The first is a midpoint support at 1198.60 that has already been breached; the second, a ‘D’ target at 1190.70 that you can bottom-fish with a stop-loss as tight as four ticks. If it’s hit, look for more selling down to 1187.70, my worst-case low for today and another spot to try bottom-fishing with as tight a stop-loss as you can abide. _______ FURTHER UPDATE (8:57 a.m. EDT): The futures have exceeded 1187.70, bottoming so far at 1184.40 and hinting of still more weakness to come. They’d need to pop above 1206.50 today to undo the damage.
A print exceeding 18.910 today or tomorrow would kick the buying into high gear, creating a bullish impulse leg of daily-chart degree that would turn December’s watershed high at 19.420 into a sitting duck. Anything less, however, could strand Friday’s spike, leaving buyers to cool their heels in the wake of Friday’s spirited charge. More immediately, there are two spots where night owls might try bottom-fishing with a stop-loss as tight as three ticks: 18.235; or somewhat more conservatively, at 18.165. (Please note that numbers in boldface brown are usually ‘D’ targets of downtrends, while brown number in a lighter type-face are midpoint pivots. Uptrending targets and midpoints are similarly given in green, although I will sometimes use brown and green to highlight price points that are important though not Hidden Pivots.) _______ UPDATE (8 a.m. EDT): June Silver bottomed at 18.215, two cents below the higher target but well above the lower. I’ll record nothing done officially, but please note in any case that upside to as high as 19.415 over the near term has been signaled. Key resistance lies at 18.815, the Hidden Pivot midpoint associated with the target.
As of around 10 p.m. EDT Sunday, the futures looked bound for 10670, a shortable Hidden Pivot (albeit a relatively risky one; a more conservative short can be initiated at 10712). That would represent a 335-point gain over Friday’s close, and although it would not recoup last Thursday’s loss completely, it would handily exceed the day’s recovery high, creating an impressive bullish impulse leg in the process. _______ UPDATE (9:09 EDT): The rally now measures to as high as 10937, well above last Thursday’s pre-swoon high of 10865. A pullback in the meantime to (precisely) 10569, the target’s sibling midpoint, would telegraph the next thrust.
If Goldman drifts lower over the next 5-7 days, we’ll look to bottom-fish down at 136.11, the lowest Hidden Pivot target that can be derived from the intraday charts. If I can come up with a way to initiate the trade using a limit bid for some near-the-money call options, I’ll feature the trade as a Pick of the Day for all. _______ UPDATE (May 16): Scratch Goldman from the list of stocks we’ve been watching lately, since it has become too, too boring to deserve our time and attention. My minimum downside objective is now 135.35, and I’ll set an alert there, since the support will be worth bottom-fishing if it’s ever reached — which it will be.
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Based on a 155.30 rally target disseminated here on May 6, we bought four June 152 puts yesterday for 1.00 with DIA topping at 155.14. Since I advised closing out two of them for 1.14 intraday, we are left with a profit-adjusted position of two puts whose cost basis has been reduced to 0.86. Now, offer an additional put on the opening and hold the remaining put as a lottery ticket. ______ UPDATE (12:25 p.m. EDT): The puts opened for 2.30, so the sale of one more would leave you with a single put whose costs basis, adjusted for gain so far, is a 1.44 CREDIT. Thus, a profit of $144 is the worst this trade can do no matter what happens to DIA. For now, do nothing futher.
The climax of yesterday’s bullish stampede exceeded an in-our-wildest-dreams target by 56 cents (see inset), but when the dust had settled, short positions initiated by subscribers near an 89.43 Hidden Pivot were well in-the-black. For tracking purposes I’ll use 24 May 87.50 weekly puts that two subscribers reported buying for 0.11 in the chat room. They had tripled in price by the close, and so half should have been exited at some point along the way. However, since I made no explicit suggestion that you do so, I’ll assume none were sold and recommend that you close out half at-the-market on the opening. Of the 12 that would remain, offer six for 0.50 and hold the rest for a potential home run on Friday, when the puts are due to expire. The 0.50 offer to close should be entered before Thursday’s opening, since traders could conceivably exit a total of 18 puts at that price or higher on a gap-down at the bell. ________ UPDATE (12:18 p.m. EDT): The puts opened at 0.50, so you would have reaped $900 on the sale of 18. Since their total cost was $264, there is a theoretical profit of $636 so far. You can sell the rest at will either today or tomorrow. Their cost basis is now zero, so whatever you receive for them would be added as profit to the $636.
Yesterday’s trade in this vehicle had not been offered as a tout, but a timely question in the chat room helped us identify an opportunity to pick up some cheap call options intraday. Here is what I wrote in the chat room: “The Auggie 160 market is 0.22/0/26, so 0.24 is the right price with GLD at 132.88. So, if GLD falls to our 131.83 target, the Auggie 160s should sell for about a nickel less (they have a delta value of about 0.04). So let’s bid 0.21 (an extra penny for good measure) for 28 of them., stop 0.18. We’ll worry about what to spread against them later.” Although the intraday low at 130.95 exceeded our target, the result was that subscribers were able to buy August 160 calls for 0.21, a penny off the intraday low.
This position is highly speculative, since there are two very bearish targets outstanding, but it has the potential to pay off at about 60-to-1. With a three-cent stop-loss on the calls, we’ve limited our theoretical risk to about $84. However, I’m now going to suggest giving the position a little more room by lowering the stop to 0.16. At the same time, and on a one-order-cancels-the-other (OCO) basis, I’ll suggest offering 28 August 163 calls short for 0.30 against those we hold. If the order fills we’ll own a virtually riskless position that can make us as much as $8400 if Gold rallies strongly between now and late August.
Wall Street did not exactly take Apple out to the woodshed following yesterday’s revelation that the firm has paid little or no taxes on foreign income of $75 billion. The stock flinched, down $2.73 on the day, but investors seem to recognize that revising 275,000 pages of tax code to force Apple to pay its fair share will require many years of wrangling on Capitol Hill. And who’s to say that the effort would not leave other loopholes just as easily exploited by the Sunnyvale behemoth’s clever lawyers and accountants?
Technically speaking, however, the news seems to have sapped some of Apple’s vital juices, since the stock failed for the second consecutive day to decisively exceed a small but nevertheless significant ‘external’ peak at 445.36 (see inset). That feat, trivial though it may seem, will remain crucial to the short-term picture. If and when it is achieved, expect the stock to rise to a minimum 449.9o, a Hidden Pivot target. If the pivot is easily surpassed, look for the bullish momentum to continue till week’s end, at least. Camo traders should position from the long side, using the 15-minute chart for leverage.
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Yesterday’s rebound in this vehicle was strong, although not quite as compelling as the one in Comex Gold futures. Moreover, the intraday low exceeded the midpoint support of the pattern shown by a decisive 52 cents, shortening the odds that its ‘D’ sibling at 22.25 will eventually be reached. We’ll give bulls the benefit of the doubt nonetheless, since mining shares are unlikely to languish if they catch their first whiff of strength in bullion in many months. From a Hidden Pivot perspective, this vehicle needs to keep running without taking a breath until 29.83 (a 5/14 peak) has been exceeded. Camouflageurs should look for entry opportunities on the 15-minute chart, since there are some choice ‘externals’ to be found therein. ______ UPDATE (May 23, 12:33 a.m. EDT): The breath that GDX could not afford to take has in fact been taken, casting at least mild doubt on a bullish outcome. Worse than drawing a breath, actually, GDX sucker-punched bulls on the opening bar.
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Tesla got short-squeezed to within 28 cents of the 86.72 target I’d proffered early Monday morning, but a second-wind rally to 88.00 suggests it’s got eyes for 104.44, the ‘D’ target associated with the first number. It can serve as a minimum upside objective for now, implying that all trades between here and there be positioned from the long side. We’ll plan on buying weekly puts if and when the target is reached, provided it happens before Wednesday of the given week. Please note as well that a lesser Hidden Pivot at 94.19 (see inset) has the potential to stop the rally cold and can therefore be used for spec camouflage shorts.
All signs point higher at the moment, but even Google will have to top somewhere. My best-bet for a short-able apex is 929.78, the Hidden Pivot target of a well-defined ABCD on the monthly chart (see inset). You can try shorting with camouflage at that number, or at the D target (in purple) of the lesser pattern, but until then all trades should incorporate a bullish bias. ______ UPDATE (May 23, 12:40 a.m. EDT): Yesterday’s selloff did not create an impulse leg on the hourly chart, but it is not exactly a sign of good health that the decline has begun without GOOG’s having quite achieved our 929.78 target. A further drop today exceeding 883.96 to the downside would add to the evidence that the recent top will be an important one.
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This Just In... for Monday
Viewed from the trading pits, last week’s death dive looked like the end of the world to some denizens. Click here for the perspective of floor traders who had a ringside seat.
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More Panic Attacks Are Certain to Occur
by Rick Ackerman on May 10, 2010 1:22 am GMT · 19 comments
So, was it thinking machines that put stocks into a death dive last week, or was it primal human fear? Either way, there’s a neurological disease at work and therefore little likelihood of a cure. Even worse, since these diseases tend to be degenerative, we should expect something still more disruptive in the future. Ham-handed regulations won’t be able to stop it, either. Let the exchanges install all the circuit breakers they want; supply will out someday, catastrophically overwhelming demand when buyers go AWOL. This is inevitable when you create a global electronic trading network connecting ten billion » Read the full article