Monday, June 21, 2010

Our minimum upside objective remains 20.45, and although I don't expect this important Hidden Pivot resistance to be a pushover, you should keep a 21.39 target in the back of your mind when 20.45 is blown to smithereens, as it eventually will be.  I have reproduced Silver's 180-minute chart so that you can gloat over how a big, bad Head & Shoulders pattern has been reduced to a joke by Silver bulls.

A Hidden Pivot at 1272.60 is still our minimum upside objective for the near term -- and, yes, it is frustrating that Gold, unlike stocks,  is not moving effortlessly higher every night on short-covering into non-existent volume. Still, which would you rather own:  shares or bullion?  That's what I thought.  Please note that if 1272.60 falls easily -- meaning, is exceeded by $1.00 or more within 15-20 minutes of first being touched -- expect more upside thereafter to at least 1293.50.

With the obligatory Sunday night short-squeeze heating up as of 1:45 a.m. EDT, we have determined to scale in shorts, buying Diamond puts as stocks move higher.  We are implictly accepting the possibility that this suicidal rally will continue for yet a while longer -- indeed, it is becoming so uncomfortable to stay short that that is why we are increasing the size of our bet.  Keep in mind that we waited for a sizable rally before we even started buying puts.

We hold four July 96 puts for 0.70 on a hunch.  They are apt to get bludgeoned anew when Sunday night's short-squeeze has its intended effect on Monday morning's opening.  Hold tight, for now, though, and look for a possible key reversal at the targets given for the Diamonds, E-Minis and the Dow.  _______ UPDATE:  Buy four August 98 puts if DIA gets within 0.05 points of the next Hidden Pivot resistance above, 105.92.  You should be prepared to buy four more August 98 puts later if the Diamonds get past 105.92, since that will imply they're going to at least 106.73 before a top is in.  We are going out to August because the remaining life of the July options will be shortened not only by their July 15 expiration date, but by a holiday weekend.  _______ FURTHER UPDATE (11 a.m EDT):  With DIA having topped so far today at 105.96, we bought four August 98 puts for 1.28 (they traded down to 1.25).  The Diamonds have since pulled back to as low as 105.33, but keep your powder dry to buy more puts in case this vehicle pops to the next target.  The 0.05 overshoot has NOT increased the odds that this will occur -- we'll simply consider it the margin of error. _______ FURTHER UPDATE (12:42 p.m. EDT):  Using a 1.50 offer, exit half of the puts purchased earlier this morning for 1.28. With DIA trading 105.10, the puts are currently reflected at 1.47-1.52.

Late this evening, the futures were in the throes of yet another Sunday night short-squeeze.  The high so far has been 1127.50, a single tick from the 1127.25 rally target we were using as a minimum upside target on  Friday.  The futures have since backed off as much as 10 points, but the hysteria that has already transpired might still require a catch-up rally in the Dow to 10572, a target that corresponds to the E-Mini target.  The pullback has alread exhausted an 1116.00 midpoint support and gone on to create a new and higher point 'C'; otherwise, I might suggest bottom-fishing for night owls.

Will the oil gusher in the Gulf eventually destroy all marine life, as oilman Matthew Simmons asserts, or will the disaster instead be contained once BP’s relief well comes online sometime in July or August?  Simmons, a peak-oil proponent and no stranger to controversy, has been warning that a second well cannot alleviate the problem because most of the oil, now estimated to flow at around 60,000 barrels per day, is coming not from the well bore but from innumerable ruptures in the sea bed around the Deepwater Horizon site. Because of this, he says, there are only two possible options: allowing the well to run dry -- a process that would take 30 years and destroy the Gulf of Mexico and the ocean;  or nuking the site, melting the fissured seabed into a glassy cap. We have been attempting to verify his claims using our own sources. One of them is Dave Patterson, a petroleum reservoir and operations engineer who works for Moyes Co., a Houston-based energy consulting firm with no direct involvement in the BP project.  In contrast to Simmons’ end-of-the-world talk, Patterson says he has “absolute confidence” that the relief well will work. Based on everything he has read, seen and heard, Patterson, a Moyes director, says there’s little evidence to support Simmons’ worst-case scenario.  “Yes, it is a delicate operation, “ he notes. “Hitting a target 17 inches wide at 18,000 feet is always going to be difficult. But the people who are doing it have a 100% track record,” and there are two wells being drilled for redundancy. Patterson says that all the evidence he’s seen indicates that the main leakage is straight up the well-head and not through fissures. And although capping the gusher posed a risk of rupturing the casing and losing control of

California is on the verge of system failure, says this latest report from CTV news.  We would hasten to point out that the report implicitly shares Warren Buffet's dangerously stupid idea that the Federal Government will eventually have to rescue beleaguered cities, counties and states.  Where, one might ask, will a just-as-bankrupt Federal government get the money if the cities and states themselves cannot squeeze it from taxpayers?  Or would we purport to fix the U.S. economy with yet more printing-press dollars from heaven?