Friday, June 25, 2010

Bears can take their pick from among a dozen fetching patterns that all point lower, some of them much lower. One I rather like implies the futures could fall to as low as 992.25, and quickly, if DaBoyz pull the plug. The sibling midpoint support of that target is 1060.75, and we should therefore look for a bounce from that number to confirm our worst suspicions.  The pattern is shown in the accompanying chart. Since we should never rule out the possibility of a well-orchestrated short squeeze, let's use a print at 1084.25 today to warn of trouble.

The futures look atrocious, although they have somehow avoided the collapse that feels almost like the electrical tingle in the air that precedes a lightning strike.  Bears should take encouragement from the fact that, on the hourly chart, the E-Mini S&Ps haven't generated a single bullish impulse leg since Sunday night, which really doesn't count.

Silver got out of a jam Thursday, in the processs exceeding our bull-trigger threshold by an impressive 4 cents. At day's end the July contract looked bound for a Hidden Pivot resistance at 19.250, provide it can bust past midpoint resistance at 18.930. As of around 10:30 p.m. EDT, buyers were looking pretty feisty.

A little greed is good here, since we don't want to sell our puts prematurely, just as the party as getting under way. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70. The paper gain on the position at yesterday's closing prices amounts to a little more than $400. Continue to offer four July 90 puts short for 1.40, good-till-canceled. If you want to see how far DIA would have to fall to get us filled on the order, check out the accompanying chart.

Although August Gold's sharp intraday recovery yesterday exceeded an imposing resistance peak at 1247.40, the rally failed by three ticks to get past a Hidden Pivot at 1249.70 that I'd implied was even more important.  Not to worry, though.  The pullback from the day's high at 1249.50 has been shallow so far, hinting that bulls are ready to take on whatever supply the bad guys throw at it on Friday. A thrust past 1250.50 will indicate liftoff toward two bullish targets: a minor one at 1260.90, and a more important one at 1272.60 flagged here earlier.

[Gary Tanashian writes a technical and macro-fundamental analysis blog, is the publisher of financial website Biiwii.com and the premium-content, market-analysis newsletter Notes From the Rabbit Hole. In the essay below he explains how the interplay between inflation and deflation is used as a monetary policy tool by the Fed and U.S. Treasury. For the record, Rick’s Picks has long predicted a deflationary depression, but with a precipitous and devastating hyperinflationary phase. RA] I would like to thank Rick Ackerman for the opportunity to continue a conversation that began in 2005 with an email I sent to him in response to an article he wrote about deflation that I felt was beyond the usual boilerplate that keeps insisting that a deflationary depression will bring all asset prices down. In fact, Rick’s constructive view of gold hints that he is not a knee-jerk gold booster like so many gold bugs, but rather a realistic believer in the idea that not all assets are created equal, especially during times of great monetary stress. There are several notable deflationists who absolutely hate gold, which makes sense since they have been micromanaging its “price” demise since 2002.  While they may be right for limited periods during an ongoing secular deflation against which ever more exponential inflationary policy is brought forth, they will never be right about gold’s “value proposition” in relation to assets positively correlated to growing (or more accurately, contracting) economies, at least during the current secular trend. The garden-variety deflationist preaches global depression and cash-as-king.  Well, he may be half right: cash is good for short-term liquidity and can play court jester, but gold is king of enduring value in the current system as policymakers fight the dreaded deflation beast ever-further off the macro balance sheets. More astute deflationists do not focus on asset prices, instead