June 2010

(Cam Fitzgerald’s recent guest commentary here, “Britain Becomes the First to Choose Deflation,” drew a heavy response – more than 120 posts in the forum. Here are some further thoughts from him concerning Europe’s turn toward austerity and the potentially profound impact of this on the rest of the world -- even on the U.S., which has yet to heave Keynesian quackery overboard. RA) A young friend asked me yesterday, “What on earth does negative growth mean?” and I had to laugh because it really is a ridiculous term dreamed up by political economists to put a positive spin on really bad news. I had actually never given the term any serious thought until then. “It means,” I said, “economic contraction and recession.” It really is no wonder the kids cannot figure out what is going on with all the nonsense terminology flapping about. With France, Italy, Britain, Spain and of course Greece all now seemingly embracing austerity measures to bring their economies into line with EU terms specifying deficits be no larger than 3% of GDP, they are all about to experience “negative growth”.  A double dip recession is now hurtling our way and it will affect Canada and our housing markets in a very big way. Britain itself is targeting a debt reduction policy that it hopes will see that country’s massive debt fall to 40% or 50% of GDP by the year 2030. Prime Minister David Cameron has suggested that this will fundamentally change the lives of his countrymen for years to come. He is right. Some economists and politicians are already spinning this development as a positive change and suggesting that inflation targets and growth objectives can be met while the engine of the economy is put into idle (if not reverse). That is nonsense, of

Using scalpel and forceps to expose some finely nuanced price action in Gold and the E-Mini S&Ps, we were able to identify Hidden Pivot targets in each that promised to be tradable later in the day with relatively little risk. Both vehicles were falling, and although the evidence was strong that the weakness would continue over the near term, we established clear and precise parameters that would allow us to detect a bullish turn from the very subtlest beginnings. And one more thing. Bill Gross, please take note: 30-Year Bond Futures are going much higher – to at least 128^07.

The 18.115 downside target given here yesterday remains valid, but if there's going to be a respite in the selling -- and possibly an opportune spot to try bottom-fishing -- it would come at the 'p" midpoint shown in the chart. The support is subject to  'C'  (18.560) remaining intact, but if that peak is exceeded, you can simply plug in the new high to calculate a revised Hidden Pivot midpoint and target.  If it coincides with Wednedsay's 18.310 low, however, its value for trading would be diminished. ______ UPDATE (9:37 a.m. EDT): The futures blew out 'C' before retreating lower.  The new pattern presaged a move down to 17.960, with a midpoint suypport at 18.285 that has already been crushed. To undo the damage would take a rally today exceeding 18.770. 

Yesterdays afternoon's 20-minute wilding spree should have scared hell out of shorts (yet again), which is why it occurred to begin with. From a Hidden Pivot standpoint, the rally was ineffectual for two reasons: it surpassed nothing nada zilch, even on the 15-minute chart; and it occurred after the downtrend had already punctured a key low from June 15, creating a robustly bearish impulse leg on the intraday charts. The pattern has become too ragged to read with much confidence, but it points ambiguously toward 1063.25, a Hidden Pivot support that is not recommended for bottom-fishing.  Getting short is another matter, of course, but it will not be possible to do so by way of an entry price I can project overnight. Incidentally, bulls would have a chance of temporarily reviving their hoax with a print today at 1098.25.

Sean Rakhimov, one of the first Hidden Pivot Seminar graduates, puts out a great newsletter geared to silver traders and investors. His latest assesses Global X Silver Miners (ARCX Symbol: SIL), an ETF.  Sean's due diligence is first-rate and he knows the silver market well. For a look at his "The Fear Trade Is In,"  click here.

AAPL is one of the very few stocks for which the May 6 "flash crash" became a corrective leg in a still-viable long-term bull market. That's the good news.  The potentially bad news, at least for the intermediate-term, is that Monday's high at 279.01 came within 1.85 of an important Hidden Pivot rally target at 280.86. If the stock feints higher over the next day or two, reaching that number, I recommend shorting a round lot of stock with a stop-loss at 282.01.  Although I am not bearish on Apple's long-term prospects, this looks like as good a spot as any to attempt shorting the stock. ______ UPDATE:  We'll put this one aside for the time being, since AAPL has worked lower.

The futures flirted at day's end with an 1190.75 target disseminated in the chat room before cracking the support and touching a low of 1189.25.  The 1.25-point overshoot is sufficient for us to infer that more weakness lies ahead, and so I'd suggest that traders -- including, possibly, night owls -- look to get short near 1104.00, the midpoint support that was cracked on the way down to 1190.75. A mechanical short from that pivot is not advised; rather, you should look for camouflage -- meaning, perhaps, an entry at the point 'X' of a downtrend on the one- or three-minute chart. In any case, 1104.00 is the most logical spot for a short-squeeze to sputter out Tuesday night or Wednesday morning, although the futures may not get that far.

Silver's lesser charts look better fortified to buck adversity today than Gold's, but the July contract could still fall to as low as 18.115 if bears rampage. Looking on the bright side, and taking it one small step at a time, a print above 18.890 would indicate more upside to 19.040, and a close above that Hidden Pivot resistance would telegraph a resurgence to as high as 19.735 over the near-term. That last target would be subject to a possible stall at its sibling midpoint, 19.165.

We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  DIA bottomed yesterday almost to-the-tick on the target I'd flagged in the chat room, but the weak close suggests that selling could gain momentum today. Let's be ready to leverage disaster with a "stink offer" of 1.40 for four July 90 puts, good-till-canceled. If this short is filled, we will have legged into a $6 vertical put spread with $530 of profit potential for each spread, a worst-case gain of $350 for the entire position, and no possibility of loss. For your information, the Diamonds would need to fall to around 95.79 this week, equivalent to about 7%, to push the July 90 puts up to 1.40.  This estimate is based on a moderate increase of about 6% in the volatility of July options.  The parameters I used are shown in the option calculator (inset).