I’m sticking with the 992.50 downside target, since the market continues to look so atrocious. While the broad averages seem capable of staying afloat, albeit barely, during the day, when there is zero interest, zero sellers, and only Kudlow to buy ‘em half-heartedly, just let even a twinge of doubt – about whatever – creep in during the afternoon and stocks fall apart. This shouldn’t be happening in the days leading up to the Independence Day holiday, and so we shouldn’t be surprised if more weakness lies just ahead.
COMMENTARY for Thursday
Were bulls saved by the bell? By my lights, the Diamonds were on their way down to at least 96.13, or possibly even 95.42, when yesterday’s session ended. If so and the lower number is approached, that would bring our short offer of four July 90 puts within range. Time decay has pushed down their value since I first suggested offering the puts for 1.40, however, and they would now be worth closer to 1.00 if the underlying vehicle hits 95.42 by week’s end. Accordingly, I’ll suggest lowering the short offer to 0.95, with 0.10 of discretion. The important thing is to short them irrespective of their price if and when DIA gets near 95.42. We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70. I’ve included a snapshot of the calculator I used to determine a fair value for the puts. The 37.5 volatility comes from TradeStation. _______ UPDATE (Friday, July 2): DIA fell to 96.17 today — four ticks from the projected low — setting up the obligatory pre-holiday bounce/waft. Although there is zero buying interest other than very feeble short-covering, sellers still lack the inspiration and/or moxie to effect a washout. The 95.42 target is still valid, but bears should be cautious about the rally threat because of the precise bounce that has occurred from our first target.
The futures remain in a delicate recovery, having topped two ticks beneath the 1249.00 rally target flagged here yesterday. Odds favor more weakness over the near term. Even so, I’ll recommend bidding 1230.80, stop 1230.40, if the futures fall to that price without having exceeded 1248.80 to the upside. The rationale for this trade is shown in the accompanying chart. _______ UPDATE (10:36 a.m. EDT): A flurry of weakness stopped us out this morning for a loss of about $40. Our 1230.80 target was a midpoint pivot tied to a ‘D’ at 1212.80 that should be viewed as a “back-up-the-truck” buying opportunity. The next stop below is 1223.30, but it’s possible the futures will hold here, at least for today, since they may simply be homing in on the “structural” support represented by Tuesday’s low, 1227.60. _______ UPDATE (1:10 p.m. EDT): The decisive breach of 1212.80 by $7 has created a bearish impulse leg of daily-chart degree. The last time this occurred was exactly a year ago. Gold subsequently rallied for a few days and took one more nasty leg down before embarking two weeks later on the powerful rally that achieved the recent high at 1266. _______ UPDATE (2:41 p.m. EDT): The tradable low came at 1213.00, two ticks above the pivot, but produced a bounce of just $5 before the futures relapsed and headed much lower. Breakdown stops could have been anywhere from 1207.30 to 1205.50, yielding a loss of as much as $750 per contract if no partial profits were taken on the bounce. I would not suggest carrying a position overnight, since the selling here is the most persistent and powerful that I can ever recall, blowing out Hidden Pivot supports effortlessly.
The trendline noted here yesterday still looks like the most logical place to look for support. Its rising slope implies a bounce from anywhere between 18.270 and 18.290, depending on what time of day the support is touched. Alternatively, buyers would need to push the futures to a close above 18.900 today to put bears on the defensive. That’s a midpoint resistance whose ‘D’ sibling lies at 19.43.
TODAY'S ACTION for Thursday
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Rick's Picks for Thursday
I’m sticking with the 992.50 downside target, since the market continues to look so atrocious. While the broad averages seem capable of staying afloat, albeit barely, during the day, when there is zero interest, zero sellers, and only Kudlow to buy ‘em half-heartedly, just let even a twinge of doubt – about whatever – creep in during the afternoon and stocks fall apart. This shouldn’t be happening in the days leading up to the Independence Day holiday, and so we shouldn’t be surprised if more weakness lies just ahead.
Were bulls saved by the bell? By my lights, the Diamonds were on their way down to at least 96.13, or possibly even 95.42, when yesterday’s session ended. If so and the lower number is approached, that would bring our short offer of four July 90 puts within range. Time decay has pushed down their value since I first suggested offering the puts for 1.40, however, and they would now be worth closer to 1.00 if the underlying vehicle hits 95.42 by week’s end. Accordingly, I’ll suggest lowering the short offer to 0.95, with 0.10 of discretion. The important thing is to short them irrespective of their price if and when DIA gets near 95.42. We continue to hold two August 98 puts for 1.06 and four July 96 puts for 0.70. I’ve included a snapshot of the calculator I used to determine a fair value for the puts. The 37.5 volatility comes from TradeStation. _______ UPDATE (Friday, July 2): DIA fell to 96.17 today — four ticks from the projected low — setting up the obligatory pre-holiday bounce/waft. Although there is zero buying interest other than very feeble short-covering, sellers still lack the inspiration and/or moxie to effect a washout. The 95.42 target is still valid, but bears should be cautious about the rally threat because of the precise bounce that has occurred from our first target.
The futures remain in a delicate recovery, having topped two ticks beneath the 1249.00 rally target flagged here yesterday. Odds favor more weakness over the near term. Even so, I’ll recommend bidding 1230.80, stop 1230.40, if the futures fall to that price without having exceeded 1248.80 to the upside. The rationale for this trade is shown in the accompanying chart. _______ UPDATE (10:36 a.m. EDT): A flurry of weakness stopped us out this morning for a loss of about $40. Our 1230.80 target was a midpoint pivot tied to a ‘D’ at 1212.80 that should be viewed as a “back-up-the-truck” buying opportunity. The next stop below is 1223.30, but it’s possible the futures will hold here, at least for today, since they may simply be homing in on the “structural” support represented by Tuesday’s low, 1227.60. _______ UPDATE (1:10 p.m. EDT): The decisive breach of 1212.80 by $7 has created a bearish impulse leg of daily-chart degree. The last time this occurred was exactly a year ago. Gold subsequently rallied for a few days and took one more nasty leg down before embarking two weeks later on the powerful rally that achieved the recent high at 1266. _______ UPDATE (2:41 p.m. EDT): The tradable low came at 1213.00, two ticks above the pivot, but produced a bounce of just $5 before the futures relapsed and headed much lower. Breakdown stops could have been anywhere from 1207.30 to 1205.50, yielding a loss of as much as $750 per contract if no partial profits were taken on the bounce. I would not suggest carrying a position overnight, since the selling here is the most persistent and powerful that I can ever recall, blowing out Hidden Pivot supports effortlessly.
The trendline noted here yesterday still looks like the most logical place to look for support. Its rising slope implies a bounce from anywhere between 18.270 and 18.290, depending on what time of day the support is touched. Alternatively, buyers would need to push the futures to a close above 18.900 today to put bears on the defensive. That’s a midpoint resistance whose ‘D’ sibling lies at 19.43.
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Take any dozen good reasons for being bearish right now and they still don’t equal the bullishness of the chart shown. The undeniably compelling rally objective is 13085, a 4.8% move from current levels, and one can only surmise that the dusting the 12158 midpoint received on the last pullback (12/28) all but clinched a finishing stroke to the higher number. Moreover, it implies that bears shouldn’t get their hopes too high even if, in the next few days, the Dow plummets 324 points to retest the midpoint support. As of now, that would signal not weakness, but a screaming opportunity to get long. Hard to believe, really, but that’s what the charts say.
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Fleas Trade Blows Over DJIA’s Virtue
by Rick Ackerman on July 1, 2010 12:01 am GMT · 11 comments
It was the Battle of the Fleas yesterday in the final hour, with the Industrial Average’s maidenly virtue at stake. Earlier in the day, the broad averages had traced out the EKG of a motorcycle victim lying brain-dead on a gurney. Then, when the NYSE’s clock struck three, stocks broke lower, impelled perhaps by an anxiety attack over payroll data due out Friday. Selling commenced in earnest, with an initial pitch that threatened to put the Indoos into a 250-point kamikaze dive. Would the blue chip index be sullied and degraded by a symbolically evocative loss of 100 points or more? Or instead, would Wall Street’s one true White Knight – i.e., panicky bears covering short » Read the full article