Monday, July 12, 2010

It could take all week for BPs latest fix to either succeed or fail, but the ongoing effort alone should suffiice to sustain whatever (relative) feel-good psychology is needed to keep last week's short-squeeze going.  Index futures were off slightly Sunday in the late afternoon, with DaBoyz giving no hint of how they plan to manipulate the next significant move.

A tout sent out Thursday night caught the high of the day within four ticks, allowing bears to get short ahead of the selloff that ensued. If you followed my advice to-the-letter, a two-contract position would have been stopped out on Friday for a theoretical gain of  $1,350.  However, if you initiated the position on four contracts and continue to hold one for a possible home-run as was suggested, use a 1.2686 stop-loss for now. A trailing stop of at least 35 ticks should be substituted if the futures touch 1.2545 to the downside. _______ UPDATE (July 13, 12:19 a.m.):  You're on your own now, but I'll suggest tying the remaining short contract to a stop-loss triggered by the creation of a bullish impulse leg on the hourly chart. At the moment,  that would imply a rally touching 1.2652, a tick above a distribution shelf created by last Friday's price action.  This is shown in the accompanying chart.

Maybe today will be the day that bulls finally break through the tedium?  As noted earlier, it will require a push above 1222.90 to create a mildly promising impulse leg on the lesser charts.  Friday's upthrust indicates more upside to 1223.60 if midpoint resistance at 1215.20 can be surmounted; however, it should be noted that over the last week-and-a-half, the futures have been unable to reach even modest rally targets.

Turns out we weren’t the only ones who must have been doubting every uptick of last week’s phony, witless rally. How could one not distrust a stock market that has been surging higher solely because of short-covering and the manipulation of index futures each and every night during the wee hours on razor-thin volume?  Now, however, we learn that bullish sentiment is at an extreme low of 21%, according to the latest numbers from AAII. What this implies is that there are simply too many bears for stocks to collapse at this moment, notwithstanding the fact that the economy’s statistical slide into Depression appears to have resumed in earnest. The last time there were so few bulls was in March 2009, when this Mother of All Bear Rallies commenced. Although we strongly doubt that the current dearth of bulls portends the start of a major new up-cycle, we’re willing to go with the flow for perhaps another week or two before we start resisting the tape once again with some speculative put-buying. Technically speaking, according to the Hidden Pivot Method, the Dow Industrials, which are currently trading near 10200, would need to hit 10921 this month to earn even the slightest benefit of the doubt. At any rate, we expect the market to be in feel-good mode as the new week begins, assuming the mildly encouraging news that has been emanating from the Gulf of Mexico continues to wax. Under the circumstances, bears will be especially vulnerable on Monday to yet another short-covering panic. Very Bullish on Gold As counterpoint to our own, fervently bearish, bias, we offer below the unmitigated optimism of our friend Chuck Cohen, a NYC-based consultant who designs gold investment strategies for clients both big and small. (Click here if you’d like a free consultation.)  Chuck sent

We added a short August 102 put to our position for 3.10, making us long six August 98 puts and short three August 102 puts for a net debit of 2.28.  On a delta basis, the position is nearly dead-neutral at current prices, but because it is a backspread, we'll automatically get longer if DIA rises and shorter if DIA falls. For now, no position adjustment is necessary, but you should check this tout (or the chat room) for intraday updates, since a violent move could bring us opportunity.

The AB segment on the accompanying chart looks too elongated to generate a like C-D leg, but we'll use it nonetheless, since price action at the 10261 Hidden Pivot midpoint can tell us if we're on the right track.  A pullback from that number, precisely, would indicate 10489 if it is subsequently breached.