July 2010

The bull pattern shown in the chart projects to 1136.50 -- equivalent to a rally of about 300 points in the Dow. The 1093.75 midpoint resistance put up a good fight as last week drew to a close, but in the end, as we have seen so often, selling was overpowered by short-covering.  As of around 9 p.m. EDT Sunday night, the futures were on a minor "buy" signal tripped at 1101.00. The rally appears likely to hit 1107.75 if the 1103.25 midpoint is exceeded, but you'll have to board this one on your own, since there are too many obvious ABC patterns pointing higher, and therefore the potential for numerous stop-outs below a series of 'C's.

It’s not your imagination -- even ostensibly “exciting” stocks have been screwing the pooch since spring. Apple, for one.  In recent weeks, it has been one of DaBoyz’ favorite con-jobs because of a signal-reception problem in the iPhone4. When news reports concerning the product’s poorly designed antenna maxed out a little more than a week ago, it looked like a major corporate blunder. We don’t mean the kind of blunder that would ultimately affect the bottom line more than a jiggle or a jot; rather, the story provided a perfect excuse for institutional buyers to shake the stock down so that they could steal it at fire-sale prices from widows and orphans. The last time AAPL was manipulated in this way, it was a riskier bet, since the story that was used to move the stock up and down concerned Steve Jobs’ health. Reports of his battle with a rare form of pancreatic cancer first surfaced in 2004, but the prognosis – and the stock itself – were subject to wild swings until last summer, when he underwent an evidently successful liver transplant. The procedure quieted the rumor mill, allowing AAPL to waft higher on its merits. Now the same institutional arse-bandits have milked the antenna story for all it’s worth, and we can hardly wait to see what ploy they concoct next to make the nervous Nellies doubt anew that Apple’s future is any less than stellar. As you can see in the graph, however, the company’s shares have gone nowhere since April. For all the sound and fury, AAPL has been in a holding pattern since then, albeit one with the potential to provide a base for a thrust to $300 and beyond. The fact that all of the price action has occurred above the midpoint of the

Until and unless August gold rallies above 1218.8, the daily chart will point down to the 1155.0 and 1140.1 targets that are so well known to pivoteers.  A rally into the 30-dollar range between 1218.8 and 1248.8 will cancel those targets and turn the daily chart from bearish to neutral.  As things stand, only a rally above 1248.8 would be impulsive, and that would have to involve the 1175.1 low as our "A" point: there is no one-off "A" candidate yet.  On the 20-minute chart we have an active pattern beginning at A=1184 whose pullback from 1201.2 to 1192.6 was exactly half the length of the AB leg, rendering the midpoint useless.  The "D" target of 1209.8 might be a good short, with a stop no higher than about 1210.3.  In the meantime if C=1192.6 is surpassed, take another look at the chart and if the pattern still looks good, recalculate.  Traders should bear in mind the upcoming gold options expiration.  And don't forget to roll out of the August contract if you're in it.  Most go to December, skipping over the neglected child of COMEX gold contracts, October.  (Posted by Doug McLagan)

The stock-market surge yesterday brought us right up to very visible trendline resistance, and it is difficult to believe that the equity bulls won't find a way to break that trendline decisively.  The daily chart of the e-mini S&P 500 futures is still not at all bullish, but a 43-point move from here will do the trick.  Throw in another 13 points and we'll have a really convincing impulse wave.  Specifically, 1129.75 will satisfy our minimum standard of one internal and one external prior high, but 1143 will give us a second external, at which time we might have to start taking the bounce off of 1000 seriously.  All of this would occur within a larger bearish context, however.  In Wednesday's tutorial session, we looked at the monthly S&P 500 cash chart and found that the index is on course for at least 833.08, and possibly 446.35.  The attached graphic shows this pattern in red, plus an alternative pattern whose midpoint was almost hit by the famous 666 low.  (Posted by Doug McLagan)

Yesterday's decline in the dollar confirmed a new daily pattern projecting as far down as 80.98, which would be a three-month low.  The dollar's peak on June 7 coincides, not surprisingly, with the important Euro low of the same day, and the two currencies have been trending strongly in opposite directions since then.  The midpoint of the dollar's pattern (82.22) is above the low for the move (82.08), which is also the "B" point of our pattern.  Therefore a bounce off the midpoint would look like a successful retest of the low followed by a potential trend change.  However, if the midpoint is surpassed, Hidden Pivot analysis tells us to expect the "D" target to be reached.  This would most likely correlate with the Euro breaking through its resistance level.  (Posted by Doug McLagan)  _______ UPDATE (1:57  p.m. EDT): The dollar index bottomed one tick below the 82.22 midpoint and then rallied sharply.  The September dollar index futures, whose price levels are offset slightly from those of $DXY, also bounced from a penny below its corresponding midpoint.  The rally was good for more than $800 per contract. _______ UPDATE (March 20):  Yellen's speech yesterday sent the dollar soaring. She did not say anything intelligible, let alone meaningful, and so one might infer that the dollar's reaction was -- as usual -- based on delusions and hallucinations long cherished by the mindless herd.

The Euro will encounter overhead resistance in the $1.31 area due to a Hidden Pivot and a prominent prior high which are close together.  Beginning in late November of 2009, the Euro trended down for at least six months, losing more than 21% of its U.S. dollar value.  But since its June 7 low of just under $1.19, the Euro has been in an important uptrend.  If it can trade through a Hidden Pivot at 1.3092 and past an eye-catching prior high at 1.3101, the June 7 low will start to look like a major trend change.  On the other hand, the "D" target of 1.3092 might be the ideal place for Euro bears to front-run other like-minded traders focused on the prior high just above it.  (Posted by Doug McLagan)

(Rich Cash, a wise and prolific contributor to the Rick’s Picks forum, as well as a blogger of note, has written insightfully and with good humor on a subject near and dear to our heart – i.e., the put-and-call game. Fortunately, we retired our powder-blue market-maker smock and badge (#K30)  just before the Feds started using RICO laws to prosecute white-collar criminals. We were a scurvy lot, for sure, and Rich has captured the flavor of the game in a way that explains what drew so many of us sleazeballs to the options trading floor. RA) On Monday, some of the Fast Money Crowd were ready to jump off the bridge after INTC, JPM and GOOG flamed out on brilliant earnings. Tuesday, they were extolling weekly call options on AAPL with 70% volatility premiums. That’s right -- if a security that expires in a month is not a risky enough disappearing asset, now we can buy weekly options at a price almost guaranteed to absorb all price fluctuations and expire worthless. Options have a long and checkered history that dates from the seven years Isaac worked to marry Rebekah, only to wake up in the marriage bed with her older sister Leah, and work another seven years for the woman he loved. In the early 1900s, Jesse Livermore frequented options parlors known as bucket shops. For a small amount of money down, you had the brief right to buy or sell a security at a fixed price. If it went higher in that short amount of time, you made money. If not, you were out of luck. The bucket shops were so good at pricing option premiums they usually bucketed the orders rather than enter them. Livermore was one of the few that did well enough in the bucket shops

If index futures head lower on Thursday, there are two places where you could try bottom-fishing. (Getting short Wednesday night could prove trickier, however, since the E-Mini S&P was immersed in the tedium of a widening gyre.)

Commodity-market round-ups highlighted crude's move above $78 yesterday, but as far as I'm concerned it was a dud even before the futures reversed direction. On the hourly chart, the morning surge failed to clear even a single external peak on the hourly chart.  While this is not an explicit sign of weakness, it does suggest that crude is in no great hurry to break the $80 barrier this summer.  July's move from the low $70s has been robust, but it would appear to have run its course.