Thursday, August 5, 2010

As of 11:40 p.m. EDT Wednesday, four of today's touts were actionable, including a short in crude that could trigger on a relatively modest rally and a potential night-owl special in Comex Gold if it swoons.

The rally pattern shown in the chart is formed from three single-bar coordinates, making a short from the 83.62 target moderately compelling. Shorting this vehicle usually requires more than the usual nickel-and-dime stop loss, however, since even promising targets are often missed by as much as 21 cents. For that reason, I'd suggest applying camouflage tactics when the futures get within 25 cents or so of the target.  The trade would be initiated on the first abc down-pattern from near the pivot, using an impulse leg on the very lesser charts. I've set a screen alert, and if it triggers when I'm in the chat room, I'll provide more-detailed guidance. _______ UPDATE (2:54 p.m. EDT):  We'll put this one aside, since the futures got no higher than 82.97 before the rally sputtered out and died.

Corn is following wheat higher and should be presumed capable of reaching 442 6/8 (basis December), the 'D' target shown in the chart. The midpoint resistance at 409 4/8 has been smashed, although  pullback to that number would be a logical spot to board using a camouflage ABC pattern on the 3- or 5-minute chart. _____ UPDATE: The futures pulled back to as low as 407  after a fleeting spike to 438 6/8.  It was possible to get long thereafter taking very little risk -- on August 8 at 419 2/8 -- but the ride would have been stopped out the next day with a small profit.

Silver got sucker-punched at the highs yesterday, but it's no cause for concern, since the September contract had already done the heavy lifting by impulsing above two prior peaks on the daily chart. (They lie, respectively, at 18.280 and 18.535.) In fact, the futures need to pull back a bit more -- to at least 18.110 -- to be considered fully re-charged for the next upthrust.  Thereafter, a 34.5-cent "booster rally" from some low in the range 17.850-18.110 would imply the larger move to as high as 19.485 is under way.

Gold has rallied smartly in the last week,  but yesterday's failure to push above 1207.50 peak from July 23 must be judged a disappointment. A target at 1212.50 can still be used as a minimum upside objective, but the futures will need to do somewhat better, pushing above a shelf of resistance near 1222.00 formed two weeks ago, to recover the momentum that was squandered yesterday. ______ UPDATE (11:36 p.m. EDT): A little before midnight, the futures were tracing out a correction that pointed to at least 1194.80, a midpoint Hidden Pivot support that looked unusable for trading purposes because it coincided with some key intraday lows from Wednesday. If the support is breached by more than three ticks, however, it would portend further weakness to as low as 1190.10, a hidden support that could be bottom-fished with an 1190.20 bid and an 1189.90 stop-loss. .

An ancient rally target at 1136.50 still beckons, although it would take a pop above mid-May's 1142.75 peak today to hint of still more upside to come.  There's a second pattern that projects to 1141.25, but that too would fall just a tad shy.  Either of these Hidden Pivots can be shorted with a one-point stop-loss, but I wouldn't suggest initiating the trade if the target is hit in the final 60 minutes of the session. Please note that you'll be on your own if it fills.

So far this week, the Diamonds have barely improved on the dubious gain they achieved when they gapped higher on Monday's opening bar. Still, we've got our fingers crossed, hoping for a finishing stroke to 107.61 by week's end.  That's where I've recommended buying four September 104 puts, using a 20-cent stop-loss on the put. If you buy the puts with the Diamonds trading at or very close to the target, your theoretical risk, commissions included, would not be much more than about $100. Please note that if the stop is hit, DIA should be presumed headed to at least 108.75, the Hidden Pivot target of a lesser pattern.  We'll want to try shorting there, again using the Sept 104 puts and a 20-cent stop-loss. We are currently long a bear put spread three times @ 0.76 -- short three August 102 puts against six long August 98 puts.

We thought the inflationistas would back off now that global deflation has ravaged just about every asset class save bullion and T-Bonds for the last couple of years. Actually, they’ve been pretty quiet lately, even if there are still a few money-supply nuts who believe not only that inflation is, or will be, a concern, but that the deflationist somehow have the big picture wrong. To all of you we say once again, Wake us when Americans can sell their homes for a quadrillion dollars, give or take a few zeros. Meanwhile, with CPI inflation sinking rapidly toward zero, check out this link to an essay by Puru Saxena, who raises some of the weakest anti-deflationist arguments we’ve heard so far. It’s good for laughs, but not much more. A reader sent us the link after we’d promoted a Wall Street Journal report earlier this week that some major-league financiers have finally copped to the reality of deflation. We’re talking about guys whose opinions count: Bill Gross, Jeremy Grantham, and hedge-fund managers David Tepper and Alan Fournier, to name a few of the best-known converts. "Deflation isn't just a topic of intellectual curiosity, it's happening," said Gross, who runs the $239 billion Pimco Total Return Fund. Lo, no sooner had we published the link than we heard from our old friend Zane B., who continues to push the intuitively appealing argument that inflation is about to take off because of a weakening dollar. (What’s about to take off is marginal tax rates, as far as we can surmise, and surely no one would argue that that is inflationary.)  Zane used to work for a foreign auto manufacturer, and he asserts that foreign autos, for one, will need to become pricier in dollars if their makers are to turn a profit.