Tuesday, August 24, 2010

A print today at 18.825 would really cure Silver's blues, but short of that, any rally would just be marking time. There's nothing especially menacing otherwise, but if the futures take the path of least resistance, they're apt to test the summer's so-far lows with a drop to around 17.27.

I'm only half kidding when I say in today's E-Mini S&P tout that bears might kill themselves trying to push the futures down to a target we've been using for too long.  As much might be said of bulls in Gold, since their efforts to achieve a relatively modest rally target have already evinced more strain than most of us would care to watch.

A Hidden Pivot support at 1218.70 sits just beneath the all-too-obvious low at 1218.90 recorded on August 18, making it an enticing spot to try bottom-fishing.  It would almost surely be read as a breakdown by most other traders and chartists -- and it would be a breakdown, except that we have a logical and precise place to look for the whipsaw to commence. Accordingly, I'll suggest bidding 1218.70, stop 1218.30, day order. It it fills you'll be on your own. Alternatively, I'd need to see a print today at 1235.70 before I'd start thinking once again about that not-so-ambitious rally target at 1244.20.  _______ UPDATE (10:37 a.m. EDT): The trade was a small winner, since the futures took a $3.10 bounce overnight off an interim low of 1218.40.  It was an hour later, however, that a final, wicked swoon created a true bottom at 1211.70 that gave way to a powerful $26 (so far) thrust.

I'm still holding to a 1040.25 downside target, although bears may die from the effort, so fearsome has been their struggle to take this vehicle down.  There's another, lesser Hidden Pivot support at 1047.00 that we can use as an interim target, since its sibling midpoint at 1063.50 has already been decisively breached. If and when the downtrend achieves 1047.00, that would take out July 20's key low at 1050.75, generating a robustly new impulse leg on the hourly chart. _____ UPDATE:  And what a struggle it was, once again, for the bears!  They had some of the worst housing-starts data of the last hundred years to work with, and even though such news should have sent stocks straight downhill, the Dow ended the day 50 points off its lows, down a mere 133 points.  Scary!  With administered rates already at zero, we can rule out expectations of more easing as a cause of yesterday's relatively modest loss.

We hold a single contract, basis September, with an adjusted cost basis of 175.03; it yields a paper gain so far of about $2,485. Let's roll into the December contract, since we are holding for a target significantly above these levels, and correct the cost basis down to 176.73. Basis the December futures, the rally target lies at 197.00, a Hidden Pivot whose sibling midpoint is 176.80.  Rather than going for broke, as I implied we might earlier, let's take a disciplined approach by stopping ourselves out if a bearish impulse leg is created on the hourly chart. That would occur today on a print below 180.55. ______ UPDATE:  Bulls took a brutal pounding yesterday, but we side-stepped most of the damage, exiting our position at 180.50 on the stop-loss suggested above.  The theoretical profit would have been a bit less than $1400 per contract.

With proceeds from a recent sale of Con Ed, my old pal Zane B., whose thoughts have been featured on this site before, is looking to buy Southern Co. for its 5% dividend and appreciation potential.  He asked for my opinion about the utility stocks in general, noting that "the interest rate card seems to say 'OK to buy' now no matter what the Fed does."  I responded to his query as follows:   The Utility Average looks like it's in the same secular bear market as the broad averages. However, within the bear rally that has unfolded since March, the short-term outlook appears moderately favorable given that the most recent thrust -- from the 353 low on July 2 -- created a bullish impulse leg of daily-chart degree.  If you want to buy it, though, or use it to signal when to jump on a component stock, you should wait until the retracement from mid-August's high, 398.98, has had more time to develop. It has come down so far to a low of 381.43, but a further correction to at least 378.64 is needed before this vehicle can be considered full recharged for another leg up. The "booster" thrust signaling this would need to be at least 11.37 points from some bottom below 378.65. ________ UPDATE:  The rally took off without dipping down to our bid, so cancel the order.  FYI, if you had wanted to get long without having to wait for a pullback to our bid, you could have done so on the morning of Tuesday, August 31, around 11:15 EDT, using camouflage on the 3-minute chart. That's the first place a bullish reversal was signaled.

[Against our own concerns that a stock-market crash is imminent, and that it will not wait until after the November elections, we must weigh the obvious fact that we have plenty of company – perhaps too much company – in the chicken-little camp. In the think-piece below, Cam Fitzgerald, a frequent contributor to the Rick’s Picks forum, expresses similar, contrarian reservations. RA] There is just so much talk of a crash that it has almost become anti-climactic. The thing is that with so many mutual fund redemptions having taken place and so many more 401-Ks being shifted out of equities, it does seem surprising that markets keep floating, range-bound. We obviously have our suspicions.  [Forum contributor Mario Cavolo] mentioned an article that suggested that as many as 70% of all stock-exchange transactions are being attributed to high-frequency trades. Off-hand I don’t know if that is true. However, I will say this: If such trades and the insiders (you know who I mean) who are doing them are artificially inflating the markets on very thin trading, and subsequently supporting each decline in contravention of historical norms, then it follows that the technicals themselves can be manipulated. I do not doubt this for a second. The number of times that we have all seen sell-offs end abruptly, turning on a dime, and key support-and-resistance levels fail to be reached, have been too numerous to be merely coincidental.  What these episodes suggest cumulatively is that market intervention and manipulation are in full force. Meanwhile, there are simply not enough legitimate players remaining in the game to maintain balance in what now appears to many to be a rigged market. Moreover, there are just too many bears anticipating a crash, and too many taking short positions simultaneously. That tells to me that a gold mine