August 2010

Downside targets given today for the shares of Apple and Goldman Sachs imply that the broad averages have further to fall, but perhaps not as much as yesterday.  These two targets should be held in mind if the weakness continues, since AAPL in particular is capable of leading the inevitable turn higher.

Our backspread -- short August 102 puts, long August 98 puts in a 1:2 ratio three times -- opened @0.14, but prices steepened thereafter and the spread closed at 0.41. I'll assume an exit for 0.20 or less, which would have raised our $228 theoretical loss by a total of $60  (i.e., we paid 0.76 per spread to get in and another 0.20 to get out). We were unable to purchase September 101 puts for 1.00 as I'd suggested, since they never traded lower than  1.49. Expect the Diamonds to continue to fall, presumably to at least 102.54, a Hidden Pivot that comes from the 15-minute chart (see inset).  Shorting the downtrend will have to be on your terms, since I cannot predict how DIA will open, but if you choose to bottom-fish at 102.54, risk no more than a 15-cent stop-loss on any near-the-money calls acquired. _______ UPDATE (1:10 p.m. EDT):  My forecast very nearly caught the low, since it occurred at 102.78, but that was not quite close enough to get us aboard for officially for the bottom-fishing trade suggested above.

Goldman's plunge tore through a major midpoint support without evincing even a hint of a bounce. I now expect the stock to fall to at least 145.23, possibly pausing at 147.80, the midpoint sibling of the target. _______ UPDATE (12:54 p.m. EDT): Goldman's overnight low was 147.81 -- tradable, perhaps, since it occurred just an hour before the NYSE opening.

During yesterday's weekly tutorial session (which as always was recorded for posterity), we nailed the intraday low at 1085.75 within two ticks, but the breach of the support in after-hours trading portends still more downside overnight to at least 1082.00. That would freshen the bearish impulse on the intraday charts, since the target lies beneath the key low at 1083.50 recorded on July 30. An even more important support at 1050.75 from a low made ten days earlier will almost surely be tested if 1082.00 is breached on a closing basis.

September Silver is nearing a 17.735 Hidden Pivot support that I'd suggest bottom-fishing with an 17.725 stop-loss. You should also pay heed to the still-developing down-pattern shown in the chart, since it could yield a midpoint support and 'D' target where tightly stopped bottom-fishing would be possible.

I'd flagged a midpoint support at 152.80 as a place to try and get long, but you should do so only via "camouflage," buying on the first ABC uptrend that occurs on the very lesser charts after 152.80 is approached within 5-10 cents.

Newmont's health appears somewhat more precarious than that of gold futures, since the stock is working on a bearish impulse leg of daily-chart degree created on July 28 with a low of 54.30.  We'll use a midpoint support at 55.34 as a minimum correction target from here, but if the stock closes below it for two consecutive days it would be warning of more downside to as low as 52.68.

"Dueling impulse legs" on the daily chart yield a mildly negative bias for perhaps the next 5-8 days, but there's no evidence that the futures are about to fall apart. In fact, they could pull back to as low as 1165.10 over that time and still be considered perfectly healthy. Most immediately, however, there is downside jeopardy to as low as 1190.50.

Let's try to cover our three put spreads for a debit of no more than 16 cents per, since this backspread position can only hurt us if the Dow plummets next week. In fact, we wouldn't start to make money on it unless the Dow were to fall more than 900 points.  At yesterday's closing prices the spread could easily have been bought back for a 0.13 debit by selling two August 98 puts @ 0.06 and buying one August 102 put for 0.25. Also, for good measure, bid 1.00 for four September 101 puts, day order.