Monday, October 4, 2010

The chart that accompanies Monday's gold tout shows where night owls might look for a possible buying opportunity on the three-minute chart.  The 'p' midpoint of the pattern is enticing because it a print there would very likely be read as a breakdown by other traders and chartists.

An important Hidden Pivot resistance at 1340.00 is still our minimum rally objective for the intermediate term, but there are some minor pivots along the way that I noted earlier.  Scalpers should attempt their buying on the three-minute chart, and so I've furnished a three-minute picture for the guidance of nightowls, since a pattern was developing around 11 p.m. EDT that could permit very tightly-stopped buying at either the 'p' mipdoint or 'd' correction target.

AAPL didn't trade quite low enough on Friday to allow us to attempt the first leg of a 300-310-320 butterfly spread. Specifically, we want to buy the Nov 300-310 call spread twice for around 2.10-2.20. You should attempt this if and when Apple falls to a midpoint support at 280.20 (24 cents lower than the target given here earlier).  Our goal is to leg into the other half of the position, shorting the 310-320 call spread, with the underlying stock peaking at a short-term Hidden Pivot rally target. ______ UPDATE (Monday, 12:43 p.m. EDT): We bought the spread twice for 2.10 when the stock temporarily bottomed at 280.40.  Do nothing futher for now. Our goal going forward is to short-sell two Nov 310-320 spreads for 2.10 or more. That would lock in our butterfly for "even" or possibly a credit, giving us a position that cannot lose money but which has the potential to produce a total gain of as much as $2000. That would occur if the stock is trading around 310 when the November options expire. ______ UPDATE (Tuesday, 12:16 p.m. EDT):  A powerful rally today has made it possible to short the Nov 310-320 call spread easily for 1.90.  I suggest doing so -- twice -- against the Nov 300-310 call spreads purchased yesterday for 2.10.  This will give us the Nov 300-310-320 'fly twice for a net debit of 0.20 apiece(!).  The most we can lose on this position is $40 plus commissions, but if AAPL is trading near $310 when the Novermber options expire, it could be worth as much as $2000 to us, or $1000 for each butterfly spread.

An ancient target at 1159.25 remains valid, although my ardor for shorting it with the usual penny-ante stop-loss has cooled some. If it turns out instead that the dirge-like price action of the last two weeks has been distribution, it will probably be Wednesday at the earliest that the futures can fall from the sky. A print down to 1127.00 would turn the hourly chart bearish in any event, but if you're looking for a more sensitive tripwire, try 1137.25 on the five-minute chart. Late Sunday night, the futures were headed the wrong way -- i.e., higher -- but there would be no credible upside threat until such time as they hit 1147.75. Night owls looking for a camouflage entry opportunity can discover for themselves the look-to-the-left peak that corresponds to that number on the three-minute chart.

With December Gold closing on the $1340 target that we disseminated a while back, it's time for a fresh perspective.  We wouldn't want readers to get the glum idea that $1340 is as good as we think it's going to get. Far from it. The way gold and silver have been acting lately, it feels more like bullion prices are just getting off the launching pad. Naturally, there’s no shortage of skeptics who would tell investors to hold off buying until precious metals have corrected some. You’d be wary about diving in yourself if you were a financial advisor who’d kept clients out of gold for the last decade, even as its price has more than quintupled. But we think any investor who is cautious on bullion right now is going to regret it when, come January, prices are at least 10-15% higher. Can we think of a reason for caution, just for the sake of argument? Not a good one – unless you perhaps believe that the central banks are about to jack up interest rates and smother the world’s tepid economy with a mega dose of austerity. The rationale most often cited these days for being cautious on bullion is that its price has simply been too hot not to cool down. Fair enough. But it is just as reasonable to ask why prices should cool down, given the unprecedented money blowout that is occurring throughout the world. And the word “blowout” is hardly an exaggeration.  Japan, its primacy as an exporter on the line, is in a fight-to-the-death to suppress the yen’s value relative to the dollar. But look at the chart above if you want to see how little they’ve accomplished. Although the Bank of Japan’s opening shot on September 15 obviously spooked speculators, causing the