Thursday, October 7, 2010

Bulls appear to be back in charge with yesterday's thrust above an important peak at 135^07 recorded in August.  It would take a plunge all the way down to 131^20 to negate the bullish implications of this achievement. Most immediately, the nearest Hidden Pivot target lies at 136^00 and comes from the daily chart, where A=129^11 (9/17).

An ostensible cream-puff-of-a-Hidden Pivot at 1163.25 is proving to be more than a little challenging because of a structural resistance at 1160.75 created a while back, during last spring's landslide.  We'd be forced to respect this toothsome bear rally if the peak is surpassed, even if it takes another ten days to do it. The big picture is shown in the daily chart reproduced alongside. ______ UPDATE (11:18 a.m. EDT): We hold no position officially, but if you shorted 1163.25 (as someone in the chat room evidently did) with a stop-loss as tight as three ticks, the trade was a winner.  Half might have been covered as early as 1160.25, but I'd suggest a trailing stop based on impulse legs on the lesser charts for what may remain.  If you shorted four or more contracts, hold one or two for a possible grand slam.  That said, the move above May's 1160.75 peak puts the burden of proof on bears' shoulders. The fact that stocks are resisting falling -- as they nearly always do any more -- while gold and silver are getting pummeled, is further evidence that higher highs are coming for the broad averages.

We're long four November 27 puts for 1.72 against 800 shares of stock with a cost basis of 12.95. If SLW surmounts evidently copious supply at 27, look for a pop to as high as 28.61. Stop yourself out of the puts if they trade down to 1.52, but otherwise check for updates intraday if SLW falls, since we may try to spread off our premium risk.  ______ UPDATE (11:25 a.m. EDT): SLW head-faked to 27.27 on the opening bar, then collapsed.  Let's try to spread off our puts, offering six November 24 puts short for 1.75 g-t-c.  My immediate downside target is 25.24, a Hidden Pivot that comes from the one-minute chart, but a bullish reversal would be signaled subtly with a print at 26.15 .

Rally targets at 3.8605 and 4.2480 are discernible on the weekly chart (see inset), and the lower of the two implies that December Copper has a big move ahead of it before any serious impediments turn up.  I've used a long-term chart here because the respective midpoints of the two bullish patterns have been decisively exceeded. However, if we lower our sights to the hourly chart, the first Hidden Pivot resistance we find lies at 3.7920.

We've got major targets at 24.915 and above, but a lesser one at 24.04 can serve for the very near-term as a minimum upside objective. The pattern from which the target is derived has a stall near its 23.400 midpoint to recommend it, although it would take a steep move to summit today. Camouflage will be difficult to come by because the rally is so extended,  but night owls should stay glued to the 3-minute chart and trust the first signal they get of an impulsive turn higher.

We're using a Hidden Pivot at 1381.25 as a minimum rally target, but with a hair-trigger alert if the futures should develop palpitations on the way there. For now, that would imply a swoon down to 1339.90, where the 15-minute chart would turn bearish. Night owls can use a pattern similar to the one shown in the chart to board, but don't hang around for more than a minute or two if the rally shows reluctance to get to the C-D midpoint. _______ UPDATE (2:20 a.m. EDT): An abc rally similar to the one shown provided an untroubled entry opportunity around 1:33 a.m. at 1354.90.  Two of the three coordinates of the pattern were single-bar as required, the impulse leg exceeded one internal and one external peak (on the 3-minute chart), and the futures never came back down to 'C'. _______ UPDATE (11:23 a.m. EDT): Gold is taking quite a beating today after spiking as high as 1366.00 near the opening.  Downside Hiiden Pivots all the way up to the hourly charts are getting pulped, so any bottom-fishing at the 'd' targets of downtrends should be done via camouflage. A good place to look for it, as of this moment, would be 1327.90.  FYI, ace Pivoteer Steve Scheler found the "solution" to today's 1366.00 high by using a 240-minute chart.  The following coordinates -- no stretch at all, visually --  nailed the top within a single tick: A=1211.70 (8/24); B=1301.60 (9/24); and C=1276.20 (9/28). There was even a stall within less than $1 of the Hidden Pivot midpoint.

We want to pay very close attention to the rally in gold and silver right now, since a stall following such a dizzying climb could send bullion quotes into a 10% dive before most traders could react.  We said here yesterday that silver in particular looks like it could use a rest; indeed, a key stock that Rick’s Picks follows closely and in which we have a long position may already be anticipating it. Specifically, Silver Wheaton (SLW) has resisted the strong upward pull of futures prices over the last two days, and for the last two weeks has acted as though there’s a ton of supply just above. Because of this, we bought some November near-the-money puts in SLW yesterday as a hedge, and if SLW continues to hover we may buy a few more.  As for gold, the Comex December contract still has $30 of upside before it reaches a compelling Hidden Pivot target at 1381.70, and we expect it to be reached. But if there is any loss of momentum over the next couple of days, gold will begin to feel the pull of gravity as it has not since early July. How will we know when bullion’s rally is about to lurch into reverse?  There are two things we’ll be monitoring very closely. One is the creation of bearish “impulse legs” on charts of lesser degree. In theory, no significant price reversal can occur on the longer-term charts without a similar occurrence on the lesser charts first. Another way to look at it is that every great bull market ends, and bear market begins, with a tiny abcd downtrend on the one-minute bar chart. So far, however, the corrective downtrends in both gold and silver are consistently failing to reach their corrective ‘d’ targets.  This is bullish

Bullish as I am on gold and silver, it's time to second-guess myself simply because...I'm so bullish.  And, so very comfortable am I with the $1381 target in December Gold that it was also time to make contingency plans if it looks like the target might not pan out.  Finally, I really do believe that the 78.07 tripwire in the Dollar Index has the potential to telegraph a much bigger move. _______ UPDATE (8:42 a.m. EDT): DXY has trounced the support, as well as an alternative one at 77.11, presumably paving the way for December Gold's move up to at least 1381.25.