Monday, October 11, 2010

Friday's brazen, single-bar swoon down to 1145.50 turned the intraday charts into ca-ca, and I almost want to discard the offending bar, calculating the bullish patterns that remain without it. Instead, we 'll simply start with another, promising low that followed it by two hours and which is part of a bullish pattern that in the final hour telegraphed yet more grief for bears when the new week begins. Notice how the intraday high at 1164.00 peek-a-booed above the previous day's top. The ostensible conquest was only by a single tick, but as you know, that is sufficient to create an impulse leg that has in fact made any pullback to 1157.50 or higher a consolidation.  Pivoteers should look at entry opportunities thereof, since the impulse leg is just squishy enough that it may not require a camouflage entry -- only one at the conventional point 'X'.

I've provided a chart with today's gold tout that introduces a matrix of bullish possibilities, with three nicely targetable patterns shown in clear relief.  Our confidence that all of them will eventually be reached is not reason to take our eye off the lesser charts, which can provide us with a very sensitive trend-change indicator.

Gold's snap-back rally was not quite a cavalry charge, but it should have discouraged the bad guys from thinking they can spook investors as easily as they did in the good old days, a few months ago.  The bears have steady buying to contend with now from Russia, Brazil, India and China -- and from a thousand other places where Bernanke's pronouncements are not taken at, to put it charitably, face value.  From a technical standpoint, the picture is not very complex. Using the Monthly chart (see inset), we find two serviceable targets at, respectively, 1400.80 and 1569.10.  Buyers handled the midpoint resistance points associated with these targets with such ease as to affirm the likelihood the targets will indeed be reached. Our minimum upside target for the near term remains 1381.70.

Much as we hate to kick the dollar when it's struggling, we'll set the bar all the way up at 78.07 -- a tick above a look-to-the-left peak made last Wednesday on the way down -- before we certify any rally as the real McCoy.  Assuming DXY fails miserably to meet our criterion, expect the weakness to continue most immediately down to 76.75, a Hidden Pivot tha comes from the hourly chart.

A projection of 25.35 is possible using the somewhat unconventional pattern shown in the chart, but more immediately we should concern ourselves with the 23.210 midpoint resistance of a lesser pattern.  Although the futures have already drilled a big hole in it, we should like to see them close for two consecutive days above it before inferring that a move is under way to its 'D' sibling at 24.070.  Alternatively, minor dyspepsia would be signaled on a print today at 22.885, where a bearish impulse leg would become manifest on the 5- minute chart.

We're long the November 300-310-320 butterfly twice @ 0.20.  Although our maximum theoretical profit of $2000 on this position would come with the stock trading for 310 when the November options expire, any strong rallies like Friday's are going to swell the paper profit that is already in the spread.  As long as Apple remains buoyant, following this trade from one day to the next will be like sifting silver coins through our fingers. Keep in mind that the most we can lose, no matter what the stock does, is $40.

Take a look at the graph below if you think the central banks have things under control. The chart shows the yen’s relentless rise since summer, punctuated by a single, nasty plunge on September 15. That was the day the Bank of Japan intervened in the currency markets for the first time in six years, prompted by concerns that the yen’s steep rise would hurt Japan’s export-based economy, and by the fact that the yen had recently spiked to a 15-year high versus the dollar. The intervention obviously failed, since the yen quickly recouped the loss and is now trading significantly higher than before the intervention.  Because we have heard little from the Japanese since, however, we can only infer that they know enough to shut up rather than pretend they can bully speculators. Repeat a threat often enough, and eventually you become a laughing stock. If Japan has thrown everything but the kitchen sink at the yen with no success, one can only imagine what it’s going to be like when it’s the Fed’s turn to “manage” the U.S. dollar. So far, the dollar has managed itself, albeit with plenty of help from central banks around the world that are even more keen on beating down their respective currencies than the U.S. is the dollar.  But this is just small potatoes, a warm-up before the fat lady sings.  Japan’s efforts to push down the yen have been geared toward padding the profits of its domestic manufacturers, and the scope of these efforts has therefore been commensurate in size with actual trade in physical goods. But the sums involved pale in comparison to the nearly quadrillion-dollar shell game that the world’s financiers have created with dollar-denominated securities. Don’t even think about trying to push that market around when it discovers