Tuesday, November 9, 2010

We hold a long-term position of 800 shares with an adjusted cost basis of 13.07 and a theoretical profit of $17,600.  One can never be certain exactly where a parabolic rally will crest, but let's use a Hidden Pivot resistance at 37.16 as a possible target.  This will give us the wherewithal to try to leg into a December 25-30-35 call butterfly spread that would give us cheap protection against a relapse.  To implement this plan, we'll start by shorting the December 30-35 call spread eight times if and when SLW gets within 10 cents of the target. My rough estimate of how much the spread will be selling for is 3.85, so if you can get that much or more for it, you'll be doing great; if five cents less, still not too bad.  If we are able to sell the spread, we'll be looking to buy the December 25-30 call spread on weakness.  Our maximum risk on the short spread alone, assuming a sale at 3.85, would be $115 per spread, but that would be more than doubly offset by our corresponding gain on the long stock position. _______ UPDATE (10:12 a.m. EDT): With a spectacular lunge, SLW made a so-far high today at 37.20(!), pushing the December 30-35 call spread to a maximum price of 4.00.  We'll use 3.90 as our cost basis for the eight spreads we shorted, and for the time being do nothing further.  If we leave things as they are, the spread gives us 100% protection down to about $33. _______ FURTHER UPDATE: I see that someone in the chat room has reported a 3.80 fill on the spread -- 20 cents lower than the highest do-able price -- so that's the number we'll use for our cost basis.  The defensive short sale is not looking

Gold's upward momentum continues, and traders should look for small patterns that will facilitate long-side trades.  With another all-time high early in today's trading session, we again have no downside targets to work with.  But at the moment, a camouflaged entry opportunity would arise if the futures rallied to slightly above the high of 1413.3 and then pulled back, as shown in the attached picture.  If this set-up does not materialize, refer to it as an example of one way to approach this market.  Should any bearish patterns emerge, traders should give serious thought to buying at the pivot levels.  Between the current price and the $1460 area mentioned in yesterday's tout, there are many valid targets.  As for where a significant decline in the gold price might begin, we will say that $1460 is the best bet, but we don't necessarily think it's a good bet, as the world might now be slipping into a mad rush for the yellow metal.  (Posted by Doug McLagan)

We caught a small but theoretically profitable upthrust yesterday using the 'd' target of an abcd correction that unfolded during a pre-opening briefing.  Price  action was especially flat -- more like a slither than a trend -- but we can only infer it is a consolidation for the next all-but-inevitable QE2 push higher. A well-discussed rally target at 1233.75 still obtains, but I am reluctant as yet to tout another at 1259.75 that implies a rally of much steeper pitch  (although I'd consider it a done deal if the futures were to gap above 1226.00 on the opening)  That is the point 'X' entry trigger of the pattern that projects to 1269.75.)   The provenance of both targets is shown in the accompanying hourly chart.

I'd suggested keeping an eye on a midpoint Hidden Pivot resistance at 27.235, but the futures turned it into chop suey yesterday in a trice.  That means getting to the 'D' target at 28.590 (adjusted downward by a tick, by the way) associated with that number shouldn't pose much of a problem for bulls.  Traders, as well as long-term bulls looking for a logical place to adjust,  should gear for a pullback from 28.400, or from 28.590 if the lower number is exceeded by more than two cents.  How much of a pullback?  That's hard to say, although the magical number $30 could be just a day or two away if 28.590 fails to slow the buying rampage for more than an hour or two.

[ In today’s guest commentary, Rick’s Picks forum regular Doug Graham sounds a note of deep despair over the political economy.  There are too many incentives, he says, for our corrupt and deeply dysfunctional system to stay just the way it is.  And even if we possessed the fortitude and resolve to put things back on track, the looming inflation of the dollar to the point of worthlessness will render any such efforts moot. RA ] Pretty weird having front row seats to the destruction of the dollar, but here we are.  The leaders keep claiming they have a strong-dollar policy, yet the price of nearly everything, excepting housing and perpetually deflating technology, is now rising.  Every metal.  Grains?  Fuggeddaboutit. Energy?  Well natgas kind of threw us a curve, but even it is double its price from ten years ago.  We can argue the deflation debate forever, but the fact is your dollar buys you less of nearly every single commodity than it did in the Nineties.  Some, as much as 80 percent less.  You could not say this in the Eighties or the Nineties. At the same time we have a government which evidently can do nothing but stimulate inflation, insisting on growing.  It is widely stated that governments produce nothing.   This is not entirely true.  Other than dollars, they also can produce national security and they do provide some services such as moving mail around.  In general, however, they do produce nothing.  If they were a part of the human anatomy, they are more like the colon (my apologies to the colon, an effective and efficient organ)  than the quadricep: vital for the whole to function, but not all that pleasant.   And yet, the only significant job-growth sector of the economy in the last two years has been government.