Thursday, November 18, 2010

The futures were wafting higher Wednesday night, up eight points at the moment, but the gain was attributable more to a lack of supply than to any apparent buying enthusiasm. Under the circumstances, we should ask no less than 1195.00 before we take the rally seriously, since that's what it would take to create an unambiguous impulse leg on the hourly chart.  Because the current impulse is bearish, we might consider shorts seriously for the first time in a long, long while.

December Silver was threatening bears Wednesday night with impalement, poised at the base of a shallow, 20-cent cliff whose ascent would take the futures above no fewer than three external peaks on the intraday charts.  Gold, though less feisty, looked primed to follow.

The futures were steaming higher Wednesday night, seemingly eager to take on a minor Hidden Pivot resistance at 26.305 just a penny above the so-far high. Just a little bit more oomph, however, and the rally would pierce three external peaks, with very bullish implications for the near term.  The highest of them lies at 26.485, so a mere 20-cent rally above current highs would suffice. The accompanying chart shows this.

Gold's nasty, $100 slide has reversed from a low just shy of a visually obvious bottom at 1325.50 that launched the last, record-breaking rally. That's bullish, but we'll need to see further confirmation in the form of a new impulse leg of hourly-chart degree. A print at 1376.70 today would do the trick, but we'll use a less demanding indicator at 1369.50, a look-to-the-left peak notched November 15 on the way down.  A thrust today exceeding that number would put bulls back in charge of the short-term trend, at least.

Ready to try another butterfly?  We racked up a theoretical profit of $1360 the last time around, so it's only natural to want to do it again.  This time, although I have no specific rally target in mind, we'll be betting on the likelihood that AAPL shares will continue to move strongly higher over time.  But first they look likely to correct some more -- presumably down to a Hidden Pivot support at 292.87. With the goal of legging into the January 330-340-350 call butterfly at no cost, let's start with the purchase of two January 330-340 call spreads if and when AAPL falls to the 292.87 target.  The spread closed yesterday for 1.90, but we should be looking to pay no more than 1.25-1.30.  I've included a snapshot of an option calculator that shows how I estimated fair value.  The volatility estimate, 29, comes from TradeStation and is crucial to my assumption. ______ UPDATE (12:02 p.m. ET): Far from correcting, Apple has used the stock market's broad rally today to reassert its primacy as the highest-beta stock of them all.  AAPL is up more than $8 at the moment, so we can forget about stealing the January 330-340 spread for relative pennies.  Assuming the rally continues -- a safe bet, since the company is one of a bare handful of firms in America that are making money the old-fashioned way, hand-over-fist -- we'll consider legging into the butterfly from the opposite direction -- i.e., shorting the January 340-350 call spread when AAPL approaches a Hidden Pivot rally target. _______ FURTHER UPDATE (Sunday, November 21):  There are innumerable ways in which things could play out this week, but if any of the possibilities has the potential to yield an edge as we contemplate legging into  bullish butterfly spread, I will signal it both here and in the chat room

(When we talk about “honest money,” most of us have in mind a currency that can be freely exchanged for gold. In the essay below, Steven George Fair, a frequent contributor to the Rick’s Picks forum, explains why the choice of what we deem money is fraught with concerns about the very nature of liberty, and about our willingness to order our economic lives with money that has been imposed on us by feudal overlords. Ralph Waldo Emerson once wrote that “A man is usually more careful of his money than he is of his principles.”  And therein lies the problem, even for those who would attempt to make a fresh start with bullion-backed money. Ultimately, it’s not the backing that is crucial, but the freedom for individuals to decide for themselves what is acceptable as money. RA) There is sage wisdom in the study of history.  Historically, the same arguments that are raging today in regard to economics, government, and Nature are the same arguments that have always raged.  The only change is the players, and no real change occurs in us because, after all we are men and women, male and female, rib of my rib. Culturally there are those tribal cultures that base wealth on time to eat, laugh, play, and enjoy family.  And then there are the traders: those that stretch out to gather more than is needed to sustain happiness, seeking obsessive control. I'll focus on the traders.  Each generation thinks they are different, and superficially they are -- in the way they wear their hair, pierce their bodies, or color their skin.  Beyond the superficial new way of being, we are the products of where we come from, or where we think we come from.  Our generational arguments are based in belief in Creation