Monday, December 6, 2010

With the recent disclosure that China has been buying far more gold than the 190 million tonnes announced earlier this year, the strong hands presumed to be accumulating bullion became still stronger.  In a recent interview with Al Korelin, we talked about this and other factors that are quite bullish for precious metals.  Click here to access the interview.

We're back on the butterfly trail again in AAPL, looking to risklessly bet on a big decline in the stock early in 2011. I don't expect this to happen, but if it costs us absolutely nothing to speculate on the possibility, then why not?

Let's  try to set up a riskless bet on the longshot proposition that Apple will be trading much lower come mid-January.  Once again, we'll use a butterfly strategy to effect this wager -- specifically, the January 260-270-280 put butterfly spread. It close on Friday @ 0.33, but we can attempt to do better by legging into it, buying January 260 and 280 puts when the stock looks like it's peaking, then shorting 270 puts on a pullback.  Assuming AAPL is about to rally into resistance near 320, let's bid 2.00 for two January 280 puts, good through Wednesday. They last traded for around 2.20.  If we put are able to put this spread on risklessly -- i.e., buy the butterfly for "even," or a zero debit -- that implies we'll have shorted two January 280 puts for the same price we've paid for one January 260 put and one January 280 put. _______ UPDATE (10:01 a.m. ET):  We bought two January 280 puts for 2.00 when DaBoyz popped the obligatory short-squeeze gap on the opening bar. We'll want to short-sell four January 270 puts if and when the stock falls back, but for now do nothing. 

A 1240.00 rally target billboarded here earlier remains viable, although catching a ride north could prove exceedingly difficult, since the futures have gone into spasms of hysteria upon encountering two resistance peaks near 1224.00 that were recorded earlier in the month. Sunday night, they were playing toe-sies with Friday's 1227.25 high, waiting for a mote of news that could be used to put the squeeze on bears. Apparently, Heli-Ben's emetic interview on "60 Minutes" was not it.

So effortlessly have the futures breezed past the watershed, 29.405 high recorded on November 9 that the 30.465 rally target given here earlier is probably magnetic by now.  As noted at the time, a decisive move through the target will imply more upside over the near term to at least 31.545.  If you're looking for camouflage, notice on the 3-minute chart how the buying is so powerful that most of the initial point 'C' lows being created on the way up are surviving unbreached. This suggests the futures are so eager to move higher that they can't be bothered with second thoughts over whether traders might make money -- heaven forbid! --by doing the obvious.

The futures are bound for at least 1425.10 over the near term, having paused only briefly at the exact, 1404.10 midpoint pivot associated with that target. Action Sunday night was choppy, but this will be more advantageous for boarding than if the futures had begun the new week with a powerful thrust.  As of exactly 8:21 p.m. ET, there was a "camo" opportunity taking shape on the one-minute chart, where A=1412.30, B=1414.00, C = 1412.50, x=1413.00 (triggered) and p=1413.50.  This would be the last "easy" signal for the night, perhaps, since the pattern has exhausted all of the external peaks on the lesser charts.

The rally pattern shown in the chart looks felicitous for either buying or shorting, depending on your mood.  It features single-bar coordinates for A, B and C, but also the kind of eye-jarring asymmetry that tends to throw Gartley riff-raff and other 1-2-3 pattern-players off the trail.  The high at the right-hand edge fell just a single tick from the 11380 midpoint, so any move above it should be considered a declaration that the futures are on their way -- precisely -- to 11474.  It's impossible to know how the breakout will play out, but 'camo' traders should be alert to any buying opportunities that crop up once the midpoint has been exceeded.

The stock market shrugged off appalling jobs data on Friday to close higher, much as we might have expected.  Although Beadledom’s best and brightest had been looking for unemployment to remain unchanged at 9.6% for November, it actually jumped to 9.8%, at least according to the official tally. (Shadowstats’ John Williams has offered convincing evidence that the true unemployment number is above 20%.)  It was also announced that employers created just 39,000 jobs in November, down sharply from the previous month. Stocks initially fell on the news, but bears were easily repelled by the so-far invincible OPM/QE2 juggernaut in the opening minutes of the session. At their most fearful, sellers managed to push the Dow down only 43 points. The broad averages oscillated tediously for the next six hours, presumably until there was not a single seller left; then, they lurched higher to finish with the best rally of the session, achieving all of the day’s gains in the final fifteen minutes of the trading week. Over the weekend, pundits would reflexively focus on the stock market’s amazing resilience in the face of such awful news. No doubt similar behavior was evinced in the staterooms and parlors of the Titanic when it was first learned that the ship had struck an iceberg. Statistically-minded bulls may want to make note of the fact that the Dow would hit 35000 sometime around August 2014 if it continues to rise at Friday’s pace. More immediately, as we implied here in an earlier commentary, stocks are almost certain to continue higher for the remainder of the year. Short-covering opportunities are becoming increasingly scarce and may have dried up altogether on Friday with the revelation that horrific unemployment data alone will not suffice to diminish the flow of OPM into shares. What If…? If there was any chance