Wednesday, December 8, 2010

I sought  feedback in the chat room yesterday from traders who may have used my 42.34 target to put on a hedge at the very top, but there was none (although one person evidently noticed that the target came within three pennies of nailing the actual high).  The top occurred on an opening-bar spike of 1.50, so it may endure for yet a few more days if not longer.  Meanwhile, we'll carry the Jan 34 puts for 0.77, which is about halfway between the criminally-rigged opening price and the intraday low.  For now, use a 67-cent stop-loss for the puts. Our goal, if SLW eases further, will be to leg into a sell-side something-or-other put that will give us some premium income.

There is nothing here to even remotely engage our interest at the moment, and I'm not going to force targets, even for night owls.  Yesterday's decline breached no external lows, so our bias should be bullish coming in this morning. That would of course change if the futures were to penetrate even one of the three lows on the hourly chart going back to Friday.

Silver fell more steeply than Gold yesterday, but the net effect is to leave us with two targets that can help us gauge sellers' mettle.  Using an intraday peak at 30.00 made on the way down, we are able to calculate two obvious supports:   27.600, and its sibling midpoint at 28.360.  An easy penetration of the latter would shorten the odds of a finishing stroke to the former.  It is mildly bearish for the short-term that yesterday's peak fell so far shy of a mildly compelling, 31.545 target, but one could argue that it has not yet been negated. Please note that a trendline connecting some key lows on the hourly chart allows for a pullback to as low as 27.00 or so.

We're all adult enough to recognize by now that yesterday's dive was just a game, the purpose of which is to make bullion temporarily more affordable for the indefatigable, deep-pocketed buyers who have been driving it higher for the last ten years. Either that, or you have to believe that $1432 will turn out to be as high as Gold ever gets.  Yeah, sure.  For now, though, my bet is on the corrective pattern highlighted in the chart, with its 1383.60 Hidden Pivot target.  It will become still more persuasive if the futures bounce from its sibling midpoint, 1394.50.  Notice that the lower number would leave unbreached a 1383.00 low made last week, diminishing the imputed strength of the bearish impulse.  We'll know more by day's end, but so far it looks like bears are having a devil of a time pushing the little monster down. Let buyers turn things around and push the futures up to 1412.40 today, and the jig will be up. _______ UPDATE (10:40 a.m. ET): Gold bottomed at 1384.40 for a couple of hours, rallying $12 before plummeting anew.  The so-far low at 1372.10 lies just $2 above a well-defined trendline on the daily chart that goes back to a low recorded on November 16.

Helicopter Ben said so many dumbfounding things the other night on 60 Minutes that we wouldn’t know where to begin if we were to go after him.  His ostensible interviewer, Scott Pelley, was clearly out of his depth, so it looks like we’ll have to wait until Bernanke faces Rep. Ron Paul on Capitol Hill before we get a clearer picture of the issues the Fed chairman would have us believe he is managing. During the CBS segment that aired Sunday night, the Fed chief denied printing money, but Pelley failed to press him on this whopping technicality.  Bernanke also said he could throttle inflation in an instant if it becomes necessary.  That absurdity, too, sailed right over Pelley’s head – either that, or he simply didn’t care about the economy-killing implications of the banker’s implied “solution” – i.e., higher interest rates. On that score we have some potentially very bad news -- not only for the Fed chairman, but for all debtors. Take a look at the chart above and you’ll see why.  The price of the 30-Year Treasury Bond future has been falling hard for two months, with a corresponding increase in yields.  The interest rate on the long Bond was 3.73% when the slide began; now it’s around 4.43% -- a rise of nearly 20%.  Rick’s Picks expects the March T-Bond to keep falling, presumably to a “Hidden Pivot” support at 120 10/32. At that point, yields will have risen to about 4.60%. Things could get really ugly, however, if the support fails, since that has the potential to send the futures plummeting all the way to 117 22/32.  At that price, the long-term interest rate would be around 4.82%.  Spread this asphyxiating rate over public borrowing, adjustable mortgages and revolving credit, and the extra tab would

We forced a “camouflage” trade in March Gold during this session, and you should pay close attention to the reasons why, since the opportunity looked mediocre at best. The trade went on to achieve its ‘D’ target, hinting that the nasty correction under way in bullion this week may have run its course. We also took a close look at T-Bond futures, which have been falling hard enough to threaten Bernanke’s entire edifice. There were growing reasons for us to infer that U.S. Bonds have entered a long-term bear market, and we discussed them in detail.