Thursday, December 16, 2010

The predicted low at 1378.70 appears to have done its job, nailing the so-far bottom of a $30 decline within 20 cents while keeping us properly bearish almost the whole way down.  Keep in mind that if this midpoint Hiddden Pivot support fails, the futures would face the prospect of more weakness over the near term to as low as 1348.50.  They won't be out of the woods tonight, though, until such time as 1389.00 has been exceeded to the upside.  If you got long at the bottom on your own initiative, partial profit-taking and a break-even stop would have been s.o.p., since the futures have bounced nearly $5 from the low.

We're long 800 shares with a cost basis of 14.27 against eight January 34 puts that we bought for 0.77.  Let's reduce our premium exposure by shorting puts of a lower strike.  Accordingly, I'll recommend that you offer eight January 32 puts short for 0.72, good through Friday. They closed yesterday @ 0.46, but the stock would have to fall t around 36.40 to get us filled.

We hold four January 111 puts for 0.97 bought shortly after the opening on Wednesday.  The options were acquired not because the Diamonds were peaking at a Hidden Pivot target, but because they were starting to look tired. I am unable to project a downside target at the moment, other than a minor one at 114.59 (or 114.39 if any lower). That's a Hidden Pivot, and because its sibling midpoint at 114.87 has already been breached, it can serve as a minimum objective for now.

A short-squeeze rally in the opening hour failed by two ticks to exceed an 'external' peak from Tuesday, providing the evidence of gutlessness we needed to justify taking the rest of the day off.  It was all downhill from there, albeit not steeply enough to provide any special opportunities for shorts. The selling was labored, and when five hours of huffing and puffing was done, the intraday low and high were separated by just ten points.  Traders will find numerous downtrending abc's to look at Wednesday night, but the only one that I half-like will engender a midpoint support at 1229.25 -- too close to the intraday low to be worth much for trading purposes. For your information, its 'd' sibling lies at 1224.00.

Bullion prices seem likely to remain under pressure for the rest of the year now that Moody’s has trained its water hose on…Spain!  Yesterday, the ratings firm dithered its way into the headlines with a threat to downgrade Iberian debt.  Presumably, this was done at the behest of Geithner, Bernanke & Friends.  Regardless of who ordered the hit, it sufficed to touch off yet another headless-chicken scramble into the alleged “safety” of  the U.S. dollar. The timing of this conspiratorial boost to the buck suggests that the Plunge Protection Team is getting better at its job with each passing month. By our runes, the dollar was poised for a breakdown. Lo, just as the selloff begun on Monday was starting to snowball, the dollar whipped around and began a steep rally that was still in force at yesterday’s close.  If we’d stage-managed the turn ourselves using Hidden Pivots to time the announcement, we could not have picked a more opportune spot for Moody’s and its masters to spring a trap on dollar shorts. Curiously, although the threat did its job, turning a weak dollar lethal to anyone betting against it -- while of course knocking gold and silver futures for a loop -- Spain’s borrowing costs remained largely unchanged. Spanish bond yields actually ended the day lower, suggesting, as the Wall Street Journal put it, that “investors may have become immune to such warnings.”  Do lenders know something that the rating service does not?  At the very least, it would appear that they had the jump on Moody’s, since yields on 12- and 18-month bills issued by Spain had risen a full percentage point since mid-November. Dealing Off the Bottom From a technical standpoint the Dollar Index, currently trading around 80.24, will become an odds-on bet to hit a minimum 82.23