Tuesday, January 4, 2011

Silver is tracing out a moderate correction Monday night that is nearly identical to the one in February Gold. It could conceivably yield the same bottom-fishing opportunity at a 'p' midpoint support, although, as is the case with Gold, the pattern has yet to develop fully. ______ UPDATE (9:356 a.m. ET):  Silver has bottomed this morning a single tick from a Hidden Pivot target at 30.110. It can be found using yesterday's 31.275 high as point 'A'. _______ FURTHER UPDATE (1:41 p.m. ET):  Silver has breached every minor Hidden Pivot support one could have identified this morning, although most of the pivots evinced a bounce.  One is under way now -- from within two ticks of the 29.335 target of this pattern on the 15m chart: A=31.150, B=30.115, C=30.370.  If you do any bottom-fishing, camouflage entry (i.e., with the nascent uptrend) is suggested.

Our immediate target is 1442.10, but there's not much we can do right now except wait for the futures to blow past two record peaks made in November and December, respectively, at 1426.00 and 1432.50.  Nevertheless, getting long speculatively should pose no problem if you have the patience to apply Hidden Pivot tactics that range from camouflage, to bottom-fishing corrective midpoints. The possibility of doing the latter was developing late Monday night and is sketched out in the accompanying chart. _______ UPDATE (9:32 a.m. ET):  Gold is in shakedown mode today, but you should view it on the weekly chart before you get the mistaken idea that "something" is happening.  The immediate downtrend points to 1390.60, just a bit lower than the so-far intraday low.

Using January 350 calls, we're looking to short a rally target a 341.29 when Apple gets there.  Keep in mind while we're waiting that one can always butterfly these targets for a bullish play in the same way we've already done twice.  If you can short two options at the targeted strike while buying an option at the strikes immediately above and below it for a total debit of less than 0.50, you will be getting sensational odds.  Refer to the archive of AAPL touts for instructive details.

We hold a long-term position of  800 shares with an adjusted cost basis of 14.65.  That price takes into account gains on covered writes done along the way, as well as small losses on hedges initiated at short-term tops.  Yesterday's engineered selloff following a strong opening suggests not only that bulls are in control, but that they are inclined to use every cheap trick in the book to shake loose stock at favorable prices.  The fleeting peak on the opening bar has created an "internal" high with the potential to turbocharge the next thrust that exceeds a second, external peak at 40.24 recorded on December 13.  Until such time as that occurs, we should expect more sideways movement. ______ UPDATE:  My timing for hedging our position with eight Jan 34 puts purchased when the stock spiked to 42 exactly a month ago could not have been better; however, my timing for exiting those puts could not have been worse. Apparently, I wasn't the only one who got suckered by SLW's recent spike earlier this week to $40.  In retrospect, I should have advised rolling the puts into February.

The corrective easing of yields on the 30-Year T-Bond has a bit further to go before it exhausts the downside potential of the impulse leg completed in mid-December.  Yields topped at 4.624% before falling to a recent 4.331%, but as you can see in the chart, yet a little more downside remains, to 4.303%. Thence we should expect the sustained move toward 5% predicted here earlier.

Yesterday's dog-and-pony show stalled a tad shy of our 1273.75 rally target, denying us the opportunity to short the relapse that followed. Today, I've prepared a chart intended to stretch your intermediate-term imagination.  It shows a rally pattern projecting to 1356.00, the equivalent of a 700-point upthrust in the Dow. I don't often pair such grotesquely elongated AB/CD segments in arriving at a price objective, but one could argue that the relentless but unspectacular rise of the market since September is exactly the kind of price action we should expect with processor-driven machines doing 90 percent of the trading.

The savviest financial advisor we know has been buying municipal bonds hand-over-fist, but this time we can’t say that we share his confidence. Our friend Doug is a bear’s bear, an outside-the-box thinker and a full-throated deflationist who has contributed occasional commentaries to Rick’s Picks. Moreover, during the years we’ve know him he has done exceptionally well for his clients in good times and bad, even when his employer was breathing down his neck for going boldly against the crowd. When we spoke with him last week, he’d just put the finishing touches on a large purchase of tax-free munis with effective yields as high as 7.5%.  Wasn’t he worried that such juicy returns implied rather substantial risk? Not at all, he replied. The muni bond markets are so spooked right now, he says, that they are ripe for buying. We wouldn’t quibble with his description of the markets as “spooked,” but we’ll side with the fear mongers on this one, including CBS 60 Minutes.  In a recent segment, the weekly news show reported that as many as 100 U.S. cities could default on their municipal bonds. That's because they’ve spent almost half a trillion dollars more than they’ve collected in taxes, running up current pension shortfalls of $1 trillion in the process. The scary implications of all this red ink haven’t been lost on investors, who have been dumping muni bonds heavily for the last two months. As bond price have fallen in the panic, yields have risen commensurately. 'Rescue' Fallacy Some say the sellers’ fears are overblown and that the actual chance of default by a major city is low. States would come to the rescue before any big cities are allowed to go belly-up, say the bond bulls.  We disagree, since the states themselves are in horrendous