Monday, January 10, 2011

The 21st century will resemble nothing so much as the 12th century, according to a fascinating essay forwarded to us by Jonathan Auerbach of Auerbach & Grayson.  The essay appeared recently in the Financial Times and was written by a friend of Jonathan's, Parag Phanna. "Unlike almost everything else you've read by the many pundits provoking you with their year-end view for the future," notes Jonathan, "this rich and readable piece doesn't once mention inflation, deflation, deficits, PIGS, BRICS, or any of the other cliched verbal currency pitched at us lately. Parag apprehends your scrambled cyclical assumptions and firmly yanks you out of that vortex to recognize the secular implications with which we deal. He eloquently articulates the historical wellspring of our more pedestrian and prosaic view of the advent of the levelling of the global economic and social playing field."   Click here to access the essay.

We hold a long-term position of  800 shares with an adjusted cost basis of 14.65.  The correction could hit 31.34 before SLW turns around. Let's plan on buying 400 more shares at 31.40, stop 31.14. _______ UPDATE (11:31 a.m. ET): Stick to the stop, since SLW could fall to 28.55 if it doesn't find traction at these levels.  _______ FURTHER UPDATE (12:10 p.m. ET):  We were stopped out for a 26-cent loss, raising our cost basis to 14.91. The selloff looks 80% certain to continue to 28.55.  If the stock rallies to that target's sibling midpoint, 32.12, we'll buy puts, but they are otherwise priced to discount the hereafter.

I've refined and revised the chart accompanying the December 30 Apple tout to come up with a rally target somewhat higher than the one at 341.29 given here earlier.  Two new factors obtain:  1) use of the visually obvious point 'A' rather than the one-off.  This was done because we should use the maximum projectable swing high, not a potential interim high; and 2) a new point 'C' low that is visible only on a 24-hour chart.  The new target is 344.61, so let's try to get short by buying two February 310 puts if and when the stock gets there, stop 345.01.  I calculate the puts to be worth about 3.05 with AAPL trading near the target, but their volatility could plump up quite a bit as the stock rises, and the puts might actually be trading for as much as 3.30-3.50 if volatility expands promiscuously, as it well may.  In any event, the best way to get the best price is to closely monitor the bid/asked spread on the options as 344.61 is approached.  Do that for 10-15 minutes before it's time to buy and you'll be sufficiently "expert" on the Feb 310 puts to buy them with confidence. If you have to exit the puts on the stop, you should have to give up no more than 0.15-0.20 or so apiece, since they will be trading with a delta value of about 15.  That means that for every dollar the stock rises, the February 310 puts should fall by about 15 cents.  Some final notes:  1) If the target is hit before the start of the regular session, short a round lot of stock instead of buying puts; 2) an alternative target lies at 341.84 if you use the one-off 'A' with the new, night-session 'C'; and 3) if you've been long since the rally

Thursday's blithe stab missed a rally target at 1178.75 by all of 1.75 points, so it's a little odd that the futures spent all of the next day writhing like a wounded snake. It suggests the top could be in for a while unless buyers are back at 'em today with a push to new recovery highs.  In any event, I'll recommend bottom-fishing at 1261.50, stop 1260.75, if the corrective pattern plays out like the one shown in the chart. ______ UPDATE (10:07 a.m. ET):  The stop proved too tight when the futures dipped to 1259.00 overnight, causing a theoretical trading loss of about $40. This was a heads-up for the failed rally and subsequent weakness that was to follow the opening.

Silver's 3-minute chart is craggier than Gold's, creating several opportunities to get long Sunday night using peaks formed on the way down Friday at, respectively,  29.090, 29.160 and 29.225.  A thrust exceeding any of them, followed by a distinctive b-c pullback could provide decent camouflage for a ride to as high as 29.455, or even to 29.615 (midpoint: 29.105).

The upthrust begun on Friday has stalled tonight just above the 1375.00 midpoint resistance associated with a rally target at 1384.70 (A=1359.00 on Jan 7 at 8:48 a.m. ET). The buying looks too weak to trust a breakout, but you can use a feint above the 1377.80 peak shown in the chart to catch a ride if the pattern develops like the one shown. If the futures push past the target by more than a few ticks, expect a short-term finishing stroke to 1391.50.

Although buying put options to hedge against a stock market disaster is almost never a good idea, there are other ways to protect one’s portfolio that risk only small change. One tactic is to “butterfly” combinations of put or call options that are far-out-of-the-money. In this 40-minute impromptu tutorial, Rick demonstrates some of the ways this can be done right now to guard against the possibility that the current correction in gold and silver will turn into something prolonged and nasty.