Tuesday, January 18, 2011

We hold a long-term position of  800 shares with an adjusted cost basis of 14.91.  Since a selloff to 28.55 appears likely, let's try to hedge the position if SLW rallies to the Hidden Pivot midpoint associated with that target, 32.12. Accordingly,  I'll recommend shorting eight February 33 calls.  They should be trading for around $2, but to get the right price you should monitor the bid/asked spread as SLW approaches the target. ______ UPDATE (Tuesday, January 18, 11:56 a.m. ET):  The stock opened on a gap to 32.42, allowing us to short the calls for the rigged price of  1.94.  (The market makers were quite obviously buyers of this series.) Do nothing further for now. Our position is a covered write -- insurance against further weakness, but with no upside cost if the stock is 34.94 or lower.

Although we see nothing scary in gold’s so far 5.5 % fall from early December’s record highs, we’re monitoring the February Comex contract closely for the first hint that the selloff might be about to turn ugly. At the moment, that would require a drop of a little less than $50, to below 1317.40, without any intervening rallies lasting longer than a day.  With the futures trading around 1365 late Sunday night, there is obviously not much margin for comfort, since quick, $50 selloffs are not that unusual with gold currently trading at historical heights. How likely is a swoon of that magnitude (which would turn our intermediate-term outlook for gold bearish)?  We estimate the odds at around 40 percent right now. However, using our proprietary Hidden Pivot Method to forecast price action over the near term, we expect no worse than 1321.20 before the February futures contract takes a bullish turn.  Granted, that’s just $4 from our danger zone – too close for us to lay odds that the support itself will not be breached. But it would take more than that to signal danger, since, as we mentioned above, the plunge would need to occur without any intervening rallies. This rule helps us to sort out stage-managed selloffs designed to scare gold down to bargain levels from the real McCoy – i.e., nasty declines that ae likely to continue for months or longer. If gold’s current correction is going to turn into a long, drawn-out affair, it should signal it in advance by smashing through the three piror lows shown in the chart without any big bounces along the way.  There is one other number to watch: 1313.10, since that it our worst-case target for the near-term, as well as our minimum downside objective if the higher hidden

A bearish Hidden Pivot target at 26.895 is analogous to the one at 1313.10 given today for February Gold. Since the midpoint support at 28.370 has already been exceeded by a whopping 27 cents, the target must be considered an odds-on bet.  Since we never want to chisel these forecasts in stone, we should be prepared to turn bullish if the futures hit 29.910 over the next few days.  That's a tick above a look-to-the-left peak recorded January 4 on the way down.

Are we almost there??  The little-seen 480-minute chart shown makes a visually compelling case for a run-up to 1356.00 -- the moreso because of the nearly two-week hydrant-sniffing interlude near the C-D midpoint, 1261.00.  Much as I'd like to keep this target a secret between you and me, superstitiously increasing its chance of working, it looks too good to fail simply because "everyone" knows about it.  If and when the futures get there, I'll recommend shorting via camouflage rather than with a short offer and a tight stop at the pivot.  Between now and then, though, our bias for all swing trades should be bullish, since fully 70 points of upside remain.

Copper's most recent top came within less than two cents of a Hidden Pivot target that has been more than five months in coming, suggesting that the high may be an important one.  However, price action since has had the appearance of a consolidation, which if true would imply there's a thrust coming that will hit 4.6705.

Today's commentary spells out the bearish implications of a plunge exceeding 1317.40, but as I have tried to make clear, the downdraft must be unpaused -- meaning no intervening, upward abc corrections on the daily chart -- to truly threaten the intermediate-term outlook.  That said, more weakness to 1321.20, or perhaps 1313.10 appears likely, since the 1357.00 Hidden Pivot midpoint associated with the higher number has already been exceeded by 2.40 points.  Either of those hidden supports can be bottom-fished with a four-tick stop-loss.  Alternatively, a rally to 1393.00 would nullify the 1321.10 target, but we'll require no less than 1397.60 to ease the bearish look of the intraday charts.

Today's touts for the Dow Industrials and the E-Mini S&Ps project possible tops for the Mother of All Bear Rallies.  Only trouble is, the two projections would appear to be mildly out of synch if the Dow continues to rise 7.03 points for each ES point, as has been the case since the rally steepened in late December. I welcome alternative interpretations.

With a 1356.00 E-Mini S&P target in sight for the Mother of All Bear Rallies, I looked to see whether an analogous target could be identified for the Indoos.  Assuming they continue to rise about 7.03 points for each E-Mini point, that would indicate 12279.  However, when you work the visually obvious ABC price points on a chart of the same degree, you come up with a 12444 target.  You can double-check my math and assumptions, but all of the calculations appear to be correct. That means we'll simply have to live with the discrepancy and to look for the Dow to open up a lead relative to the S&Ps as both vehicles move higher.