Monday, February 14, 2011

Silver has already surpassed two peaks analogous to the ones I've flagged as obstacles for April Gold, but if the former is going to pull the latter higher, it'll need to do something impressive -- i.e., pop above the secondary peak at 30.885 recorded January 4 on the way down. More immediately, and less ambitiously, a close above a midpoint resistance at 30.255 would set the futures on course for 30.875, its 'D' sibling.

A Hidden Pivot at 1379.80 has been our minimum upside target for so long that it should no longer be regarded as especially significant. The short-term trend is bullish but growing stale, and we should therefore require nothing less than a pop by Wednesday or so to 1394.80, eclipsing two external peaks on the hourly chart, before we get too enthused.  In the meantime, a close above the 1362.00 midpoint associated with the target would be an encouraging start.

The way major rally targets for various stock indexes are lining up right now, it looks like the chartist's equivalent of the Mayan calendar.  I don't want to jinx these numbers by drumrolling them too loudly, but you should look for yourself to see how clear the signs are for an important top.  For trading purposes, I'm going to assume that they will all miss the mark -- but not by much!

Two Hidden Pivots, each with the potential to produce a major top, lie not far above at, respectively, 12356 and 12412.  The provenance of both is shown in the accompanying chart, and it leaves little doubt that serious resistance is going to be felt at or somewhere between those two numbers.  We'll be looking to get short any way we can, so stay tuned for updates here and in the chat room. ______ UPDATE (Thursday night):  Short either target with an offer two ticks below the pivot and a stop-loss as tight as seven ticks. _______FURTHER UPDATE (2:29 p.m. EST):  My 12356 target was close to a dead-center bullseye, since it nailed the high of today's so far 67-point rally within a single tick.  If you were able to get short, partial-profit taking was in order, since the pullback so far has achieved a low of 12327.  You're on your own from this point forward, but you should take steps to ensure that no matter what happens you'll reap at least a small profit. Multilot entries should retain at least a small portion of the original position for a possible grand slam. Keep in mind, though, that there is still one more rally target to go, so odds favor the position's being stopped out.

The 1356.00 target we've been using for this vehicle is close enough to the 136.25 target (136.05 if you use the one-off point 'A') flagged in SPY to command our urgent attention.  While the odds of picking the exact top of the Mother of All Bear Rallies are never going to be great, the way these targets are lining up makes this one of the more interesting possibilities we've seen since the rally began in March 2009.  Since a 1356.00 target has been mentioned by some other technicians, according to our friend Doug B, we should  start looking to get short via camouflage anywhere above 1345.00 or so.

The two patterns shown in the chart yield precisely the same target, 136.25, so we'll plan on shorting there if and when it is reached. Specifically, I'll recommend buying four March 136 puts, which would be well priced at around 2.05-2.15. Since this looks like a high-odds spot for a reversal, and because it could be precipitous and opportune, we'll be on high alert for any downturn occurring from somewhere beneath the actual target. Anything above 134.00 would be in potential camouflage territory.  I am grateful to an alert Pivoteer, Steve Frewin, for spotting these coincident patterns. I might have overlooked them had it not been for his query. _______ UPDATE (February 23):  We'll put the target aside for now, since SPY has generated a bearish impulse leg of daily-chart degree.

[Our correspondent and occasional guest essayist Erich Simon has been talking up gold for as long as he can remember. Recently, however, after working some comparison numbers based on grocery bills we would have paid 40 years ago, he discovered that gold’s powerful rise was somewhat anemic before Helicopter Ben opened the money jets. He further notes that our apparent overestimation of gold’s strength is no accident – that even the most astute bullion investors have been fooled by our cunning masters.  For the full story, read his essay below. RA] The dollar is down about 98% since it became global tender. Back in 1971, era of Nixon Shock, the price of an ounce of gold was $35 -- in line with its 1945 conscription. Right after Nixon closed the gold window, the price peaked at $42. All things being equal (and assuming gold doesn't get used up), at what price must gold be valued to compensate for a 98% loss from -- call it inflation, debt or whatever you like. I think the math goes like this: One dollar is now 2% of its former self. If you divide the 1971 “fair market” price of $42 by .02, you arrive at $2,100. The price of gold (POG) is in fact now around $1,365. The $2,100 level is probably more accurate than the $2,500 prediction I made years ago, when I was appalled at the large number of billionaires being hatched from the shells of millionaires. But the higher estimate can stand nonetheless, since we could easily see, from current levels, the equivalent of the 1980 spike to $850. The catalyst might be the postponed bank-runs that are baked into the cake. Mass denial would end in a flash as Americans rushed to exchange paper savings for necessities and other