Tuesday, April 26, 2011

We hold 300 shares with a 42.01 basis against three June 40 puts acquired for 2.35.  SLW has retreated in the face of implacable supply near 44, but bulls will have a chance to turn things around today from 40.17 or higher. That's the midpoint support of the corrective pattern shown, but if it were to fail on a closing basis for two consecutive days, I'd infer more downside is possible over the near term to as low as 36.35.  That would represent a correction of nearly 24 percent. Alternatively, bulls would have to hit 44.52 by tomorrow to regain the offensive. _______ UPDATE (April 26, 6:52 p.m.):  The 40.17 midpoint has now become resistance, and if it should go unchallenged today, expect the stock to continue lower to the 36.35 target. Accordingly, I'll recommend offering four (one would be naked, assuming your account allows it) May 37 puts short if and when the target is closely approached (i.e., within 10-15 cents), good-till-canceled.

The pattern shown allows for a pullback to as low as 43.775. However, because of the poor quality of its 'a-b' impulse leg, I wouldn't attempt bottom-fishing at the target unless you're able to employ camouflage at the calculated turning point. Please note that the futures need only fall below April 20's 44.215 low to create a fresh, bearish impulse leg on the hourly chart.

Yesterday's selloff in the wake of a new all-time high slightly exceeded a correction target at 1496.70, hinting of more weakness to come, perhaps only slight. To gauge sellers' resolve, try using the pattern shown, assuming it develops more or less as depicted.  A bounce from the midpoint support would be a bullish sign, but it would have to carry above two prior peaks on the lesser charts before we could infer the correction has ended.  Hidden Pivot aficionados may want to take note of the gnarly one-off point 'A' I've used to compensate for the sausage-y quality of point 'B'. Alternatively, if the futures simply continue higher Tuesday morning, a print exceeding 1514.40 would turn the lesser charts bullish once again.

Early Tuesday morning, the futures, in navel-gazing mode, were extending the asphyxiating monotony of the last two sessions. It is part of a topping process -- or perhaps an accumulation -- that has been going on since late January.  Which? It seems utterly implausible that stocks could fall as long as QE2 holds sway.  Perhaps, in time-honored, contrarian fashion, we should therefore brace for exactly that?  For the moment, however, there is little to do unless you are scalp-trading off the three-minute bars.  Even camouflage can be expected to produce little more than nickels and dimes of profit right now.  A 1347.75 (midpoint: 1319.00) target first broached here eons ago remains valid, but anyone too bored to care can be forgiven for snoozing through the rally if it comes.