Monday, May 2, 2011

Gold launched Sunday evening with an overly ambitious upthrust that has since been rebuked. However, even the low of the pullback so far is above Friday's highs, so I'd say the action looks healthy.  We are of course monitoring a potentially important Hidden Pivot target at 1581.20, but we should also be alert to the possibility that the downturn we're expecting could come from somewhere below it. So far, the high has been 1577.80, but it would take a correction down to 1523.80 to make the target-miss "official."  That's where a bearish impulse leg would be created on the hourly chart, and if it happens, it would be a warning signal that we could not afford to take lightly.

Gold and Silver are down sharply Sunday night on word of bin Laden's death, and so I've furnished benchmarks for each that can help us judge the severity of the selloff.  I've also identified the conditions necessary to signal a possible bullish reversal in the US dollar, but so far tonight there is not sufficient strength in it to account fully for bullion's weakness. Because the selloff in precious metals has occurred in response to the happy news concerning bin Laden, nervous bullion bulls should be asking themselves, "Will this really change anything?"  More likely is that it will ultimately heighten global terror and fear, and thus the demand for precious metals, since the upcoming week will undoubtedly be the busiest time for recruiting that al Qaeda has enjoyed since 9/11.  Under the circumstances, it is difficult for an adult to watch collegiate revelers outside the White House gates tonight without feeling a deep sense of foreboding. They evidently think that the jihadists' so-far decades-long war on civilization is just another Texas vs. Oklahoma scrimmage.

The Cubes fell just a whisker shy of a 59.46 target last week, but if we're going to lay out shorts, I'll suggest doing so at a more promising Hidden Pivot 61.58.  Use four July 61 puts, which I (very roughly) estimate will be trading for around 1.65 if QQQ reaches 61.58. The target is somewhat more ambitious than the 1371.00 pivot we'll be attempting to short in the E-Mini S&P, but I wanted to provide a bearish betting opportunity nonetheless for traders who prefer options to futures.  Camoflageurs should start looking for a turn as early as 60.93, the 'D' target that results if  you use the 51.88 point 'A' whence the rally took off. _______ UPDATE:   The little bugger never went any higher than 59.34.  Cancel the order, but we may try again later.

The dollar looks so hopeless at the moment that we should double-check our instincts and expectations at every opportunity. That would imply setting a screen alert at 73.39 today, since that's where an upthrust would turn the hourly chart impulsively bullish.  As of Sunday evening, a modest rally has already surpassed an internal peak with a mini short-squeeze to 73.16, so it wouldn't take much more to effect the bullish signal.

With a 1371.00 rally target coming into focus, let's plan on shorting two contracts there with a stop-loss at 1372.25. As always, this should be viewed as a longshot play with the uptrend in the broad averages now entering its 27th month. Since we're risking 1.25 points theoretical, the first opportunity to take a partial profit would come on a pullback to 1367.25.  However, the remainder of the position could be managed as you please if you feel like swinging for the fences.  I've included a chart that shows how pretty the pattern is now that it is almost fully developed.  Note the use of a one-off 'A', the integrity of which has already been confirmed by a stall a tick from its sibling midpoint, 1359.00. _______ UPDATE (11:07 p.m. EDT):  With the futures in a quite vicious short-squeeze Sunday night attributable to news of bin Laden's death, we got stopped out for small change (i.e. , a theoretical loss of about $62 per contract). Consider it the cost of determing the next stop:  1385.50.  That's a Hidden Pivot, and I'll suggest shorting a single contract there, stop 1386.25.  There's always the chance our stop-loss will prove to have been a smidgen too tight, but my gut feeling is that the 2.50-point overshoot of the target is sufficient to imply the next will be reached.

The yellow flag is out for two popular trading vehicles that Rick’s Picks tracks closely – Comex Gold and the E-Mini S&Ps.  Is a major top in the offing?  We’d say the odds are against it for stocks, since there is little evidence that the promiscuous Fed easing that has pumped the stock market full of hot air is going to end, even if it is officially slated to do so in June. In any event, we’ve told subscribers to expect a peak of at least tradable significance in the June Mini-S&P contract at exactly 1371.00. We routinely identify such peaks, and provide detailed recommendations for getting short at each, although we don’t do so with the expectation of catching the exact high of the Mother of All Bear Rallies. You might just as well bet on a 30-to-1 horse that hasn’t finished in-the-money for two years.  Because the stock market has been chugging relentlessly higher since March 2009, “picking the top” is never going to be an odds-on bet.  That is not to say that picking “a top” is particularly difficult, as our subscribers would readily attest. In practice, we always advise taking a partial profit if the pullback we expect from a Hidden Pivot rally target is generous enough to allow it.  Traders invariably make better decisions once they’ve taken some of the house’s money off the table, and that is why we try to take partial gains, however small, when a trade goes our way. This also allows us to widen the stop-loss on whatever position remains -- and, in theory, to come out of the trade with a small profit even when we are wrong about the bigger picture. Concerning Gold, minor, technically-derived targets have kept us quite bullish the whole way up. But the most