Thursday, July 28, 2011

With SLW under heavy selling yesterday, we initiated the long side of our butterfly spread, buying four September 42 calls for 1.32 and four September 50 calls for 0.26. Now, we'll look to sell eight September 46 calls short for 0.79, presumably on a day when Silver Wheaton shares are doing better.  A sale at that price would give us four "free" butterflies, and therefore no risk.  For comparison, if we were to short the September 46 calls at their current price of 0.50, the resulting butterfly position could do no worse than lose $58 per spread, or a total of $232 (plus commissions).  The maximum profit, based on a short sale at 0.50, would be $300 per spread -- so we'd be getting 3-to-1 odds against an SLW rally into the mid-40s between now and September 16.  I think we can do better, and that's why we'll hold off shorting the September 50 calls for the time being. Those who monitored the trade will know that things could have turned out far worse if we'd chased the options. The September 42s trade as high as 1.90 yesterday, and although the 1.32 we paid for them was not the best price of the day, it's only 18 cents above the intraday low.  As for the September 50 calls,  even with SLW shares getting shellacked, they fell no more than a nickel below where we'd bought them after trading as high as 0.35.  Regarding the stock, as I noted during yesterday's Hidden Pivot tutorial session, we should brace for more downside to at least $36, where a familiar trendline comes in as potential support.  Although it's hard not to notice the perfect head-and-shoulders formation that SLW has traced out since late 2010, I'd suggested not worrying about it for now, if

The futures looked to be in cruise mode well above a minor Hidden Pivot resistance at 41.110 when doubts struck yesterday.  The ensuing tumble did no damage whatsoever to the hourly chart, although that could occur today with just a little more downside to 39.820. The importance of that number is shown in the chart, and as you can see, a move that touches it will have created a bearish impulse leg that could put Friday's action in jeopardy.  However, it would take a print at 38.210 to negate the 42.110 rally target given here earlier.

Based on the latest survey hot off the press, the geniuses at the Pew Research Center now tell us that more Americans than ever are in favor of a compromise on Capitol Hill. There was no indication of what the respondents thought about the alternatives.

Ah, what a day!  Even George Soros has decided to throw in the towel, so difficult has it become to find a winner one can stick with and still satisfy the regulators. The $25 billion that Soros had working in the markets returned just 2.5% last year and has lost 6% so far this year.  Judging from the numbers, it’s probably safe to say that he’s been underweighted in bullion. Very underweighted. But why?  Does he perhaps know something that Rick’s Picks readers do not?  Hard to say just what that would be, since the fundamentals that have been pushing gold higher were cemented in place when the Federal Reserve System was created in 1913.  Soros doesn’t strike us as the kind of guy who would be unmindful of the dollar’s 95% depreciation since then – especially since some of his biggest scores have been leveraged bets against various currencies. And what easier bet could there be than to pile up ingots against the day when the most endangered currency of them all receives its coup de grace? We don’t imagine he would have been socking it all away in real estate. Even a fool can see not only that real estate prices, both commercial and residential, are being propped up by government bailouts, Fed sleight-of-hand and malfeasant accounting, but that they still have a long way to fall. Not the kind of thing that would interest someone as savvy as Soros. Anyway, we don’t envy him the task of managing all of his billions privately, since one false move could wipe out 20% of his net worth overnight. Imagine the stresses of having to keep jockeying huge sums of cash around when it’s an absolute given that only the bold contrarian will win in the end.  Not that we

A new 'New Deal' proposed by the indomitable Sultan Knish would break up the government monopoly on nearly every aspect of our lives. "There is no reason why the hard work of the American people should be funneled back and forth between politicians, allied companies, unions, non-profits and the rest of the gang," he writes. Click here for the full essay.

It's one thing for mining share to get hit on days when the broad averages are getting savaged, but quite another for precious-metal prices to fall, especially with the fiscal world on the brink of chaos, if not collapse. Yesterday's moderate reversal in no way affects the 1652.00 target that has served as our minimum upside objective, but we should pay heed nonetheless if bearish impulse legs start cropping up on the hourly chart. It would take a print at 1607.10 today to do that, so let's set an alert at that price to warn us if it becomes necessary to reef the sails. Please note that yesterday's reversal came within 1.00 of the 1627.80 midpoint associated with a secondary target at 1648.30 (still valid in theory) and that a fall to 1607.10 would negate both.