Monday, August 8, 2011

We hold the August 175-170 put spread twice for a 0.05 debit.  One easy way to "cover" the spread is to buy two offsetting August 170-175 call spreads. Let's start by trying to buy an August 170 call today for $170 or less.  If we're successful, the worst we can do at expiration would be to make $325 per spread, or $650 on the position. This tactic will leave us with two September 175 calls to short if and when the stock rallies.  The premium we receive for them would boost the $325 gain on the spread by the amount of the sale.  You can take 0.15 of discretion on the bid for August 170 calls. ______ UPDATE (3:13 p.m. ): With a Hidden Pivot bottom in sight, I couldn't resist buying some Sep 175 calls even though they only partially hedge our put spreads rather than offset them.  We acquired the calls for 1.60 when IBM was near its so far intraday low of 166.52. They are currently trading for around 2.35, and I'll suggest for now that you do nothing further.

Shares will get violently crushed on Monday at worst, or gyrate wildly throughout the day at best, now that Standard & Poor’s has downgraded U.S. Treasury debt to a still-delusional AA+. Whatever happens in the silly, benighted world of stocks and bonds, it would be a shame if Wall Street’s headless-chicken act overshadows the deaths of 30 American troops in Afghanistan over the weekend. Twenty-two of them were Navy SEALs from the same elite unit that killed Osama bin Laden in Pakistan in May. They were the best of the best among America’s fighting forces, and their deaths will raise further, grave doubts about the U.S. mission in Afghanistan. When the Russians were there for nine years fighting the mujahedin, we marveled from the sidelines at how the insurgents, armed with U.S.-made Stinger missiles, were proving to be more than a match for Brezhnev’s 40th Army. Now it’s our turn to apply all that we have learned about asymmetrical warfare. The generals say the war is winnable – but then, they always say that. Whether it is winnable or not, the pretense is fading that the Afghanis alone will be able to hold a murderous Taliban at bay as the U.S. draws down its troops ahead of Mr. Obama’s re-election bid. Neither should Americans pretend that giving the Taliban free rein in Afghanistan will be without serious consequences.  For in fact, if and when all of our troops eventually do come home, no U.S. company with offices or operations outside of North America will be safe from bombings, shootings, kidnappings and extortions. Problems Dwarf Presidency In the meantime, perhaps the President should follow Lyndon Johnson’s principled example by resigning. With a war that is going badly and an economy that is headed into Depression, the Republicans are going to have

With an S&P downgrade of U.S. debt in the pipeline, I revisited the Two-Year T-Note chart to see what alternatives might exist to the huge rally that until Friday had seemed possible based on Hidden Pivot analysis of the 30-Year.  Two things are striking: 1) Although I'd projected as high as 143^11 for the September T-Bond if a Hidden Pivot at 135^13 was surpassed, the futures' ballistic rally stopped 1/4-point shy of that threshold on Friday; also, 2) futures for the continuous Two-Year Note came within a hair of an equivalent target at 110^10.  Taking both of these very-near misses together, it's possible to infer that Friday's highs may have marked blow-off tops for Treasury debt prices, and therefore very important lows in yields.

The narrow failure of last Thursday's rally  to exceed a look-to-the-left peak recorded May 4 on the way down is disappointing, but we should probably chalk it up to Silver's propensity to out-do Gold at each turn when it comes to frightening bulls. The subsequent downdraft projects to 36.045, and the target should be taken seriously since its sibling midpoint at 37.955 has already been exceeded by 40 cents.  Alternatively, the futures would need to hit 39.885 (a l-t-l peak from 8/4, around 1 pm. EDT) today to turn the intraday charts bullish once again.

Standard & Poor's downgrade of U.S. debt appears likely to bring back the secular bear in stocks, and even to derail the breathtaking rally in Treasury debt. However, I doubt that it will much affect December Gold's predicted move to at least 1728.  The chart is persuasive on this point, so I'd suggest having a look at today's tout if you need to be reassured.  I will update in any case after the markets have opened on Sunday evening.

Regardless of how high the futures bounce during what promises to be a memorable day, the lows will not avoid breaching a third external low on the daily chart that had been spared on Friday.  We'll have to be extremely careful hunting for a spot to get short when the impulse leg from the July 22 high corrects in B-C fashion. But most immediately, and for purposes of bottom-fishing, I'd suggest using the 140-minute chart to identify an intraday low 'p' or 'd' suitable for camouflage. There are no patterns or targets that are especially striking right now, but even the "bad" ones will do if your entry risk is allocated on the three-minute chart.

Gold futures look to have done no worse than consolidate while stocks were experiencing the death rattle of a 29-month-old bear rally last week.  A Big Picture target at 1728.00 remains in effect, and its provenance is shown once again in the accompanying chart. Although it can be used a minimum upside objective for now, the yellow flag will be out if and when buyers get there, since it's a major Hidden Pivot. _______ UPDATE (2:40 a.m. EDT):  A $66 surge, the most powerful rally of the year, has pushed Gold to a so-far high tonight of 1718.20 -- just $10 from our target.  Because 1728 is a major Hidden Pivot resistance, we'll turn cautious at these levels, monitoring the 15-minute charts for downtrending patterns that reach or exceed their 'd' targets. If that should occur, it would be a subtle hint that an important top may be in.