Tuesday, October 4, 2011

Three steps up, two steps back, the futures are inching toward a 31.905 threshold above which bulls would be back in the game. A decisive breach of the resistance, a midpoint pivot, would put a previously noted target at 34.715 in play, but we shouldn't assume it's a done deal until the futures have broken free of the asphyxiatingly tedious sideways move than has been going on for nearly two weeks.  At the moment, around 12: 22 a.m. EDT, there are camouflage possibilities to exploit on the three-minute chart (see inset), but the one currently in play will require a deft touch and close attention to the price points I've labeled.  Optimal entry is past, but the futures were having trouble getting altitude, so no great loss.  The chart is intended to show how far down you may have to zoom to catch a ride.

Buyers appeared to be chomping on the bit Monday night, converting the promising impulse leg shown in the chart into the modest $16 rally that would complete the minor-cycle pattern shown.  The midpoint resistance lies at 1671.90, and my hunch is that if and when that Hidden Pivot is exceeded, bulls will make short work of Monday night's 1674.40 peak. That in turn would put the futures with easy distance of a 1674.90 'external' peak from a week ago whose breach would refresh the bullish energy of the intraday charts. _______ UPDATE (11:39 a.m. EDT):  The fact that today's mini-crash in Gold is occurring after the futures poked above the 9/27 peak at 1679.20 is telling us that Gold is out to cripple, maim, sodomize, defenestrate and otherwise hurt bulls in any way it can, and that is why we'll have to be doubley attentive to small signs. Right now, with the futures having created a nominally higher point 'C' in the distribution pattern begun from 1751.80 on September 23, we should use a 1573.10 midpoint as our minium downside objective for the near term, and a 1464.70 target if the midpoint gets smashed.  As always, these numbers are subject to revision, but the futures would need to pop above 1704.90 TODAY to put bulls back in charge.

Looking to catch the start of a potentially powerful bullish reversal, we've staked out a long position within three cents of yesterday's 586 bottom.  Our cost basis is 587, with 25% of the original, theoretical position remaining. I'd suggested stopping yourself out if the futures create a bearish impulse leg on the 10-minute chart.  As of around midnight Monday night, this implied exiting on a print below 597.75.  The chart shows why that number is significant, although even a small rally could render it moot. ______ UPDATE (October 5): We exited on a stop at 595.50 for a paper profit of around $400 per contract.  The stop may prove to have been a tad too conservative, but conservatively is the way I trade. ______ FURTHER UPDATE (October 5):  In retrospect, with the futures up sharply off Tuesday's lows, I can say that it was not conservative play, but just plain stupidity, that got us stopped out of the trade. Because we are trying for a very safe entry in order to catch a potentially BIG move in corn, I should not have nickle-and-dimed the stop so as to eliminate the possibility of even a small loss. In fact, we had found a great entry spot and subsequently took enough partial profits to allow for a pullback all the way back to Tuesday's low without sustaining a loss.  My stop-loss should have been just beneath that low, which would have subjected us to a whopping theoretical risk of less than $100.

The stock looks primed to fall to at least 478.88, a Hidden Pivot, although the obviousness of a structural support at 473.02 from a key low made in late June could give us an edge for bottom-fishing.  Most traders will be looking for a bullish turn from somewhere above 473, but the Hidden Pivot at 478.88 gives us a more precise tool for speculating on this.  Accordingly, I'll suggest buying two November 560 calls if and when the stock gets within 40 cents of the target. Thereafter, a stop-loss at 477.88 can be used until the stock turns around.  It's difficult to say exactly how much the calls, which closed yesterday at 11.50, will be selling for with the stock at or near our price. My guess would be as low as $7, but probably not less than that because the calls could pick up volatility (aka "juice") on a sharp break lower in the stock.  Assuming your execution is smooth, the stop-loss I've advised should subject you to risk, in theory, of no more than about 40 cents per contract. _____ UPDATE (October 5): The low of this week's swoon came within less than $2 of our 478.88 target, but because of the magnitude of the hysterical short-squeeze that followed, we'll set aside any thoughts of bottom-fishing as we'd originally planned. In the end, it was not the Hidden Pivot that turned the stock, but the mob's expectations that June 24's low at 473.02 would act as support.  Because the support is so obvious, it seems all but certain that GOOG will test it.

An aging target at 1077.50 remains my minimum downside objective for the moment, but if you attempt bottom-fishing there you should use "camouflage," since this number is merely the most appealing of several possibilities where we might look for a tradable bullish turn. Please note that if this Hidden Pivot support should get blitzed, that another, more important one at 954.00 drum-rolled here earlier will be very much in play. That said, the bounce from 1077.50 has the potential to be quite powerful, so it will be worth your while to try to get on board down there.  ______  UPDATE (11:19 a.m. EDT): The futures popped for 10 points overnight off a 1077.75 low, generating a nominally tradable 'camo' pattern on the one-minute chart (A=1077.75 at 4 a.m., B=1081.75 at 4:09 a.m., and single-bar C at 4:14 a.m). It would have produced a small profit, but the futures eventually relapsed down to 1068 overnight. To have exceeded such a longstanding target so quickly is ostensibly bearish, but the so-far 22-point short-squeeze recovery must be respected.  Are we perhaps seeing the initial surge of a massive rally that awaits an announcement by Chris Christie that he is running for president? If he does, he will trounce Obama (or Hillary?), and that would be as bullish an event as America has experienced in a long while. Regarding the futures, most immediately, a five-minute chart is needed to project an 1100.25 minimum rally. This is an odds-on bet because the target's sibling midpoint at 1091.75 has already been exceeded by 1.25 points.

Bullion futures were screwing the pooch shortly after midnight EDT, showing no inclination to convert small impulse legs into bigger ones.  Night owls should check out the chart that accompanies today's Silver tout, since it shows how very subtle camouflage trading opportunities are at the moment. There's not much to leverage here, since the follow-through push we should expect after a good 'camo' entry may be constrained at the moment by buyers' unwillingness to take on any intraday peaks of size .

Gold did everything we’d asked of it yesterday, but Silver still has some work to do if precious-metal bulls are going to go back on the offensive. Comex December Gold need only have achieved 1659.10 yesterday to generate some positive signs on the hourly chart. In fact, it was trading well about that threshold early Monday evening, hovering round 1668 after having gotten as high as 1674.  This suggests that the next upthrust could go as high as 1729.20, a “Hidden Pivot” target that comes from our proprietary Hidden Pivot Method. (Click here to find out more about this method and the “camouflage” trading technique we use to reduce risk.) However, Silver was relatively timid, and although the December contract finished slightly higher on the day, the 31.430 peak of yesterday’s rally fell 48 cents shy of our bullish trigger threshold at 31.905. By our lights, that number is a key “hidden” resistance, and if it is bettered on a closing basis or by more than a few cents intraday, we would expect Silver to launch sharply higher, reaching a minimum 34.715 over the next 6-10 days.  We never want to chisel these forecasts in stone, however, and we will therefore be looking closely Monday night and Tuesday for subtle signs of corroboration on the lesser charts. Meanwhile, there are two non-technical factors that strike us as bullish for gold and silver: 1) bullion quotes rose even though the U.S. dollar was also rallying; and 2) institutional sharks who typically let precious-metal prices waft higher on Sunday night did not slam them back down before the opening, as is their wont. What this suggests is that even though they generally like to fade the trend – in this instance by going short -- buyers were too eager Sunday night to