Monday, October 17, 2011

Shortly before 2 a.m. in New York, bullion futures were screwing the pooch while index futures were plodding joylessly toward yet another bullish target.  As I implied here earlier, the new October Surprise is... "No Surprise!"

Higher or  lower, the direction of the next, probably meaningless, feint is a coin-toss right now, so there's no point in getting all het up about the supposedly bullish or bearish pattern you may have detected with your magnifying glasss trained on the 5-minute chart.  Like the chart I've reproduced with today's Gold tout, the one for December Silver (see inset) shows where to set alerts that can tell us when to get excited.  Incidentally, the pattern that produced the lower alert is findable on the 60m chart, where A=36.680 on  9/22.

The 647.75 entry signal for the pattern shown triggered last Thursday, and although there are no subtle "external" peaks left that we can use to establish a low-risk entry point, we can at least surmise that the 688.75 target will be achieved if buyers can blow past its 661.50 midpoint sibling.  Accordingly, I'll suggest zooming in on a five-minute chart if and when that last number is closely approached, the better to identify an uptrending abc small enough to carry a commensurately small stop-loss.

So, now we know exactly where the futures are headed on the next thrust: 1256.50.  This target is trail's end for the pattern shown, which leaps to the eye in the somewhat scrunched-up hourly chart reproduced alongside. I am displaying it in a different aspect than usual because it somehow looks more compelling in compression than when unfurled.  I was not surprised to discover that the high of Friday's lunatic lunge fell just two ticks from the 1221.00 midpoint sibling of the target -- yet another reason why we should be absolutely confident about the destination of this rally if and when it pushes above the midpoint. It can serve as our minimum upside projection at that point, and so our trading bias should be aggressively bullish, since upside potential would be worth nearly $1800 per contract if my assumptions prove correct.  Camouflageurs looking for a way to get long should notice that there's a 1.75-point gap between the 1222.00 peak recorded on September 1 and the "conventional" breakout peak at 1223.75 hit a day earlier.  A small -- and presumably fleeting -- pullback from somewhere between the two could set up a perfect buying opportunity.  ______ UPDATE (2:59 p.m. EDT):  Rich Cash at Big4 says he went short before today's plunge.  In the forum, I responded as follows:  "Nicely timed, I'd say -- especially considering yours truly began the new week complacent that my next bullish target  would be reached more or less routinely.  My savvy friend Doug at UBS thinks the serious selloff we've all been expecting has in fact begun today, and that the momentous Merkel-Sarkozy announcement in early November will not hold the furies in abeyance. His bearish take is based on Bob Farrell's rule about what happens when all of the experts get on the same side of the trade.  In this

As several eagle-eyed Pivoteers noted in the chat room, the conclusions I drew from the chart (see inset) were incorrect, since the external peak shown does indeed sit in the shadow of a higher one.  Thus, it would take a print above the11904.84 peak recorded on August 3 to truly refresh the bullishness of the hourly chart.  That wouldn't be as subtle as the erroneous 'breakout' I'd inferred, but it would nonetheless keep bulls on the attack.  Regardless, the bullish pattern at the right-hand edge of the chart is still tradable.