October 2011

The markets have opened lethargically Sunday night, although the S&P index futures are threatening to break out of a tiresome four-point range that has contained them for nearly five hours.  It’s eerily quiet, like the noiseless moment in a slasher film just before the chain-saw wielding psychopath leaps from the shadows.  Even the headlines are pregnantly subdued, a 7.2-magnitude earthquake in Turkey overshadowing all else. Other top stories-of-the-hour include the celebration in Libya of Qaddafi’s bloody, ignominious end;  the latest non-developments in the global Occupy movement; an unexpectedly kind word for Facebook founder Mark Zuckerberg from the late Steve Jobs; and -- this just in! -- a Rangers victory in game four of the World Series. If you could chart the mood of the moment, it would feature Bollinger bands so tightly constricted they almost touch. Technicians use this tool to predict explosive moves when things seem a little too calm, as they do right now. The biggest story due out sometime this week or early next will divulge the actual details of the Merkel-Sarkozy plan to save Greece -- and therefore, presumably, all of Europe. We marveled here last week at how the two leaders have brazenly sought to milk yet a few more weeks of agitated calm from a troubled world by merely drum-rolling the latest bailout scheme without providing any inkling of its design. This reminded our colleague Bill Buckler, editor of the Oz-based Privateer, of the South Sea Bubble, wherein shares were floated in “a [British] company for carrying on an undertaking of great advantage, but nobody to know what it is.” Indeed. A similar fraud, later known as the Mississippi Bubble, had been perpetrated a year earlier on French investors evidently as gullible as they were greedy. You’d think the Brits might have had second

If you're in the habit of fading the trend on a quiet Sunday night, you'd be long index futures and short bullion at the moment, shortly before 11 p.m. EDT.  Silver seems to be holding gold back, but we needn't speculate on the outcome, since there are clear Hidden Pivot benchmarks to tell us which side, bulls or bears, is controlling the action.

I'm not big on head-and-shoulders patterns because they are everywhere one looks for them, but if the one shown keeps pounding away at the neckline of this misshapen specimen it could trigger a two-point break.  Alternatively, buyers would need to drive DXY above the 77.95 external peak to regain the offensive. If weakness implies the euro is about to surge, the headlines that we should expect to accompany such freakish behavior are difficult to imagine.  Maybe this: Europe Goes All-In on Greek Debt.

We're still using a rally target at 1256.50 that was given here previously, since last week's rollercoaster ride never dipped beneath its 1185.25 point 'C' low. If the target were to be exceeded on a closing basis or by more than 1.50 points intraday, that would portend more upside over the near term to at least 1271.50, the Hidden Pivot target of a somewhat larger pattern. Night owls looking for a way to board will probably have to drill down to the 1-minute chart to come up with 'camouflage,' since price action is nervously trendless at the moment.

A small "external" peak at 32.150 remains the number to beat, since that would generate a promising new impulse leg on the hourly chart. The futures got a running start on this task early Sunday night, but buying sputtered out somewhat shy of a 32.005 target. If the weakness persists, the first place you could look for a bullish turn -- and a potential 'camo' buying opportunity -- would be at 30.610, the 'p' midpoint support of the pattern shown.

he December contract did all we asked of it Friday, setting up a buoyant opening Sunday night that has immediate potential to as high as 1664.00, a Hidden Pivot 20 points above the evening's so-far high. A midpoint resistance at 1649.20 must be exceeded first for the rally to get off the launching pad.  However, long entry will be difficult, even via camouflage, because the midpoint lies just inches from Friday's high 1649.80, a breakout number that other traders will be watching. _______ UPDATE (12:08 p.m. EDT):  A $27 rally brought the futures to within 70 cents of my target before relapsing down to a so-far low of 1651. The rally refreshed the bullish energy of the hourly chart, creating a camouflage pattern that would have yielded a small profit so far (A=1647.70 at 6 a.m., B=1663.00, C=1651.00, and X=1654.90 for a "successful" trade to the 1658.80 Hidden Pivot midpoint.)  For your guidance, and because my earlier advice was explicit with respect to the 'camo' opportunity, I'll track two contracts from an initial position of four. Assuming two others were exited at 1658.80 (aka 'p'), the two that remain have a theoretical cost basis, reduced by profit-taking, of 1651.00. Exit one of the contracts now, at around 1654.00, and we'll tie the last, with an imputed cost basis of 1648.00, to a "structural" stop-loss at 1647.70.

Silver is lagging gold tonight, unable thus far to generate a bullish impulse leg on the hourly chart. Because the futures have been meandering for a month, we should set an ambitious benchmark for turning bullish on the short-term picture. Specifically, let's stipulate that the futures must exceed the small external peak at 32.150 shown in the chart before we dive in. If they do so without ruffling the 32.355 high made a day earlier, so much the better, since that would create a very enticing camouflage pattern on an intraday chart of higher degree.  Any pullback thereafter should be used to time-stop your way aboard at the given point 'X'.  My hunch is that, from the time point 'C' is created, you would not have more than about 60-90 seconds to pull the trigger.  The scenario is sketched out hypothetically in the chart.

Gold went impulsively bullish on the hourly chart at around 11 a.m. with a thrust that had good camouflage potential. Notice in the chart how the A-B leg got past the required internal and external peaks without disturbing a "marquee" peak at 1631.60 that we should hope attracted the rapt attention of our competition . The pattern even has single-bar coordinates all around, so it was ideal for hitching a ride north. Entry was signaled at 1682.60, but the so-far high at 1631.00 is $2.10 shy of the 1633.10 needed to rationalize taking profits on half the position. That would be what we classify as a "successful" camo trade, but it would take a run-up to the 1642.10 'D' target to produce a camo "winner."  If the futures can do just a little better, surpassing the small peak at 1645.60 recorded Wednesday on the way down, that would leave bulls in good position to recoup some lost ground come Sunday night.  

Index futures were unchanged as we went to press around 7 :30 p.m. EDT. Although for technical reasons I've emphasized a bullish scenario over a bearish one in the S&P tout, my gut feeling is that Thursday evening's worrisome headlines were unlikely to produce a happy outcome by morning.