Tuesday, December 6, 2011

Anyone monitoring the 140^14 Hidden Pivot support flagged here a while back as an all-important number might get the idea that December T-Bonds have been screwing with our heads. A promising low at 140^06 held for all of a day, but when the futures dived anew, they achieved only a slightly lower low at 140^03.  The breach is not quite sufficient for us to infer that bulls are toast, but neither is the rebound strong enough yet to let them off the hook. Rather than speculate on what's coming, let's simply focus on the quality of this rally. For starters, it'll need to achieve its 143^03 'D' target to give bulls some breathing room.

A bearish target at 28.425 is equivalent to one at 28.385 that I broached a while back as a high-probability number for the December contract.  While there are no bearish forecasts that cannot be negated by a rally, in this case the required thrust would have to hit 36.655 (!) to kayo bears.  However, a much subtler sign of a bullish turn would be evinced by a decisive push through the 33.135 midpoint of the pattern shown.  If you're keen on catching the rally, that would be a good place to look for "camouflage."

We exited our long position Monday night for a small paper-gain of about $800. I mentioned looking for a new entry spot near 1702.60 in today's commentary, but my hunch is that a better one will come at 1633.00, the midpoint hidden Pivot support of the pattern shown. Bottom-fish 1702.60 using camouflage or, more simply, a 0.70-point stop-loss, but if it's hit, brace for another round of selling.  Alternatively, bulls could regain control with a pop today or tomorrow exceeding 1770.50.

The last few rally patterns on the hourly chart have reached their 'D' targets, so the worst we should be right now, short-term, is neutral.  And yet, it's hard not to be rooting for the stock market to drop-the-hell-dead, since it will take nothing less than that to start Wall Street on the long, long road back to integrity.  Under the circumstances, and so that we don't come to the races on Tuesday with no horse to bet on, let me suggest using the 1241.00 target shown as a telltale whose breach would earn just a little respect for bears.  Bottom-fishing near 1241.00 using 'camouflage' is recommended, since a print at that price will be viewed by our competition as a breakdown beneath Friday's 1242.00 low. What do we care if we can test the water without getting wet.

As we went to press Monday night, February Gold was fixing to stop out a bullish position we’d advised that produced explosive, although perhaps fleeting, gains. For subscribers who acted on the initial recommendation made here last week, there was a theoretical profit of nearly $6000 per contract at recent highs near $1767. (Click here for a free pass to our daily recommendations and forecasts.)  But because we had resolved to stick with this bullish play and swing for the fences, we watched passively as bullion quotes receded back into the by-now-familiar muck of uncertainty. To be sure, our position will survive if the futures trade no lower than 1716.20. But we’re not counting on it.  And if gold were to trigger the stop-loss and continue south, the next place we might consider bottom-fishing would be near 1702.60, a “Hidden Pivot” support determined by our proprietary forecasting method. Would such a move portend corresponding weakness in the broad averages? It seems logical, since stocks and bullion have been moving in tandem, if not in lock-step, for months.  Most recently, however, shares have acted far stronger than bullion, suggesting the two might be decoupling. We doubt it, though. More likely, in our estimation, is that the 1000-point rally in the Dow since last Monday is about to reverse and take the precious-metals complex with it, at least for a spell. The rally, after all, was based on optimism over Europe’s latest bailout nostrums and on strong retail figures thus far for the holiday shopping season, but we don’t see either affecting a big picture that remains bleak. No Crystal Ball Even so, because we employ charts and not a crystal ball, we remain open to the possibility that the Dow has more upside potential over the near term. We gave the