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. » Read the full article
Gold was getting socked early Tuesday morning as we went to press, down as much as $23 a short while ago. This was well beneath the protective stop-loss on our single-lot position, and it will put into play a 1702.60 pivot that can be bottom-fished with caution.
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.
Holding a soon-to-expire options position in this high-flier has given us an acute sense of the drag on the stock market as the year draws to a close. The thieves who manipulate NFLX in particular have been pretty brazen about bull-trap openings, and every rally over the last two weeks has faded in the stretch. Under the circumstances, we can be fairly certain that ‘everyone’ was looking for a holiday season rally, and that, like us, many used high-beta NFLX as their vehicle of choice.
My hunch is that the rally will come, pushing this stock to $400 or so by expiration, but that it will come too late to save our spread. By this logic, a very steep rally will get under way perhaps next Wednesday, possible in the afternoon. Accordingly, we might look to buy some cheap out-of-the-money calls with just a couple of days left on them next Tuesday or the following morning. Meanwhile, continue to offer half of the eight December (21st) 400-410 call spreads to close — but for 0.50 now. They feel like dead meat to me at this point. _______ UPDATE (November 11 at 11:10 a.m. EST): With the stock up $7.50 at the moment on top of yesterday’s strong gain, the spread is do-able for 0.50, but I’ll wait for reports of fills in the chat room before I make it official. That would leave us with four spreads and a total position cost of $120. For now, offer one more spread to close for 1.20.
At the Mining & Minerals Conference that I attended last week in San Francisco, I found Altius still to be high on the list of many savvy investors. With $130 million cash in reserve and a royalty stream that nicely offsets fixed outlays of $5 million per year, the company is well positioned to ride out whatever further pain bullion’s bear market inflicts on investors. Altius is waist-deep in iron ore investments these days, causing some to remark that bullion is no longer much of a concern to the company. This is an exaggeration, but investors should be happy in any case that the firm is doing what it takes to survive gold’s fall from $1900 to a recent $1220.
From a technical standpoint, the stock has been in a holding pattern centered on a $9-$11 range for more than three years. The weekly chart shows ‘dueling impulse legs’, implying that the tedious battle between bulls and bears could continue for yet some time, perhaps with an exhaustion skew down to $8 or a little lower. At that price, especially considering Altius’ enviable cash position, the stock would represent a back-up-the-truck buying opportunity.
We hold twelve December 145 puts, offset in ’straddle’ fashion by bullish NFLX call spreads we own. To simplify accounting, and to consolidate the risk, I’ve imputed the cost of the puts to the NFLX position so that we now hold eight December 400-410 calls spreads with an effective cost basis of 0.55. Keep in mind, however, that the DIA puts still have value. As such, I’ll recommend that you offer them to close, good-till-canceled, for 0.02 less than the market makers. To do this, wait until the options have opened each day to see what bid/asked is being reflected by DaRapacious Dirtballs. At the moment, they are showing a bid of 0.06 and and offer of 0.12 (!). This means you should be offering the puts for 0.10. Please notify me in the chat room if your order fills, since it would be nice to have the puts off the sheets even though we are carrying them for zero. _____ UPDATE: Some closing sales @ 0.10 were reported, and so I’ve used the proceeds as an offset against the cost of our NFLX spreads.
In the current forum discussion, Cam Fitzgerald focuses on coffee’s bear market to provide some lucid insights into the deflationary dynamic at work in the commodity markets. He notes that although the price of coffee beans has collapsed, falling by two-thirds since 2011, Starbucks is still charging the same four bucks for a large latte. This profit-friendly anomaly has held true for many other companies that benefit from a widening spread between commodity prices and end products. It would seem to flout the laws of supply and demand, but Cam says the textbook relationship will reassert itself with a vengeance as consumers become increasingly frugal under the weight of a deepening Great Recession.
From a technical standpoint, his theory looks quite solid. The weekly chart (see inset) implies that a pound of coffee currently trading on NYMEX for $1.03 is about to fall by half. If the futures were in fact to achieve the Hidden Pivot target of 53 cents, that would represent an 83% drop from 2011’s all-time high of $3.08. Coffee lovers may have something to look forward to, but they should be careful what they wish for, since the implication of coffee beans selling for 50 cents a pound is that the world by then will be chest-deep in a deflation of falling wages, plummeting asset values and significantly lower corporate profits.
A query in the chat room Friday concerning the Dow Transports sent me to the charts in search of the inevitable rally-stopping Hidden Pivot. The index has been on a tear this year, up 35% since January. Much of the gain can probably be attributed to a new airline business model that has been great for carriers but horrible for passengers. We’re talking about things like Spirit’s $35 charge for storing carry-ons in the overhead bin. Lower fuel costs have also helped, especially since the carriers have evidently chosen not to share any of this windfall with passengers via lower ticket prices. And no passenger who has sat in the increasingly cramped economy section can be unaware that capacity has shrunk so drastically that nearly all flight are full or nearly so.
Perhaps it will be the full-force resumption of The Great Recession that stops the rally cold. In any case, the 7444 target shown, representing a 6 percent premium over Friday’s closing price, looks formidable enough to provide more than a little challenge for bulls. Those who trade this vehicle or related issues can use it as a minimum upside objective for now, but you’ll want to reverse the position and go short — tightly stopped, of course — if and when it is reached. _______ UPDATE (November 5, 8:45 p.m. EST): If it’s going to be an easy cruise to the 7444 rally target noted above, we should see the correction from Monday’s high reverse today from near the 7077 midpoint support (see inset), but certainly from no lower than the d correction target at 7042. More downside than that could be our first, subtle warning that all is not well with the Transports, which have flourished even as airline profits have soared on a suicidal model that would nickel-and-dime passengers to death. _______ UPDATE (November 19): You go, girl! Wall Street’s best and brightest fly first class, presumably desensitizing them to the fact that the fabulous recovery in airline profits that has helped push the Transports into a vertical climb is being driven by the steep deterioration in amenities once enjoyed by passengers, even those who flew economy.
My outlook has been bearish, with a 45.29 downside target, notwithstanding a couple of short-covering eruptions along the way. I am now lowering the target to 43.83, however, on the basis of the chart shown. Your trading bias should be bearish until the target is reached, or very nearly reached, but if and when that occurs, you should reverse the position and get long with a stop-loss as tight as 0.20 cents. I’d suggest a good-till-canceled bid of 43.88, since it’s possible the stock will turn without quite having reached our number. If the order fills and survives the stop, tune to the chat room or this page for further guidance. _______ UPDATE (November 13, 8:33 p.m. EST): The stock has lost my interest and attention, so I’m taking it off the front page for a while. One final note, however, that could prove useful to camouflage traders: At Wednesday’s closing bell, it reversed the bearish polarity of the last three weeks with the bullish impulse leg shown (see inset, a fresh chart). ________ UPDATE (November 26): After taking its sweet old time reaching my 43.83 target, Facebook has taken a lunatic bounce this morning from within 23 cents of it, hitting a so far high of 46.08. If you loaded up near the low, please let me know in the chat room and I’ll provide tracking guidance. Whatever you may have bought, half should have been exited by now for a partial gain.