Thursday, December 15, 2011

We've been using a 28.425 target to keep us on the right side of this move, but I'm going to shift our focus lower, to the 27.010 'p' midpoint pivot of a bearish pattern that looks more compelling to me (see inset).  Indeed, the pivot is so well situated that if Feb Gold had not smashed through its equivalent support, I'd infer that Silver is fixing to lead the next important turnaround. As things stand, it's probably no better than a 2-to-1 bet, since Gold's downtrend is so well developed. Regardless, camouflageurs can try bottom fishing near 'p', but keep in mind that other traders will be playing for a bounce from the whole number 27.000.  You can also try it at 28.425 as originally suggested, but don't risk more than $70 on the initial stop.

A 1459.40 target identified here earlier might not be the  worst of it, at least for this bear cycle, since it is tied to a one-off point A. Using the highest 'A' on the chart, 1925.10, yields a somewhat lower target at 1424.80. The pattern, as you can see for yourself, is too clear and compelling to produce a 'D' target that does not provide a tradable bounce. However, as is our practice, we'll wait and see what happens at the support before we infer that even lower prices are likely.  And, as always, we'll remain open to the possibility of a bullish turn from somewhere above the projected low.  The first place a meaningful reversal might be signaled is via the creation of a bullish impulse leg on the hourly chart. Let's raise the bar a bit, though, and use the 240-minute chart to be sure. In that time frame, it would take a rally to 1681.80 to give bulls a fighting chance.

We doted on the 1198.00 target during yesterday's tutorial session, licking our chops at the prospect of getting in at a trampoline bottom. Alas, fatigued sellers were unable to push this pup any lower than 1202.50.  The downside target is still valid, as is another less promising one at 1199.75, but bottom-fishing is recommended only for those who are camouflage-equipped. If you're not but desperate to do something, anything, you can try bidding 1195.25 with a 1.00-point stop-loss.  That's the lowest target I can extrapolate from the 15-minute chart (see inset). _______ UPDATE (9:17 a.m. EST): I'm establishing a tracking position, since the 1198.00 target nailed the exact low of this so-far 20-point rally. Also, a couple of chat-roomers who work the graveyard shift evidently initiated positions at the low. Assuming four contracts purchased, cash out half of them here for around 1218.00.  That will give us an effective cost basis of 1178.00 for the two contracts that remain. Tie them to a 1205.75 stop-loss for now, o-c-o with an order to sell one contract at 1226.00. Hitting the low to the exact tick was a simple parlor trick that you can learn in a month. Click here if you think you're ready to try.

We locked in some bear spreads in the QQQ yesterday at great prices. That leaves us in the unaccustomed position of rooting for a rally so that we can complete a bull spread in SPY. We took the first leg of that position on Tuesday at so-so-prices, but we may be able to reduce our risk to zero if stocks take a strong bounce from here.

Near yesterday's lows, we locked in some bearish puts spreads that carry almost no theoretical risk but which coud produce substantial gains if stocks stay weak into 2012. Specifically, we now hold two January 54-51 puts spreads for a debit of 0.07 and two January 53-50 puts spreads for a debit of 0.03.  Both positions together cost us a total of $20, but they could produce a maximum profit of $1200 if things go our way. Effectively, we have gotten 60-to-1 odds on the QQQs trading 50 or lower by January 20. We'll do nothing further for now, but I'll send out an alert if a sharp downdraft in the broad averages should make it advantageous to cash out before expiration. Regarding the Cubes, yesterday's plunge exceeded a 54.87 midpoint support by a decisive 29 cents, implying that weakness will continue down to at least 52.13, its 'D' sibling.  Click here if you’d like to learn more about the Hidden Pivot Method, including how to identify and trade targets such as the ones used above, and to forecast trends with bold confidence.

The Dollar Index has blasted through key resistance at 80, threatening to “unwind” carry-traders who borrowed dollars for next to nothing in order to speculate on other assets. Chief among those assets is gold, which got savaged yesterday in a $100 selloff that seems hell-bent on testing September’s key low. The low lies at 1543, basis the Comex February contract, but we doubt that it will hold. In fact, earlier, we had told subscribers there was a 60% chance that February Gold was about to dive to at least 1459, a technical target derived from our proprietary Hidden Pivot Method.  We shall see. In any event, gold and silver –  as well as crude oil, the euro and the commodities complex-- will come under heavy selling pressure if the short-squeeze picks up steam. If you’d like access our specific price targets for all of these trading vehicles in the days ahead, click here for a free trial to Rick’s Picks. Concerning the U.S. dollar’s powerful surge, although it was driven initially by fears over the possible collapse of Europe’s financial house of cards, the rally has taken a life of its own that is being driven by dollar short-covering. The buying is not yet at panic levels, but a surge will be impossible to stop if it gains juyst a little more momentum. Although the central banks can affect the markets for a short while with talk of bailouts, all of them acting together are puny relative to the quadrillion-dollar juggernaut that is about to fuel an unwind of the dollar carry-trade. Over the years, we’ve written many times about this potential Mother of All Short Squeezes. The paradox was, and is, that the dollar is intrinsically worthless, a form of debt rather than money. In point of fact, as