December 2011

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

I'm tracking the purchase of some Jan 134 calls yesterday in SPY -- a first step in legging on the 134-137-140 butterfly.  SPY is falling too hard for me to be comfortable, but we'll stick with the position nonetheless, since it would give us reason to root for a rally for a rare change.

Tuesday night's ratcheting, slow-motion rally suggests DaBoyz are getting ready to pull the rug out from beneath widows and pensioners once the latter have exhausted their buying power. If and when that happens, expect the futures to fall to at least 1198.00, a Hidden Pivot support that you can buy either via camouflage or a very tight stop. Alternatively, bulls would be back in charge if they can pop this rig above 1245.50 today.

With SPY approaching a 122.79 midpoint support, you could have bought January 134 calls for anywhere from 0.32 to 0.35.  I'll assume four purchased for 0.34, and although that would imply a stop-loss at 0.19, we'll hold onto them for a while without a stop.  Now, offer eight January 137 calls short for 0.36. As traders will doubtless have surmised, it will take a powerful rally to get this offer filled. 

We hold two Jan 54 puts and two Jan 53 puts with a profit-adjusted cost basis of,  respectively, 0.76 and 0.57. I’d suggested shorting December 54 and 53 monthly puts against them for the same price, but I'll now recommend instead that you short January calls three strikes below what you own for the same price or higher.  Thus, if you hold eight January 54 puts for 0.76, you should try to short eight January 51 puts against them for at least 0.76.  I estimate that the Cubes would need to fall to around 54.80 (Note: I've raised this number) within the next week or so to get the offer filled.  Our current, minimum downside objective is 54.87, a Hidden Pivot midpoint.  _______ UPDATE (10:42 a.m. EST):  I am recommending that you complete the spread immediately by hitting the 0.69 bid or the 0.54 bid in, respectively, Jan 51 puts or Jan 50 puts. Once you've completed the spread(s) as suggested, this reverse-Santa Rally position will offer great odds, since, although either spread will produce a profit of $300 if Santa drops dead (so to speak), the most we can lose in theory, commissions aside, is $7 on each Jan 54-51 put spread and $3 on each Jan 53-50 put spread. _______ FURTHER UPDATE (1:24 p.m. EST):  The Cubes fell a bit lower after the trading alert was disseminated above and in the chat room, and it would therefore have been possible to short either the Jan 51 puts or the Jan 50 puts for somewhat more than we paid for the long side of our position.  Officially, however, I will record a short sale at the prices suggested above.  That will give a cost basis of 0.07 ($7) for the Jan 54-51 puts spread, and 0.03 $3.00) for the

Silver is holding up a little better than gold, undoubtedly because it has not been targeted for destruction with the vengefulness that central bankers and their bullion-banker chums reserve for the latter.  Regarding my forecast, there is no change in the immediate outlook.  A Hidden Pivot support at 30.520 remains my minimum downside target for the near term. As suggested here earlier, you can bottom-fish there either via camouflage or with the tightest stop-loss you can abide.  Keep in mind that the 28.425 target of a larger pattern identified here a while back is still very much in play. _______ UPDATE (10:27 a.m. EDT):  The midpoint support at 30.520 has been savaged -- an event that occurred yesterday but which I somehow overlooked -- so we can expect this onslaught of selling to continue to at least 28.425 before the futures gain traction. Camouflageurs can buy down there aggressively, but theoretical risk in any case should be held to $70 or less per contract.

If Gold got smacked yesterday when shares were buoyant, we should expect it to fall even harder when stocks finally take account of the disaster shaping up in Europe. Yesterday's plunge seriously damaged a crucial support at 1633.10, raising the odds that the bear cycle begun in early September from $1925 will eventually fall to 1459.40. A move to at least that low looks like about a 2:3 bet at the moment -- a 60% shot.  We'll keep an open mind about this, but please note that it would take a thrust to at least 1832.50 for bulls to go back on offense on the daily chart.  Achieving this even on the hourly would take a burst in the days ahead that is uncorrected between 1681.80 and 1728.00. The two external peaks that would be surpassed impulsively by such a move are highlighted in the accompanying chart.

We got short at the top on Friday, but how long will Mr. Market let us enjoy the ride? Our vehicle, QQQ put options, nearly ran off the road on Tuesday when the Dow began the day with a 125-point rally. A pullback in the early going shaved that gain by two-thirds, but by early afternoon bulls were beating on the highs, threatening to send bears into a new round of short-covering. The pessimists got a reprieve, however, when something spooked the market late in the session, sending the Industrial Average into a 225-point dive that left it 66 points lower on the day.  It was not a session for the faint-hearted. Still, the outcome boosted the value of our put position, leaving Rick’s Picks subscribers in good shape to try to lock in a profit no matter what the stock market does as 2011 draws to an unpredictable close. On Friday, we’d actually been bullish for most of the day in anticipation of a powerful rally in the E-Mini S&Ps to exactly 1259.25, a Hidden Pivot target. With ten minutes to go before the bell, the futures got as high as 1258.50, and so we sent a bulletin to subscribers telling them to get short by buying January 54 puts for 0.96 in QQQ. This equity-based vehicle corresponds to the S&P futures and was making its high at 57.17. Although we rarely advise opening a position on a Friday afternoon, the circumstances strongly warranted it. This time, taking a gamble paid off when the new week began. Monday’s gap-down opening caused our Jan 54 puts to spike to as high as 1.25, and so we told subscribers to take a profit on half the position. Now that the selling has resumed, our goal will be to spread off our