January 2012

The unexciting rally off this morning's low looks bound for an unexciting target at 1314.25, a Hidden Pivot.  It's not bullishly tradable, at least not easily, but bored night owls could consider shorting a downtrending abc from that number if a suitable pattern turns up on the one-minute chart.  The bigger picture remains bullish, but the first opportunity I could see to trade it would require a B-C pullback from between the two labeled peaks.  Moreover, the approach would need to be choppy in order to mask any perceptions of strength that will have accrued up to that point.

In today's gold tout, I mentioned the possibility of looking for camouflage near current levels to get long. To give you an idea about the subtlety of the patterns to look for, I have reproduced a 1-minute chart of March Silver. There's not much to grab hold of here -- but that's the point: The subtler the entry signals we can find, the more likely the trades are to work.  In this case, however, as you can see, the trade did not work, since anyone who bought at X didn't reach p for some obligatory partial profit-taking. Post-mortem note: When a bullish pattern this subtle and promising fails to deliver, take it as a sign that the futures may want to go lower, not higher. Whatever the case, on this particular evening, the futures are acting particularly squirrelly.  Want to learn how to find these entry spots yourself?  Click here for information about the upcoming Hidden Pivot Webinar.

The 1720.00 stop-loss I'd advised ejected us profitably from a two-contract long, leaving us with the task of re-establishing a bullish position in the days ahead.  Dispensing with couldawouldashoulda hindsight, we can reasonably surmise that taking partial profits on long positions will always be key, since pullbacks are likely to grow even nastier as this bull market progresses. The idea is to reduce our cost basis sufficiently via partial profit-taking so that we can comfortably hold at least a small piece of the original position without being overly concerned about its inevitable swoons. For purposes of trading the futures today, the nearest 'external' peak we can leverage for "camouflage" lies at 1739.20 (see inset). A rally exceeding that peak would surely attract more interest than we should prefer, but that shouldn't rule out a 'camo' entry attempt. My recommendation is to take the trade if the B-C pullback occurs from no higher than 1739.50.  You should further limit your risk by stopping yourself out if the futures noodle around the 'x' entry price for more than a minute or so. Camouflageurs could try entering nearer current levels by finding a suitable ABC pattern on the very lesser charts. However, at the moment, even scrutinizing the 1-minute chart,  I am unable to improve on 1739.20. _______ UPDATE ( 11:31 a.m.): Wow. The futures are trading almost exactly where they were yesterday ay this time, but that belies the take-no-prisoners viciousness  of price action in the intervening 24 hours. If you're interested in how this played out relative to any camouflage opportunities we might have found, the best 'X' entry 'X' I can find, using the 3-minute chart, lay at 1738.00 (around 12:45 a.m. EST);  at 1743.00 (12:57 a.m.; but you had better have exited 75% of the position at the 1747.20

I'll have more to say in Wednesday's commentary concerning managing the risk of our trades in Comex Gold, but suffice it to say, it was not my intention to weather a $20 swing against us on two contracts after getting within less than 1.00 of the price where we'd intended to exit one of them. We booked a paper gain of a little more than $1000 on the trade, leaving me more eager than ever to climb back aboard.  If and when we do, if you'd like to be notified in real time of the opportunity, stay tuned Rick's Picks intraday alerts.  You can sign up for them by clicking the "Send me each item" box on your Account page.  If you don't subscribe but would like to try this service, receive a free week's trial subscription by clicking here.

Sometimes it's impossible to tell whether the financiers and politicians who carry water for the central banks are bad liars or just clueless dolts. A bureaucrat from the U.K. surfaced in the Wall Street Journal over the weekend, exhaling what seemed to us an ostentatious sigh of relief over the supposed success of the European Central Bank’s latest loan program: “[It provides] a very significant degree of breathing space to banks.” Yeah, sure. A very significant degree --- as though the banking system’s terminally decaying colossus were not in danger of imploding tomorrow -- and for no greater reason, possibly, than that some hapless bank clerk erroneously misplaced a decimal point. The bureaucrat's remark appeared, with unintended irony, in a story about how European banks are in a quandary over how to redeploy a torrent of digital cash that has recently come their way from the ECB’s magical credit-infindibulator. Recall that the banks sucked up €489 billion ($641 billion) in a matter of weeks after the ECB made that sum available to them in December for three years on super-easy terms. But what to do with it all?  None of them are in the mood to lend to – heaven forbid! --  businesses, and that leaves only two bad alternatives: using the digital money to buy government bonds from the sordid likes of Greece, Italy and Spain; or hoarding it at a loss. A loss?  Well, it turns out that although the ECB is charging commercial banks a nominal rate of 1% to borrow as much as their greedy little hearts desire, the central bank is paying them only 0.25% on overnight deposits.  Call us cynical, but we can’t see how the growing asymmetry of this relationship will produce a solution to Europe’s debt problems. In fact, it reminds us

Some are saying the dollar has seen its highs.  But on what evidence? Although it's true that the selloff from mid-January's 81.78 high has gone bearishly impulsive on the daily chart, the down-leg must be weighed against a "dueling" bullish impulse leg from 74.72 begun in October that looks more powerful. We should reserve judgment about the outcome pending a test of the 78.18 HP support of the pattern A=81.78 (Jan 13), B=79.60 (Jan 23).  The A-B impulse leg is ersatz because it failed to exceed a required second prior low, but it's real enough that we should expect the target to produce a tradable bounce.

Last week's rally was quite encouraging, since it exceeded three prior peaks on the daily chart.  Since there have been no B-C pullbacks yet, the impulse leg could conceivably surpass even more peaks before it takes a breather.  Night owls and camouflageurs should look for entry signals on the 3-minute chart or less.  As of this moment, there's a superficially enticing pattern developing on the '3'', but the ugly double-bar 'A' makes it less than opportune.

Stocks and bullion have noticeably decoupled recently, but only mildly, and the effect so far is not strong enough to allow them to go their separate ways. Gold was up moderately early Sunday evening, but with DaBoyz manipulating index futures lower -- now by nearly 8 points in the E-Mini S&Ps -- gold and silver have given up their modest gains and are trading nearly unchanged.

We hold a two-contract tracking position whose cost basis, adjusted for paper gains on six contracts already exited, is 1715.10. A 1720.00 stop-loss should be used for both in conjunction with a one-cancels-other order to exit one contract at 1740.70. That's slightly below a minor Hidden Pivot target, and although Sunday night's nasty bull trap missed our number by a hair, the stop-loss still applies.  These numbers relate to the March contract, but you should roll into the Aprils as soon as possible, allowing a price differential of about $3.  Basis April, a stop-loss of 1724.30 would apply in conjunction with a closing order on one contract at 1744.90.  Our adjusted cost basis will be 1718.10.  As of around 8:35 p.m. Sunday (EST), the corrective weakness targeted 1729.20, basis the February futures.