Thursday, January 19, 2012

The 20.27 target of the bearish pattern shown remains valid, although bulls can take encouragement from the fact that the futures seem so reluctant to get there. More bullish still -- decisively so -- would be an impulsive thrust exceeding the 32.69 'external' peak labeled on the chart.  Failing that, the stock would nevertheless be a compelling buy on a fall to 28.98, the midpoint support of the ABC pattern shown in purple.

The futures remain on track for a rally to 1681.10 (or perhaps 1681.50), but the pattern that presumably will get them there is sufficiently clear and compelling that I'll suggest shorting near the target via a 'camo' entry.  Keep in mind that the position is to be implemented with four contracts and that the theoretical risk (i.e., the distance between the signaled X entry point and the point 'C' low of the pattern) be no greater than $70 per contract. I hesitate to suggest substituting mini-contracts to achieve this, since the dangerous illiquidity of mini bullion futures more than offsets the peace of mind we might hope to get trading a downsized vehicle.

The fleeting lunge to a so-far high tonight at 1307.50 smacks of desperation and underhandedness, although a toothsome rally target at 1316.75 remains valid nonetheless. Digestion pains should lower this trading vehicle overnight, but it would still be a buy on any upwardly impulsive ABC pattern you can find on the lesser (i.e., 15-minute or lower) charts. Camouflageurs will need to be especially careful, however, since the rally could follow the creation of a bearish impulse leg similar to the one shown in the chart.

Hey, I've got a hot tip:  Run the other way when some tipster wants to share a piece of juicy insider information with you.  What would you have done if he'd told you earlier in the week that the notoriously well-connected banking firm was about to report horrendous earnings for the fourth quarter? You'd have jumped on some put options, right? Maybe a dozen or two March 95s, which were selling for around 3.50 with the stock loitering suspiciously near $98 on Tuesday.  Guess what: The tipster got it exactly right. Goldman's earnings could hardly have been much worse -- down 58 percent for Q4.  As for the March 95 puts, does an instant double to $7.00 sound about right? In fact, they traded for as little as 92 cents yesterday, having shed three-quarters of their value in just a few short hours as the stock soared almost $10 from the previous day's low. This breathtakingly counterintuitive outcome is one of the sleaziest bear traps I've seen sprung, and although it's ultimately going to undercut the stock's credibility as it makes its way down to, oh, $10 a share years from now, for the time being, Tuesday's short-squeeze will provide exactly the kind of buoyancy that its handlers -- a bunch of goniffs that  I wouldn't trust alone with my cat -- had sought in order to unload shares on widows and pensioners.  Sometime before this swindle runs its course over the next couple of weeks, we'll want to lay in an inventory of way-out-of-the-money puts so that we can later attempt to spread off their risk when the stock eventually plummets like a brick on ginned-up "good" news. Want to join us for the ride?  Click here for a free trial subscription to Rick's Picks.

It's been a while since I looked at Silver Wheaton, which has been tracing out a bearish pattern for too long to give bears much comfort.  Check out my key numbers for the stock if you hold SLW shares, since they are likely to be helpful in gauging the seriousness of any dramatic rally or decline.

We’d almost lost track of Europe since the newspapers went mum on the subject in late December, after auction rates for Spanish and Italian debt receded sharply from the 7% threshold. That’s officially the danger zone, at least to the extent that the business pages usually headline the story, albeit on an inside page. And now, in an apparent effort to keep all of us euroskeptics off balance, news sources often refrain from mentioning certain auction details, including the specific rate demanded by lenders.  Here, for example, is an everything’s-coming-up-roses story from a Wall Street Journal report that ran yesterday under the sunshiney headline Europe Debt Auctions Find Demand: “Spain sold 4.88 billion euros in 12-month and 18-month treasury bills amid strong demand, at interest rates well below those at its previous auction [emphasis ours]. It’s hard to say whether the Journal was being coy. To give them the benefit of the doubt, it’s possible the paper’s editors made a decision to downplay the mention of specific rates because the rates have been fluctuating so wildly in recent months as to be meaningless. Perhaps. For the record, we believe that anything above 2% subjects sovereign borrowers to a deflationary burden capable of snuffing the life from an economy. So how have the PIIGS managed to survive nonetheless? Answer:  They haven’t. Fiscally and economically speaking, they are all Dead Countries Walking. But it seems clear that they will be able to continue to borrow at rates that imply the near absence of risk. That’s because the local banks that are sucking up all of the paper, most of it short-dated and backed by “full faith and credit” boilerplate, are so flush with cash that they don’t know what to do with it all. A Dutch banker succinctly summed up the auction