Monday, March 12, 2012

Crude oil has been in a trading range for three weeks and is now signaling a possible downside breakout.  The recent high price of 110.55 for West Texas Intermediate Crude was alarmingly close to the benchmark high of last May, and incumbent politicians familiar with Hidden Pivot analysis must have been relieved to see the impulsive move back down to 104.35.  The price popped back up on Friday morning, but most of that rally has already been surrendered.  In the early Monday hours, the market has confirmed a prominent bearish pattern that targets 102.00.  The midpoint of the pattern is at 105.10 and looks like a long-side opportunity.  Traders wishing to give the volatile oil market a wide berth can put stops as low as 104.89, but 104.99 might suffice.  The buy order can be close to the pivot, given the magnetism of the 105.00 level.  Of course, we won't be surprised if the magnet isn't as strong as it looks.  (Posted by Doug "harry" McLagan)

A midpoint pivot at 33.825 (see inset) has been central to corrective action over the last two days; now, it appears to be a base for the consolidation of Friday's impulsive thrust. No point 'C' low exists yet, but if the 34.030 low shown endures (unlikely, I'd say), the next buying spree could take this vehicle as high as 35.33.  Night owls should be ready for a sneak attack if the 'X' of a bullish pattern should trigger, since my hunch is that there won't be much time to get on board. Under the circumstances, a "timed" buy-stop may be the best way to do it.  Alternatively, if Silver should unexpectedly turn weak, the first place where we might look for a bounce is from 33.280, a midpoint support that could be bottom-fished via 'camouflage'

The Dollar Index was just a split hair from breaking out above not only mid-February's important peak at 80.12, but also a series of smaller 'external' peaks recorded toward the end of January. The closest Hidden Pivot resistance, 80.36, lies in their midst, but DXY looks too pumped at the moment to stall for long. Once through this thicket, a crucial high at 81.78 recorded on January 13 would likely become magnetic, as would an equally important high at 83.56 from last August. If this bull run, begun nearly a year ago, is headed to 90 and above, we should start to see each new thrust on the hourly chart effortlessly create a new impulse leg.

Two peaks near 1377 recorded two weeks ago remain the key challenge for bulls over the near term. Once above them, however, the futures would become an odds-on bet to go just a bit farther, at least, to 1381.25, a Hidden Pivot identified here earlier that can be shorted either via camouflage or, with somewhat greater risk, via a 1381.00 offer, stop 1382.25.  As before, if you take the latter approach, exit half of the by-then-profitable position at 1377.25 and use a trailing stop suited to your style for the rest. This trade is particularly appealing because once the futures are above the 1377 highs, "everyone" will be bullish and bears at their most despairing. Would you like to learn how we use the ‘camouflage’ trading technique to significantly reduce entry risk? Click here for details.

Index futures have gotten off to a slow start Sunday night, while gold and silver futures are holding their own in the face of a resurgent dollar.  Touts for the new week will be out later tonight, so stay tuned.

Rick’s Picks occasionally serves up “softball” trades geared to relative novices who have never fooled around with stock options, let alone made money with them. The goal each time is to help subscribers make enough to pay for a year’s subscription to the service ($350, or click here for a free trial). Last week, we bid fair to put them on a winning track with a trade in Silver Wheaton designed to risk no more than literal pocket change. We did so in two steps: 1) buying June 40 call options for 1.17 when the underlying stock fell to within pennies of a correction target at 34.53 we’d identified earlier; then, 2) two days later, with the stock in a powerful rally, short-selling June 42 calls against the ones we’d bought for the same price.  The net result was a vertical bull spread that cannot lose money no matter what the underlying stock does but which will produce a gain of as much as $200 per spread if Silver Wheaton is trading above $40 come mid-June. Not bad odds, right?  It’s like getting 15-to-1 on a horse to finish in-the-money, but also getting a money-back guarantee if the nag fails to place or show. Notice, however, that a profit on this trade is still contingent on a moderate rally between now and mid-June from a current price of around $36. If Silver Wheaton should fail to move above $40 over the next 90 days, however, the trade would ultimately produce neither a profit nor a loss – would in fact expire with a value of zero, or exactly what we “paid” for it. In the interim, unless SLW falls dramatically, we can always sell the vertical spread for more than zero. (It settled on Friday at 0.45 cents, yielding a