Wednesday, April 11, 2012

For Silver to get in bullish gear with Gold, and to confirm bullion's strength, the May contract will need to take out the 32.435 'external' peak recorded last Wednesday on the way down. Otherwise, jeopardy will remain to the 29.975 target of a larger, downtrending pattern begun (on the 60-minute chart) with March 11's 34.410 high (a one-off).

Gold's spiky climb in the second half of the session easily exceeded our Hidden Pivot benchmarks, suggesting that any weakness over the very near term is likely to be merely corrective (and therefore buy-able). Camouflage opportunities will be tougher to find with the uptrend now entering its fourth day, but the most promising peak I can discern for that purpose lies at 1677.60. It is shown in the accompanying chart.

I implied in a commentary earlier this week that a push above February's 131^20 peak would be strong evidence the U.S. is headed back into statistical recession (even though The Great Recession has been with us for years), so yesterday's rally is quite significant in technical terms. We can gauge this vehicle's strength in the days ahead by monitoring the pullback that has yet to occur.  In the meantime, a Ten-Year Note trading below 2% would indicate a more than merely moribund economy.

The Dollar Index has been noodling around near the 79.98 midpoint resistance of a bullish pattern that projects to 81.30. There is a minor duel in evidence that gives bears a slight edge over the near term (i.e., the next 2-3 days), but the bigger picture remains quite bullish nonetheless. My hunch is that it will take a two-day close above 80 to light the fuse on this vehicle.

The futures easily exceeded some minor Hidden Pivot supports yesterday, hinting that they'll grope their way down to the March 6 low at 1332.75 in search of traction. Bottom-fishing via camouflage from 1335.00 and above is warranted, since our method affords us more than randomness in trying to guess exactly where the all-but-inevitable turn will come. You could also try camo-fishing at the 'p' midpoint of a pattern like the one shown.  As noted in today's commentary, an unpaused follow-through today to the downside that breaches 1332.75 would have very bearish implications going forward.

I lowered the stop to 1.60 yesterday on our four August 23.63 calls (@ 1.85), but it proved unnecessary when GDXJ powered itself out of a hole with a promising $1.00 rally. As I explained in the chat room, my rationale for fiddling with the stop was that I did not want to be forced out of a good position just because the underlying was drifting lazily lower. In  fact, GDXJ would need to be under a full-blown attack before  options pros hit a 1.60 bid in the August 23.63 calls.  Still, it never hurts to play it safe. The result was that we remain long just as this vehicle has generated a promising impulse leg on the intraday charts. This is shown in the thumbnail inset, and as you can see, yesterday's surge left only a small distance to  be covered for a third external peak to be surpassed on this run-up.  A fourth awaits at 23.81, and by then bulls will be able to sit back and relax. ______ UPDATE (3:48 p.m. EDT):  We took more profits when GDXJ rallied strongly today.  This allowed us to sell half of our calls for 2.25, as recommended here earlier. That means we are effectively carrying two calls (or multiple thereof)  with an effective cost basis of 1.45 apiece. No further action is advised at this time, although we may leg into some vertical spreads later to capture expiring premium.  April out-of-the-moneys are cheap enough today, however, that during today's impromptu session online, I recommended buying April 25 calls for .015 or less, contingent on the stock trading 23.60 or higher. That's a day order. [Let's raise that to 23.70 for the rest of the day, since the hour is getting late.]  Click here for information about the upcoming Hidden Pivot

A few consecutive days of hard selling does not a bear market make, but it’s heartening to see that stocks are still capable of deferring to reality – in this case, weakening corporate earnings. For what it’s worth, the sharp decline has produced the first bearish “impulse leg” that we’ve seen on the S&P 500’s daily chart since last November. This triggered a negative warning according to our proprietary Hidden Pivot Method of analysis. Although the weakness does not necessarily portend the onset of a major bear market, odds of this will increase if, for one, the E-Mini S&Ps smash the key low at 1332.50 recorded on March 6. This is shown in the chart below. So why the selloff?  The headline on a commentary featured here earlier this week may explain it: Pumped Stocks Have Yet to Glimpse a GDP Slowdown.  Perhaps now they have, and investors with the foresight to have trimmed their sails should be feeling good about it.  Our own portfolio, such as it is, contains a short position in the QQQs – specifically, May 68 puts that were recommended for purchase a couple of weeks ago before the underlying index topped pennies from a 68.65 Hidden Pivot target. We used a conservative basis of 1.56 for the puts after subscribers confirmed having bought them for as little as 1.48. But with yesterday’s nasty selloff the options fetched as much as 2.80 apiece, allowing us to take a partial profit that reduced the cost basis of the puts we still hold to nothing.  Incidentally, that’s the goal of nearly all options plays recommended in Rick’s Picks – to work into a position that has no risk but upside potential sufficient to at least cover the cost of a year's subscription to the service. Win a $106