Wednesday, May 23, 2012

Yesterday's high fell 19 cents shy of the 26.45 target shown, telegraphing the extent of the weakness that followed The target is still valid in theory, but bulls would need to drive SLW a bit higher today, surpassing the external peak at 27.13 (see chart), to get back in the game.

We hold 200 shares (or a multiple thereof) for 18.90 against two June 20 puts for 0.90, but shorting June 17 puts for 0.95 against this position has proven to be an elusive goal. Continue to offer them in a quantity equal to the number of June 20 puts you are long.  At current levels the position nets out to the equivalent of +70 shares.

There are some big downtrends at work, the nastiest of them projecting to as low as 14.690.  That's not a prospect we should worry about at the moment, although it is indicative of the weight of long-term selling. More immediately, the December 29 low at 26.500 is more important than any Hidden Pivot targets we might be able to identify, since its breach would portend weakness over the next 6-8 weeks to as low as 20.370 (daily chart, A=43.430 on 9/2).  For today, buyers would need to push this vehicle to 28.180 to go back on the offensive. Otherwise, there is immediate jeopardy to 27.485, a minor Hidden Pivot whose provenance is shown in the chart. Calling the turns precisely and confidently is easier than you might think.  Want to learn how? Click here and get a $50 discount to the upcoming Hidden Pivot Webinar on June 6-7.

Yesterday's price action was filled with numerous traps for traders, even deft camouflageurs. At day's end the futures looked bound for the 1298.75 downside target shown, but I wouldn't suggest trying to bottom-fish there unless you can handle a reversal pattern on a chart of 5-minute degree or less, or a stop-loss as tight as 1.00 point on a straight bid. If at least two traders reports fills, I'll establish a tracking position for your further guidance.

Observing Facebook’s price action on its IPO day earlier this week, one might have thought that fear, greed and stupidity had taken the day off.  How could the over-hyped, socko-boffo stock of the year – of the decade – have failed to double within minutes of the opening bell?  In fact, pumped to a $38 initial-offering price, FB shares achieved only a pathetic $45 on the opening bar before detumescing back to $38 by day’s end.  Even more dispiriting to those on the retail end of Thursday’s relatively unfrenzied buying was that, on day two, the stock collapsed to $33 in the early minutes of the session, there to languish for six grueling, armpit-staining hours.  Retail suckers…er, buyers were bound to have been disappointed, and some, more than a little churlish about it, labeled the IPO a flop. Had the guys on Sand Hill road and their sleazy confederates on the Wall Street Midway simply overpriced the stock, as some suggested? Or was GM perhaps to blame for pulling its advertising from Facebook days before the Big Event because of poor results?  Some observers even speculated that investors had finally wised up to the fact that companies with relatively modest revenues deserve relatively modest earnings multiples. That last notion, that investors have finally wised up, is so absolutely outlandish that we were impelled to seek a better explanation. Since when has a price/earnings multiple of 108 ever deterred buyers salivating with greed from the certitude that a greater fool would take them out of the stock at even richer prices? Why No Moon Shot? Our take is that speculators failed to achieve the expected moon shot, not because they were at long last thinking rationally about the IPO market in general, and Facebook in particular, but because they were weighed

Gold is getting mildly pounded early Wednesday morning while the E-Mini S&Ps are down the equivalent of about 50 Dow points. Selling appears to have dried up in the latter, implying DaBoyz are setting it up for a goosing at the bell. however, this will occur only if sunrise does not bring a new wave of selling driven by news.

We hold two June 65 calls for 0.84 against three June 62 puts  for 0.92. With the Cubes rallying into a shortened month (i.e., a June 25 expiration), this position is going to start shedding value quickly.  Let's try to close it out in the opening hour at near-break-even prices.  We have 4.44 in the position (1.68 + 2.76) and it closed yesterday at 4.46( 0.64 + 3.84), so scratching the trade is do-able.  I suggest exiting the puts first, since the calls are not going to move much on a rally. _______ UPDATE (May 23, 12:51 a.m EDT): If you exited on the opening yesterday you'd have gotten 1.27 for the puts, for a total of 3.81; and 0.38 for the calls, for a total of 0.76. The theoretical profit would have been $13, effectively a scratch.