Friday, June 8, 2012

The 63.18 high of yesterday's opening-bar bull trap exceeded a key external peak from May 29 by three cents, creating a bullish impulse leg that easily endured the selloff that followed. Whatever QQQ does in the days ahead, we'll be looking to short it however we can, every chance we get, since it's an ideal trading vehicle for relative novices.  First, though, here's one for more-experienced Pivoteers: If the pattern plays out more or less as sketched, go short at 'X' by buying a multiple of four  July 60 puts. I'll update with further guidance intraday if at least two traders report fills in the chat room. _______ UPDATE (11:12 a.m. EDT):  Cancel the order. The pattern has in fact developed to produce an 'X' short at 62.40, provided the point 'C' high at 62.40 endures. However, the QQQs are moderately buoyant today, and in the hourly-chart duel that has played out since Wednesday, bulls would appear to hold a slight edge.  If we were to get short right now we'd be in the position of hoping for "bad news" Sunday night. Hope being the final refuge of the desperate, we'll wait for a better opportunity.

In the update to yesterday's tout I predicted sloppy price action for months to come.  I'm tempted to say it will have a bearish bias, but because we know that a dire financial crisis could bubble up at any moment, we shouldn't give up on gold. Trouble is, the crisis could be deflationary -- say, an unexpected bank holiday -- and that would likely send bullion quotes, along with prices for nearly everything else, plummeting. In any case, and most immediately, I would suggest using the midpoint pivot of the pattern shown to initiate a trade -- a short, perhaps, if on a downtrending abc following a breach of the support.  Point 'C' had yet to form as of around 7 p.m. EDT, but the pattern already looks clear enough to suggest its possible usefulness.

It was 'dueling delusions' yesterday:  China's move toward easing vs Helicopter Ben's frank admission that 'monetary policy is not a panacea'.  Isn't it a bit late in the game for him to be saying such sensible things?  In any event, by day's end the Fed chairman's unwonted reluctance to masturbate Wall Street brought shares down from the giddy heights they'd achieved on word that China was prepared to use the West's number one growth tool:  more debt.  Permabears that we are, do we dare get in the way as every nation on earth with a central bank fixes to ramp up credit?  In a word, yes. As has been demonstrated here time and again, we can short every misguided rally from here till the cows come home, often booking at least a small profit even when we are wrong. We can also buy the dips in anticipation of the extreme rallies that are certain to occur if the stock market has indeed entered a bear market. Most immediately, that would imply bottom-fishing at the 1312.25 midpoint pivot of the pattern shown. This must be executed camo-style, however, since the Hidden Pivot support is coincident with yesterday's low.  The objective here is not merely to profit from the rally, but to use the profit to cushion the stop-loss on our next short.  Night owls in particular should note that an easy breach of 1312.25 would imply more downside over the very near-term to its 'd' sibling, 1306.50.  Like to learn how to reduce the risk of a trade using the Hidden Pivot Method? Click here.

[My New England road trip brought me to the St. Johnsbury, Vermont home of an old friend, Neil Raphel.  A marketing consultant with degrees in English literature and law, Neil worked for a while as president of the trading firm of Wall Street legend Victor Niederhoffer.  In the guest commentary below, he summarizes the most important things he learned about trading from Victor. RA] Rick asked me to fill in for a day, and I thought I'd give you some trading and life tips I learned from Victor Niederhoffer. Victor is, above all, a speculator. Like the infamous Jesse Lauriston Livermore, an early 20th century stock investor who made and lost several fortunes in Wall Street, Victor over the past 40 years has made spectacular gains in the market and suffered some devastating losses. I had the good fortune to work for Victor in the mid-1980s, when he was at his trading pinnacle. At his best, Victor was a short-term trader who made money consistently in the commodities markets by charting the interrelationships of commodities. Years later, after I had left, Victor had some setbacks when he changed his trading methods to accommodate a much larger public fund. But to my mind, Victor was a trading genius whose short-term results consistently disproved the "Random Walk" theory of the market. Year after year, Victor produced amazing results. Ten Tips I came to Victor as a trading novice. Here are ten tips from him that helped me learn the trading game: • Study horse racing books. The odds against winning at a parimutuel racetrack are overwhelming. Yet some touts have systems that produce a profit (against all odds). Can you apply any of these horse racing principles to your trading? • Write down trading prices (by hand). There were a ton of