July 2012

The B-C leg of the large, bullish pattern shown has taken so long to develop that it casts mild doubt on the 28.765 target without actually negating it. Still, the A-B leg is legitimate if subtle, having exceeded a look-to-the-left peak that requires squinting to detect.  Under the circumstances, we'll use 28.765 as our immediate upside objective.  As always, a decisive penetration on first contact would imply still higher prices.

Gold stalled yesterday, but so did just about everything else. Optimists that we are, we'll assume bulls are alive and kicking but took the day off. As the accompanying chart shows, the August contract must still pull back to at least 1610.30 to be presumed ready for a C-D follow-through to as high as 1676.90.  (That target assumes C will occur at 1610.30.)  Another possibility is that Gold will simply zoom higher without a pullback. That would be quite bullish, provided the move surpasses two peaks recorded in June, respectively, at 1635.40 and 1642.40.  Even without such a thrust, however, the rally from July 23's 1562.00 low is already bullishly impulsive on the daily chart. Finally, just to add a little bit of precision to the outlook, even if a bit speculatively, there's the 1657.90 target of the ersatz pattern shown. I say 'ersatz' because the A-B leg we are using to enable this projection did not exceed any kosher 'external' peaks.

The futures somewhat exceeded Friday's peak, which itself was an inch from the 1383.50 target I'd proffered. An alternative target at 1392.25 given here subsequently looks shortable, but I'd have preferred to do so on a quick feint higher. Instead, coy as ever, the futures made a marginal new peak at 1387.50 before dropping back into a tedious dirge. The effect was to turn an easy move to a modest target into a potential three-day affair. Yuk! The target has become somewhat less appealing as a place to lay 'em out at our price with a tight stop-loss, but I'll endorse sorting 1392.25 anyway provided entry is via camouflage. If any fills are reported in the chat room, I'll establish a tracking position for your further guidance.  However, if you should boldly ignore my advice to initiate only via camouflage, your first profit-taking interval -- on half the original position -- should come when the trade goes in-the-black at least three times what your risked on the initial stop-loss.  You can learn how to do this stuff yourself -- and more easily than you might imagine.  Click here for a free trial subscription.

As usual, the stock market was vexatiously out of step with reality last week, soaring on word that the ECB plans to do “whatever it takes” to preserve the euro and the political union that it binds. For U.S. investors, especially those who believe in hope and change (and, presumably, the Easter Bunny), there was also the invaluable news that the U.S. economy is once again verging on recession – a development which is widely believed to portend yet more Fed easing. Completing the delusional vision that good times are soon to return nonetheless, crude oil finished the week with a gain of about $4 per barrel.  Of course, no one actually believes that so strong a recovery impends as to squeeze current supplies of crude that are more than adequate. Even so, the news media, feigning ignorance of forces that have been pushing the global economy toward an abyss, and abetted by the stock market’s steroid-addled lunge, were only too happy to report events in a way that did not challenge officialdom’s cynically crafted, positive spin.  The Establishment’s most useful memes were dutifully trumpeted by The Wall Street Journal in two headlines that ran above the fold on Friday:  Weak Economy Heads Lower, said the topmost, in a heavy font; and, immediately below it, in italics, the implicitly good news:  Markets Jump as European Leaders Vow to Protect Euro; Flagging U.S. Recovery Could Spur Fed. Such headlines have the seeming heft of history-in-the-making. Notice, however, that it is not facts that have borne this weight, but mere hope and speculation. To say the markets have responded positively to some banker's speech is hardly an assurance that the ECB’s latest nostrums will work.  As for the Fed’s supposed ability to revive the economy with yet another monetary nudge, it is

With Gold and Silver futures moving energetically higher, we lingered on their charts to find a way aboard. In both cases, we looked for “timed buy-stop” set-ups because the rallies had been consolidating for long enough to be ready for a fresh leg up. From an analytical standpoint, the uptrends presented some interesting challenges, since they were occurring within the context of a larger, bearish picture that points significantly lower.

Even after a 600-point rally in the Dow, our put recommendation in the Diamonds is still profitable because of judicious profit taking advised near the bottom of the wicked plunge that followed our entry. As today's tout makes clear, we're going to stick with the position -- long September 126 puts with an effective costs basis of 0.45 -- come hell or high water.  Click here for a free trial subscription to Rick's Picks.

We hold two September 126 puts whose cost basis has been reduced by partial profit-taking to 0.45.  We'll stick with this position come hell or high water for two reasons: 1) September 21 is a long way off,  and 2) our exposure is by now minimal. We are effectively betting that the ferocity of this short squeeze will be sufficient to scare the pants off everyone but us. 

A thrust exceeding the 20.21 peak shown would be the most encouraging sign we've had since early June, so I've set a screen alert there to help us seize the advantage. Most opportune for purposes of initiating a trade via camouflage would be a peak that exceeds 20.21 by just a tick or two, since any b-c pullback thereupon would set up an entry trigger that our competition could overlook.  Some won't, though, and that's why I'm recommending a timed buy-stop to get long if the chance should arise.  Keep in mind that it would take quite a bit more to signal a decisive end to the bear market in this vehicle. Specifically, GDXJ would need to hit 23.94, exceeding peaks #2 and #3 without a pullback, to clinch the case.  _______ UPDATE (August 1, 12:55 a.m.):  Although last week's peak at 19.83 fell shy of our  bullish trigger threshold, it generated an encouraging impulse leg on the daily chart. Now, with a technically correct pullback to at least 19.04, this vehicle would be presumed ready for another upthrust of as much as $2.  I've refreshed the chart to show this. _______ UPDATE (August 3, 2:16 a.m. EDT): Buyers tripped a signal at 19.31 yesterday, predicated on a target at 20.81 and a 19.81 midpoint. Just as we are requiring that December gold close above a comparable midpoint for two consecutive days, we'll stipulate likewise for this vehicle before we extend it any more good will. _______ UPDATE (August 7, 1:05 a.m. EDT):  Yesterday's robust thrust left GDXJ comfortably above the 19.81 midpoint pivot at the close (see new chart), implying more upside over the near term to at least 20.81, our target.

At week's end, price action in this vehicle was as encouraging as any we've seen in a long while.  The top of the move not only created a bullish impulse leg that looks promising as a handhold for a camouflage entry (see inset), it also decisively exceeded a trendline on the daily chart that has contained every rally since late March. I've sketched out a possible set-up to get long, and if it pans out early Monday you should be ready to jump aboard via a "timed buy-stop".