Thursday, August 16, 2012

Yesterday's downdraft tore through a key support at 146^02 recorded back in May. Although the resulting impulse leg did not negate the bullishness of the long-term charts, it raised the possibility that the decades-old bull market has seen its highs. We'll be monitoring the September contract's vital signs closely for further evidence of this, but in the meantime those of you who trade this vehicle, or who have been itching to do so, should check out the chart. I am not drum-rolling this one for reasons that camoflageurs and Pivoteers will appreciate.

We hold a tracking position of four October-September 620 put spreads @ 8.40 as a proxy for any short positions initiated by subscribers at the recent top I'd forecast near 638.  For now, offer two of the spreads to close for 9.60, predicated on a drop in the underlying stock to around 625. I'm not advising a stop-loss at the moment, since a $5 move against us would not significantly diminish the value of our spread.  More likely is that once the August series has expired this Friday, pressure on the September puts that we are short will increase sufficiently to cushion us even further against an adverse move in the stock. What this means is that time decay will be working for us increasingly in the days and weeks ahead. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

I'm providing tracking guidance for two short contracts whose cost basis has been adjusted upward to 1413.00, reflecting partial profit-taking on an initial pullback to 1397.25.  Continue to use a fixed stop at 1408.25 for one and at 1411.50 for the other. On a one-cancels-other basis, you should also plan to cover one contract at 1391.00.  Check out the chart as well, since it shows how the rally of the last two weeks has created the kind of impulse leg that we might otherwise use to get long at some point in the near future.  In fact, despite our speculative short, the bigger picture remains undeniably bullish. _______ UPDATE (12:06 p.m.): Moments ago, and not unexpectedly, we were stopped out of the last of four contracts, coming away from the trade with a theoretical gain of $262. We'll look to re-short this pig, and to re-short it again and again at even higher levels, whenever a low-risk opportunity is there to make money even if we are "wrong."

With the E-Mini S&Ps and Apple shares stealing up on potentially important Hidden Pivot targets the other day, we shorted both on the off chance that we might be catching the Mother of All Bear Rally Tops.  Of course, we’re not so crazy that we actually believe we’re going to nail the exact top of a bear rally that is now well into its fourth year. Still, it’s great fun to try, especially if you’re a permabear who believes, as we do, that one of these days stocks are going to take a plunge so nasty that it will make the 1987 Crash look like a picnic.  Regardless of whether we’re right or dead wrong, however, we expect to make money on these trades. The trick is to catch a “a top,” if not “The Top,”  and to take a small partial profit right away if possible. This helps build a risk cushion if our short whips around and heads higher, as happens so often.  But it also allows us to book at least a small gain if we should eventually be forced to bail out just above where we got in.  Rather than make bold claims about how often we succeed at this, we’d suggest asking subscribers yourself.  Click here for a free trial subscription that will give you a week’s access to the Rick’s Picks chat room, which attracts experienced traders and 'Pivoteers' from around the world 24/7. So how did yesterday’s two trades against-the-trend work out?  Not too badly, actually.  Although the Apple short was stopped out for a small loss because of a Hidden Pivot miscalculation (more on that below), at the final bell subscribers who followed the futures recommendation were still short the E-Mini with a paper profit of more than $400 per contract.  Earlier,