February 2013

There have been murmurings in the chat room that the mining sector may have hit bottom, but there needn't be any uncertainty about this. To know for sure, let's stipulate that the Gold Bugs Index exceed two prior peaks on the hourly chart without pausing for breath.  In this case, I am implying that the stock must surpass peaks #1 and #2 in an uncorrected leap before we wax bullish.

During yesterday's weekly tutorial session for Hidden Pivot grads, we found the corrective pattern in the accompanying chart most compelling, with single-bar coordinates at all three ends and a dandy, non-sausage-y point B low.  The 24.71 target is a place where we could contemplate bottom-fish aggressively, but it will also become our minimum downside objective if the stock cannot muster an impulsive breakout above the red line.  My hunch is that the stock's a goner here and that the implied 8% fall will commence in earnest unless a powerful rally in the broad averages pulls it the other way. Even then, only an impulsive move on the daily chart should be regarded as strong enough to negate the downward pull of the 24.71 pivot. 

I've created a "matrix" of rally targets to go along with today's DJIA tout. It shows at a glance what could happen if yesterday's high -- itself just a few points above a compelling target at 14098 -- is exceeded. An alternative top lies not far above, incidentally, so check it out if you're keen on shorting this flying pig with a very tight stop at every logical opportunity.

It creeps me out to think that if the Dow breaks out here, our next logical target would be somewhere up around 15000.  Fortunately, there are several lesser upside targets that comport more easily with the not unattractive idea that the broad averages are close to the Mother of All Bull Trap highs.  Assuming yesterday's top at 14105 gives way, a Hidden Pivot at 14142 is my favorite of the bunch, probably because a mere 70-point rally from Wednesday's settlement is all it would take to turn the last few holdouts super-bullish. Today's chart shows not only that target, but several more, each persuasive in its own way, along with their respective midpoint resistance pivots.  I have used a separate color for each pattern, and you should consider the chart as a whole a "matrix" of the kind discussed in the final hour of the Hidden Pivot Webinar.  Trading the various price points will be up to you, but each will probably be worth at least the small risk incurred in doing so via camouflage.  Fills should be reported in the chat room if you want me to track positions, whether long or short.

Around 3 a.m., April Gold's chart was beginning to develop in the way that is sketched in the chart accompanying today's tout. Since the tout is actionable, you should check it out if you're keen on trading the futures contract. There are some caveats that will apply because yesterday's surge will have attracted more than its fair share of bulls, but nothing that should put off the diligent camouflageur.

The daily chart has gone impulsively bullish with Monday's sharp thrust, suggesting happy days lie ahead for dollar longs. There's not much to grab hold of yet for the next leg higher, but as you can see in the chart, this vehicle has stalled at the p resistance of a lesser pattern. I'd suggest using a 'camo' entry strategy if you're eager to play, but you should wait for more backing and filling -- which is to say, for more point C-low stop-outs -- before you leap. There's a risk of missing the trade that way, but DXY looks too menacing right now to mount after so shallow a pullback.

Getting aboard yesterday's explosive rally proved so difficult that higher prices over the near-term would seem very likely. The intraday high capped a strongly impulsive A-B rally, which means the pullback currently under way should be bought. But how? My suggestion is to take the first signaled 'x' entry (see inset), but to do so with a 'timed' buy-stop that will take you out of the position if it doesn't perform quickly (i.e., with 30-60 seconds).  If too many bulls start to weigh this vehicle down and it sinks to a second point 'C', look for your camouflage buying opportunity on the 15-minute chart or less.

The Dow was up 116 points yesterday – all of them presumably gratuitous -- recouping about half of the previous day’s losses.  This was in odd contrast to an S&P 500 index that barely got off the launching pad  Take a look at the 60-minute chart below if you want to see how S&P buyers spent the day head-butting their way modestly higher. Our guess is that they were outmatched by fresh supply coaxed forth by Monday’s semi-fearsome selloff. Recall that it was attributed by the news media to worries about Italy’s election results. Are the rabble about to seize power in Rome?  It would seem not. Italy didn’t even rate a mention on the Google news page yesterday, unless you count a story about the Pope that had a Vatican dateline. We can only surmise that the panic over Italy’s would-be descent into anarchy that had engulfed newsrooms has not spread to the general populace, let alone to Wall Street. So what to make of these almost daily swings of 100 to 200 points, each opposite the last?  Our suspicion is that the stock market is building a broad top. By definition, that means it has been visiting pain on bulls and bears alike.  We’re in the latter camp, although untouched by pain as yet. About two weeks ago, we be  the “Don’t” line with the acquisition of some put calendar spreads in the Diamonds, a proxy for the Dow Industrial Average.  Although we usually shun options with distant expirations, because time only works against the retail buyer of puts and calls. In this case, however, we put on the spread with the goal of “rolling” it twice by summer. Specifically, we bought the June 130-March 130 put spread for $1.50 when the Diamonds were approaching a Hidden Pivot

A C-D follow-through with a pitch as steep as yesterday's impulsive plunge seems unlikely, given the buy-the-dips mentality that has kept stocks buoyant for the last four years. However, since the cause of the weakness so far is almost surely something bigger than Italy's election, as the newsmongers would have us believe, we shouldn't expect the usual snap-back rally. We'll know more about the mood of sellers when we've seen how this vehicle interacts with the p midpoint support of the next down-leg (see chart).  An easy breach of the support would suggest the correction is waxing rather than waning.