Monday, March 25, 2013

Although there was a flurry of buying initially on news of a deal in Cyprus, the enthusiasm for euros seems to be tapering off in the wee hours. It seems unlikely that the rally will get very far, and so we should look for the pattern that I've highlighted to relapse into a c-d follow-through to the downside.  Strictly speaking, it would take a rally to 1.3298 -- well above these levels -- to correct the downtrend sufficiently to prepare it for another leg down. This is shown in the elongated k-A segment labeled in the chart.  ________ UPDATE (1:03 p.m. EDT):  The heights achieved by Sunday night's psychotic opening bar proved fleeting indeed, and now the euro has done what it ought to have done to begin with -- i.e., relapsed to a low beneath last week's 1.2852 bottom. Still-lower prices impend.

The euro initially spiked higher Sunday night on word that the Cyprus episode had been put to rest. Bondholders and depositors of more than €100,000 will be wiped out as a result of the deal, but hey, at least Europe will live to fight another day.  We're joking, of course, since the EU's bank establishment has effectively served notice on every depositor from Lisbon to Trieste that whatever they've got socked away in banks could vanish overnight without warning. Do the morons who are bidding for euros tonight actually believe that a crisis that will have scared the living crap out of every depositor in Europe -- are you paying attention, all you pathetic, wretched savers in Spain, Italy and France? -- is going to somehow blow over without further repercussions? As for the Russian tycoons who will lose everything they looted from the old USSR, it's hard to imagine how they could retaliate.  We have just one word of advice for those among them who have not gotten wiped out: GOLD.  Meanwhile, to others 'fortunate' enough to have held no more than the insured limit of  €100,000 in the Bank of Cyprus when the music stopped, we wish you good luck trying to get your money out, since withdrawals are being restricted to €100 per day.  This may be just the thing to calm "the markets" and the imbeciles and psychotics who trade them for a few days, but make no mistake, the way this affair has been handled -- a bail-in rather than a bailout --  has set the scene for a panic that will make the Great Financial Collapse of 2008-2009 seem like the warm-up that it was.

Gold could go either way, depending on how the Cyprus 'solution' is spun.  My hunch is that the outcome will be bearish for gold, with the implication that the April contract will fall to the 1553.30 target shown.  That's a midpoint HP support, and if it's decisively breached we could expect a further fall to its 'D' sibling at 1487.00.  Alternatively, the most constructive outcome for bulls over the near term would be an upthrust that exceeds 1619.70 (see inset), the point C high of the pattern yielding the downside targets given above.  As you can see, it would only take a small pop to get the April contract above that threshold.  Were that to occur, bulls would have the benefit of the doubt on any pullback, since it would be merely corrective -- and therefore buy-able -- on the intraday charts. _______ UPDATE (March 25, 4:25 a.m. EDT): Gold is up a big 10 cents at the moment, obviously relieved that 'only' depositors and bondholders will take a hit from the Cyprus affair. The action so far would seem to corroborate the bearish outlook detailed above.

We hold a dozen June 130-March 130 put calendar spreads for 1.50.  Let's roll into the June-April put calendar spread by shorting a dozen April 130 puts for 0.40 or better, good-till-canceled.  This may take a while, and my intention is to do it after the March 130 puts we are short have expired worthless.   We'll need a downdraft in the underlying stock, but stranger things have happened. _______ UPDATE (March 21):  We remain naked long June 130 puts for 1.50, waiting for that rare down-day to short some 'Apes'.