Thursday, May 23, 2013

Yes, we should be disappointed by June Gold's failure to 'actualize' Monday's promising $61 reversal. But bear in mind that the rally didn't negate bearish targets I'd flagged at 1218.60 and 1190.40, and as a result, any buying we do in gold futures or other bullion vehicles is speculative. For the moment, however, we should plan on doing no buying at all, since the spike high of yesterday's bull trap gave way to a downtrending impulse leg that left bulls and bears locked in a duel. If the top had been just a little higher, exceeding the 1416.50 'external' peak that I've labeled, I'd say bulls had the edge. As things stand, the fray looks pretty even and hints of a sloppy finish to the week. _______ UPDATE (6:19 a.m. EDT): Something has roiled the markets early Thursday morning, sending index futures plummeting and gold higher, although not quite soaring. The high so far is 1392.00, but it'll take an unpaused (once above 1413.30)  thrust exceeding 1416.50 to turn the hourly chart decisively bullish. A clear pattern on the hourly (A=1340.00 on 5/19) pointed to 1426.10, subject to midpoint resistance at 1389.60.

Knee-jerk hysteria triggered by Bernanke's empty blather on Capitol Hill created a bull-trap high that exceeded my rally target by 6.50 points. The subsequent massacre has traced out the potential usable ABC correction shown in the chart.  Camouflageurs looking to get short (or long) should note its 1641.25 midpoint support and 1623.75 target.  If you're just spectating, expect a fall to the lower number if the first is breached by more than three ticks. _______ UPDATE (12:35 a.m. EDT):  The overnight low was almost exactly midway between the two targets given above.  The lower of them will remain valid in theory until such time as the point 'C' of the pattern has been exceeded to the upside. However, the market's sharp bounce has made this unlikely.  It is astounding, inscrutable and...ghastly that sellers were able to generate no follow-through whatsoever this morning after last night's avalanche. Hack off this steroid-addled market's arms and legs and it would feel no pain -- would sprint the 440 in record time on the stumps of its bleeding legs.

Based on a 155.30 rally target disseminated here on May 6, we bought four June 152 puts yesterday for 1.00 with DIA topping at 155.14. Since I advised closing out two of them for 1.14 intraday, we are left with a profit-adjusted position of two puts whose cost basis has been reduced to 0.86. Now, offer an additional put on the opening and hold the remaining put as a lottery ticket. ______ UPDATE (12:25 p.m. EDT):  The puts opened for 2.30, so the sale of one more would leave you with a single put whose costs basis, adjusted for gain so far, is a 1.44 CREDIT. Thus, a profit of $144 is the worst this trade can do no matter what happens to DIA.  For now, do nothing further.  _______ UPDATE (June 3): Offer one June 147 put short for 1.06, good-till-canceled.  If the order fills, we'll have a risk-free lock on a $250 profit no matter what DIA does, and a shot at $750 if stocks fall hard this month.  _______ UPDATE (June 6, 2:29 a.m.): Lower the offer on the short June 147 put to 0.54, day order. Intraday note:  The puts opened for 1.15, so we were able to lock in a $5 spread for a $2.59 CREDIT.  This means that the worst we can do is make $259 on the trade; and the best, with DIA trading 147.00 or lower on June 21, is make $759.

The climax of yesterday's bullish stampede exceeded an in-our-wildest-dreams target by 56 cents (see inset), but when the dust had settled, short positions initiated by subscribers near an 89.43 Hidden Pivot were well in-the-black.  For tracking purposes I'll use 24 May 87.50 weekly puts that two subscribers reported buying for 0.11 in the chat room.  They had tripled in price by the close, and so half should have been exited at some point along the way.  However, since I made no explicit suggestion that you do so, I'll assume none were sold and recommend that you close out half at-the-market on the opening. Of the 12 that would remain, offer six for 0.50 and hold the rest for a potential home run on Friday, when the puts are due to expire. The 0.50 offer to close should be entered before Thursday's opening, since traders could conceivably exit a total of 18 puts at that price or higher on a gap-down at the bell. ________ UPDATE (12:18 p.m. EDT):  The puts opened at 0.50, so you would have reaped $900 on the sale of 18.  Since their total cost was $264, there is a theoretical profit of $636 so far. You can sell the rest at will either today or tomorrow.  Their cost basis is now zero, so whatever you receive for them would be added as profit to the $636. _______ UPDATE (May 24, 11:46 a.m. EDT):  The puts peaked today -- expiration day -- at 1.00, so you could have come away from the trade with a profit of as much as $1181. In guru promotion-speak, this equates to an annualized gain of six zillion percent.

Yesterday's trade in this vehicle had not been offered as a tout, but a timely question in the chat room helped us identify an opportunity to pick up some cheap call options intraday. Here is what I wrote in the chat room:  "The Auggie 160 market is 0.22/0/26, so 0.24 is the right price with GLD at 132.88. So, if GLD falls to our 131.83 target, the Auggie 160s should sell for about a nickel less (they have a delta value of about 0.04). So let's bid 0.21 (an extra penny for good measure) for 28 of them., stop 0.18. We'll worry about what to spread against them later."  Although the intraday low at 130.95 exceeded our target, the result was that subscribers were able to buy August 160 calls for 0.21, a penny off the intraday low. This position is highly speculative, since there are two very bearish targets outstanding, but it has the potential to pay off at about 60-to-1. With a three-cent stop-loss on the calls, we've limited our theoretical risk to about $84.  However, I'm now going to suggest giving the position a little more room by lowering the stop to 0.16. At the same time, and on a one-order-cancels-the-other (OCO) basis, I'll suggest offering 28 August 163 calls short for 0.30 against those we hold.  If the order fills we'll own a virtually riskless position that can make us as much as $8400 if Gold rallies strongly between now and late August. _______ UPDATE (June 4):  With a print at 0.16, we exited the calls on May 31 for a $120 loss. (They subsequently traded as low as 0.11.) Just to have a horse in the race, I'll recommend bidding 0.31 for four August 150 calls, good till June 10.

Today’s list of trading “touts” includes tracking guidance for three new positions initiated yesterday. First was a short in the Diamonds (DIA) based on a 155.30 rally target that had been posted on May 8, when the DJIA itself was trading 600 points lower. Our ‘Hidden Pivot’ caught yesterday’s high within 16 cents, just in time to enjoy a subsequent 2% plunge to 152.40. The equivalent reversal in the Dow Industrials, which had risen sharply while Bernanke blathered away on Capitol Hill, amounted to 242 points, or 1.4%.  In Johnson & Johnson, although we’d backed away from a short recommendation a while back, giving wide berth to the institutional lunatics who have binged on the stock since December, an 89.46 target was good enough to position subscribers within 53 cents of the 89.99 top.  JNJ subsequently reversed down to 88.20, finishing the day at 88.43 on a weak bounce. Finally, subscribers reported buying GLD August 160 calls for 0.21, a penny off the intraday low, based on a 131.83 correction target. The target had been aired intraday in the chat room in response to a timely query. The short positions are speculative and go against our very bullish, 16800 rally target for the Dow.  However, based on Hidden Pivot Analysis, if the predicted blowout rally was going to fail, it was likely to occur precisely at yesterday’s highs. Shorting into the Bernanke-induced wilding spree that began the day was undeniably speculative and even a little scary, but anyone who did so was a winner by the final bell. Taking Partial Profits Is Key Our practice when going against a bull market now in its fifth years is to take a partial profit on any position that has gone even modestly in-the-black, and to tie the rest of it to a