June 2014

I have posted a target and coordinates for the E-Mini S&P in the chat room Sunday night for two reasons: 1) it will provide us with a precise, high-opportunity spot to get short, as well as a minimum upside target for getting long in the meantime. As has been my practice lately, I haven't displayed the target publicly because I don't want to jinx it or diminish its value to paying subscribers; and 2) my mickeymouse WordPress publishing tool is not allowing me to publish new touts for Monday, nor even to display old touts. With any luck, webmaster Brian will have fixed this unprecedented disaster by the opening.

The suspicion grows that the stock market has been carving out a broad top, by turns bringing sufficient deviousness, pain, tedium, exhilaration, temptation, and most of all false hope, to the process that even those who have been preparing for it are likely to be caught off guard when the inevitable plunge comes. Further evidence of a market suffering from terminal fatigue would have been apparent to anyone who tried to cash in on the last gasp of put and call options that were due to expire on Friday. We’ve been using this tactic ourselves with a weekly “Jackpot Bet” designed to take advantage of the enormous leverage in options that have shed nearly all of their time premium shortly before they die. Stripped bare for action, they can increase in value tenfold if the underlying stock exhibits just a little bit of Friday craziness. Unfortunately, Friday nuttiness has been nowhere in sight for weeks, requiring us to scramble just to break even on the relatively feeble moves that have occurred. Last week, for instance, a bullish play in Google caught our attention, and we bought calls with a 565 strike price to take advantage of a fall in the stock to 559 in the early going. At that point, a mere $6 rally in five hours was all it would have taken to push calls we’d bought for 0.30 into-the-money. Google can easily do that in mere minutes when it catches fire, and if it had happened this time, our bet would have tripled with each $1 move above 565. Alas, the stock spent the entire session unable to levitate itself above 565. Actually, it finally did pop above the “jackpot threshold,” but it happened literally at the final bell, when it was too late to reap the kind

Although I typically warn against “trying this yourself” when I put out option trades, there are some simple tricks that anyone can learn that can mitigate or prevent costly errors. In this lesson, we paused to look at the put-and-call grid in conjunction with a stock trade under consideration. How much should one pay for a certain option with the underlying stock at a given price? There are easier ways to answer this question than you might have imagined.

Price action has been so lackluster lately that stocks seem unable to overcome the faint gravitational pull of weekly options that are due to expire today. Unless some lame excuse-for-news comes along to goose traders back to consciousness, expect them to end the week drooling, much as they've been doing all week.

I'm raising my 21.435 rally target by 15 cents, to 21.585, based on the chart shown.  The futures have been head-butting the midpoint resistance all week, but if they can close above it the target will become an odds-on bet for the near-term. If it is exceeded by more than a few ticks on first contact, that would raise the immediate ceiling to 21.675.

I've reproduced a graph of yesterday's pointless swoon in the E-Mini to show how difficult it would have been to trade the move. Minutes before the opening bell, the futures head-faked above the 3-point range they'd probed tediously for 11 eleven hours; then they took a hellacious, 16-point dive in under 25 minutes. In retrospect, it's clear that there were few bears aboard to profit from the histrionics on display here, only bulls mistakenly loaded to the gills. At the end of the day, the September contract had recouped nearly the entire loss. But the move was so labored that it could not properly be described as a bounce.  Rather, it was more like a slog, so choppy that the canny day trader would have needed to get his or her brain working like a pogo stick to make hay.  As for the subtle hooks we use to get aboard on-the-cheap, camouflage-style, there were none -- not even on the one-minute bar chart. We won't pretend to have any sage advice concerning where this rabid weasel might be headed as the week draws to a close, but you might do better to track it for its entertainment value rather than as a vehicle to day-trade.

AAPL's 7-for-1 split may have broadened investor interest in the stock, but a paradoxical result is that it has killed the wild spasms that Wall Street's thieves, psychopaths, thimble-riggers, bunco men and child molesters use to make indecent money in the market.  Still worse is that the split seems to have saddled the stock with the weight of skepticism that is alien to the institutional mind. Subdued though it be, however, AAPL looks almost certain to fall to the 88.60 target, and to take a tradable bounce from that Hidden Pivot that should be precise within a few cents. Do what you will with that forecast, but if your objective is merely to be entertained you should jot my target down and set an alert. _______ UPDATE (June 26, 9:12 p.m. EDT):  It would take a print at 92.78 to invalidate the 88.60 target given above, but as a practical matter, a mere 91.75 would rob the target of its trading value.

'Deranged' is perhaps the best way to describe yesterday's rally on Wall Street, since it flew in the face of the worst economic news America has had since The Great Financial Crash.  GDP growth for the first quarter was revised downward to negative 2.9%, the most dramatic decline in a non-recessionary quarter since the Guvmint began tracking this statistic in 1949. No less perverse is the steep rise in consumer confidence, even as the retail sector sinks into a funk that has cast a pall on the earnings outlook of Walmart, Target, Kohl's et al.  For our part, we'll continue to do what we've been doing all along: riding the rallies to Hidden Pivot targets, then going short with tight stops when those targets are reached.

We saw a possible shorting opportunity during yesterday morning's tutorial session, but GOOGL quickly disabused us of this bold idea with an upward burst that altogether ignored the sluggish behavior of the broad averages. Will GOOGL now drag every Tom-Dick-and-Harry stock higher for at least another day or two?  Quite possibly, since the market itself, while eking out but a modest gain, showed perverse buoyancy in shrugging off a downward revision of Q1 GDP data that could only be described as catastrophic.  If this forecast proves correct, look for the stock to hit the 592.04 target shown, a Hidden Pivot resistance of minor degree. Accordingly, traders should position from the long side for now, but with the goal of getting short with a generous stop-loss (i.e., 20 cents) when the target is reached. I would suggest doing so via the purchase of July 3 puts at the first strike price where the puts are offered for 1.00 or less. _______ UPDATE (9:18 p.m. EDT): Yesterday's feeble head-fake to 589.60 on the opening diminished the value of the target 592.04 target, but I would encourage you to use the same chart to attempt bottom-fishing at the midpoint pivot or 'd' target of any follow-through leg to the downside Thursday night or Friday morning.