Monday, August 4, 2014

The Hidden Pivot target that I disseminated in the chat room a few minutes after Friday's opening bell nicely anticipated the tradable top of a fake-out, bull-trap rally that began the day (see inset). The result was a successful 'jackpot' bet that turned put options purchased for as little as $33 each into $550 winners.  If you are among those who did the trade and still hold a position (by way of a roll), please let me know in the chat room and I'll establish a tracking position for your further guidance.

Subscribers should be long a round lot (or multiple thereof) with a profit-adjusted cost basis of 37.25. The position remains from an original  400 shares.  We are also short an August 16 call at the 41 strike that has a cost basis of 2.55, the result of a covered write advised on Friday.  For now, do nothing further. _______ UPDATE (August 12, 12:11 a.m. EDT):  Since my outlook for gold futures is bullish, I'll suggest covering the call on any weakness. Use a 1.55 bid on the opening, adjusting as appropriate thereafter if the order has not been filled. ______ UPDATE (August 13, 9:16 p.m.): Hello??  The options didn't even trade. I am still advising that they be covered when GDXJ is on the downslope, a condition which obtained throughout most of yesterday's session. With just two days remaining before the calls expire, you should pay no more in time premium than whatever the 41-strike puts are selling for (i.e., around 0.15). ______ UPDATE (August 16): The short call could have been covered on the opening for 0.35. Imputing the gain thereof to our 100-share position has effectively lowered its cost basis to 35.85. No further action is necessary at this time.

Although I've given gold bulls a tentative green light to trade the rally begun on Friday, the chart of this stock looks less auspicious. Bulls and bears are in 'dueling' mode on  the hourly chart, but bears held a small edge as the week ended. My target is the 25.13 Hidden Pivot shown, but SLW can be traded from either side of the market as long as it conntinues to oscillate near the downtrend's midpoint pivot at 26.04.  The 'camouflage' technique will be needed in any case to reduce risk, and so I'll suggest doing your hunting on the 5-minute chart of less if you're looking to initiate a trade.

Friday's upturn came from a 1281.00 low that was well above the worst-case bottom at 1274.50 that I'd projected.  This is incipiently bullish, the moreso because the rally was impulsive on the hourly chart. It would have been still more encouraging if it had surpassed the 1298.80 peak shown as well, but bulls certainly deserve the benefit of the doubt for now.  Night owls can bet on a follow-through, but it may not be easy, since the initial thrust will have attracted more attention than we should like.  Other traders could affect the next move in several foreseeable ways: 1) by gapping higher Sunday night so that there's little opportunity to get aboard; or, 2) by ratcheting lower to create a series of point 'C' lows that  bamboozle and vex bulls by stopping them out before the next leg up. The first scenario would  hold the more bullish implication going forward, but a slow takeoff should not be construed as meaning that bulls are not raring to go.

The selloff from July 24's all-time high has now exceeded three important prior lows on the daily chart without an upward correction. For sure, it is a powerful impulse leg in the making, but we won't be able to determine how powerful until we've seen how the futures behave after they've rallied and begun to fall anew. The most bullish scenario of all would be if the snap-back rally achieves new record highs without any significant pullbacks along the way. Conversely, if the rally falls shy of the July 24 top and the subsequent fall exceeds both its 'p' midpoint pivot and 'D target, that would shorten the odds that we've entered a bear market. Strictly speaking, there is no predicting at this point which of these scenarios will obtain. From a trading standpoint, however, we should be alert to the onset of the next rally, since it's likely to be a doozy.  As I noted here earlier, increased volatility and the wild swings that create it are paradoxically more precisely predictable using the Hidden Pivot Method than are wafting rallies and tedious sideways corrections. We await such opportunities as this may provide. More immediately, if the futures continue lower, use the 1903.75 target shown as a minimum downside objective.  Night owls can short a retracement rally to p=1918.00 with a tight stop, assuming the futures have already dipped below it by at least 3-4 points. [Late breaking note: They didn't.] You could also bottom-fish the D target with a stop-loss as tight as three ticks. Alternatively, if buyers prevail as the new week begins, they should be taken seriously -- as in, new highs are quite possible --  once the futures have moved above 1939.00.

The one investment opportunity I regard as an absolute no-brainer also happens to be potentially among the most lucrative. How lucrative? Gains of up to 40% over the next 12 months are possible. More on that below. But before I divulge some further details, let me mention that this particular asset class has yielded well in excess of 20% in five of the last six years. You might think that such a terrific opportunity would have been discovered by now. In fact, the opposite is true. This particular investment has either been shunned or ignored by the crowd, mainly because it disdains the popular wisdom that Fed stimulus already in the pipeline is certain to produce serious inflation somewhere down the road. Have you guessed what investable asset I’m talking about? The answer is long-term Treasury bonds – the longer-term, the better (explained below) -- and the reason they have performed so well is not hard to fathom if you simply jettison the mistaken notion that inflation is inevitable.  I owe a debt of thanks for this insight to my good friend Doug Behnfield, a Boulder, Colorado-based financial advisor and fellow deflationist whose forte is building robust portfolios for high-net-worth individuals.  I have featured Doug’s thoughts here many times over the years, mainly because he is, hands-down, the smartest investor I know.  He is also one of the smartest guys I know, and his life outside the office reflects the same sort of Zen balance that he brings to portfolio management.  Doug is a consummate do-it-yourselfer, an avid hobbyist and a perfectionist -- as adept at landscaping a garden as restoring old Citroens or taking the helm of a sail-powered yacht. Beating the Geniuses Like all highly successful investors, Doug has the courage of his convictions and the fortitude to