Wednesday, August 6, 2014

Sellers turned timid late in the day Tuesday just when it looked as though they were going to bury the stock market with an avalanche. My hunch is that some Hidden Pivot targets well below yesterday's bottom will be reached this week nonetheless (see today's E-Mini S&P tout for some useful details). But bears could get pushed back -- and get  pushed around --  if they are unable to make much headway to the downside in the opening hour.

We hold the September 21/August 8 calendar spread at the 118 strike for, effectively,  0.34 after rolling the short side of the position from August 1 calls to August 8 calls last week. We will continue to roll the spread forward each Thursday/Friday to further reduce the cost of the September 21 calls that we'll continue to hold.  I am going to establish another, similar spread using November calls for the long side of our position, so stay tuned.  We are betting, essentially, that the 4% GDP growth claimed for Q2 is a brazen lie; and that, far from recovering strongly, the U.S. economy is actually slipping into recession. _______ UPDATE (August 8, 11:47 a.m. EDT):  The short side of the spread has been rolled to August 16 for around 0.10, according to reports in the chat room. This has further reduced our cost basis to 0.24 for sixteen September 21/August 16 calendar spreads.  The cherry on top is that TLT has turned around and started to move higher, playing to our strength. It is exactly what we had ancitipated, and it will make it increasingly lucrative for us when we short the front week every Thursday/Friday. Over time, we will hold the September calls effectively for a credit, so that if they are selling for, say, 1.10 a week or two before they expire, that will be all profit for us. Any credits we've added by way of selling 'weeklies' would be added to the 1.10. The spread is currently trading for around 0.80, implying a paper profit of $800 or so.  That is just a start, as you will see.

Subscribers still hold 16 Aug 16 1340/50/60 butterfly spreads with a cost basis of zero, since we were unable to unload them at our price when the stock took a maniacal leap to 1307 on Monday.  Yesterday's selloff was a setback for the spread, and the stock will need to rebound sharply this week to fatten our position for an easy sale at 2.00 or more.  Even so, we can comfortably hold it till expiration, since no loss is possible.  As you can see, the bounce off yesterday's low occurred almost precisely at the midpoint pivot of the large, bullish pattern we are playing. This is an encouraging sign, but if the stock needs to test the low for a couple more days, it would greatly lengthen the odds of a payoff. _______ UPDATE (10:50 p.m.):  Although price action has been distributive, I wouldn't give up on the butterfly, since our bet is on the kind of wildly insane, out-of-the-blue behavior that energizes the stock so much of the time. _______ UPDATE (August 7, 9:01): The stock went nicely against the trend yesterday, but it won't be able to buck a second consecutive down day in the broad averages.  At this point, our butterfly is a market bet, so keep your fingers crossed for a big rally out-of-the-blue. ______ UPDATE (August 11, 12:01 a.m. ): There'll be no problem holding the position down-to-the-wire if need be, since it was acquired by subscribers at zero cost.  The intraday charts yield a rally target at 1338.62 most immediately, so it will take a very powerful burst -- one capable of blowing past this Hidden Pivot -- to give our spread a decent shot at finishing in-the-money.  Stranger things have happened, so stick with it. _______ UPDATE (August 13, 2:32 a.m.): Exit the

Bulls pulled out of a tailspin on Tuesday, but I doubt they'll be able to muster enough lift to avoid falling to the 1902.75 midpoint Hidden Pivot support shown (see inset). I'd suggested bottom-fishing there in the chat room, and although that play is still a 'go', high caution is advised, since the futures will fall to at least 1868.25 if the selling picks up steam.  Night owls should look to get short on a breach of 'p', and any profits earned thereof can be used to widen the stop-loss if you go bottom-fishing at 1868.25.  A three-tick stop is suggested, but you can widen it to suit your style.