Tuesday, August 19, 2014

When our initial short using an old rally target at 34.50 got stopped out yesterday, we tried shorting again at 34.74 and got in a penny off the top (using the price reported by a chat-roomer who did the trade).  I suggested taking a partial profit on the pullback that ensued, and so I'll impute the paper gain to the cost basis of the 200 shares that remain. This leaves us short two round lots at, effectively, 34.91. For now, use a break-even stop-loss. ______ UPDATE (9:12 p.m.): The short-squeeze got airborne yesterday when the stock gapped open at 35.10, stopping out our position for a nominal loss of $19 per round lot.  And now, we'll gladly give this stock's take-no-prisoners rampage wide berth.

Having neatly fulfilled our 19.655 downside target, September Silver looks primed for another leg down. My target is 19.165 (see inset), and you shouldn't hesitate to bottom-fish there was a stop-loss as tight as a few ticks.  You can trade the target more aggressively if you've been short on the way down, but it's not going to be easy to jump on the downtrend because it has been attracting its share of new fans since late July. Alternatively, a camo-style buy signal would be tripped on a small rally exceeding the 19.760 'external peak that I've labeled.

The Diamonds took a manic leap on the opening, then slithered higher for a couple more hours before reaching a 168.02 Hidden Pivot rally target that has kept us properly bullish for the last week or so.  Subscribers reported buying August 29 167 puts as I'd instructed. Accordingly, I've established a tracking position of four puts @ 0.82 for your further guidance.  They are to be tied to a 0.57 stop-loss, which would imply a theoretical loss of 0.25 per contract if the stop is hit.  If that should occur, my hunch is that this vehicle will go on to test the old high 300 points above.  The puts traded yesterday as low as 0.70 even though DIA went no higher than 168.12 intraday, but they'll have to 'come home' today or else, since the combination of time decay and just a little more upside will sap their value quickly.  Alternatively, if things do go our way, I've suggested shorting August 165 puts for what we paid for the 167s: 0.82. The execution of either order will cancel the other. ______ UPDATE (9:16 p.m. EDT): Traders exited the put position on a 0.57 stop, taking a $100 hit. We'll back away for now while DIA flirts in headless-chicken fashion with the old record high.

The Industrial Average finished on the high of the day, at 16839, having completed a very precise 0.618 retracement of the steep decline that occurred between late July and August 8. I said we'd try to get short there if and when that Fibonacci level was reached, and so we did.  The trade is detailed in my DIA update elsewhere in the Touts section. Suffice it to say, the very tight stop-loss I advised has not left much room for error. Nor should we, since we don't pretend to have a crystal ball, nor can anyone predict with certainty that the Dow will not eventually reach 100,000. The apparent cause of the rally was diagnosed brilliantly by David Stockman in an essay titled 'It's Jackson Hole, Stupid!'  This think-piece should be a must-read for investors, since it explains the herd mentality right now as well as anything I've come across.