September 2014

We'll monitor this vehicle more closely for low-risk shorting opportunities in the days ahead. Let's warm up with an order to buy four Oct 10 169 puts if and when DIA gets within 0.04 of the 171.10 target shown. I estimate that the puts will be trading for around  0.75 then, but you can refine the bid as warranted by training on the bid/asked when DIA gets to 170.90.  We'll risk a theroretical $80 on this one, stopping ourselves out of the puts if they trade 0.20 below where bought.  ______ UPDATE (2:50 p.m.):  A dead-center bullseye here, since my tout -- sent out last night -- caught the high of today's fake-out rally exactly to-the-tick. If you got short as I'd suggested, please let me know in the chat room and I'll establish tracking guidance. _______ UPDATE (3:44 p.m.): A fill at 0.75 was reported (somewhat belatedly) in the chat room, so I'll now recommend shorting four Oct 10 167 puts for 0.60 against the four held. ______ UPDATE (4:04 p.m.): Some cheap fool was bidding 0.59 for the calls at the close. Let's offer them for 0.68 when they open Wednesday morning, assuming index futures haven't fallen by much overnight. If they have, adjust the offer accordingly.

E-Mini S&P 500 Futures Contract Technical Analysis: Bears blew a chance to sack stocks yesterday when the Bad Guys reversed a 137 point plunge in the early going to close the Dow off a measly 42 points. Recently, it's seemed all too easy for DaBoyz to manipulate the broad averages so that they almost never experience three down days in a row.  One way they do this is to pull their bids overnight and let stocks fall on gaseous volume. The effect is to dry up sellers so that stocks can be short-squeezed to new highs without much effort or bullish buying. However, we should infer that this little trick is getting old when it takes a 137-point drop to set the trap. Moreover, although shorts remain as easy to spook as a sorority girl at a sceance, they weren't so panicky yesterday that stocks were able to close up on the day. One trader who re-shorted the E-Mini S&P yesterday after getting bucked off the horse by Friday's strong rally suggested that the only thing keeping stocks aloft right now is end-of-month portfolio-squaring. This explanation feels right to me, but we won't know for sure until October is under way.  In the meantime, I'd recommend cautious shorting that follows our Hidden Pivot rules. Generally speaking, this means initiating shorts in this vehicle at minor rally targets whenever entry risk can be held to a theoretical five ticks or less.

After Friday's wilding spree, it remains clear that shorts are still their own worst enemy. DaBoyz have manuevered index futures moderately lower Sunday night, suggesting they are trying to prime a Monday morning short squeeze. However, it would seem lately that only marginal new highs are needed on a given day to somewhat exhaust panic buying by bears. If the pattern holds and stocks are lower after the first hour or so, brace for a possible washout.

In this week's commentary I outlined a strategy for shorting JNK by using out-of-the-money put calendar spreads. Although the example I used involved spreading January 35 puts that expire on the 17th day of the month against October 35 puts that expire on the 18th day of the month, we'll look to refine the strategy in the chat room in real time.  There is no great urgency about getting aboard, since this vehicle has been screwing the pooch for years. However, once we initiate the position, we'll roll  it forward using monthly (or perhaps weekly) puts similarly to the way described in the commentary.  At some point during the week, I'll also hold an online session to discuss the trade in greater detail.  Stay tuned to the chat room for further details.  You can receive timely email notifications of these sessions by checking the appropriate box on your 'My Account' page. ______ UPDATE (9:10 p.m.): I held a short webinar yesterday to explain in detail how to initiate the spread described above. Nearly 50 subscribers attended, and I would encourage all of you to put your new knowledge to work at your own pace. To repeat: There is no urgency, even if the junk bond market has come in for some selling lately. If you missed the presentation, I made a recording of it that will be available to all subscribers by no later than mid-day Wednesday. Meanwhile, anyone who fills an order using my strategy should let me know in the chat room so that I can establish a tracking position for your further guidance. I would encourage all to crowd-source the opportunity by comparing notes in the chat room. _______ UPDATE (October 9, 1:12 a.m.): In response to a question asked during yesterday's TLT workshop, I suggested a

The impulsively bullish pattern at the rightmost edge of the chart (see inset) is clear enough. However, DaBoyz were holding their cards close to their vests Sunday night with a very moderate selloff, making any speculation concerning their further intentions haphazard at best. We've seen in recent weeks, however, that shorts are still easily spooked, and it therefore seems likely that the mild weakness on display at the moment is designed to deplete sellers ahead of a Monday-morning goosing.  My suggestion is that we not be tempted to short into it too aggressively if it fails to impress.   Night owls can use the pattern shown to get long, presumably on a chart of even lesser degree. If the bull trade works, a reversal and tightly stopped short at D are encouraged.

Here’s an easy play for those who have never cashed a winning ticket trading put or call options. Specifically, I am going to tell you how to bet on a junk-bond crash without risking your shirt -- even if junk bonds continue to defy gravity indefinitely. First, let me assert that straight-up directional plays with stock options almost never win. Your odds are better trying to predict precisely when a shooting star will flash across the night sky. Similarly, if you buy call options with the expectation that a stock is about to surge, your timing had better be perfect, since the options you’ll be buying will be priced to discount any such event. Indeed, to make money on the calls, the move in the underlying vehicle would need to be so steep as to lie well outside the stock’s historical behavior.  Moreover, as implied above, you would need to initiate the trade just before the rally takes off, since, if you get in early, time decay will sap the value of your calls quickly. And you can forget about getting aboard after the rally has begun, since option prices will be goosed into the stratosphere mere minutes after the stock lurches higher. Our bet on a junk-bond disaster entails calendar-spreading put options on Barclay’s High-Yield Bond ETF (ARCX: JNK). This trading vehicle is shown in the chart above. As you can see, except for a couple of nasty dips that occurred several years ago, JNK hasn’t done much of anything since recovering from the Great Financial Crisis.  In retrospect, the only way an option trader could have made money on price movement this boring is to have sold straddles (i.e., puts and calls in combination) against JNK, and to have presciently refrained from doing so during the killer declines

A chat-room denizen said he was looking for an 'important bottom' in the euro, but the hourly chart shown is not encouraging on that point. Notice that a downtrending ABCD pattern that took nearly a month to play out bounced almost precisely from the 1.2707 target. However, the fact that the rally was weak and lasted only a day before the futures broke to new lows is indicative of a downtrend that very likely has farther to go.  Considering how long it took for the December contract to hit the target, we might have expected the bounce to last for at least 4-6 days. The one-day reaction implies not only that sellers remain unsatiated, but that they are eager to exit despite the extremely oversold condition of the euro.  How might that affect he currency in thw weeks ahead? A trendline on the weekly chart looks more suited to projecting an important low than any Hidden Pivot support I can identify. Connecting up key lows recorded  in June 2010 and July 2012 suggests such a low could occur at around 1.2214, roughly 3.7% below current levels.

In observance of Rosh Hashanah, I will not be in the chat room, nor will I be posting new touts for Friday.  In my absence, Doug 'Harry' McLagan, a certified Zen Master of Hidden Pivotry, has generously consented to share his insights and charts in the chat room, starting Wednesday night. To all who will be celebrating the Days of Awe, and the beginning of the year 5775, let me wish you happiness, good health and serene contentment in the  year ahead.

Energy prices got a lift Wednesday from news that U.S. air strikes had targeted a Syrian oil installation held by ISIS. The refineries that were hit reportedly have been generating revenues of $2 million a day for the terrorist group, so the news was good (even if there was no mention of jihadis left dead by the attack). Whether or not the moderate spike in oil prices will disrupt the mini-bear market in crude remains to be seen. However, using Hidden Pivot analysis, it's possible to project a further move to the shortable 94.77 target shown. If that happens, prices will have advanced nearly 6% from their September lows. It would take just a bit more than that, however -- specifically, a print at 94.93 today or tomorrow -- to turn the daily chart outright bullish. We should not expect a bearish reversal to much alleviate rising prices at the pump, however, since crude's nearly 15% slide from late June's highs had little effect on prices, which in many parts of the country still hover near $3.80 for a gallon of regular. Reports by the slackers, fabulists and indolent hacks who bring us the news - including, unfortunately, a reporter for The Wall Street Journal -- suggested otherwise, almost to the point of saying that gasoline prices had collapsed in recent weeks. Of course, those of us who actually buy gasoline saw prices come down by only a dime or so. _______ UPDATE (September 30, 10:29 a.m. EDT): My target caught today's 94.90 top within 13 cents, and thus the start of a so-far $1.71 plunge.  If you got short as I'd suggested, please let me know in the chat room and I'll establish tracking guidance.