Tuesday, September 23, 2014

Because we are working bullish plays in this vehicle in real time to tweak our edge, I will provide guidance via posts in the chat room rather than with updates in the tout section. For the latest recommendation, check out my 16:10 post on Monday. It references a potentially useful observation that comes from Steve Saville -- i.e., that trend changes in the Bank Index (see inset) lead inverse changes in TLT by about 2-3 weeks. If that is indeed the case, bullish bets on TLT are warranted now, since BKX on Friday topped within 0.24 of a rally target that has been coming since February. With regard to the TLT spread, we are keying on the 117 strike, but the precise details are divulged in the chat room. _______ UPDATE (9:06 p.m. EDT): Based on explicit instructions I provided in the chat room this morning beginning around 9:40, subscribers were able to buy the Nov 22 / Oct 3 117-strike calendar spread 40 time for 0.80 (or less). For now, do nothing further.    The spread closed @ 1.08, which, in promotional hype, equates to an annualized gain of a zillion percent. _______ UPDATE (September 29, 2 a.m.): Although TLT has risen more quickly than I had anticipated, this won't hurt us. Regardless, I'd suggest holding onto the spread rather than rolling it, at least for a day or two, since the Oct 3 calls we are short will be shedding premium rapidly as the week wears on.  Keep in mind that if the underlying ETF were to rally a full point this week, the Oct 3 calls will still shed their entire, current value of 0.36. _______ UPDATE (September 29, 11:23 a.m.):  TLT has rallied smartly today and is sitting at the 117 strike. This led someone in the

Monday's moderate selloff was refreshing, but can it last?  Keep in mind that, from a psychological standpoint, an essential component of a new bear market is that "no one" have been short, or gotten short, at the top.  That may eventually turn out to have been true -- after all, we did cover some DIA puts, and I exited an S&P short in my personal account on Friday's moderate spike to new record highs. But if that high was The Top, it was certainly lacking in drama. Even so, it would be easy for Mr. Market to quietly ratchet lower in the days ahead, in a way that generates little interest and no panic; and then, out of nowhere, plunge 500 points in a day. There's no second-guessing the bear, but let's note for the record that any guru who called The Top last week is batting 1.000 so far.

Yesterday's price action was unsatisfying from a technical standpoint. The futures fell relatively quickly to a Hidden Pivot target at 1984.50 that I had identified in the chat room. Although they subsequently exceeded it by two points, there was no follow-through to the next at 1978.25 (which will remain viable, and potentially tradable, for night owls). This suggests that shorts are as nervous as ever, and evidently uncomforted by the ominous divergences that have cropped up in such key technical indicators as the NYSE Advance/Decline Line and the Highs/Lows summation. All we can do from a trading standpoint is play it by the book. Most immediately, this means bottom-fishing at 1978.25 (a two-tick stop-loss is recommended).  If a bear market is in its preening stage, we should begin to see corroborating signs immediately, to wit: 1) downtrending ABC patterns should start overshooting their D targets in patterns of all degree; and, 2) abc rallies should start failing to reach their D targets.  Whatever happens, we'll be watching carefully for signs of a pick-up in selling.