November 2014

Although I typically warn against “trying this yourself” when I put out option trades, there are some simple tricks that anyone can learn that can mitigate or prevent costly errors. In this lesson, we paused to look at the put-and-call grid in conjunction with a stock trade under consideration. How much should one pay for a certain option with the underlying stock at a given price? There are easier ways to answer this question than you might have imagined.

Happy Thanksgiving to you all!  I'll be spending the afternoon with my in-laws, shooting pool and watching 49ers v. Seahawks on the biggest TV screen that could conceivably fit on a basement wall. The normal routine will obtain on Wednesday, including the weekly tutorial session at noon. If there's any activity in the chat room on Friday, I'll hang with you for a while and possibly hold an 'impromptu' session that will help us hit the ground running next week.

The analysis presented elsewhere on this page for the Dollar Index is very bullish, but is it corroborated by an equally bearish picture in the euro? The answer is yes, as can be inferred from the ponderous look of the long-term chart (see inset).  How far could the euro fall? In the chat room Tuesday, I broached the possibility that it could eventually go to parity with the dollar, a level not seen since 2002. Strictly speaking however, and based on the long-term chart, I can forecast no worse that 1.08. That would represent a 13% fall from current levels and a 32% decline from the all-time high of 1.60 achieved in 2008. That number is a Hidden Pivot support, and although a bounce there would be likely, there are no guarantees that the euro would not take yet another leg down. Bottom line: euro/dollar parity is possible, but even if it is not achieved the euro still has much farther to fall.

I remain very bullish on the dollar and expect it to achieve the 90.00 target shown by early 2015. However, it is clearly winded after the steep run-up since July, resulting in more frequent consolidations to develop thrust for each successive new high. Another factor contributing to the rally's timidity of late is the implied resistance of two key peaks made, respectively, at 88.71 (June 2010) and 89.62 (March 2009).  A true bull-market breakout will require a push past these peaks, and although that outcome seems likely, it could take a while. However, if DXY were to effortlessly power past the peaks within the next 4-6 weeks, it would imply there's still enormous power in reserve to drive the bull market significantly higher. _______ UPDATE (December 9, 7:48 p.m.): DXY has sold off sharply after topping on Monday at 89.55, just a hair below the March 2009 peak. This was to be expected, but once the correction has run its course I expect the dollar to continue its bullish rampage. We'll be better able to time the reversal when we've seen the downtrend interact with some minor Hidden Pivot supports. The first of them are shown in the chart, and they lie, respectively, at 88.23 and 87.67. If the uptrend is ready to resume, this correction should reverse from the higher number. If, on the other hand, buyers need more rest, we should see the lower number exceeded within the next day or two. _______ UPDATE (December 10, 6:01 p.m.): Surprise, surprise. Yesterday's selloff came to rest a penny off the 88.23 pivot flagged above. Now, a decisive breach, if it comes, would portend more downside to at least 87.67.

Even for a holiday-shortened week, Monday's activity was pretty feeble. Absent any earth-shaking news, look for the dirge to continue as the week wears on. Night owls may want to check out my update for the E-Mini S&Ps nonetheless, since the new chart shows a potentially tradable scenario that carries theoretical risk of just three ticks.

Yesterday's sleep-inducing dirge changed nothing in the technical picture. A 1232.00 rally target will remain valid as long as the futures don't dip below 1173.90 first. The target would become an odds-on bet if and when this vehicle pushes decisively past the midpoint resistance at 1203.00. Traders can use the 'camouflage" technique to get long at any time, but a mechanical opportunity to do so could present itself with a push into the range 1210-1220 followed by a pullback to the 1203.00 pivot. Stay tuned to the chat room if this scenario develops, since I may be able to provide explicit instructions at that time.

AAPL has been on a rampage since April, gaining hundreds of billions of dollars in valuation with a run-up of more than 60%.  How long can a stock that is already the most valuable in the world continue to rise vertically?  Probably not forever, it can be safely inferred. It's not as though Apple has no competitors. Indeed, the day is probably not far off when Chinese manufacturers are churning out smart phones that will do just about everything an iPhone can do, but for one tenth the price. Samsung is having troubles of its own coping with brutal competition in mobile devices -- but then again, the company does not enjoy Apple's cult status, nor the kind of caché among customers that has inspired some of them to have the Apple logo tattooed on their butts. From a technical standpoint the stock is closing on a very compelling target at 125.87 that comes from the weekly chart (see inset). I expect this Hidden Pivot to show stopping power that will be compounded by the 126.87 target of a lesser rally pattern that is clearly discernible on the hourly chart. The implied $7+ rally is reason enough to try to get long here if you are not already on board. However, it is also reason to take profits, do covered writes against stock held in a portfolio; or more aggressively, to reverse long positions and get short. In any case, I'll use the 126.37 midpoint of the targeted range as my minimum upside objective for the near term, to serve you in any way that suits your goals.

It's early Monday morning, and index futures look like they're already slipping into a trance ahead of the Thanksgiving holiday. If there's significant movement either way this week, seasonality favors the upside. While it's doubtful there would be enough of it to get the S&Ps to my current rally target, we shouldn't be surprised if there's at least a sneaky attempt on non-existent volume.

The chart shown has implications that may or may not prevent Japan from getting sucked into a deflationary black hole. However, the chart is quite clear on the question of whether BOJ will be successful in its longstanding goal of trashing the yen. (Answer: Yes, very.) The small rally in early October from around 0.9001 validates the pattern itself, and the decisive progress beneath that level since implies that the D target at 0.7332 is likely to be reached. This will obviously benefit Japanese exporters, but it will also put more pressure on manufacturers in the U.S. and elsewhere that compete with them. Traders should position from the short side until the target is reached, but be alert for a rally back up to the red line, since that would set up a 'mechanical' short to the target using a 0.9418 stop-loss. That's far more than we would ordinarily risk, but you could cut it down to size by using the 'camouflage' technique. When appropriate, ask in the chat room if you're uncertain about how to do this. ______ UPDATE (December 9, 8:03 p.m.): I've switched to the March contract with an intraday chart (see inset) that shows a robust rally beginning from above an 0.8183 correction target. Although there are outstanding targets well below these levels on the longer-term charts, we should pay heed to any rally that begins as this one has. While it's true that the rally failed to clear the external peak at 0.8493 recorded on December 1 -- a mild sign of timidity -- we'll give buyers more time to see if they can summon some real gumption. _______ UPDATE (December 10, 6:09 p.m.): The slight penetration of a midpoint resistance at 0.8476 suggests that this dead-cat rally will continue to at least 0.8613. _______