Tuesday, December 2, 2014

Although yesterday's turbulence turned Friday's breezy, precise downtrend into an untradable jitterbug, the 2044.50 target still obtains.  It is also a promising place to try bottom-fishing, with a stop-loss as tight as 2043.75.  You'll be on your own if the order fills, but please note that any slippage below the stop-loss would indicate more weakness to come.

The chart shows Hidden Pivot supports equivalent to the ones I've identified today for the cash DJIA.  This is for purposes of bottom-fishing at either price, or perhaps both, using out-of-the-money call options.  I suggest using four December 12 178 calls if playing for a bounce from the higher pivot (177.19), or 177 calls if from the lower (176.36). The first opportunity would obviously be a non-starter if DIA opens below p=177.19.  We should plan on holding this position, and spreading off calls of a higher strike to create a costless vertical spread, within hours, so be prepared to stop yourself out for a loss of perhaps 0.15-0.20 per call if the trade does not go instantly our way. _______ UPDATE (2:08 p.m.): The pullback went no lower than 177.68, negating our bottom-fishing plans.

It's encouraging that DaBoyz exploited a news headline yesterday -- in this case, the results of Switzerland's negative vote on gold -- to drive bullion down to bargain levels. We'd become so used to distributive rallies that when accumulation on weakness occurs, as it clearly did yesterday, it comes as a pleasant surprise. It's true that the steepness of the rally was due in part to the running of stops beneath some key lows made in mid-November before the futures took off. But that would have accounted for perhaps only $20-$30 of a move that went $80 before showing signs of fatigue. The March contract has pulled back by about $18 so far Monday night, but we should look for a follow-through on Tuesday to carry above the 1236.00 'external' peak shown if bulls are warming up for a sustained surge.

Investors shrugged off weak holiday sales with some half-hearted selling yesterday. We'll know whether they're under any real pressure once we've seen how the Dow interacts with the 17739 midpoint support shown. The blue chip average should go no lower if bulls are about to seize the advantage; otherwise more slippage to at least 17655 would become likely.  An easy move through either of these Hidden Pivots seems unlikely in view of the stock market's resilience on Monday, but if that should occur it would be warning of an imminent pick-up in selling.  Most bullish of all would be an upturn from a low 10 or more points above 17739. If the rally continues, exceeding 17823, expect a new record high to be achieved within hours.