For reasons detailed in today’s E-Mini S&P tout, I expect Friday Follies to be relatively subdued. My bias is slightly bearish in this vehicle, although the easiest trade of the day could come from the long side, based on a very subtle idiosyncrasy that I’ve flagged on the 30-minute chart.
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Rick Ackerman
If IBM heads south over the next week, the 196.54 midpoint pivot shown could prove to be not only a good place for us to bottom-fish aggressively, but to gauge whether the bull-market high at 215.90 record in mid-March is likely to be an important one. There is much to like about the corrective pattern, and that is why we should trust price action at ‘p’ to tell us something of value.
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With market volatility on the upswing, I’ve established tracking positions for three issues: JNJ, GLD and DIA. Existing touts have been updated as well, and taken together they lend weight to speculation that yesterday’s selloff could be the start of something more significant. Even if the market reverses sharply today, it will have trouble taking back the gains reported by subscribers yesterday on puts purchased at yesterday’s top.
As for gold and silver, I can promise you that we will not miss the turn if there’s a bull market a-borning. This will require speculative buying whenever opportunity presents itself on the lesser charts. The camouflage’ trading technique makes it theoretically possible for us to do this again and again without fear. But we cannot know for certain that we’ve bought the bottom until a trade has produced a very substantial gain.
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Based on a 155.30 rally target disseminated here on May 6, we bought four June 152 puts yesterday for 1.00 with DIA topping at 155.14. Since I advised closing out two of them for 1.14 intraday, we are left with a profit-adjusted position of two puts whose cost basis has been reduced to 0.86. Now, offer an additional put on the opening and hold the remaining put as a lottery ticket. ______ UPDATE (12:25 p.m. EDT): The puts opened for 2.30, so the sale of one more would leave you with a single put whose costs basis, adjusted for gain so far, is a 1.44 CREDIT. Thus, a profit of $144 is the worst this trade can do no matter what happens to DIA. For now, do nothing futher.
The climax of yesterday’s bullish stampede exceeded an in-our-wildest-dreams target by 56 cents (see inset), but when the dust had settled, short positions initiated by subscribers near an 89.43 Hidden Pivot were well in-the-black. For tracking purposes I’ll use 24 May 87.50 weekly puts that two subscribers reported buying for 0.11 in the chat room. They had tripled in price by the close, and so half should have been exited at some point along the way. However, since I made no explicit suggestion that you do so, I’ll assume none were sold and recommend that you close out half at-the-market on the opening. Of the 12 that would remain, offer six for 0.50 and hold the rest for a potential home run on Friday, when the puts are due to expire. The 0.50 offer to close should be entered before Thursday’s opening, since traders could conceivably exit a total of 18 puts at that price or higher on a gap-down at the bell. ________ UPDATE (12:18 p.m. EDT): The puts opened at 0.50, so you would have reaped $900 on the sale of 18. Since their total cost was $264, there is a theoretical profit of $636 so far. You can sell the rest at will either today or tomorrow. Their cost basis is now zero, so whatever you receive for them would be added as profit to the $636. _______ UPDATE (May 24, 11:46 a.m. EDT): The puts peaked today — expiration day — at 1.00, so you could have come away from the trade with a profit of as much as $1181. In guru promotion-speak, this equates to an annualized gain of six zillion percent.
Yesterday’s trade in this vehicle had not been offered as a tout, but a timely question in the chat room helped us identify an opportunity to pick up some cheap call options intraday. Here is what I wrote in the chat room: “The Auggie 160 market is 0.22/0/26, so 0.24 is the right price with GLD at 132.88. So, if GLD falls to our 131.83 target, the Auggie 160s should sell for about a nickel less (they have a delta value of about 0.04). So let’s bid 0.21 (an extra penny for good measure) for 28 of them., stop 0.18. We’ll worry about what to spread against them later.” Although the intraday low at 130.95 exceeded our target, the result was that subscribers were able to buy August 160 calls for 0.21, a penny off the intraday low.
This position is highly speculative, since there are two very bearish targets outstanding, but it has the potential to pay off at about 60-to-1. With a three-cent stop-loss on the calls, we’ve limited our theoretical risk to about $84. However, I’m now going to suggest giving the position a little more room by lowering the stop to 0.16. At the same time, and on a one-order-cancels-the-other (OCO) basis, I’ll suggest offering 28 August 163 calls short for 0.30 against those we hold. If the order fills we’ll own a virtually riskless position that can make us as much as $8400 if Gold rallies strongly between now and late August.
200-Point Dow Rebound Looked Gutless
by Rick Ackerman on May 24, 2013 7:06 am GMT · 11 comments
Yesterday’s rally recouped a 200-point overnight selloff in the Dow, but because it was unpersuasive from a technical standpoint, we expect the week to end on a whimper at best. At worst, the selling could carry into next week, and if it persist so that shares fall on a Tuesday – something that has not occurred in more than four months – then we would view that as further evidence that Wednesday’s high was an important one. Regarding “weak technicals,” notice in the chart below how buyers of DJIA index futures failed to surpass even a single important peak on the hourly chart after devoting an entire night and day to the task. From our perspective this is telling, since, according to our Hidden Pivot Method of analysis, rallies destined for greatness, or even just goodness, must exceed a new peak on the hourly chart with each new thrust. Not this time, though, and that’s why we would classify yesterday’s rebound – all 200 points of it – as a bust. » Read the full article