ARCHIVED COMMENTARY
For All You
Lurkers...
For edition of July 28, 2005
The fact that my newsletter once came free to about 6,000 subscribers hasn’t stopped at least a few of them from complaining constantly about how awful it was. “Go back to kindergarten and learn how to write,” admonished one. “And while you’re at it, try learning how to read a stock chart.” A frustrated trader, perhaps? You can never be sure, although some of these guys are about as subtle as the Unabomber. As you know, the forecasts in Rick’s Picks are no longer free, but even so, I still get uncivil letters occasionally from lurkers who have tuned – obsessively, I would gather – to the more generalized comments that I disseminate each day to other Web sites. Paid subscribers will attest that my specific forecasts are more than marginally above dart-board accuracy, but those who have never viewed the insider pages seem to think my whole reason for being is to see a once-headlined $477 forecast for gold pan out. And it will, although not nearly so soon, apparently, as I’d predicted.
To better acquaint non-paying readers with the contents of Rick’s Picks, I have reproduced below the items that came up for discussion during yesterday’s Q&A session. This is a weekly event, usually lasting several hours, that is geared toward providing coverage of subscribers’ favorite stocks, commodities, indexes and options. It is also designed to increase the scope and profitability of the service, since it brings to my attention tradable issues that I would not ordinarily look at and which often cry out for technical coverage. Here, then, is Wednesday’s fare, posted in real time alongside my regular forecasts and recommendations for such favorite trading vehicles as the mini-S&P, -Nasdaq, -Dow, oil, gold, bonds and bellwether stocks. Where charts were included, I have reproduced them as well. A $ sign means there is actionable advice; a ‘+’ sign, an open position.
(Click on charts to enlarge)
07/27/2005 16:12:37 6
$ Royal Dutch Petroleum (60.74): "My question concerns Royal Dutch Petroleum," writes Tom M., a new subscriber. "Using the May 13 low and the July 6 high, it looks as though it has reached a significant Fibonacci retracement value. There is also some recent support at the current level. What would your analysis indicate for possible long entry?"
The 0.618 line lies at 60.54, just 26 cents above today's low (see chart above), so RD is indeed at a crucial juncture. I should also mention that there is a hidden-pivot support at 60.49 from which I might have predicted today's bounce. But its breach, albeit by just 21 cents, is significant enough from a hidden-pivot standpoint to imply that still lower prices lie ahead. If so, here are four hidden-pivot targets you can use to bottom-fish: 60.02, 59.48, 58.79 and 57.25. These are all nicely defined swing points, so a stop-loss as narrow as 3 cents can be used at each. As always, the breach of a pivot by more than 2-3 cents would imply that the next will be reached.
For purposes of bottom-fishing, the one at 60.02 would be my favorite, but for the fact that it coincides with whole-number support that could interfere with the hidden-pivot effect. My next choice would be 57.25, the worst-case low and a very likely place for RD to begin a strong countertrend.
07/27/2005 14:58:47 5
+ Google Inc. (296.88): "Your current opinion on Google, please! The stock fell as low as 292.40 today!"
Relax and let time decay do its job. The stock is testing what looks to be good support just below $290, but there is nothing we can or should do at the moment. We remain long the September 320-August 320 calendar spread four times for $340.
Incidentally, just after we did the spread, I had considered recommending that you naked-short one August 340 call -- they were trading around $5 then -- for each calendar spread you were long. With a target of $326, it seemed most improbable to me that this call would ever turn menacing. However, I decided against this because, as a rule, I never recommend naked short positions because they are subject to onerous customer margins.
Be that as it may, the tactic of naked-selling puts and calls quite often is not nearly as risky as your broker would have you infer, and in some instances it can be far less risky than buying options. I would be interested to hear back from you on this, since I am willing and eager to provide you with naked-short strategies if enough of you are able to use them. Doing so would increase both our flexibility and our odds.
07/27/2005 14:39:21 4
$ + Sirius Satellite Radio (6.96): Dale D. is looking for a good place to add to a position in Sirius Satellite Radio. This is a long-term play for us, and we currently hold 500 shares with a cost basis that has been reduced by timely profit-taking to 5.40. I've alerted you to the prospect of further profit-taking at 7.57, an important hidden-pivot resistance, but I'm inclined to add to it only on weakness that brings the stock down to a hidden-pivot support. Assuming SIRI doesn't exceed its recent high of 7.01 first, this would mean bidding 6.60 for -- let's say 300 shares, stop 6.49, and let's make that official for tracking purposes. If the stop is hit, though, it would imply further slippage to as low as 6.19. We'd be buyers down there as well, probably with a much more generous stop-loss, since Sirius should be bought on any significant dip.
07/27/2005 13:38:28 3
$ September Australian Dollar (0.7526): Our old friend John B. has been looking for a good place to short the Australian Dollar. (See chart, above) . I tackle that one down below, but since his latest message is chock-full of side-notes concerning other commodities that may be of interest to more than a few of you, I am reprinting it in full. John writes as follows:
"Who's not making money!? Surely not anyone who took your advice for September copper. It topped temporarily two ticks above your 116.40 pivot, then dropped 3.90 before bouncing. I'm not sure what stops, and trailing stops, you would recommend for copper, but the potential for a gain of $750 to $800 per contract was there. You also caught a temporary bottom in December Corn.
Rick, I think we should stay in hot pursuit of copper. All the other base metals (nickel, zinc, lead and aluminum) have come down considerably from their highs. While copper continues to defy gravity, this can be explained by the fact that it is a speculative darling of the hedge funds. But when these guys all head for the exits it won't be pretty. My persistence is just as strong for the Australian dollar. The revaluation by the Chinese has not altered my US$ bullishness for the rest of the year, or at least until our Fedhead changes policy. Which won't happen until the stock and commodity markets spit the bit.
That said, your Aus$ pivot at 0.7614 was exceeded via a knee-jerk reaction to the Chinese revaluation. I came up with another pivot at 0.7686, but the rally stopped at 0.7665. So my official query for today is, where to from here? For the record I'm short one contract at 0.7515, another at 0.7615. Thanks again for your continued coverage of the dollar, T-bonds, and mini-Nasdaq. Your advice on these issues is extremely helpful and carries over to more than just those indices.
Thanks for your comments, John, and for keeping score on some commodities that do not appear here regularly. Concerning the Australian dollar, the key pivot lies at 0.7449, basis September. That is not far below today's so-far low, 0.7507, but I think it will be reached before the Aus$ can turn around. This implies that, rather than being an enticing short at these levels, the futures should be bought -- with a tight stop, of course -- at somewhat lower prices. The 0.7449 target also provides an empirical basis for calculating a trailing stop for your short position. Your average price was 7565, so you stood to gain 116 points if the futures reached 0.7449. Assuming a risk:reward ratio that is to be held constant at 1:2.5, you should have been using a trailing stop of about 23 points when the September Aus$ was bottoming this morning at 0.7507. This would have stopped you out at 0.7530, which is about where the futures are trading at this moment.
Stochastic influences are currently negative and could prove helpful to your short position, but if you want to play it by-the-book and not take chances, I'd suggest exiting here. I would further suggest that to re-short this vehicle, you initiate a long-position at 0.7449, using a 0.7539 stop-loss. If you are able to do so, any profits from the presumably short-lived long position could be used to give yourself a generous stop-loss when you next attempt to get short, presumably at a hidden-pivot resistance.
07/27/2005 12:32:08 2
$ Silver Standard Resources (11.69): The "Bean Doctor" has asked for my thoughts on Silver Standard Resources. The stock is trading about where it was when we last looked in May. However, its relatively minor slippage shortly thereafter created a nasty, bearish impulse leg that has yet to play out. The impulse leg violated three prior lows, which I've labeled in the accompanying chart, and the implication is that SSRI could fall to as low as 8.00 before it finds a good bottom. My minimum downside target is 10.42, a midpoint pivot that can be bottom-fished aggressively with a 10.29 stop. Please note, however, that a two-day close beneath the pivot would greatly increase the odds that 8.00 will eventually be reached.
07/27/2005 12:06:00 1
September Soybeans (682-00): From Roger H: "Any pivots on either side of the current price for September Soybeans please?" Right now, there are no pivots I can discern that have implications for swing or position traders keen on holding risk to a minimum, Roger. The September contract is buttressed by a robust impulse leg created in June, when the futures slightly exceeded an early peak recorded almost exactly a year earlier. Even so, price action since then suggests the current consolidation may have weeks or even months to run, and that lower prices are possible in the meantime. Worst case would be 636.0, a hidden pivot where I'd be an aggressive buyer.
