You had to marvel at the muted, insidious perfection of yesterday’s expiration-day dirge – a jazz funeral of sorts for near-the-money November puts and calls. Rick’s Picks subscribers needed just a small rally in IBM to make our November 95 calls pay off at 4-to-1, but the stock’s canny handlers would have none of it. Big Blue shares instead contrived to flatline for nearly the entire day, with most of the snooze-fest occurring within a 25-cent band and virtually all of it a dollar below the strike price we had bet would get blown to smithereens. 

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Traders are wont to ascribe such deathly price action as we saw yesterday to a perfidious, all-seeing “They,” a cabal of malefactors who limo home to Rye and Short Hills each day, chortling over their success at having maneuvered yet one more expiration day to their certain advantage. But there really is no Mr. Market, only ourselves, to blame. To paraphrase Pogo’s famous response to Porky, “…we have met the enemy and he is us.”

Indeed, a coma-inducing expiration day like the one that just occurred tells us only that most traders must have been expecting the opposite – that is, either a violent short-squeeze or a collapse commensurate with the scary, ongoing implosion of the U.S. economy. We had bet it both ways, straddling IBM calls with some January QQQ puts. The latter may come in handy, as I’ve already mentioned here, and you don’t have to be a wild-eyed speculator to believe that a portfolio these days should not be without at least a small inventory of put options on a stock or index that could conceivably fall apart someday.

A Day of Reckoning

It seems all but certain not only that this will occur, but that it will occur with such stunning speed as to preclude anyone not prepared for it the day before from making any money on the move. Our friend Tom Tankka, a stellar technician who is too busy trading to care about whether his name is a household word, would seem to agree. He recently wrote me as follows:

“A while back, I remember you talking about a scenario in which the market goes down huge in a single day -- and not let anyone sell.  Well, more and more I'm starting to believe that. What’s happening is the market won’t pull back, so no one can find a lower-risk entry. So, over time and price they are being forced in. The shorts are another story, but it is gonna get to a point where news will come one day and stocks will open down 200-300 and then continue, causing a panic with doggy-door proportions -- i.e., a meltdown -- and I have no idea from what level. The hedgies won't be able to get out basically."

A Gold Bug's Take

While we’re featuring the wit and wisdom of the Friends of Rick’s Picks, let’s give “Curly,” a former CBOE trader, his due. A regular in the chat room, he wants you to know that he has been preparing for a possible squall in the precious metals sector: “There is a glimmer of hope still left at this point,” he writes. “Looking at the precious-metal mining stocks that I follow and analyze on a daily basis, there is only one that has thus far confirmed a reversal to the downside – Grey Wolf (GW).

“GLD (the ETF) also has confirmed a reversal to the downside; spot silver has not. A New York close under 12.00 for spot silver would confirm silver’s reversal to a downtrend. I see major support for GLD at about $57.80. “there should be a  bounce of some sort from there, but if 57.80 does not hold, there is no more support until around  53.52  -- and the ultimate target is around 49.20.

“[Friday’ action] will give a further indication of what is in store. I am not saying that this is not a major decline -- I'm only saying that until GLD decisively breaches 57.82  [it didn’t even come close; the recent low was 61.28, and the stock ended the week at 61.73] and many more stocks plus Silver confirm a reversal of their patterns on their point-and-figure charts, that there is hope for the bulls.

"I really enjoy the chat room and interplay there. Congrats and laurels to ya!”  And thank you, Curly, for sharing your illuminating thoughts with Rick’s Picks readers.

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Seminar in Oz

There are still seats left for the Hidden Pivot seminar scheduled in Sydney, Australia, on  December 2-3.  You can  request a registration form and further details by clicking here.