Guard Against
Phony Gurus
For edition of May 18, 2006I could just about puke every time I get a promotional teaser in the mail from some guru bragging about his last Big Score. The put-and-call svengalis are the worst of the bunch -- and I would know, having traded options myself for more than 30 years, twelve of them on the floor of the Pacific Exchange. I always double-check the hype, and here is what I have determined: There is not a single option guru in America – at least none of the dozens of whom I am aware -- who even comes close to living up to his promotional claims. You snake-oil peddlers know who you are – and by all means, please do correct me if I’ve got it wrong.
That’s why I don’t make any claims for myself – no P&L figures, now drawdown stats, no Sharpe ratios. Once you get started, it’s like entering politics: You turn into a lying bastard the day you’re elected. And besides, what does a guru’s theoretical success have to do with the performance of his subscribers? Not much, usually. Take it from Jesse Livermore: “No sir, nobody can make big money on what someone else tells him to do. I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.”
My Deep Dark Secret
My deep dark secret is that I am a lousy trader, so obsessed with avoiding risk that I will bail out of a trade, or not initiate one, if it exceeds my rule-based limits by mere pennies. But my forecasts are something else, for sure – as accurate, I will warrant, as any you can find – and that is why I often joke in
Those who read my “free” content at Web sites other than my own would have only a vague notion about the unusual accuracy of my forecasts. I did publish a “hula” number for June Gold that came pretty close to nailing the recent top, but usually I disseminate my proprietary hidden-pivot swing points only to paying subscribers. For instance, five days ago, just before the Dow Industrials began its so-far 500-point plunge, I told bears to stick by their guns in an essay titled “Plunge Team vs. Godzilla.” Referring to the chart above, I wrote as follows:
“On the other hand, dwell for a moment if you will on the elongated price bar highlighted in the chart above. You can see for yourself that it sure as hell looks like the start of something. Angel Falls, perhaps? Don’t think you’re just imagining it, either. Any investor or trader with the patience and gumption to be holding a whole lots of puts right now should stick to his guns. This market is s-o-o-o ripe for a fall that, this time around, perhaps it will be the Plunge Protection Team that feels the testicle-numbing jolt of the cattle prod.”
Nothing Vague About 11666
While this warning would not have distinguished me from scores of other advisors who have been calling for a top, on the inside pages of Rick’s Picks there was at that same time a very precise number for subscribers to hold firmly in mind: 11666 – less than five points from where the actual top occurred. A subscriber wrote to remind me of this during yesterday’s weekly Q&A session. Like me, he couldn’t bring himself to pull the trigger when 11666 was reached. But at least we both know that the precise location of the Dow’s recent high was “know-able” and manifestly not happenstance.
So that those of you who are not paying subscribers can better judge for yourselves whether my advice might benefit you, I proffer below a rare look at the contents of an inside page. These are the partial fruits of a single Q&A session (held online each and every Wednesday morning) as well as the “Current Touts” section of Wednesday’s newsletter. As you can see, the essay that I disseminate to other Web sites is just a small part of what is offered to subscribers.
Here it is, the first -- and probably the last -- time I will reproduce the real-time content of
CURRENT TOUTS
$ = Actionable advice
+ = Open position
Updates for Wednesday, May 17 2006
$
His bullish tout from the gut nothwithstanding, JetBlue’s stochastic vital signs look quite enticing. Accordingly, I’ll recommend bidding 0.35 for eight September 12.50 calls (JGQIV), with 0.05 of discretion. My plan is to eventually spread off our risk by shorting 12.50-strike calls of a nearer month if and when the stock moves higher.
I can’t predict how a spike in call buying this morning from Rick’s Picks subscribers will affect the very thin option spreads, but you shouldn’t assume that the market makers will be wildly eager to hit our from-out-of-nowhere bids on the opening. Most probably, they will be puzzled but extra cautious. For this reason, I’d urge a patient approach -- or perhaps buying the stock itself if the options should get bid up too high at the opening bell. They are quite pricey enough already, and, personally, I would rather forego the opportunity than pay significantly more than Wednesday’s closing option prices if the stock is unchanged.
Update 10:52 a.m. EST: We’ll have to go about it another way. YUM gapped sharply lower on the opening, pushing the June 50 puts well out of reach. Cancel the bid for now.
$ Intraday Trading Notes
05/17/2006 14:48:10 July Crude (Oil) (71.70) Tanner Joy is "looking for a spot to go long July crude oil. Please address this after 12 noon, once the herky, jerky stuff is out of the way from the inventory numbers." Wish I’d gotten to this one earlier, Tanner, since July Oil’s tradable bounce just moments ago came off a precise hidden-pivot support at 71.50. It is what I refer to as a "midpoint" pivot, exactly half way between point C and the projected D target. These pivots tend to work best the first time they are hit, so I wouldn’t try buying there if a second chance should materialize. However, if July Crude falls anew, breaching the low at 71.50, you could try bottom-fishing at the D target shown in the chart.
05/17/2006 14:33:40 $ Suncor Energy (SU) (78.00) "Your 11666 pivot for the Dow Industrials turned out to be almost dead on. [Note: The actual high on the Dow, before it began to fall -- so far, nearly 500 points -- was 11670. I recommended shorting 11666 with a tight stop-loss. RA]
"I missed the move but was impressed by your accuracy. I tend more towards the long side, but that would have been a great short sale. Anyway, I’m interested in going long Suncor Energy. It’s been good to me in the past. Any promising hidden pivots below 80?"
There’s a promising hidden-pivot support at 75.47 that you might bottom-fish with a ten-cent stop-loss. Any lower, though, and Suncor would be signaling possible, additional downside to as low as 69.95.
05/17/2006 14:05:31 Autumn Pivot-Seminar (EDU) From Don Dix: "I am a new subscriber but a long-time reader, both from 321gold and your prior engagement at a trading school. I WILL BE ATTENDING your next Hidden Pivot Seminar no matter where you hold it. I have watched your work with fascination and would love the opportunity to be your student. Recent events are now allowing me to focus full time on trading. So, September gets my vote, and the sooner the better. I am very glad you are holding another one."
The New York seminar will definitely happen, and only the exact time and place remain to be determined. To keep the tuition cost down it may be held in North Jersey rather than in Manhattan. However, the Times Square Marriott is still a possibility, since I’ve been to meetings there myself and had a great time.
I much enjoyed the two seminars that I’ve conducted so far and am gratified by the very positive feedback I’ve received from my students. It was my goal to "give away the store," and I don’t mind sharing my hidden-pivot "secrets" with the few more of you who are seriously interested in mastering the discipline. However, after this autumn’s session, it is unlikely that I’ll hold another in the East for a long time. So if you’re thinking about coming, you should reserve your spot as soon as possible. At this time, an e-mail message to me will suffice.
05/17/2006 13:49:36 Goldcorp (GG) (32.23) "I’ve been a member for a few weeks now," writes Cyndi Stewart, "and I’ve been impressed with your guidance on gold. I did very well on June calls -- thanks! Speaking of gold, I’ve been in Goldcorp since September and Northgate Minerals since January. Luckily, I took your advice and sold half of my positions last week. Do you have any thoughts regarding where it will be safe to start reaccumulating these 24-karat stocks? ps: I’m Looking forward to your NYC seminar!"
Try 31.27 (my minimum downside projection at the moment), stop 31.14 in Goldcorp, but please note that the stock could fall all the way to 28.19 if the support is breached. I’ll make this one an official recommendation, based on 200 shares. As for Northgate, 3.66 is my current downside target, but 3.26 if any lower.
05/17/2006 13:35:42 $ Apex Silver Mines (SIL) (14.77) Here’s one from Rory Persaud, who’s been with us for quite a while: "I was a subscriber since your Black Box Forecasts days, and had I followed most of your advice I would have been 100% better off making money. I act on impulse when trading a habit that I am trying to break." Don’t beat up on yourself, Rory. If it’s any consolation, I’d be about 70% better off myself if I’d followed my advice.
"Great call on Apex Silver Mines back in January. I entered around 14.70 and exited around 22.70. Now what is your take again on this stock? With nationalization of mines in Bolivia where do you see to bottom fish? Keep up the good work. I entered JBLU today I only trade stock.
First, let me metion that I’ve been too busy with today’s Q&A to improvise a chase tactic for JetBlue, which is starting to run away from our bid for call options. In any event, I’m glad to hear that you’re on board via the stock, and I hope that other subscibers are as well. If you tell me at what price, I’ll institute a 400-share tracking position for your further guidance.
Regarding Apex Silver, there’s a very distinctive hidden-pivot support at 13.99 where you could try bottom-fishing. I’d suggest a 14.01 bid and a stop-loss no wider than 13.89. Because the pivot looks so promising, I’ll make this an official recommendation, for 400 shares. Please note, however, that a decisive breach of the pivot would portend further slippage to as low as 9.74.
05/17/2006 13:09:28 5 $ eBay Inc. (EBAY) (29.52) From Rod Beary: "Just a question: If eBay is "toast," why did you not recommend shorting it? Would it be a good idea to buy some puts in eBay?" I typically initiate trades at swing points, Rod, and my preference would be to short eBay when it rallies to a short-term peak, not when it is in the throes of collapse as it is now.
In theory, short-able peaks can be found all day long on the one- and five-minute charts, and they occur even when a stock is falling hard. In practice, though, I cannot monitor dozens of stocks closely enough to get us aboard on the basis of signals that occur in the one- and five-minute time frames. My compromise is to wait for more significant swings – countertrend moves that typically occur over days rather than hours.
In the case of eBay, there should be plenty of time to get on board for the ride into hell, since my projection calls for a drop from $30 to $20 over the long term. Since my next relatively minor downside target is 27.91, I’ll probably wait for a bounce from that number to get short. I may even get long there so that I can built up a cushion for the short that presumably will follow.
There is yet another hidden-pivot support at 28.75, and it represents another opportune spot to try bottom-fishing. I am often so certain of these swing points that I feel perfectly comfortable going long against the trend even in stocks for which I have predicted disaster. But make no mistake, some Rick’s Picks subscribers who use my numbers more aggressively and imaginatively than I, and who trade solely with the trend, will make far more profit on eBay’s continuing decline than I am likely to.
05/17/2006 12:39:04 Cutting One’s Losses Khurram Hameed, a recent subscriber from Dubai, asks how he can learn to reduce his losses. That’s an easy one, Khurram. While it can take years for a trader to achieve consistent profitability, learning some good tricks to limit losses can be learned in under an hour. It all comes down to managing risk at the time of entry via a fixed stop-loss, and during the trade, via partial profit-taking and trailing stops. But the key for me is to never pass up an opportunity to take at least a small profit early in a trade. If and when you do, you’ll find that it will greatly enhance your timing and confidence as the trade progresses.
If you have ever had a position go against you, you know that the fear of getting socked with a loss can make you do exactly the wrong thing. Sometimes when we are in a state of mild panic, it seems as though our ability to bail out at exactly the wrong time is almost supernatural. But take just a small profit on a trade early on, and you’ll often find that exactly the opposite becomes true -- that you are in step with a stock’s basic rhythms as Fred Astaire is with Ginger Rogers’.
That said, I must confess that one of my main weaknesses as a trader is my obsessive concern with risk. I like to play it exactly by-the-book, but sometimes it would be better to give more rein to my instincts. The success of any trader ultimately depends on striking a comfortable and propitious balance between the two. It helps to understand that even the most successful traders are bound to suffer losses now and then. The key psychological trick is to be able to see those losses as integral to the process of winning.
05/17/2006 12:12:20 Pivot for June Gold (689.50) I’ve received numerous additional questions concerning June Gold: from Joachim Brandt, Jim Fritschler, Jason Tsai et al. Joachim’s concerns are typical: "If I understood correctly, June gold unfortunately didn’t hit your 667 target and bounced at 675, but what a nice bounce. I am at a crossroads on whether the correction was enough, though, and have the feeling that a larger correction is still due to the lower 600’s. But I don’t want to miss the next train like I did by trying to wait for 515 when it dipped to 530."
As noted in my response to Tom Gall (see below), the 667.10 downside target has been invalidated, but the new target is actually slightly higher. If you are worried about missing the next rally because Gold will turn higher without having reached the new correction target, 668.50, the first hint of this would come today on a print at 706.60. That number will change from day to day, or even from hour to hour, but I will keep you apprised if this occurs. A 706.50 print would create a bullish impulse leg on the 30-minute chart by surpassing two prior peaks. For the impulse leg to be valid, the rally through both peaks would have to occur without a pause of more than a single corrective bar (see chart).
05/17/2006 11:49:18 Novagold Resources (12.87) And here’s a question concerning Novagold from Koen Deckers of Belgium: "I’ve only been a subscriber for about a week after reading your commentary on 321gold for quite some time. I wanted to ask you about Novagold (I know you commented last week, before the correction in gold and gold shares, that you were out of hidden pivots). I have been building a position in the stock, buying weakness for over two years and looking to add more shares."
I wouldn’t rush. Koen. Novagold is in a rather steep fall, and bearishly divergent stochastic indicators for the weekly chart are likely to become fully oversold before the correction has run its course. At the moment, they are only just approaching "midfield" after hitting overbought extremes starting last November.
There are as yet no hidden-pivot supports where I can suggest bottom-fishing, but my hunch is that NG will at least test the 11.72 low made in early March before it finds traction. It could slip lower still in the process of bottoming -- perhaps even to 11.00 -- but you should start nibbling at the higher number for purposes of cost-averaging a rebuilt position. My worst-case number is 10.50, equivalent to a 0.618 correction of the rallly cycle begun last August from 6.77.
05/17/2006 11:32:13 June Gold (689.00) Tom Gall wants my opinion on gold: "Always read your market comments, but I am new as far as being a paying customer. What do you see for gold? It never got down to your buy pivot. Are you long-term bullish?"
Although I avoid hyping fantastic (though not inconceivable) price targets, such as $10,000 an ounce, I think that at $700/ounce gold’s bull market has barely gotten rolling. If you own any exploration stocks that have languished on days when the price of bullion has shot up, then you know what I’m talking about. Neither gold nor mining stocks have yet caught the public’s fancy, even if physical metal has been attracting steady buying from all over the world, from both individuals and sovereign entities.
The implication is that the wicked volatility of the last few days is a consolidation rather than a distribution. From a hidden-pivot perspective, this is all to the good, since I’d run out of upside targets on the longer-term charts. June Gold has come down to as low as 675.50, but keep in mind that it could fall all the way to 613.40 -- a 0.618 retracement of the rally begun in early March from $540 -- and still look like the very picture of good health.
FYI, the breach this morning of a relatively minor hidden-pivot support at 694.20 implies that the June contract could pull back to as low as 668.50 before this violent correction is spent. If this happens by the end of the week, I would be a very aggressive buyer at those levels -- with the usual, very tight stop-loss, of course. Please note as well that the downside target, and hence the correction, would be aborted by a rally exceeding 721.60. If that is what is about to occur, then we should expect the futures to oscillate wildly for the next couple of days with 694.20 as a more or less precise midpoint.
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Hidden-Pivot Seminar
A subscriber has offered to produce a Hidden Pivot Seminar in the New York City area for those of you who were unable to attend my course in Colorado a while back. If you’re seriously interested in learning how to predict important swing points, often with two-decimal accuracy, please
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick’s Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick’s Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved.
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