The silliness has quite a ways to go before our DJIA target at 13045 is reached, but yesterday’s show of exuberance will surely have earned the bulls the benefit of the doubt, if not the heart-felt respect of bears, for the time being. By way of earlier Rick’s Picks recommendations, we’d been riding call options in two high-beta performers – Merrill Lynch and Citigroup – but yesterday seemed like a good time to take some profits. In the case of MER, we exited the last of our position in October 80 calls outright, intending to jump back in on a pullback. This was not to be, however, since the stock’s biggest pullback of the day was just 57 cents – barely enough to cause the call options to soften much. In fact, calls were so hard to buy on the bid  intraday that it seems obvious in retrospect that the market was destined to move higher.

In Citi, we were long December 50 calls coming in but used the rally to turn the position into a calendar spread, shorting October 50 calls 1:1. We did so when the calls were trading 50 cents above the previous day’s close, but they went still higher, peaking at 1.50 before settling at 1.45. The adjustment to our position will lock in the December 50 –October 50 call calendar spread for 0.80, at which price it will be very hard for us to lose. The adjustment also implicitly erases earlier losses we had imputed to our December 50 calls, which we carried at 2.10.  When we shorted the October calls against them yesterday, we were not exactly shooting in the dark, since the sale was predicated on a rally in the underlying stock precisely to a hidden Pivot target at 50.95. As it happened, Citi rallied to exactly 50.97, two cents above our target, then sold off for the next hour.

No Ordinary Day

Ordinarily, we might have expected Citi to consolidate for the remainder of the day, since the 50.95 target in Hidden Pivot terms was not exactly chopped liver. However, the stock was banging up against the pivot by day’s end and managed to push as high as 51.06 by the final bell. Now, the next target above is 51.14 – a minor affair that is shortable for those who are just scalping. But where we would recommend training one's firepower – reversing longs and going short, that is – is at a significantly more important Hidden Pivot at 52.94. Another, only slightly less significant, at 52.13 could prove to be a rally-stopper as well and is therefore my minimum upside objective for the near term.

If you’re a lurker and perhaps skeptical of these numbers, or still worse believe that the movement of stocks is random, I would urge you to check out a chart this evening so that you might see for yourself whether Citi has paid much attention to the targets given above (assuming the bulls have not paused for a day). Science it ain’t, but I would venture that you’ll be surprised at how very precise a forecasting tool tea leaves can be. 

***

Free Hidden Pivot Calculator

The Hidden Pivot seminar in New York City is sold out, but there are still some seats left at the three others that are planned: Vancouver (October 28-29); San Francisco (November 11-12); and Sydney, Australia (December 2-3).  You can  request a registration form and further details by clicking here.  And, if you act now, there is still a chance to claim a free Hidden-Pivot calculator and one of our snazzy Rick’s Picks combed-cotton polo shirts in your choice of colors.