September 2008

If you've been looking for evidence that the beaten-down HUI is on the road back to health, look no further than the daily chart, which shows the creation of a robust new impulse leg on the daily chart. The second stage of the rally would presumably be under way following a booster thrust starting from anywhere within the pullback range 342.49 (already achieved) - 301.34.

Bid 20 cents for 32 March 2.50 puts (GMOP), good till canceled. Our goal is to leg into a put calendar spread that gives us at least 10-to-1 odds on a bankruptcy filing. March puts do not come in for sale in any great quantity, so we'll need to be patient, and probably to pay up just a little bit, to get filled on our order. _______ UPDATE: With the stock currently at 10.45, up a dime, the puts are 0.24 bid, 0.38 asked. If you're able to monitor these options intraday, I'll suggest rattling the market makers' cage by stepping ahead of their bid for half of the puts. Use a bid 2-3 cents higher than whatever is reflected, and leave it in for an hour or two.

I've assumed that the apparent lapse in sanity that has constrained Gold from pushing above $1000 will prove temporary, and that buying the corrections is therefore the proper course to follow. For Monday night, we'll use the midpoint support of the downtrend from Thursday's high, 926.00, bidding 866.30 for a single contract, stop 865.90. Alternatively, if the opportunity should arise, use an 890.80 buy-stop to get long. A print at that price would create a bullish impulse leg of minor degree, as shown in the accompanying chart. You'll be on your own thereafter, but you should use 904.90 a a minimum objective. _______ UPDATE: The buy-stop entry suggested above would have worked perfectly, since, once above the 890.80 trigger point, the futures never returned to it. Exiting at the 904.90 target would have produced a profit of $1,400 per contract overnight. The high so far this morning, as of 9:30 a.m. EDT, is 907.80. If you still hold any contracts, use 921.60 as your minimum target.

If Gold had been up another $100, yesterday's dramatic price action on U.S. and global markets would have felt right as rain. As it stands, Gold rose a relatively modest $50 on subdued speculation that Paulson is actually serious about bailing out every institutional lender on Earth who holds bad U.S. mortgage paper. Under the circumstances, which verge on hyperinflationary, we attribute bullion's relative reticence not only to the usual ignorance, but also to the false optimism fomented by such high-profile demagogues as Kudlow and Suze Orman. Both reach huge audiences, and that could account in some part for the fact that the Dow is still trading above 10000 while bullion remains on the launching pad, belching flames. Not for long, as far as we can surmise from the charts. But don't expect everyone to experience the implied epiphany at the same time. Two years after the stock market crashed in 1929, there evidently were millions of Americans who didn't realize the country was in a Depression. If Kudlow and Suze had been around back then, they'd have stopped bullets for Hoover until employment stabbed climactically above 25%. Can we blame the punditry for thinking the current, totally fabricated, 6.1% jobless figure is nothing to worry about? Last Remnant of Capitalism As Rick's Picks went to press, there were reports that conservatives were going to try and block the mega-bailout, presumably so that a vestigial remnant of capitalism might survive the crisis. But they are jumping in front of a speeding freight train, as far as we can tell, and we'd lay 3-to-2 odds that it is Congressional liberals who will prevail. Actually, we must admit to being somewhat sympathetic toward their designs. Shocked to hear that? Well, for one, the Democrats would rewrite the draconian bankruptcy code, which effectively

The futures spent the whole day working their way down to the 1206.00 target posted yesterday morning in the chat room, ultimately exceeding it by three ticks. It's hard to imagine that Paulson & Friends have another card to play that could trigger off yet one more short squeeze, but we should never count the buggers out. I won't hazard a specific strategy, but night owls should look for conservative opportunities on the 15-minute chart such as the still-gestating pattern shown in the inset.

With perfect knowledge and infinite wisdom, plus a smidgen of psychosis, the market in a single day has repriced Goldman by two-thirds, reflecting its new status, along with JP Morgan, as an officially sanctioned survivor of the 2008 Banking Meltdown. (Will Wells Fargo and Citi also be given the coveted blank checkbook bearing the seal and watermark of the United States Treasury? Stay tuned.) We'd be buyers of Goldman ourselves if it should come down to a midpoint pivot at exactly 100.26. Option premium levels are appropriately surreal, so I'll suggest naked-shorting an October 100 put rather than buying a call. (That's why this trade is not being offered as a Pick of the Day). The puts should be trading for around $13, but whatever you get for it, stop yourself out if the option trades for 0.40 more. The order is good through Wednesday. _______ UPDATE: Cancel the order, since Goldman has headed sharply higher.

Gold bettered our 908.50 target by $7, implying that there is quite a bit more buying power remaining to be spent. The nearest Hidden Pivot resistance lies at 921.60, and although that's somewhat below last Thursday's spike high at 926.00, the futures are likely to get past it once they've taken out the lower number. If they do so and then hold above 921.60 for a second day, I'd infer they are bound for at least 1014.70 over the next 3-5 days.

The rally looks capable of hitting 14.355 today (see chart). If so, that would create a powerful new impulse leg on the daily chart, exceeding a shelf of resistance created in late August. Beyond the pivot lie two price points that we should hold firmly in mind: 15.010, and 16.120. The first, a logical minimum target for the next 3-4 days, would equal a 50% retracement of the collapse from mid-July's highs; the second, a 0.618 retracement.

Resolution Trust Corp II will buy the government some time ' if only to pray ' but there are some powerful reasons why the plan is likely to fail. For one, American investors are not know for their patience, to put it mildly, and they are going to want to see a payoff right away. This is simply not going to happen. For two, investors outside of the U.S. are not nearly as gullible as the dingalings who drove up the Dow Industrials more than 1000 points on Thursday and Friday. The idea of creating a government holding company for toxic mortgage paper may have been sufficient to trigger a powerful short-squeeze on Wall Street, but it will not be nearly enough to entice foreign investors to plow their hard-earned savings into America's broken economy. European and Asian investors are in fact running the other way, and the huge sums that they have loaned us in recent years to sustain the U.S. consumer economy and our government's overspending have suddenly become unavailable. Even worse, the withdrawal of foreign funds is all but certain to accelerate in the coming months because Europe and Asia are themselves beginning to sink into recession. Housing Bust Far from Over Concerning the notoriously impatient U.S. investor, when Monday arrives, the clamor will begin for reassurances that neither Paulson nor Bernanke can provide. For starters, investors (and taxpayers) will want to see home values start to rise, since that is where the catastrophe is rooted and where consumer confidence has failed most egregiously. The problem is, even with home and condo prices already down by as much as 40% in some regions, the worst of the housing bust still lies ahead. The locus of the coming disaster will be New York City, where $2 million studio apartments