September 2008

Considering the extreme forces driving the markets yesterday, Gold should have been able to do a little better than it did, which was to merely inch above the previous day's high. Well give it another chance today to hit a bullish trigger at 809.60, since buyers may have needed a little more rest to recharge following the 7% rally off last Thursday's low.

A bearish Hidden Pivot at 9.890 beckons, should the futures be unable to climb above 11.670 by mid-week. Alternatively, Silver would be signaling a robust turnaround if it can traverse the range 11.670-12.255 without pausing for breath. That would create a bullish impulse leg on the 180-minute chart, as shown in the inset.

Gingerly, let's try bottom-fishing at 41.66, a minor Hidden Pivot support. With the stock trading at that price or higher, bid 1.48 for two October 42 calls (QQQJP), paying no more. Stop yourself out if the calls subsequently trade under 1.40. If they go in-the-black, offer one to close for 1.72. _______ UPDATE: Cancel the order, since the Cubes have somewhat exceeded the target before the opening bell (and before the options have begun to trade).

The Great American Bailout Burlesque has taken an unexpected turn over the weekend. Here it is mid-day Sunday and no white knight has emerged to take over Lehman Brothers with a little help from the Federal Government. B of A was being floated as a possible suitor, but we doubt that such a ruse would fool even the dolts whose opinions taint CNBC and the nation's op-ed pages.  The only good we could imagine coming from a Bank of America takeover of Lehman is that it might provide the emetic B of A needs to expel the toxic dose of Countrywide that it imbibed a while back. Clearly, this is not the good old days of the S&L bailout. Back then, anyone with a hole in his butt could walk into a Resolution Trust Corp. office and do a $10 million deal with nothing down. The avuncular Bill Seidman was ready to deal, and if the price wasn't right, then dadgummit, he made it right. This time around, the stakes are much higher. Buyers have to at least look like they could ante up $1 billion of spurious collateral in order to keep inquisitive Congressmen at bay, and the publicly traded shares of the company doing the acquiring cannot appear to have gone down the crapper. By our reckoning, Goldman Sachs is about the only firm that could pass muster with central casting. We suspect, however, that Goldman is being detained in the wings so that it can rescue the U.S. Treasury when the time comes. Straight-Men Meanwhile, as the clock ticks toward the opening of global securities markets Sunday night, Paulson and Bernanke are playing it straight, somberly insisting that nothing on earth could induce them to put taxpayer dollars at risk to save Lehman. Talk about closing the barn door after

The Hidden Pivot target at 1195.00, an old friend by now, looks as good as ever. You can bottom-fish there with an 1195.50 bid and a stop-loss as tight as 1193.75, but we'll use 1191.75 ourselves, just in case. That last stop would be much wider than usual because it encompasses an 1192.50 Hidden Pivot support that comes off the weekly chart (A=1442.25, from May 23). The trade is recommended only for those who can handle the risks of a possible fast market, and it will probably work better if executed overnight, since things could get wild at the opening bell. If you're wondering how far this selloff could go if DaBoyz lose control of their normally rigged game, try...1072.25! If you do the math, you'll see that that would put the Dow well below 10,000.

The 10573 target identified here earlier is still valid, but the Dow will have a chance to turn from another as well: 10825. The midpoint sibling of that last number is 11201, but it would appear to have been spent via the collapse of the Mini-Dow futures Sunday night.

So far, last week's trampoline low from within $1 of a well-advertised Hidden Pivot at 738.80 looks pretty encouraging. Most immediately, the $23 thrust off Friday's low has exceeded an internal and an external peak, creating a legit impulse leg on the hourly chart. The move would have been somewhat more impressive if it hadn't required a pause on Friday around mid-morning, but it's possible that buyers are revving up for something really impressive. What we need today, to bring things to a boil, is a follow-through that exceeds peaks #3 and #4 in the accompanying chart. That would require an unpaused thrust of just $20 from the so-far recovery high at 789.50.

We've been using a Hidden Pivot support at 97.30 as a minimum downside target, but the longer-term forecast calls for much lower prices. (For starters, I'd projected a halving of quotes from their $148 highs.) At the moment, the October contract appears to have lost its grip on a midpoint support at 103.72. That will allow it to test conventional support from lows near 96.67 recorded in March, but when that level fails, look for a subsequent plunge to find its way down to at least 85.41.

Merrill Lynch will live to fight another day, having latched onto B of A Sunday night. On the evidence, neither deserves to die, at least not as badly as most other giants in their line of business, and we can only wish them well as they attempt to avoid the vortex still gathering strength in the banking sector. MER shares promise to be a thrill circus on Monday, since quite a few put options traded toward the end of last week. But the large open interest in October puts -- more or less matched in boxed sets at the 17.50 strike -- implies that once the stock settles somewhere below the takeover price ($29) today, it will be under very tight control by DaBoyz.