September 2008

We've been using a Hidden Pivot at 82.12 as a rally target, but I'm going to lower that to 81.69 while noting a lesser resistance as well at 80.09. An easy move today through the first would shorten the odds of a finishing stroke to the second. Could the cause of this summer's powerful rally be a short-squeeze? I explored this possibility in a monograph written in 2004. Someone in the chat room exhumed the article from Gold-Eagle.com's archive, and I plan to republish it in the commentary slot later this week.

The Gold Bugs Index is stealing up on a very important support zone that derives not only from a key low at 270.54 recorded in June of 2006, but from a midpoint Hidden Pivot support at 270.59 that is part of the pattern shown in the inset. A breach of the lower number would be ominous on its face, but it could also turn out to be a fake-out. We wouldn't be able to test this hypothesis until the bounce from below 270.54 sputtered out and gave way to renewed weakness. _______ UPDATE: The HUI ripped through the support zone, trading as low as 267.03. This is very bearish on its face, as implied above, but time -- and impulse legs of all degrees -- will tell.

The futures gained altitude overnight and looked bound for a minimum of 11584 at dawn. (A=11040, on Friday). That's a midpoint pivot, and its 'D' sibling lies at 11853. If the lower number were to be exceeded by more than perhaps 5 to 7 points, it would imply that the higher number has become an odds-on bet. _______ UPDATE: The futures topped at exactly 11584, a single tick from the hidden resistance noted above, before dropping 200 points.

Like an inspired jazz musician, today's featured essayist, second-place winner Doug Graham, gives us a cryptic riff in a minor key before cutting loose on the topic 'What Will Save America?' For his effort, Graham will receive a $500 scholarship to the Hidden Pivot seminar. He ranks Energy, Fiscal Policy and Citizenship, in that order, as the key issues that we must tackle. Here's how: What Will Save America? In a word, diet. Or exercise. We likely need both. We are simply out of shape, fat, lazy, misdirected, metaphorically channel-surfing as we listen to one problem and click to the next, content to rest our fat asses while our minds and our mouths blather about disconnected, impotent and ineffective solutions. The next President will waste four years executing plans that will probably be as ineffective as ethanol. When those ideas fail, he will blame the state of the Union on his having inherited a hole dug so deep that even his fantastic ideas could extricate us. He will spin data that will promise success if he can have four more years to execute. Talk about hope springing eternal! Does this sound like diet? No! This sounds like Phen-phen. This sounds like nonsense. This sounds like someone who wants to get in shape but abhors exercise and loves high-fat food. It won't work. One only need watch an hour or so of C-Span, with Congress grilling energy-firm CEOs, or bludgeoning the Fed chairman with inane logic, to appreciate how fat, lazy, and stupid we have become. Americans actually vote for these nincompoops, who entertain us by bringing Animal Farm to life each day on Capitol Hill. Are these guys stupid, or what? An example is our plunge into corn ethanol. There were so many great editorials written two or three years

We hold two January 60 calls purchased on Friday for 2.55. As is our usual practice, we'll try to nail down a partial profit as soon as possible, closing out one of the calls at-the-market on Monday's opening. Officially, we'll simply hold onto the other half of the position. However, if you bought more than two contracts and are qualified to carry a naked-short position, I'll recommend shorting January 65 calls in a 3:2 ratio. If you work the numbers at expiration, you'll see that this modest ratio would yield a profit, or at least no loss, over a very wide range of prices. _______ UPDATE: We'll stick with our plan, since Sunday night's histrionics could help us get top dollar for the call option when stocks open Monday morning. ______ FURTHER UPDATE: We got the worst price of the day for our call -- a reminder of why we should never, ever use market orders on the opening, when rape is an honored custom among the market-makers. Even so, the price was 0.85 more than we paid, and so it will reduce the cost basis of the call we still hold to 1.70. Now, you can offer it to close for 4.30, good-till-canceled.

The futures would have to pop to at least 825.30 today to come off life support, but we could take modest encouragement if they merely exceed a midpoint resistance at 812.60. If settlement is above that number, it would even the odds for a push on Tuesday to 825.30.

Although one can never be certain about such things, it'd be hard to imagine Wall Street arising Monday morning with a song in its heart after parsing the toxic details of the Fannie/Freddie bailout over the weekend. Even so, we shouldn't be surprised to see specialists (aka DaScumballs) take the Mini-Indexes down far enough on Sunday night to exhaust panic selling and set up bears for a nasty short squeeze. My hunch is that the most bearish opening of all would be flat-to-somewhat-higher, since it would suggest that investors are too busy praying to get down to the niggling details of strategy. Compelling targets well below these levels are not evident, so we'll have to make do with an 1184.50 pivot with a lesser pedigree. What it has going for it is that the CD midpoint of the pattern, 1313.25, was very precisely reached on August 15 at the height of the bear rally begun in mid-July. Keep in mind that the scale of the chart shown is weekly, and that the seemingly small drop to the target would be equivalent to more than 500 Dow points. Finally, and just in case, here's a bullish target to guide you if stocks open with a bull trap: 1251.00. That'd be a gift to bears, I should think, so consider shorting there with as tight a stop-loss as you can handle. _______ UPDATE: Well, there you have it. It's Sunday night, around 9:25 p.m. EDT, and DaBoyz are cashing in on the apparent out-of-control enthusiasm of "investors" for the Fannie/Freddie bailout, such as it is. I seriously doubt that the dolts, the logic-impaired and the panic-stricken shorts who have pushed the futures up 33 points so far can muster the 1338.00 print (see inset) it would take to put bulls truly in

If the week begins with a feint higher, there's a midpoint resistance at 11282 where we could attempt shorting with an initial stop-loss as tight as 11291. More bizarre still would be a decisive move past that number, since it would imply additional psychotic action to as high as 11381. I see no downside targets of particular interest, nor would I recommend bottom-fishing them aggressively if I did. _______ UPDATE: Sunday night's thrill circus has pushed the futures w-a-a-y above the higher target given above, so here's a new one to tide us over for today: 11717. Its midpoint sibling at 11566 isn't worth much for trading purposes, since it sits just above the supply zone created by Thursday/Friday's gratuitous chop. If the midpoint is decisively breached, though, consider it fair warning that another 150 points of upside is coming.

Even for those of us living in Colorado, the hurricane season has grown a bit tiresome. But if we can contrive to set the weather forecast aside for a moment, and to assume the Gulf platforms will come through the next tempest more or less unscathed, it looks like oil wants to fall to 97.30 on the next dive. The midpoint sibling of this Hidden Pivot lies at 103.90, so consider the target confirmed if crude appears to loiter near that number. _______ UDPATE (9:37 p.m. EDT): Along with the hurricane, the futures have veered north and are currently trading just off a Sunday night high at 108.91. We'll use a Hidden Pivot resistance at 111.37 as a minimum upside target if the so-far high is eclipsed overnight.