October 2008

The futures eased lower after the regular session, but buyers galloped to the rescue shortly before midnight, putting a so-far mild squeeze on shorts. The rally would become impulsive on the hourly chart with a 1023.25 print, which would also invalidate all of the downside targets given here earlier: 969.75, 962.75, 951.00, and 918.75. Night owls could try getting long on a "hidden breakout" at 1012.00. I am introducing this term to describe a thrust that takes out two prior peaks (or lows) without surpassing a more obvious one. In this case, the obscure peak-let we are using to signal the breakout is visible on the 3-minute chart and occurred on the way down Tuesday at 1:48 p.m. It is shown in the accompanying chart. _______ UPDATE: Still nuttier than a fruitcake, the futures dove overnight after wafting no higher than 1008.50. They seem to understand what the pundits do not -- i.e., that this morning's devastating retail numbers actually mean something, whereas the alleged bank-system "rescue" does not. If you want predictability in this vehicle, I'd suggest hunkering down on the 3-minute chart and pretending your babysitting it. The very slight breach, at 9:42 a.m., of a midpoint support at 969.75 hints of more downside today to as low as 928.25. This ugly scenario would be invalidated, however, by a rally that exceeds 1011.50, the point 'C' of the pattern. _______ FURTHER UPDATE The futures fell 40 points, bottoming so far at 926.25 -- two points from where predicted. They are currently at 944.75, a tradable 18 points off the low. (Note to pivoteers: The Sept 18-19 rally provides a well-settled B-C pairing for calculating downside targets. You need only work backward on the daily chart to find successive points 'A' as each new 'D' is obliterated. Right now,

The December contract has been skating on thin ice, picking up support from multiple bottoms made over the last month between 820 and 830. This has not invalidated a by-now ancient rally target at 1014.70, but it wouldn't take much -- i.e., a dip below 822.50 -- to do the job. To turn the intraday charts speculatively bullish today would require nothing less than a thrust exceeding 906.90. Otherwise, the 806.50 target given here yesterday still looks like the best place to put in a stink bid.

If Citi can close above 20.48 for two straight days, I'd infer it's capable of getting to at least 23.61 in this manic burst. That would represent a near-doubling of the stock's price since it bottomed last Friday. Let's try to cautiously leg on a calendar spread, bidding 0.57 for eight December 25 calls (CLE), good on the opening only. If the order doesn't fill, lower the bid to 0.41 and leave it in for the rest of the day. UPDATE: Our bid on the opening allowed us to participate in the wholesale rape of retail customers who'd placed orders to sell at-the-market. We are the proud owners of eight December 25 calls for 0.43, the so-far low of the day. Now let's try to reduce our cost basis, offering four October 20 calls (CJD) short for 0.39, day order.

We could try bottom-fishing on a pullback to 25.73, but GDX is not likely to be so obliging. My suggestion is to tune to the chat room, since there are other ways to get aboard, including buying a bullish breakout before it is noticed by chartists who use other methods. Call options in this vehicle are in the stratosphere, so I would caution against simply jumping on them at random. ______ UPDATE: GDX has gotten whacked for nearly 8% today and looks primed to fall to at least 24.74 over the near term. We should be ready to attempt tightly stopped bottom-fishing if and when it gets there. My worst-case forecast for the next 3-5 days is 21.93.

CNBC and the pundits will likely have had awfully much to say about yesterday's monster rally, so we'll cut to the chase, limiting our commentary to one word: silly. Were we to take our analysis a step deeper, we'd add one more word: scary. That said, we'll stand aside if bulls truly want to buy the Dow up to 10000 this week. Ever eager to trade 'em up, we might be willing to go along for the ride ourselves for another few hundred points, were we certain there will be no tomorrow; for that would mean there would be no corporate earnings to deal with over the next six to twelve months. But there almost certainly will be, and that is why we'd prefer to watch this rally climax, then detumesce, from the sidelines. We put out a forecast Sunday night that said the Dow would be up at least 700 points. Having been proven wrong ' having, in fact, seen our surreal forecast steam-rollered -- it's time to let the bulls have their fun. (Click on chart to see just how silly) Let's move on to the more important concerns about Gold raised in yesterday's commentary. We said that a possible risk to bullion hoarders is that its price could soar, then collapse, too quickly to act upon. Imagine gold going to $5000 an ounce, then back down to $100, in a matter of days ' or even hours. We said the odds of such an occurrence were not remote, but let's be blunt about it: It really could happen. And the burden of proof should rest not with the supposed whack-jobs on this issue, but with those who would assert that the dollar's inevitable fall will occur in a rational, measured way. This is poppycock, for one reason:

The 877.00 rally target given here yesterday unfortunately was accurate, the futures having gone no higher intraday than 875.00. Is that all for now? We'll reserve judgment, on the chance that the December contract will pop above 876.40 today. That would create a mildly encouraging impulse leg on the lesser charts (see inset). Otherwise, on weakness we should look to buy down around 806.50, a midpoint pivot that comes from the weekly chart. (A=999.40, July 18).

This vehicle appears to be popular in the chat room, so let's put it in play. It has been flouncing around a very important midpoint Hidden Pivot support at 26.48, but because that number comes from the weekly chart, we should allow for the so-far 1.80 overshoot. That would be bearish if it had occurred in a chart of lesser degree, but on the 'weekly' it could conceivably come to mediate a consolidation range that is relevant to the long-term trend. Regardless, we shouldn't simply jump in and buy call options willy-nilly; instead, let's use the 806.50 target in December Comex Gold to get long. If and when the future trade within $2 (or so) of that price, bid for four December 29 calls (GBJLC). The spread on these calls is absurd -- 0.75 on Monday's closing marks -- so don't even think about paying the offer; wait for the calls to come to the bid, or perhaps step in front of the bid by 0.05 or 0.10. And don't worry if you miss the trade, since I'll be featuring this vehicle more often in the days and weeks to come. _______ UPDATE: Shelve the order for the time being, since GDX is too strong today for lazy buying. We may have to chase it, which implies buying at the midpoint of a minor c-d correction.

It's shortly before midnight in the East, and the futures remain in Romper Room mode, up as much as 33 points at their peak, 1050.00. The print at that number created a very real impulse leg on the intraday charts, so short sellers shouldn't look for respite early in the session if at all. Pullbacks have been too shallow for a Hidden Pivot handhold, but if you put a gun to my head and said, "Predict!" I'd probably tell you, "1072.00, at least," and run like hell. _______ UPDATE: Today's short-squeeze was much less freakish than yesterday's, pushing the Dow to a relatively modest, 400-point gain in the opening minutes of the day. The E-Mini S&P made it as high as 1067.00 -- the apex a 55-point rally that fell five points shy of our target.

Since I may have doomed Apple a week ago with a target in the mid-$70s, it would hardly be sporting to ignore this rally. It looks bound for a minimum 115.91, but a close above that Hidden Pivot would hint of more bear-baiting to as high as 122.02. It is at that pivot that we should try to get short; however, this trade would not be for beginners, since naked-shorting some fat-n-juicy November 125 calls (APVKE) would be the way to go. They could be trading for anywhere between $11-$12 when the stock gets to 122, so you'll have to monitor the bids and offers for the call as the target is approached to know exactly how to offer them. _______ UPDATE: Apple peaked a tad above the first target, then dove. We'll have more chances to short it, though, since the stock's rally off its recent, grossly oversold lows looks like just a warm-up on the weekly chart.