October 2008

It's early Sunday evening, and the futures are stealing up on a midpoint resistance at 934.25 after opening higher on a freakishly large gap. Even so, the rally has yet to surpass a single "external" peak on the hourly chart, suggesting that it will sputter out and reverse when the last short seller has been disemboweled and immolated. The rally would need to go another 60 points from current levels, to 991.75, to create an impulse leg on the hourly chart, but merely getting past the 934.25 midpoint would put the futures on course theoretically for a cruise up to 983.50. If they get there, the Dow should be up by around 700 points.

The Mini-Dow is targeted on 9234 if it can get past the midpoint pivot associated with that number, 8768. So far, in quietly hysterical trading Sunday evening, they have been as high as 8680. Like the E-Mini S&P, the Mini-Dow would fall short of creating an impulse leg on the hourly chart even if it reaches the target. The price pattern that points toward 9234, as well as our benchmark for a mildly impulsive move, are shown in the accompanying chart.

Gold was weakly defying the daft strength in stocks Sunday night, promising to inch its way to a Hidden Pivot resistance at 877.00 if it can get by a lesser one at 868.90. This is small stuff, really, but it beats watching bullion quotes fall simply because bears are frightened of the possibility that Euroland may have "rescued" its banks for maybe a week. The rally would become most encouraging on a print today exceeding 906.90.

Like Gold, Silver is creeping higher Sunday night, seemingly too feeble to take on some small resistance peaks created during Friday's sharp slide. The off-session high so far is 10.445, but bulls will need to press on to at least 10.885 to take command of the short-term trend.

The Nov 15-20 put spread could have been exited without difficulty on Friday for as much as 4.30, but assuming you closed out the position at the price specified, it would have yielded a gain of $365 per spread, or a total of $1460. If you simultaneously covered the short Nov 12.50 put near the highs, that would have reduced the gain by about $180, to $1280. I've included a snapshot of the options grid, with O-H-L-C prices for the November series. Concerning the stock, it appeared headed for a minimum 15.27 when the clock ran out last week.

If Big Blue were to get hit hard today, we should be waiting at 121.04 to catch a possible swing low. Bid for two July 120 calls, but stop yourself out if the stock trades lower than 120.89 thereafter. A bid of 4.10 would be about right if the order were to fill today, but you should lower it by a dime if we try this trade again tomorrow. If you use a 4.10 limit order, keep your bulletin launcher switched on, since I may advise raising or lowering the bid, depending on how the options behave. Typically, call volatility increases when a stock falls, so the options could conceivably be trading as high as 4.30. If they were trading for less than 4.10, I would infer that call options in general were in plentiful supply. I've included a snapshot of an option calculator that shows how I estimated a fair value for the calls. UPDATE: IBM went the wrong way, negating our strategy.

Forbes online hit the bullseye with this headline Wednesday afternoon: 'Rate Cut Fails to Scare the Bears'. And why should it have? Is there an investor or speculator on earth who still believes that knocking the fed funds rate down by a measly 50 or 100 basis points will somehow arrest the global financial system's collapse? To make matters worse, yesterday the world's bourses shrugged off the central banks' best punch, falling on a day when coordinated rate cuts in Europe and North America were headline news. The Dow finished off 190 points after being down as much as 260 intraday, suggesting not only that short sellers have become inured to the nostrums of monetary easing, but that investors in general no longer believe that loosening credit will work. Under the circumstances, we might ask, what will the bankers do next? We'd seen this coming and warned subscribers with the following update posted at the web site Tuesday night: 'The coordinated lowering of interest rates around the world is now the 'story' propping up the global financial system. With global easing rumored to be imminent, why, then, did [Tuesday's] short-squeeze on Wall Street fizzle out before the session was 15 minutes old? My guess is that traders decided they couldn't wait even one more day for the easing to start. When it finally does, though, look out below if the all but obligatory buying panic turns flatulent in a mere hour or two. Trust Your Instincts 'My advice is to trust your instincts on this one. Do you personally believe that lowering administered interest rates will touch off a spree of borrowing and lending, reviving the global economy and causing institutional lenders to trust one another? That's what I thought. Then why should we expect traders and speculators around the

The bad news is that HUI has breached an important midpoint pivot at 237.08 on a closing basis, implying it will fall a further 14%, to at least 174.36 (see chart), before finding traction. The good news is that if and when it gets there, we'll be able to bottom-fish aggressively with a tight stop-loss and relatively little risk. I estimate that it will take five to seven trading days for the downtrend to complete itself. The outlook would brighten on a two-day close above 237.08, the midpoint noted above, but in any event we should be prepared to short there, or to lighten long-term positions, since HUI is not likely to blow past it on the first try. ________ UPDATE: The last week's action has trashed the 174 support, putting a target of a larger order of magnitude in play: 134.17. That is now my minimum downside projection, and HUI would need to thrust above 223.51 to put it in doubt.

We're using a Hidden Pivot at 8479 as a minimum downside projection. However, if it's exceeded by more than 15-20 points, that would imply more downside to at least 8162. Since it's a Friday, here's a sequence of three pivots you can use if the formerly mind-blowing target at 8162 fails to contain the selling: 7915, 7744, and 7497. You can assume that if any of these hidden supports is breached by more than 15 points, the next is likely to be reached. _______ UPDATE: The so-far low this morning occurred in a place seemingly beyond Hidden Pivot logic. However, because even the Plunge Protection Team is the unwitting lackey of these pivots, we should infer that more weakness, down to at least 7744, impends.