October 2008

The very bearish target at 926.00 given here earlier is still valid and will remain so unless 1078.00 is exceeded to the upside, but yesterday's wild hysterics make it seem somewhat less compelling. Unless you're capable of following the turns today on a minute-by-minute basis, I'd suggest backing away. Please note that it would take nothing less than a rally to 1096.00(!) to turn the hourly chart unambiguously bullish.

No change. The uptrend has renewed itself once again by pushing past no fewer than two prior peaks on the hourly chart. The futures will have their work cut out for them today because getting past the requisite pair of highs, at least one of them external, will require a push above resistance peaks that have contained Gold since late July. Specifically, a look-to-the-left high at 934.50 (see chart) will be the number to beat for today.

We are offering four Nov 15-20 put spreads for 4.00 that we purchased for 0.35 by legging into them. The position could have been exited yesterday for as much as 3.50, but Citi will probably need to fall below 14.80 to get us filled within the next week or so. We are also naked-short a November 12.50 put @ 1.20 for good measure. It effectively reduces our premium exposure to zero.

At yesterday's pace, we could have this whole bear market over with by election day. Even Bob Prechter's famously dire forecast that the Dow Industrials eventually will trade under a thousand ' a prediction with which we unfortunately agree ' would be satisfied. But what would permabears have to talk about then? Stocks would have nowhere to go but up, and what fun would that be? (Click on chart to enlarge) Actually, bear market bottoms do not necessarily spell better times ahead. Just look at the chart above, of dot com-era high-flier JDS Uniphase. The stock hit a high of $1,227 per share around the time Abby Cohen, Henry Blodgett and other Wall Street pimps and whores would have been predicting it would go to $2,000. The stock in fact fell like a brick, mustering one final, pernicious bear rally in the summer of 2000. The spectacularly false surge would have given CNBC shills the opportunity to fall in love with JDSU all over again. And so, probably, would have we. From a Hidden Pivot perspective, you have to look very closely at the weekly chart to discern that the bear surge did not take out the two external peaks that we require to signal a true bull move. Note to Apple [AAPL] Shareholders That simple technical trick has kept us on the right side of the market in recent weeks, since it allows us to ignore the noise generated by any rally that fails the two-peaks rule. By that measure, even the 600-pointer that began from Monday's low was just another short-squeeze hoax, since the Industrial average did not exceed even one prior peak on the hourly chart, much less the two we require. Speaking of Hidden Pivots, here's a forecast to keep in mind if you've wondering when

The accompanying chart shows a target at 8851 that implies a 596-point plunge is coming. Ordinarily we'd infer that's a bit steep for a day's action, but not now. The midpoint associated with the target lies at 948, and so we shouldn't be surprised if a last-gasp rally overnight or perhaps in the opening minutes of Wednesday's session, tops out near that number. Alternatively, the Dow would have to hit 10562 to convince us that DaBoyz can turn the short-squeeze into a more durable rally. (Note: If the selling accelerates, we should expect it to better yesterday's 508-point decline. For that reason, here's a target to hold in reserve if the Indoos blow through the 8851 target: 8479.)

If the Diamonds fall in lock-step with the cash Dow, look for a tradable bounce from 88.48, exactly. You can try getting long by naked-shorting two October 85 puts, but only if you feel nimble enough to bail out of them if the underlying stock exceeds the target by 20 cents or more. If implied volatilities don't get whacky -- a big "if" in this case -- the puts should be trading for about 4.60. I have not featured this recommendation as a Pick of the Day because it involves the naked sale of options. In my estimation, the strategy is far more likely to produce a profit than buying out-of-the-money calls, but that is not the way the regulators and your broker see it.

The futures have been dancing with our pivots as Astaire with Rogers, so we must infer that the breach Tuesday night of the 984.00 target billboarded in the chat room yesterday will have bearish implications going forward. The new target is 926.00, and because the ES bounce precisely from that target's sibling midpoint, 1002.00, we should expect an equally precise bounce from 926.00. This implies a commensurate decline in the Dow of about 800 points, which would put the blue chip index somewhere between the two targets identified in today's tout. In practice, though, we'll analyze each in a vacuum, since it's possible they won't sync up perfectly. Alternatively, no short squeeze that fails to top 1095.00 today should be taken seriously.

The bull has been renewing itself daily by pushing past two prior peaks with each new thrust. Most immediately, upside to a Hidden Pivot resistance at 906.20, at least, is in prospect, but any higher would imply 918.60. If the futures were to close for two consecutive days above the latter number, they'd become an odds-on shot to reach 1014.70.

We've set a bullish benchmark at 13.085 that would signal the creation of a robust bullish impulse leg on the hourly chart. However, a less ambitious threshold at 12.565, the midpoint pivot of the rally cycle begun in mid-September, would serve nearly as well to tell us when Silver is ready to move. Let us therefore stipulate that a two-day close above the lower number be taken as a sign that Silver's intermediate-term trend has reversed to bullish.