November 2008

We haven't traded this vehicle much, but a Hidden Pivot support at 57.62 looks like easy pickings. This trade's for crude oil aficionados only, and it comes with the caveat that even the loveliest targets in this vehicle need just a little more leeway than we typically give the E-Mini S&Ps and the E-Mini Dow. About 15-20 cents on the stop-loss would be about right, but you'll be on your own if the order fills. _______ UPDATE: Although crude took a 44-cent bounce from 57.36, that would not have been quite enough to justify a long from the target low, 57.62. That's assuming you used the minimum 27-cent stop-loss implicitly required to hold onto the position. Bottom line, you could have experienced anything from a break-even trade (if you'd raised the initial stop-loss on the rally to 57.80) to a loss of around $220. FYI, the breach of the pivot implies that weakness is now likely to continue to at least 53.71.

If you view each and every rally as a short-squeeze, the stock-market begins to make sense. We should assume there are no bulls out there, only bears trying to avoid getting impaled by the next thousand-point thrust-from-nowhere. No such threat was evident Sunday night and in the wee hours Monday morning. That’s typically when some of the canniest predators in the game stress-test traders who went home Friday either too long or too short. This past weekend, however, unless you bet on the Eagles, there was little news to cause remorse �' certainly not the kind of news that the Sunday night sleazeballs use to stampede short sellers. And so, by the time stocks opened Monday morning, the 200-point rally had detumesced by about a third. (Click on chart to enlarge) For our part, we had recommended shorting some November QQQ calls against Decembers already owned. However, call premiums in the Cubes were so heavy at the bell that we decided to bail out of the initial position rather than dig ourselves in deeper. As we noted at the time via an early-morning bulletin, “the option markets were not ‘buying’ the feeble, phony short-squeeze that [had begun] the day. With the Dow up nearly 200 points, out-of-the-money calls barely budged.” Anyone who has traded options will know that puts and calls are usually pretty smart when it comes to reading the market’s mood. Thus, if call options that you are trying to sell fail to get excited when the week begins with a 200-point rally, as occurred on Monday, you should take it as a sign that whatever excitement seems to exist in the broad averages has been ginned up by a bunch of dirtballs keen on unloading their unwanted inventory on widows and pensioners. The Price of Tuition For

A crucial test awaits not far below, at 887.50. That's an important midpoint support, and it can serve as our minimum downside objective for the near term. If it is breached decisively -- say, on a closing basis for for two consecutive days -- I'd infer more weakness over the near term to as low as 766.50. If that were to occur, the Dow would be trading around 7600.

If stocks are about to fall apart as projected in today's E-Mini S&P tout, this vehicle could plunge to 25.95 in a hurry. Let's make a small speculative bet by buying two January 27 puts (QAVMA). Enter a 1.35 bid to begin the day, and a 1.22 bid for two more, but stay tuned to the bulletin launcher, and check back ten minutes before stocks open, since I may modify these prices if it looks like we can do better. _______ UPDATE: The selloff that began the day did not allow for lazy put bids -- nor did a short-squeeze in the afternoon, even if it brought the January 27s within a dime of our bid. We'll try again later.

Dueling impulse legs on the hourly chart suggest that this vehicle intends to flagellate bulls and bears alike for yet a while longer. I expect the eventual breakout to be to the upside, but in order for that to happen as early as today, DXY would need to print 86.51.

The selloff from yesterday's highs was brutal, but the day must be viewed as net positive for gold, since the most robust portion of the rally surpassed two prior peaks on the hourly chart before slipping back. Night owls keen on bottom-fishing should try it around 738.00, the nearest Hidden Pivot support below. (Note: There's a midpoint at 744.70 associated with it, and if it holds, providing a base for a move to 754.30, that would be very bullish for the near term.) _______ UPDATE: The futures broke below 738.00 easily, a negative sign that augurs further deterioration to at least 723.30. The weakness must stop there or else, since any lower and the December contract will be in jeopardy of taking out two "external" lows on the hourly chart at 717.10 and 707.00.

Over the weekend, we featured a gloomy, $400 projection in gold that was based on the Elliott Wave work of a long-time  Rick’s Picks subscriber. However, applying Hidden Pivot analysis to the same long-term charts, 628.10 is about as bad as we could see. That would imply a further decline of about 8% from the October 24 low and a 15% selloff from current levels. (If you’d like to have Rick’s commentary delivered free to your e-mail box each day, click here.) Although that might sound punitive, we’d be inclined to back up the truck at $628, since it could be the last chance gold bugs will have to load up before the dollar sinks into oblivion. And we know this will occur because the dollar is already fundamentally worthless. As we keep emphasizing, it is irrefutably true that the $20 bills in one’s wallet are worth no more intrinsically than the one-dollar bills. (Click on chart  to enlarge) But just try telling that to the New York Times, or to the network news anchors. They’d never take our word for it, but you can bet they’ll turn into believers instantly someday, when America’s foreign creditors decide to pull the plug on the greenback. For now, though, the paradox of a worthless dollar made strong by short-covering is likely to persist. This is another story that pundits, reporters and economists have yet to stumble onto, since the concept behind it doesn’t exactly lend itself to sound-bites. But it is nonetheless true that the dollar has been acting strong because debtors who are used to rolling their loans are being pressed to settle up in cash. A Tactical Problem This poses a difficult tactical problem for gold bugs, since bullion quotes are apt to remain under pressure until the moment the

The chart shows why, since October 27, our short-term outlook has been faintly bullish. On that day, the futures signaled a push up to at least 776.40; in fact, they bullishly over-achieved by hitting 778.30. They also surpassed a minor look-to-the-left peak at that time, hinting of more upside to come. However, what has occurred since is not the rally leg we might have anticipated, but an agitated scuddle sideways. Now, from a Hidden Pivot standpoint the futures must either rally to 788.40, a target broached here earlier, or they must fall to the 628.10 target billboarded in today's commentary. For the bullish scenario to play out, we'd first need to see a two-day close above 749.30, a midpoint resistance discernible on the lesser charts that began with the 722.50 low recorded on November 3.

A midpoint support at 9.850 is my minimum downside projection for the near term, but it's useless for bottom-fishing because it coincides with a presumably supportive low created by last Thursday's downdraft. If it's breached on a closing basis, that would probably spell more weakness to at least 9.410. Alternatively, there is upside potential over the near term to as high as 11.330, a Hidden Pivot, if the futures can break free of its sibling midpoint, 10.265.