January 2009

A thrust today exceeding the 871.40 peak recorded early this week is needed to put the futures in the mood to test October's key high near 940. Incidentally, the chart also shows why 766.60 would be a back-up-the-truck number for buyers. There is nothing to suggest that such a nasty plunge is imminent, but if it did occur, the resulting pattern would point very persuasively to an opportune low at 766.60. That's a "middle-of-nowhere" midpoint pivot with no competing supports to the left of it.

Has the dollar bounded from mid-December's lows with such seeming feistiness, only to punk out without taking on the scrawny pocket of supply highlighted in the chart? It certainly looks that way. And although this will not necessarily doom the dollar, it should temper our enthusiasm for the buck in the days, and perhaps weeks, ahead. To negate any suggestion of cowardice, DXY would need to pop above the two peaks etched in the last few days sometime very soon.

Today and tomorrow we will be featuring the thoughts of two erstwhile gold bugs who are having second thoughts. Although both evidently believe in their hearts that gold is honest money, neither is certain that that will suffice to push its price into the stratosphere, as some seers are predicting. First up is our friend Erich Simon, an occasional contributor to Rick’s Picks whose dispatches on the bird flu epidemic have kept us a few steps ahead of mainstream news. Here is the letter I received from Erich yesterday morning: Music Has Stopped The most precious commodity is time, then land -- in a finite world. The currency of the future, here today, and maybe even yesterday, is power, not money. The population of the planet from 1929 until the NASDAQ collapse in March 2000 doubled. The dot.com blow-off nearly ten years ago was “the last dash for a place in the sun.” It was the final mass exodus out of fiat for the accumulation of stuff, mostly “essentials,” not unlike musical chairs. The investment landscape today is desperate and imploding. The music has stopped. The mining equities collapsed because they are subject to the same corruption as the broader indices. “Corruption” is one man's quest to secure a larger piece of real estate. The primary corruption in all the issues was stock dilution through share-printing and marketing through Wall Street under government sanction. Shares were exchanged for currency, and currency is a claim against man-hours of work so that governments can apportion scarce resources. Paper Falls Short So the government, Wall Street and corporate insiders absorbed all of the prevailing man-hours of work and laid claim to all of the scarce resources, foremost among them, time -- yesterday's, today's and tomorrow's. This is the main reason why no amount

We hold 200 shares with a cost basis of 39.69, having clung stubbornly and without discipline to Newmont as it experienced its worst one-day decline in memory. My take on the stock, that knowledgeable buyers appeared to be manipulating it lower, was as wrong-headed as could be. There may be more selling today, too, since the stock has an unachieved Hidden Pivot target at 33.50 that feels magnetic. Accordingly, I'll recommend shorting two Jan 35 calls (NEMAG) on the opening for 1.88, but check back before the opening, since I may need to adjust if the mini-indexes are freefalling. _______ UPDATE: Stocks open in a few minutes. For now, raise the offer on the short Jan 35 calls to 2.20. _______ FURTHER UPDATE: There was a bid of 2.38 at the opening, but no trades until it came down to 2.20, so that's the price I'll use. The only logical explanation for this is that no subscribers held the recommended position when stocks opened this morning. Officially, though, we hold a covered write that will help ease the pain and give us more downside protection. _______ FURTHER UPDATE: The covered write expired, with the stock settling against options to leave no net position. Our loss was $250 per round lot, or $500 total. This was the largest loss we've experienced on an equity trade in more than four years.

The futures were scuddling cluelessly in a tight range Wednesday night, evidently too frightened to extend the feeble dead-cat bounce that had ended the day. A midpoint support beckoned not far below at 897.50, but if were to fail, further selling would probably bring ES down to at least 887.75. Both targets assume that a point 'C' peak at 907.50 will survive overnight. _______ UPDATE: Overnight, an 8-point bounce came from 899.50. That was bullish, but the futures relapsed down to 891.50 before the opening. With a mixed picture 15 minutes into the session, it looks like DaBoyz have put in a shaky bottom.

We bought the Feb 95-Jan 95 calendar spread twice yesterday for 1.50, not far above the low. If we can steal the Jan 95s back this morning we should try, since they cannot trade much lower between now and next Friday's expiration. Accordingly, I'll recommend bidding 0.15 to cover them. Check back ten minutes after the opening for further instructions, since it may be possible to exit the Feb 95s, and therefore the spread, at a favorable price. _______ UPDATE: We covered the short Jan 95s for 0.15. Adding that to the price we paid for the Feb 95 calls gives us a cost basis of 1.65. Close them out if they touch 1.50 today. Note: We later exited the Feb 95 calls for 1.50 before the stock tanked, realizing a small loss of about $30.

Shortly before midnight, the futures were laboring to reach an 850.70 rally target that had looked like it was in-the-bag following the breach of its sibling midpoint, 846.30, earlier in the evening. That last number will hold the key to the short-term picture, since buyers must get past it to test the mettle of the higher number. Most bullish of all for the near term would be an uncorrected thrust that exceeds peaks at 850.00 and 855.00. The location of each is shown in the accompanying chart.

I had expected 2009 to begin with gold sharply on the rise and stocks in retreat, but so far both seem to be taking direction from a headless chicken. Stocks lurched higher last Friday on a short squeeze but have since gone erratically flat. As for commodity gold, it has been pretty wild these last few days but is still trading somewhat below its New Year’s peak, even after yesterday’s trampoline recovery. That may be about to change, however, since there were bullish signs in the price action of precious-metals bellwether Newmont Mining. Specifically, the broad-tossers who make their living rigging the stock were able to turn an 86-cent profit in the early minutes of the session by deftly working the “buy” side. This they accomplished by fading sellers on moderate weakness, then running up the stock by about 2%, All of this occurred, probably, before many of those sellers realized they’d been had -- filled at what turned out to be some of the worst prices of the day. Incidentally, if the high achieved in the opening minutes had held for the remainder of the session, we’d have been bearish coming in Wednesday morning. However, although Newmont subsequently dipped slightly beneath the opening lows, relentless buying drove the stock steadily higher for the next several hours. As a result, fully half of the day’s action took place above the opening peak. This seems quite bullish to us, and it would be affirmed by a gap-up opening today. That’s what we might expect if there is too much demand to allow DaBoyz to pick off sellers on the opening, as they did yesterday. Which is to imply, if the pros can’t steal the stock, they will often employ the opposite strategy, ripping off buyers at as high a price as

We've legged into a covered write: long 200 shares from 40.41, short two January 40 calls for 1.20. Do nothing further for now. We could have done better on the calls, as you will already have surmised. It is usually risky for me to recommend a price at which options should be bought or sold on the opening, since that is when professional predators are at their most brazen. However, in some situations I would rather try to second-guess the opening than suggest that you return to the website during trading hours for further instructions. In this case, second-guessing caught a whipsaw. _______ UPDATE: Newmont's mini-crash this morning portends further slippage to 36.36, a Hidden Pivot support. If and when the stock reaches 36.41, cover the short calls. _______ FURTHER UPDATE: Newmont appears to have bottomed for the time being at 36.32, four cents beneath the target. This would have allowed one to cover the short Jan 40 calls for around 0.48. We'll apply the 0.72 profit to the stock, giving us an adjusted cost basis per round lot of 39.69. No further action is suggested right now.