May 2010

Yesterday's price action was so sloppy that it may need a good, clean head-fake today to complete what looks like a nasty distribution.  I'll suggest shorting into the rally, but it remains to be seen whether this can be done at the c-d midpoint of a minor uptrend. My preference would be to look for camouflage on a downtrending abc, since shorts are likely to be more nervous than usual with volatility running so high this week. If the Indoos simply head lower, use a midpoint pivot at 10768 for potentially tradable support. ______ UPDATE (11:21 a.m. EDT):  By cracking the midpoint support by a decisive 15 points (so far), the Dow has generated a new minimum downside target at 10589.  Sayonara, all you bulls!

Silver quotes have come back down to earth with a thud, so perhaps it’s time to review our outlook, which was, and still is, quite bullish for both the intermediate and long-term. The Comex July contract has shed a hefty 10 percent of its value since Tuesday, settling at 17.51 yesterday after peaking just two days earlier at 18.89. Although this has caused some gnashing of teeth and sporadic expressions of anguish in the Rick’s Picks chat room, long-term bullion players who frequent the room seem to be taking the move in stride. We ourselves sounded an especially bullish note a week ago when we wrote that it would be a “piece of cake” for Comex silver futures to push above some daunting reservoirs of supply on the intraday charts.  The June contract duly obliged shortly thereafter, but as you can see in the May futures chart below, the rally left one key high at 18.91 recorded in January undisturbed. Although climactic buying missed exceeding that peak by just 2.5 cents, it was enough to make any selloff that followed a possible threat to the short-term picture. That threat was “actualized,” as they say, by this week’s steep selloff, but it remains to be seen how much more damage will be done. So far, it is minimal, and we therefore still expect the futures to hit a very bullish 21.53 by mid-June. That is our target for the July contract, and it was mentioned in last week’s commentary along with a secondary target at 20.21. At what point would our outlook turn intermediate-to-long-term bearish? That would take a print below 13.89 (!), since, according to the rules of our proprietary Hidden Pivot trading system, that’s what is required to turn the weekly chart bearish.  With respect to the daily chart,

A great lesson on camouflage, this session demonstrates why it is possible even for a relative beginner to hit ten winning trades in a row, and to do so without ever risking more than mere pocket change. By focusing on two very subtle buying opportunities – one in gold, the other in the E-Mini S&Ps – that occurred following steep declines that morning in each, we found a way to board nascent uptrends with calm confidence.

Abbott Labs shares bounced just above a midpoint pivot on Tuesday, making the sibling "D" target look like a buy if we get the chance.  ABT finished a respectable bullish impulse wave on January 20 and has been trending fitfully lower since then, appearing on the weekly chart to be probing for a "C" point.  On the daily chart we see a bearish pattern whose midpoint at 49.67 turned the stock back upward just yesterday.  If the decline resumes, however, traders should buy the "D" target of 47.75 with a bid at 47.80 and a stop at 47.69.  (Posted by Doug McLagan)  _______ UPDATE (May 6, 03:54 p.m. EDT):  The reported low of the day for ABT is different depending on the source, but the chart makes a sub-$46 low look like a data error.  Other than a single one-minute bar, the chart has not quite reached a low of 48.00.  But due to the confusion and to the wild trading conditions, we will cancel this recommendation.

Today's E-Mini tout raises the possibility that The Top is in and that in any case there's no harm in our pretending this is so.  We'll do best with our analysis by keeping in mind that it is machines that have been doing the buying all along and that they will be emotionless as always when they finally turn seller.

Propped by nervous shorts who evidently lack not only confidence but perhaps competence, Goldman held like the proverbial rock yesterday.  Too bad  most of those who have remained short will not make it to the promised land -- a 135.35 Hidden Pivot support broached here earlier.  That might not be the worst case, either, since there's another equally important Hidden Pivot support at 124.79.   It could be over for Goldman, since, as a result of the civil fraud action brought against the firm by the government -- and possible criminal charges to come --  they will remain eminently sue-able till the cows come home.

Don't look for a quick recovery and blitzkrieg rally to the 21.53 target broached here earlier, since the futures have fallen without refreshing the bullish impulse on the daily chart.  That would have required a  push to 18.915;  in actuality, the most recent thrust topped at 18.890 on Monday.  The negative implications thereof would be affirmed by a further fall exceeding 17.260, so we are not quite there yet.  However, the larger picture, with its 21.53 rally target, will remain viable as long as July Silver does not fall below 16.590.

Yesterday's pullback to within three ticks of a Hidden Pivot midpoint I'd flagged at 1166.60 validates a bullish pattern with a 1208.90 target best viewed on the weekly chart (A=1086.10 on March 26).  The target will remain valid as long as the futures fall no lower than 1124.30 (aka point 'C'), but encouragement in the meantime would come from bearish abc corrections that fail to reach their 'd' targets.  The first such correction was still in progress when the regular session ended yesterday, but I'll update this advisory intraday as useful clues develop. Most immediately, on the 5-minute chart there is an enticing bottom-fishing possibility at 1157.80. Since the bounce from its sibling midpoint was just two ticks from exact, you could use a stop-loss just 4-5 ticks beneath an 1157.80 bid. _______ UPDATE (10:52 a.m. EDT):  Gold's fright-wig swoon was meaningless technically, although it did stop us out for a small loss before bottoming at 1156.20.  The fact that the futures went $10 below the midpoint support/resistance is no reason for anxiety.  They are "entitled" to do so because the initial thrust above the midpoint exceeded it by a whopping $26.  Bulls still have the edge here, and significantly.

The decline of  the last two weeks is a less ferocious version of what we saw at the start of this year, so let's not jump to conclusions about what might evolve, since we know how things turned out the first time.  Still, yesterday's steep drop did generate a bearish impulse leg on the daily chart, and there will be no harm in treating it as though it is the resumption of the Mother of All Bear Markets. If so, the selling is off to a good start, having exceeded the worst-case target that could have been derived from the daily chart, 1168.00. The actual low was 1164.25, and that's enough of an overshoot for us to presume that more selling awaits. If the weakness does continue -- even for just another day or two -- it will put the futures in a hole from which the stairstep resistance of prior highs and lows will challenge bulls' resolve in ways in which it has not been challenged in quite some time. In the meantime, the futures will be best traded from the short side using the five-minute chart or less. Specifically, you should look for camouflage early on in reversals of minor rallies.