June 2010

We hold two August 98 puts for 1.06 and four July 96 puts for 0.70.  Continue to offer four July 90 puts short for 1.40, good-till-canceled. The order is a longshot bet at the moment, but it could fill in a trice if a long squeeze develops before or immediately after the July 4 holiday. A dip below 101.29 in the early going this morning would be an encouraging sign.

Yesterday's downdraft was undeniably nasty, but it would take a print below 1216.20 today to make it officially worrisome. That's where the selloff would become bearishly impulsive on the daily chart, as shown in the inset. Keep in mind, therefore, that a breach of low #1, followed by a rally and subsequent breach of low#2, would imply short-term corrective action rather than the start of an intermediate-term downtrend. Most immediately, the futures will have a chance to turn from 1233.50, a midpoint pivot, or perhaps from its 'd' sibling at 1225.30.  They could also put bulls instantly on the offensive with an upthrust this morning exceeding 1244.40, a look-to-the-left peak from Monday recorded on the way down on the 1-minute chart.

Today and tomorrow, we will present two radical proposals for dealing with debt. The first, argued below by Ben Rositas, a frequent contributor to the Rick’s Picks forum, would redistribute America’s official store of gold bullion to all who are owed on behalf of all who owe.  The second, from another forum regular, Rich Cash, would wipe the slate clean via a return to Biblical Jubilee or something like it. Although we’ll concede that neither idea is even remotely feasible politically, consider the alternative: a debt deflation that locks the economy into a grinding Depression for the next twenty years. One thing is absolutely certain: Given that Americans are collectively on the hook for hundreds of trillions of dollars worth of obligations of all kinds, those who are owed are never going to be paid off in hard dollars anyway. And we are not talking about just banks and mortgage lenders who will ultimately have to settle for pennies on the dollar, but about the scores of millions of Americans who will find the till empty when it comes time to draw on Social Security, Medicare and all the other Ponzi schemes run by Big Government. Let’s Screw Ourselves Under the circumstances, why not simply screw ourselves now, deliberately and with constructive purpose, so that we can enjoy the benefits of being economically unencumbered as Americans have not been since before the creation of the IRS and the Federal Reserve nearly a century ago?  This might even return the banks to their original role of taking deposits and lending them to worthy businesses.  Indeed, if the five biggest banks in America were to go out of business tomorrow, we would probably get along beautifully without them, much as we would probably thrive personally and economically without the egregiously misguided efforts

[Note:  The following comes from the latest issue of Elliott Wave Theorist. Bob Prechter is arguably the world's foremost expert on deflation, and in this interview segment he covers a crucial point in the inflation-vs.-deflation argument.  It is a must-read for anyone interested in the topic.  RA] When almost everyone believes that the Fed's interest-rate policies will eventually create awe-inspiring inflation, it's difficult for other voices to get heard. Bob Prechter argues that the real effect of the Fed's "extra-credit" policies will be deflation -- and that's what will hamper an economic recovery. He went into the lion's den recently to talk with the managing editor of the Daily Crux, a financial website that mainly focuses on the inflation side of the argument. In this excerpt from the interview, which runs in full in the June 2010 Elliott Wave Theorist, Prechter talks not only about why the Fed's action won't create inflation but also about what might come after we have walked through the valley of deflation.  Click here to access the complete segment of the interview.

Sunday night action is timid, although not so timid that DaBoyz thought twice about snatching back a four-point rally in the E-Mini S&Ps as of around 2 a.m. EDT.  Gold and Silver are quiet, but there appears to be plenty of power underneath if sellers should put some impediments in the way.

Let me reiterate the 18.39 downside target first broached here a while back.  That's where BP is going at a minimum, and it is the Hidden Pivot target of a long-term trend off the weekly chart. A lesser pattern implies 18.05, suggesting we'll be able to do some bottom-fishing within a fairly narrow range just above 18.00. In the meantime, the stock's down(fall) has been too brutal for easy shorting along the way down, although it's still possible to squeeze off a low-risk shot intraday if you play close heed to a-b impulse legs on the 5-minute chart. _____ UPDATE (July 9): BP's two-week rally is just shy of invalidating the 18.39 target.  That would take a move above 34.46 -- point 'C', recorded June 11 on the way down; the so-far recovery high has been 33.90.

Silver has been routinely exceeding our bullish benchmarks on the lesser chart, so perhaps it's a good time to reiterate a 21.53 target that comes from the weekly (A=12.665 in  July 2009).  The sibling midpoint of that Hidden Pivot lies at 18.150, so any pullback to that price should be viewed as a possible buying opportunity, although entry should be made using camouflage within a minor uptrend rather than via a mechanical bid at the pivot.

All signs were "go" as trading drew to a close on Friday, with a Hidden Pivot at 1272.60 still our minimum objective for the near term. If the futures trade more than 0.50 above that number intraday, however, or close above it, you can be confident that the rally will continue to at least 1293.50. The pullback from that last Hidden Pivot should be precise because its sibling at 1230.75 has already shown precise stopping power. Accordingly, if you plan to adjust your long position or take partial profits, don't assume that an instant test of resistance at 1300 is a done deal merely because the futures have pushed above 1290. _______ UPDATE 1:40 p.m. EDT):  Yet another gratuitous shakedown, and it's enough to make one wonder whether these orchestrated selloffs need to be so brutal just to make a point. The drop was close to $30, and it created a nasty impulse leg on the hourly chart. The low so far has been 1235.90, but the selling would need to hit 1216.10 before Wednesday to become impulsive on the daily chart.  For what it's worth, the mini-avalanche was telegraphed to some extent by the failure of the intraday high to surpass a secondary peak at 1264.80 recorded on June 21.  I remarked on this in the chat room when gold was down just $5, but I did not imagine the severity of the selling that was yet to come.

June's three-week slide is bearishly impulsive on the daily chart, but there's not enough clarity on the intraday charts to map out the swing lows DXY is likely to carve out on the way down. My guess is that the next big leg will achieve a minimum 83.86, an approximately 2.3%  fall from these levels.  If so, the crucial midpoint support lies at 85.14, and a bounce off it would tend to corroborate the target itself.  _______ UPDATE (9:58 a.m. EDT):  DXY has bounced from 85.21 -- close enough to the midpoint support for us to infer that the Hidden Pivots are working.  A decisive breach of 85.14 should therefore be regarded as a warning of an imminent fall to 83.36.