July 2010

A rally target at 1.2721 that has been coming for a month lies within easy distance of yesterday's highs, and you can short it with a stop-loss as tight as 7-8 ticks. I've used a one-off point 'A' to calculate 'D', but the lowest possible 'A' (at 1.1884) would yield an alternative target at 1.2750.  That's a more conservative place to go short, but the risk is that the futures won't quite get there. ______ UPDATE: A stop-loss as tight as five ticks would have gotten one profitably aboard, since the futures fell 37 ticks after topping in the late afternoon at 1.2725. Cover half the position at will if you shorted more than one contract; otherwise use a 1.2705 stop-loss, switching to a 12-tick trailing stop and a 1.2665 minimum objective if and when 1.2671 is touched. If you shorted four contracts or more, hold onto at least 25% of the original position for a possible home run. You'll be on your own as far as managing the risk, but I'd suggest using the impulse-leg rule to warn of a bullish turn. Officially, we are still short a single contract whose basis has effectively been raised to 1.2782 by the closing purchase of a second contract at 1.269.  FURTHER UPDATE (12:10 p.m. EDT):  The futures fell to 1.2662 before getting any kind of bounce, implying a minimum theoretical gain of $600 if you followed my advice to-the-letter on a single-contract trade.  Officially, we logged a theoretical gain of  $1350 on the two-contract position. If you are still holding a contract for a possible home run, use a 1.2686 stop-loss for now and let 'er ride.

We haven't done anything in Goldman in a while, but a moderate rally today could provide a good opportunity to get short with a tight stop-loss. Officially we'll offer 200 shares at 136.83, stop 137.01, but if you want to use puts instead, try the August 125s.  You should pay no more than 2.80 for them, however, and the stop-loss will still apply. _______ UPDATE (11:11 a.m. EDT):  A short from 136.92 was stopped out minutes after entry for a tiny trading loss, although one could have partially covered the trade as low as 136.51. That's how low GS dipped initially after opening on a $1+ gap. The actual high was 137.17, implying that higher highs lie ahead, but for now the stock has relapsed to a so-far low of 134.76. While it may seem as though our stop-loss was too tight, the pattern was sufficiently precise to justify the one we used. 

Yesterday's rally blew out every target on the intraday charts, and it would be accurate to say that a Hidden Pivot trader could not have gone far wrong by taking every 'X' entry point of every uptrending ABC. I won't hazard a short-squeeeze target for this morning, although the supply line near 1070 noted in today's commentary would be a logical place for sellers to take a stand. As of midnight, the action was hum-drum, but with a blip around 10 p.m. that suggests nervous-Nellie bears are still having palpitations. If and when they've all dropped dead, stocks are guaranteed to fall like a brick.

We'll be looking to lay out a small short in Goldman, of all stocks, when the markets open Thursday morning. I've also flagged a Hidden Pivot where the September Euro could make a tradable top today.

The September contract looked bound for a minimum 18.230 when the closing bell rang yesterday, having stalled just a tick above that Hidden Pivot's sibling midpoint, 18.105.  A push above the resistance would all but guarantee a follow-through to 18.230, but it will take at least 18.470 to revitalize the bull trend on the lesser charts. On the hourly, no less than 18.845 would be needed over the near term to send bears diving for cover. Alternatively, my worst-case number is 17.350, where a garden-variety trendline from the hourly chart comes in today.

Although the futures managed a $20 rally off yesterday's lows, they still looked unimpressive. There were two bullish impulse legs on the lesser charts when the dust had settled, but if buyers had been more enthused they would have achieved this feat with a single burst. Once again, we'll set the bar at 1222.90 to tell us when buyers have turned serious. Otherwise, the 1162.30 target flagged here earlier will remain in force.

The Dow Industrials have rallied 367 points from Friday’s oversold lows, a feat that looks much less impressive when you consider that the blue chip average had lost 980 points in the preceding two weeks. Most of the frenetic buying over the last two days has been done by panicky bears who literally got caught short when stocks exploded on the opening bell Tuesday. We got caught mildly short at the turn ourselves after having broken a rule that anyone who trades options should heed rigorously – i.e., never, ever pass up an opportunity to take a partial profit when a put trade goes your way for three straight days. Too bad we didn’t do as we say, since it would have given the theoretical gain we achieved anyway a nice boost. Although we’d correctly predicted a 96.13 low in the Diamonds that came within 0.04 points of nailing Monday night’s key bottom, we let our bearish position ride. Dumb. Any time an option trader fails to adjust a put position after three consecutive profitable days, he is just being greedy. Statistically speaking, a three-day selloff is probably as good as it will ever get – a fact that held true even in the case of the October 1987 Crash. It may have seemed as though the world was ending at the time, but in actuality, anyone who bought puts on Friday, October 16, when stocks began to plunge, had to be out of them by Tuesday morning, October 20, to avoid one of the nastiest whiplash rallies in stock-market history. 97% Losers Naked put buyers have probably lost money 97% of the time since options were first listed in 1973, but it is still possible to beat the odds.  We attempted to do so by exiting July 96 Diamond

There was not much doing shortly before midnight, but we should assume that bears will still be on the ropes after yesterday's pummeling.  I've raised the prospect of buying more Diamond puts if the broad averages rally, but the signal would come via an intraday advisory if at all.

Musta been Tesla owners scarfing up stock above $30 the other day. Anyway, their over-eagereness could be your good fortune if you held out patiently for a better opportunity. As the accompanying chart makes clear, the best place to lowball a bid would be around 12.95, a clear and compelling Hidden Pivot support. If you're playing this one for the long-term, a 15-cent stop-loss would be appropriate.  Beware of an intervening rally to the 18.03 Hidden Pivot midpoint, though, since odds of a trend failure there would be high. _______ UPDATE (July 15):  With TSLA moving back above $20, a fire-sale opportunity at 12.95 seems remote.  We'll put this one on the back burner for now.