July 2010

Touts for Gold and Silver today emphasize their vulnerability, since buyers in both have seemed unable to get out of their own way recently. It wouldn't take much to lift them out of the danger zone, but even such modest rallies as this would require have failed to materialize.

The trendline support that I've been using as a benchmark comes in at 17.360 today, and it'll probably take a pop to at least 18.470 to break free of its magnetic pull.

The action of the last three days is suspect -- i.e., presumably distributive --since all of it occurred beneath some intraday peaks near 1215 recorded in early July. The futures could remedy this appearance of weakness with a thrust exceeding 1222.90 -- or better yet, a close above that number -- but failing that, an 1162.30 correction target first broached here a while back will remain in play.

We hold 800 shares with an adjusted cost basis of 12.95.  Our last covered write expired in May, but we’ll start using the strategy again if and when SLW consolidates above $20. In the meantime, SLW would need to push above 20.46 to hold the pull of gravity at bay. Otherwise, the stock looks vulnerable to a shakeout beneath late May's 17.00 low.

The rally appears to be targeted on a Hidden Pivot resistance well above, at  1108.25, but it'll first have to clear a midpoint resistance at 1081.25 that stopped yesterday's bunny-hop cold. The upthrust was not as feeble as it first appears, however, since, as you can see in the accompanying chart, it took out a look-to-the-left-peak that is well concealed within a three-day supply zone recorded weeks earlier.  My hunch is that an 'X entry will work for getting long, but I am unwilling to risk the implied 3.75-point stop-loss. Instead, if the trade triggers, I'll suggest cutting the risk down to size by using whatever camouflage may be afforded by a lesser chart; or by using a "time stop" to exit the trade if it doesn't take off right away.  If 'X' is triggered before the opening bell, however, you should simply get long conventionally and follow Lindsay's rules.  As you will likely have inferred, this trade is for experienced Pivoteers. _______ UPDATE (9:47 a.m. EDT): The trade could not have worked out more perfectly for night owls, since it precisely matched the one I'd sketched out in the chart.  Entry was triggered at 1077.00 around 3:30 a.m. , and four hours later, without having tripped a trailing-stop exit from the 1080.75 midpoint on up,  the futures topped a single tick from the 1088.50 target. The threoretical gain per contact would have been $550.

Put options on BP may look like a tempting play here, but we wouldn’t touch them with a ten-foot pole. The company’s shares have rocketed nearly 40% since late June, making them appear ripe for a retrenchment. Don’t bet too heavily on it, though.  The puts are so pricey at the moment that you could probably get better odds buying scratch-off cards at the liquor store. August near-the-moneys, for one, are trading with an implied volatility of around 70, meaning the stock would have to plummet by at least 11% before August 20 for bearish speculators to merely break even. Stranger things have happened, of course, but anyone who made essentially the same bet on Friday, just ahead of yesterday’s powerful short-squeeze rally, would have seen a third of his stake go up in smoke at the opening bell. The August 36 puts eventually settled at 2.87, down 1.48 on the day, and they could get halved again on Tuesday morning if BP shares open firm-to-higher. Carnage in the July puts has been even worse, since they are due to expire this Friday. The chart above shows how the July 33 puts have fared since early June, when the stock was trading about where it is now -- around $36 per share. With fear and despair hitting a transitory peak back then on horrific headlines and the prospect of a tar-ball disaster spreading along length of the Eastern Seaboard, the puts nearly tripled in price in a single day, rocketing from $224 to $650. Yesterday, however, those same puts could have been bought for as little as $18, and they seem unlikely at this point to awaken from their coma unless the latest effort to cap the oil blowout meets with a catastrophic setback. Careful What You Wish For It

Put-holders should brace for a surge to at least 36.60 -- or possibly 37.81 if any higher -- if it appears that BP's latest oil-gusher cap is working.  Even if they manage to stop the flow completely, however, the company will face calamitous litigation in the years to come.  For now, though, with implied volatilities in the low-to-mid-60s, put options are prohibitively priced -- so much so that the prospect of making a profit with them seems dim even if the stock relapses. _______ UPDATE (July 13):  Fascinating.  BP gapped up to exactly $37.76 on the opening bar, capping a 15% run-up in just 12 hours of trading; then the stock plummeted to $35.71.  This may or may not prove be The Top, but it sure as heck was a shortable top.

It could take all week for BPs latest fix to either succeed or fail, but the ongoing effort alone should suffiice to sustain whatever (relative) feel-good psychology is needed to keep last week's short-squeeze going.  Index futures were off slightly Sunday in the late afternoon, with DaBoyz giving no hint of how they plan to manipulate the next significant move.

A tout sent out Thursday night caught the high of the day within four ticks, allowing bears to get short ahead of the selloff that ensued. If you followed my advice to-the-letter, a two-contract position would have been stopped out on Friday for a theoretical gain of  $1,350.  However, if you initiated the position on four contracts and continue to hold one for a possible home-run as was suggested, use a 1.2686 stop-loss for now. A trailing stop of at least 35 ticks should be substituted if the futures touch 1.2545 to the downside. _______ UPDATE (July 13, 12:19 a.m.):  You're on your own now, but I'll suggest tying the remaining short contract to a stop-loss triggered by the creation of a bullish impulse leg on the hourly chart. At the moment,  that would imply a rally touching 1.2652, a tick above a distribution shelf created by last Friday's price action.  This is shown in the accompanying chart.