August 2010

Doug McLagan's most recent, detailed analysis will be hard to improve on, especially since we have both taken note, at different times, of a potential short-term top at 1244.20, a Hidden Pivot that lay just smidgen below last week's actual high. As Doug made clear, we'll be better able to gauge the bulls' resilience when we see how eager sellers are to push the futures beneath some prior lows on the hourly chart.  For starters, it would take a print today below 1230.70 to create a bearish impulse leg. Failing that, the bears could get shoved all the way up to 1257.00 before they find a backstop.  That's a Hidden Pivot rally target tied to a midpoint pivot at 1234.30, so you should look for a camouflaged bottom-fishing opportunity near that number. The trade would be worth three or four ticks' risk. ________ UPDATE (9:29 a.m. EDT): This morning's obligatory, absolutely gratuitous swoon bottomed at....1235.00.  Don't fret if you missed getting aboard, since even on the one-minute chart there were no camouflaged patterns to grab hold of.  If you trade gold, take the hint and go fishing.

It's late Sunday night, and fans of the Hindenburg Omen were taking another licking. DaBoyz have capitalized on Friday's wilding spree with a moderate short-squeeze that has the E-Mini S&Ps up the equivalent of about 50 Dow points.  There's always a chance that New York could awaken in a surly mood and kill the festivities, but my hunch is that the skeleton-staff schmucks who will be stuck at the office this week have been told not to pee, even, unless they clear it with someone high enough up the chain of command to be all but unreachable until after Labor Day.

[To broaden the conversation, Rick’s Picks inaugurates a two-week series of commentaries today from guests who have contributed regularly to the daily forum.  I can promise that you’ll enjoy these essays, which cover topics ranging from the peculiar economic boom in Germany, to the failure of New Jersey’s casinos, to the possibility that the global economic breakdown has been meticulously engineered by financial and political sociopaths.  This morning we proffer the always-sunny thoughts of Mario Cavolo, an expatriate who lives in China. His very bullish outlook for the global economy contrasts with some of the gloomier think-pieces that have appeared in this space.  In the essay below, Mario extrapolates a very positive economic outcome from the $15 trillion of unencumbered equity that Chinese property owners currently have vested in their homes.  Will the eventual leveraging of this still debt-free sum, together with the irresistible power of China’s growing economy, be sufficient to pull the world out of its funk?  Read on for Mario’s optimistic answer. RA] Current United States home mortgage debt: $15 trillion. Current China home equity: $15 trillion. Mortgage debt on those homes? Zero.  It is easy to suggest that this insight, which reveals a $30 trillion spread between U.S. home mortgage debt and Chinese home equity, better enables us to grasp the underlying forces impacting the economic power shift we are seeing from West to East. While it might be in vogue these days to criticize the United States for being built on a mountain of debt, I’d rather not. Let's first take a moment to remember the positive effect the world over which the judicious and reasonable use of debt has had over the past 50 years. How’s that you ask? Because while it is in vogue to complain about America’s mountain of debt, that very

Perhaps a few more Hindenburg Omen signals are needed to hold this market down?  One might have thought three such signals would have done the job. Alas...

We hold a long-term position of 800 shares with an adjusted cost basis of 12.95 that yields a paper profit of more than $7000 at current prices.  Whenever this stock turns feisty, it reminds me what a juicy takeover candidate it would make. It's hard to say whether it is rumors or reality driving SLW now, but I'm not so keen to do covered writes as I was before. My upside target is currently 25.54 (midpoint, now support = 21.27), and at this point I'm inclined to simply buy a few puts if and when the target is reached. _______ UPDATE (10:31 a.m. EDT):  The stock has hit 25.09 so far today on a powerful opening-bar gap, creating a pattern that projects to 25.35. Let's put on a hedge when it gets near that price, shorting eight October 26 calls against our position.  Offer them for 0.96 -- or whatever they will fetch with the stock trading within a nickel of the target.  (Note: As of 1:21 p.m., it looks as though the options will be trading for around 1.00.)  _______FURTHER UPDATE (2:14 P.M. EDT):  We shorted eight calls for 1.00 off a so-far intraday high of 1.01. Do nothing further for now, but please note that the stock could go as high as 25.54 on a targeted basis. The intraday high as of the moment is 25.32.

The Dollar Index has been struggling to put a midpoint resistance at 83.10 behind it, but five days of oscillating around it have not done the trick. If and when bulls muster the requisite thrust, look for DXY to reach a minimum 84.29, the 'D' sibling of the midpoint. We'll want to monitor the action closely at that point, since an easy push past the resistance would be an obvious negative for bullion.

AAPL didn't get much of a bounce from the important midpoint support at 246.28 shown in the chart, so we should infer that the stock is bound for the 226.58 target shown in the chart. The midpoint is now resistance and was narrowly missed by the head-fake that began the day yesterday.  How can we take advantage of this developing weakness by getting short?  Not easily, since a feint to the nearest midpoint resistance today, 243.95 (15m, A=238.42 on 8/25), would have us shorting into a bullish impulse leg. Instead, I'll suggest looking for camouflage on the very lesser charts once 243.95 is closely approached.  This one is obviously for seasoned Pivoteers only. ______ UPDATE (12:44 p.m. EDT): We can scrap the bottom-fishing idea, since AAPL has shown little weakness lately whenever the broad averages have declined.

On Thursday, gold futures reached our longstanding 1244.2 "D" target and then reversed course just below the "D" target of an alternate version of the same pattern.  In yesterday's tout we were looking for levels at which the gold market might begin a new downtrend, but alas, we did not mention this possibility, which is depicted in the attached graphic.  It is too early to say that 1246.0 is an important high, but it will look increasingly important if and when the price falls below the 1230.7, 1223.5, and 1211.7 levels.  1223.5 is a stick-down low along Tuesday's "wall", visible on the 15-minute chart.  Reasons for waiting to buy at lower levels or for (gasp) shorting gold are numerous: (1) the rally from 1159.3 has completed an elegant ABCD pattern; (2) current expectations of future quantitative easing might be "in the market" already and traders might sell the news of a low GDP number this morning; (3) the GDP number might be better than expected, triggering "risk-on" trades which do not include buying gold; (4) open interest in gold futures has reached a high level, which often foretells a price decline; (5) bullish seasonal forces might not quite be ready to kick in; (6) the stock market might crash soon, triggering margin calls and cash-raising measures such as selling gold; (7) the recent silver rally might have been driven by the big COMEX shorts, who have lightened up and are ready to do some new shorting now.  We could go on, but the fact is that the active Hidden Pivot patterns are almost exclusively bullish, so the best approach is to buy gold if the emerging short-term patterns look compelling enough.  We should clear our minds and let the charts tell us what's going on, and what to do.  Yesterday

I continue to expect stocks to do absolutely nothing between now and Labor Day, although we may see some gratuitous feints, dives and thrusts between now and then.  There is little to suggest for Friday, since this week's lows achieved a downside target that had been in effect since August 19.  Any slippage beneath it, however, would set the futures on course, probably, for a gropefest down to as low as 1002.75, where an important and presumably supportive low was recorded on July 5.