September 2010

Yesterday's whoopee-cushion decline overshot an 1124.75 target, suggesting there's more weakness to come.  A new Hidden Pivot at 1110.00 can now serve as a minimum downside objective (see chart), but I don't recommend bottom-fishing there because it coincides with a moderately important low recorded on September 15.  I doubt the support will hold for long in any case, and when it fails we should expect the futures to grope their way down to more substantial structural support near 1082.  ______ UPDATE (1:19 p.m. EDT): The futures have mistakenly headed higher today -- and with a vengeance, although, suspiciously, not with sufficient vengeance to surmount the week's peak recorded on Tuesday. _______ UPDATE (1:51 p.m. EDT):  The vengeance has ratcheted up a click, surpassing Tuesday high, so shorts will end the week with a gun at their heads.  Immediate targets are 1144.25 (exceeded by one tick so far); and thence 1148.50; and finally, short-term, 1152.25.  As always, the penetration of any of those resistance points by more than a few ticks will imply the next is likely to be reached.

(There’s a good reason why bullion traders and investors have nicknamed the COMEX the CRIMEX. Read Robert Moore’s essay below to see why.  Moore, a frequent contributor to the Rick’s Picks forum, says bullion bankers have leveraged the commodity exchange’s liberal rules to perpetrate a fraud that would land you or me in jail. RA) In 2004, two young men named Robert “Buddha” Gomez and James Nichols fleeced thousands of people to the tune of $21 million by selling them “paper” automobiles.  Here’s a link to more on this fascinating story by Car and Driver’s John Philips. These two hucksters swindled thousands of people into paying real money for nonexistent cars that were part of the fabricated estate of a fictitious, deceased eccentric millionaire, who declared in his will that these cars were only to be sold to “decent, churchgoing people” at unheard of bargain-basement prices as low as $1,000. If Gomez and Nichols had known what was good for them, they would have studied the COMEX gold and silver futures market a little more closely before embarking on their little adventure into the exciting world of fraud. We all know that a futures contract is merely a paper promise to deliver a quantity of bullion (or some other commodity) for a pre-determined price at some future date. This is analogous to the paper promise to deliver “miracle cars” at some future estate settlement date; and as long as the promise to deliver can be sold to a willing buyer, then the scam can continue in perpetuity. Gomez and Nichols’ scheme collapsed and they were both hung out to dry when the need to deliver real cars to settle these purchase agreements came due. In the gold and silver markets, by contrast, the scam is aided and abetted by a regulatory environment whereby the threat of

In today's touts, I've detailed a plan to leg into a butterfly spread in Apple that would leverage a longstanding target at $315.  The strategy will seem complicated initially, but once you get immersed you'll be better able to understand the beauty of this type of position, which can potentially give us a riskless play to $315.  From my perspective, it would be a thrill just to be able to say someday that I'd guided a bunch of traders, many of  them option novices, to a fat profit in Apple by "legging on the 'fly."  It'll be an adventure!

Apple has cruised past a minor Hidden Pivot at 280.86 that I flagged here earlier, clearing the way to the 315.32 target noted at that time. This is a major target, for sure, but I hardly think it will spell the end for Apple -- perhaps merely a brief stay in purgatory while the stock consolidates for yet another spectacular run.  This is a portfolio stock, and the company will continue to make money -- lots of it, especially with iTunes -- no matter how bad the economy gets.  Let's try to leverage the expected move to 315 by putting on the November 300-310-320 butterfly spread. This trade is suggested for experienced traders only, since it might not be easy to leg into the position at the kind of prices I have in mind. Ideally, we'll want to short two November 310 calls, buy a single 300 call and a single 320 call, all for "even." This means that the price you pay for the 300 and the 320 call will be exactly offset by the proceeds from the short sale of the two calls at the middle strike (i.e., the Nov 310s).  If you put on the position for "even," your theoretical loss would be zero, but you would have a maximum possible theoretical gain of $1000 if the stock settles at 310 when the calls expire on November 19. $750 of that would come from the proceeds from the short sale of the Nov 310 calls, which closed yesterday at 3.75; and the remaining $250 would come from a closing sale of the Nov 300 call -- worth $1000 at that point -- less the loss on the 320 call, which would expire worthless. One way to leg into this three-sided position is to begin by shorting two Nov 310 calls when

Silver Wheaton is closing on a Hidden Pivot at 26.43 that seems likely to stop the rally, if only for a short while. Let's try to scalp against our position (800 shares from 12.95), shorting four October 27 calls for 0.75. That's about how much they should be selling for with the stock at or near the target, but you may be able to improve on that price by monitoring the bid/offer as SLW approaches it.  Stop yourself out of the calls (i.e., cover them by buying them back)  if the stock trades 26.52 or higher. _______ UPDATE (11:55 a.m. EDT): We shorted the calls, which traded as high as 0.85, and we still hold the position, since the stock went no higher than 26.51.  We'll use an 0.80 basis -- midway between the low and high of the range as SLW approached the target. As before, you should stop yourself out if the stock touches 26.52. FURTHER UPDATE:  We scratched the trade -- give or take 0.10 -- when SLW head-faked to 26.57 later in the day. The stock subsequently pulled back to 26.01, ending the day on a weak rally.  On balance, the 14-cent overshoot of the target was mildly bullish.

An important Hidden Pivot at 1340.00 remains a logical minimum upside projection for the next thrust, but we should stay on the alert for the subtlest sign of trouble, since yesterday's high failed by nearly $3 to reach a clear rally target at 1300.90. Trouble would be signaled today by a print at  1282.25, a tick beneath the key retracement low of Tuesday's mini moon-shot. The 1300.90 target is still valid in theory, and you can try to catch a ride at the 1288.70 midpoint support of the pattern shown.

Dragged kicking and screaming appears to be the only way the Dow is about to go down, but perhaps we can will it to do so simply by despairing of the very possibility. At any rate, the Indoos spent the day hosing traders who waited patiently to buy at 'D' retracement targets yesterday.  That suggests the blue chip average wants to go higher, but we'll make it earn our trust by stipulating that a pop today to at least 10787 (see chart) is needed to kick off a sustainable rally.

Hidden Pivot targets at 1151.25 and 1168.00 that were given here earlier remain valid, but price action has become too messy to say when these numbers will be hit. From a bear's perspective, about the most we could hope for is that the futures don't slither to within striking distance of the 1160.50 peak recorded back in May, since that would give this already ten-week-old bear rally a new lease on life. More immediately, an 1124.75 downside target from the hourly chart that I spotlighted during yesterday's tutorial session remains valid, at least in theory, and you could bottom-fish there with a 1.00-point stop-loss provided the support is not touched more than an hour or so into the session. The pivot was looking great if the futures reached it straightaway yesterday, but the price action since then has grown so convoluted and impacted as to diminish the target's appeal.

(We're on a roll here, so I am letting this commentary run for a second consecutive day. My good friend Doug, a bear's bear and no slouch when it comes to making pellucid sense of the Big Picture, characterized my thoughts on hyperinflation as "nutty," but perhaps he has exaggerated. Readers?  RA)    For nearly twenty years, we haven’t flinched from our prediction that the massive debt build-up of the last generation would precipitate out as a deflationary bust.  That is what we still expect, although we now believe there is likely to be a hyperinflationary phase at some point as the financial system implodes. But the bottom line is that no matter how things play out, America’s standard of living will fall more steeply than at any other time since the Great Depression. As for the deflation-vs.-hyperinflation “debate,” it is useful only to the extent it helps predict how mortgage debtors will fare as this economic cataclysm plays out. We seriously doubt they will be “saved” by the kind of hyperinflation that would put hundred-thousand-dollar bills in Joe Homeowner’s wallet. Imagine how mortgage lenders would react if Joe could peel off three or four of those bills and say, “Okay, pal, we’re square.”  This scenario will seem particularly unlikely to those who believe that these economic hard times have been engineered by Masters of the Universe intent on stealing our property.  Trust us on this:  If there’s a hyperinflation, it is the rentiers who will get screwed most ruinously, not the little guys. Even so, that doesn’t rule out the prospect of a fleeting, hyperinflationary spike on the way down, since widespread notions concerning the dollar’s true value could change precipitously overnight. We mention this because notions are already beginning to change in ways that leave the dollar increasingly vulnerable to a global run. The