October 2010

The futures spent Monday skirmishing, with the result that there is little drama in the forecast for Tuesday.  A 23.270 midpoint support on the 30-minute chart can be used to bottom-fish with a tight stop-loss, provided the 23.855 point 'C' of the pattern that engendered it is not exceeded first. However, buyers would need to push the futures to at least 24.410 today to get something going.  Anything less should be regarded as mere noise. ______ UPDATE (10:55 a.m. EDT): Like Gold, Comex Silver is meaninglessly adrift today, trading capriciously as though no one who cares about bullion is active in the market.  Our 23.270 midpoint showed no support, implying that anyone who tried bottom-fishing there with the tight stop-loss advised would have been stopped out.  The futures have since bounced as high as 23.660, but I would infer nothing special from this.

I've reproduced December Gold's three-minute chart in a size intended to make you squint a little, that you might more easily parse the visual logic of the correction from Monday's highs.  Can you see how taking those few steps back helps isolate a "good" pattern so that, paradoxically, its imposed smallness makes it seem all the more compelling? This technique goes back to a point that I have emphasized repeatedly in the seminars and during tutorial sessions -- that in general we should try to favor the visual over the technical so that we don't become bollixed up in nettlesome 'k-A' calculations, cagey impulse legs that may or may not be just right, and ABC coordinates that mock or disparage The Rules.  Thus do we find a 'P' midpoint here at 1336.70 that could be useful to night owls interested in bottom-fishing. (Some may also get the feeling that the sideways action of the right-most three hours distracted the downtrend from making a reliable beeline precisely to 1336.70.)  It's yours to use, and I'd suggest an initial stop-loss of five ticks. If it's tagged, however, brace for more downside to as low as 1329.60. Alternatively, a  thrust today touching 1344.90 would signal that the bulls are ready to run. _______ UPDATE (10:49 a.m. EDT): Gold easily broke through 1336.70, telegraphing the weakness that was to follow.  The relapse eventually found a bottom at 1328.10, but not before taking a $6 bounce from $1329 on the way down that could have yielded a trading profit for anyone who went bottom-fishing at 1329.60.

The two November 300-310-320 butterfly spreads we hold for a 0.20 debit apiece have the potential to widen out to 10.00, yielding a maximum theoretical gain of $980 per spread if the stock is trading at 310 at expiration.  So that you can track and estimate the value of the spread yourself, I've included an option calculator that gives theoretical values, as of November 2 and with the stock trading anywhere between $290 and $325, for each call series in our position.

The trade I advised yesterday from 1192.25 would have allowed you to get short two ticks off the intraday high, and to reap a paper gain thereof of anywhere from $200 and $550 per contract. (Some of you may still be short if you followed my advice to swing for the fences by holding at least a small portion of the original position against an adjusted, 1993.00 stop-loss.)  Let's see if we can do it again tonight, bottom-fishing a Hidden Pivot support at 1177.75 with a bid there and an 1176.75 stop-loss.  On the 3-minute chart, the coordinates yielding that target are: A=1193.00, B=1182.50, and C=1188.25. _______ UPDATE (10:40 a.m. EDT):  The pivot at 1177.75 evinced no support whatsoever, and so we were stopped out with a 1.00-point ($50) traidng loss. This implies more weakness ahead, but buyers could negate it with a thrust exceeding 1188.25.

(Today’s commentary, from our friend Steven George Fair, a frequent contributor to the Rick’s Picks forum, dares to challenge the ivory-tower qualifications of Ben Bernanke to run the U.S. economy from his aerie at the Federal Reserve.  Sure, Steven’s just blowing off steam --but we’re letting him do it here because it’s so obvious that Mr. Bernanke,  for all of his academic accomplishments, has so badly botched his mandate to keep the money system stable that the U.S. economy may not get out alive. RA) Resume of Ben Bernanke Federal Reserve System 2005-2006    Chairman of the U.S. President’s Council of Economic Advisers 2002-2005     Board of Governors of the Federal Reserve System 1990-2002     Member of the Academic Advisory Panel 1987-1989      Visiting Scholar, Philadelphia 1989-1990     Visiting Scholar, Boston 1990-1991, 1994-1996    Visiting Scholar, New York Teaching 1996-2002   Chairman, Princeton Dept. of Economics 1985-2002   Professor of Economics and Public Affairs, Stanford 1983-1985   Associate Professor of Economics, Stanford 1979-1983   Assistant Professor of Economics, NYU Department of Economics 1989-1990, 1993 Visiting Professor of Economics Education, MIT Education 1979    Ph.D. in Economics, Harvard 1975        B.A. in Economics, Summa Cum Laude, Harvard Awards and Achievements Harvard:  Best undergraduate economics thesis; outstanding senior in the Economics Department.  Guggenheim fellowship. Sloan fellowship. High school valedictorian. Received a 1590 out of 1600 on the SAT.  Self-taught calculus. South Carolina state spelling bee winner. Books Authored: Essays on the Great Depression; Macroeconomics textbook; Principles of Economics; Principles of Microeconomics; Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment. ***** All Theory, No Experience Our Fed chairman is certainly no slouch, as his resume makes clear. No one would dare question the intellect of the man.  No one would dare challenge his education under the cadre of theory-producing progressive think-tanks. But what do we really have from Ben Bernanke other

Practically everything but the dollar was up Sunday night, and although there was little exuberance behind the buying in index futures, Gold and Silver contracts were well off the launching pad. Neither move is impulsive yet on the hourly chart, but I've provided benchmarks for both to help you recognize when bulls are in the clear.

Look for a tradable peak at exactly 1192.25 on the next thrust.  That's a single tick lower than the target given here earlier, and it can be shorted with a stop-loss as tight as 1193.25.  If you're looking for a way to enter with the uptrend, consider doing so via camouflage on a pullback to 1174.75, the 'X' entry point of a lesser pattern.  The midpoint of the larger one is 1182.75, and a decisive move past it Monday morning, particularly on a gap, would all but guarantee a move to at least 1192.25. ______ UPDATE (2:19 a.m. EDT):  Okay, I'll admit it: The idea of hacking off my right arm if the futures failed to rally to at least 1192.50 seemed pretty ghastly. Fortunately, I won't have to make good on my promise from last week, since the futures, driven by the usual gang of Sunday night pederasts, drivelers, lobocks, and parepithymiacs, have spiked to exactly 1193.00 so far this evening, triggering the short advised above.  Since three ticks were risked theoretically at the outset, we needed at least three time that -- or nine ticks (2.25 points) -- on the pullback to implement a no-loss-likely trailing stop on a single-contract position; and/or to take a partial (50%) profit on a multi-contract position.  In either case, if you want to be ultracautious, consider stopping yourself out if a bullish impulse leg is formed on the three-minute chart; on the five-minute chart if you want to be slightly more daring; or above the 1193.00 high if you want to swing for the fences.  Meanwhile, since the futures have already pulled back to 1188.50, making the short profitable on paper, I'll turn the management of the trade over to you and say good night!  

With China’s central bank in tightening mode, the bad guys had their best chance in months to knock down the price of gold last week. Their best efforts proved feeble, however:  When the dust had settled, gold quotes were down just five percent from the record $1388 peak recorded on October 14.  And although Silver fared somewhat worse, falling eight percent over the last seven days, even in the throes of this relative weakness, Comex futures resisted getting shoved lower for more than a single day at a time.  “Up” days alternated with “down” days, suggesting that the playground bullies of the precious metals world – i.e., Fed-sanctioned bullion bankers -- were having trouble suppressing the price of precious metals, gold in particular.  Indeed, if last week’s moderate decline was the worst damage they could inflict on bullion when the news was on their side, then we shouldn’t doubt that precious-metal prices will soon be bounding higher once again. The announcement last week that China’s central bank would boost the yuan lending rate by 25 basis points was like a kick in the teeth to global markets that had been wafting blithely skyward on the prospect of perpetual global easing. China has good reason to shun the party, however, since, even in weak fiscal quarters, GDP growth is running at eight percent or better. Last week’s announcement was an attempt to rein in speculation and to quiet inflation, and it should have surprised no one that bourses around the world reacted hysterically, as is their entrenched habit even when the news is stale from anticipation. This time the dollar’s response was worse than merely hysterical, however, since the greenback initially rose sharply on news that should have caused it to fall (i.e., stronger yuan = weaker dollar).  Go figure --