June 2011

Will Silver drag down Gold?  Or will the opposite occur, as the latter heads higher toward a 1561.50 target that sits $10 above yesterday's short-lived peak?  Both looked heavy at yesterday's close, but we'll reserve judgment until we see how they perform relative to Hidden Pivot benchmarks provided in today's touts.

We hold 300 shares @ 42.01 against three June 40 puts with a 4.00 basis. The stock will have to push above the 37.72 peak recorded on May 10 to revitalize bulls, but failing that, it seems likely to succumb to the gravitational pull of a trendline that comes in today at around 33.48. Our short offer of June 40 calls  for 3.10 -- a riskless sale, since it would give us a "conversion" position --  is a distant longshot at this point, but you should nevertheless bring the offer down to $2 and let it stand.

The tedium of the last three weeks has done nothing to alter the 85.07 target given here at that time. Its midpoint sibling at 95.11 has been closely approached several times, but it will probably take a two-day close beneath it to set the targeted decline in motion.  Alternatively, it would require a print above 105.16 to turn the hourly chart bullish.

Big sellers have been sitting on Comex Silver for more than a week, but their collective weight proved too much for the timid buyers who showed up yesterday. Before we sink into despair, however, let's see how much support the futures pick up at 35.260, a Hidden Pivot support (A=39.470 on May 11) that can be used as a minimum downside target for now.  There's another pivot at 36.185 that could also evince support, but its close proximity to lows recorded on May 24 and 26 make it a less-than-ideal spot to try bottom-fishing.

The 1561.50 rally target given here yesterday proved too ambitious when it gave way to a 15-point pullback from an intraday high at 1551.60. The selloff slightly exceeded the 1538.60 hidden support I'd told you to monitor, and now, with the futures rallying from a 1536.50 low, there has been no easy or compelling entry opportunity for bulls. A small peak at 1545.10 might become usable for this purpose (see inset), but buyers will need to be cautious, since the peak is distinctive enough to attract technical attention besides ours.

While it would be nice to think that yesterday was the beginning of the Big One, the selloff has yet to exceed even a single prior low on the daily chart, let alone the two we require to signal a bearish impulse leg.  Still, because there was no truly bad news to spook the market, the weakness may indeed represent an actual tone change on otherwise tone-deaf Wall Street.  In any case, the futures need fall only another 23 points, to 1290.00, to damage the daily chart; or 34 more points to do some real damage, since that would add a third low at 1279.00 to our count.  Most immediately, however, my minimum downside target is 1291.75.

We searched in vain for news yesterday that might have explained the nearly 300-point drop in the Dow Industrials.  Granted, there were reports of dramatic weakness in home prices and a downward revision in Goldman’s GDP forecast for Q2, to 3% from an earlier 3.5%. But that stuff is old hat, at least in a newsletter world that has always viewed the recovery story as an unpersuasive hoax. And what’s the big deal anyway about a 4.2% drop in home prices when it seems entirely likely they will fall by a further 50% before the crisis ends?  To expect a better outcome is folly when residential real estate has already fallen 35% despite a multi-trillion dollar “stimulus” by the central bank. As for the GDP figure that supposedly knocked investors for a loop, the numbers were never even remotely credible to begin with, extrapolated as they undoubtedly were from the same murky sources that the Labor Department uses to understate unemployment each month by more than half. Why worry about economic reports that nearly everyone except the editors of the Wall Street Journal and the New York Times know are completely made-up?  It beats us. Nor can we fathom why the supposed termination of QE2 later this month keeps surfacing in the mainstream media as a source of angst.  Does anyone actually believe the government will not continue to monetize Treasury debt as though there will be no tomorrow? The Federal Reserve has become Treasury’s biggest “buyer” by far and will soon surpass China and Japan combined in that category. Does that sound like a good time to go cold turkey?  That’s what we thought -- and we’ll lay odds on it. Meanwhile, although some have argued that QE2 has been a bust, who besides Obama, Bernanke and a few

Stocks were in a broad retreat as this session began, with the Dow down more than 200 points. This made for an especially interesting lesson that was entertaining as well. The selloff follows a week in which shares had trended strongly higher, but with a peak the day before that had failed by a small margin to generate a fresh, bullish impulse leg on the daily chart. Silver and Gold were moving in opposite directions, but there was Hidden Pivot evidence the latter would prove strong enough to drag the former higher over the next few days.

If the E-Mini S&Ps achieve their newest rally target, it would imply a Dow rally of more than 300 points.  Our short-term bias will therefore be bullish unless the broad averages signal otherwise on charts of hourly degree.  As always, if the broad averages reach our bullish targets, we'll short them with very tight stops.