August 2011

With a minor, unachieved correction target at 35.660, Silver looks vulnerable. (You can bottom-fish there with a tight stop-loss. ) Bulls and bears have created 'dueling' impulse legs on the hourly chart, but it would take a print at 40.755 today for the good guys to gain the upper hand.  That's a tick above a tiny look-to-the-left peak that doesn't even express itself as such on the hourly chart (see inset).

'Dueling' impulse legs on the very lesser charts suggest a mixture of panic and confusion. To wring some meaning from it all, I'd suggest using the impulse leg shown, with its 1757.00 midpoint as a minimum upside objective for the very near-term, and a 1773.80 'D' target as follow-through potential.

After-hours trading has pushed the futures slightly above a look-to-the-left peak at 1178.25, creating a possible opportunity to get long via camouflage. A proper pullback would need to come down to at least 1146.00, but if and when this occurs, Pivoteers should look to get long on a conventional 'X' trigger.  In the accompanying chart, I've sketched out a hypothetical scenario for your further guidance.

Yesterday's 600-point bounce created bullish impulse legs on the lesser intraday charts although -- surprisingly -- not on the hourly chart (see inset).  I see little value in putting out trading points ahead of whatever wildness obtains on Wednesday. However, a 50% retracement of the plunge from July 22's peak would put the Dow at 11678, while a 61.8% retracement would imply 11931. We can use the lower number as a minimum upside objective for this dead-cat bounce, but either number can be shorted using camouflage.

Twenty-nine months into the Mother of All Bear Rallies, it was unlikely that mere mortals would predict the precise start of the stock market's collapse, inevitable and long overdue though it may have seemed.  However, no one should be surprised by the selloff’s ferocity, nor by the prospect that the first wave down may have run its course in mere days. Traders who have been waiting for the Big One for years undoubtedly are re-discovering how hard it can be to reap a windfall even when you are right about the trend. We think shares still have a long, long way to fall, although we harbor no illusions that the Mother of All Bear Markets will be easy pickings. That much should have been obvious yesterday, for not even bears with brass cahones could have withstood a spectacular short-squeeze rally that saw the Dow trampoline from lows around mid-morning to a final-bell peak 600 points higher. Five hundred of those points came in the final hour alone. The proximal cause of this wilding spree was a Fed announcement that short-term rates would be held near zero through mid-2013.  Although no one, not even Paul Krugman, could believe at this point that more easy credit will have a positive effect on the economy, traders bought the news anyway. As we have explained here many times before, they did so not because the news was bullish, but because they expected others traders to react as though it were. Bears would have found it no easier to catch a ride south a week ago, when the onslaught of selling began.  Three days earlier, on Friday, a strong rally trapped bulls and wrung out bears. But the hook was set Sunday night when news of a debt-limit deal sent index futures into a second

http://vimeo.com/27498226 Please note that this corrects an erroneously published earlier version. Sorry for the inconvenience - MJ With the Dow in an apparent 200+ point dead-cat bounce, we looked for real-time trading opportunities in the E-Mini S&Ps, Gold, Silver and Silver Wheaton. We also determined that Bank of America’s low on Monday at 6.31 had come within spitting distance of a major Hidden Pivot support.

We hold a thousand shares purchased for 1.31 just before the price of Copper began to collapse.  Although my source for the recommendation has reaffirmed his enthusiasm for the stock (see below), the very bad timing of it has worked against us.  As a result, and because I trust my technical tools far more than the opinion of any analyst, I will no longer publish "tips," hot or otherwise, without a compelling Hidden Pivot rationale for getting us aboard. I don't doubt that Baja offers good value, just as my source says, but even "great values" can get trashed if investors are in the wrong mood. Be that as it may, here are a few encouraging words excerpted from an August 4 report on Baja from Haywood Securities: "Annual production during the first 6 years of full production is expected to average 125 Mlb of copper, 3.7 Mlb of cobalt, and 25,400 tonnes of zinc sulphate monohydrate (100% basis). Our model includes a life-of-mine average total copper cash cost of US$0.40/lb net of cobalt and zinc credits, which places the project within the lower half of the global copper cost curve. "Baja's portion of this production is 70%. Baja has less than 400 million shares fully diluted and the project a minimum mine life (albeit at somewhat lower grades) of 25 years." Adds my source: "I think that Haywood's price targets are very conservative at current copper prices." Officially, we'll continue to hold the stock. Please be aware, however, that, with the stock's recent breakdown, the 30-minute chart is indicating more slippage to as low as 0.842 over the near term.

We hold the August 175-170 put spread twice for a 0.05 debit -- and now two August 175 calls acquired yesterday for 1.60. They are of little concern, however, since our put spread will only increase in value if a weak IBM causes the calls to fall. For now, offer the put spreads to close for 4.00 with 0.20 of discretion. For the order to fill, the August 170-175 call spread would have to be trading for around 1.00. (Note: If you can buy the call spread at that price, I'd suggest doing so instead of trying to close out the puts. This would effectively leave us with no position in the August 175 calls, but it won't be terribly risky to leave short 170s uncovered for a short while.  In any event, if there are changes to be made, I'll signal via an intraday alert.) _______ UPDATE (4:04 p.m. EDT):  Until I've heard from a few subscribers, I'll tentatively record an opening purchase of two August 170-175 call spreads for 1.00.  This shouldn't have been too difficult, since the spread was do-able for as little as 0.87 when the calls were hitting bottom.  Since we were long two August 175 calls in addition to the puts, we are now long two puts spreads (for a 0.05 debit) and long two August 170 calls. This will allow us to short two August 175 calls without risk, and whatever we receive as premium will be "gravy" on top of the $790 profit we have effectively "locked in" on the put spreads.  Accordingly, and assuming your position matches the one I've detailed, you should short two September 175 calls at will.  They are currently trading for around 1.75.

How silly of me to think that because the S&P downgrade coincided with a rally by this vehicle to a moderately important Hidden Pivot target, that -- just maybe -- an important top was in. Perhaps it was just a lack of imagination that caused me to overlook the possibility that speculators would stampede to the supposed safety of the very vehicles that had been downgraded?  Anyway, it is now clear that the 143 target given here earlier is in play, along with the prospect of long-term yields falling below 2.5%.  The bonds seem to be sniffing economic Depression, and who are we to argue?