December 2011

Yesterday's monster rally fell just shy of the 1240.00 target I disseminated in a morning update, but if the futures break loose today and close above it, that would augur more upside to as high as 1284.25 (aka 'D') over the near term. Our trading bias would be aggressively bullish above 1240.00, but camouflage opportunities derived from the hourly chart may be limited. At present, the best of them would seem to lie in the 1233.75 peak highlighted in the chart. A 'b-c' pullback from a few ticks above it would offer a buying opportunity that shouldn't be passed up if the standard 'camo' conditions are met. I've sketched this out hypothetically for your further guidance and will provide a tracking position if things play out more or less as imagined. _______ UPDATE (10:08 a.m.EST):  There were no subtle camouflage opportunities such as the one I'd drawn, since DaBoyz greedily squeezed shorts for all they were worth overnight, creating a too-obvious impulse leg in the process. It is still valid, by the way (60m, A=1195.50 on 12/19, and B=1249.00, C=?), so bears shouldn't get their hopes too high merely because stocks are falling this morning.  A 13.50-point upthrust now from anywhere north of 1215.50 should be viewed as the possible start of a much bigger move with 40 points of additional potential. Camouflageurs should plan accordingly.

Should I mention that yesterday's 337-point rally was not impulsive on the larger intraday charts? Check out the 240-minute bars if you don't believe me. Another measly 31 points would have done the job, but it looks like the panic-stricken shorts who powered yesterday's wilding spree just didn't have it in them.  My hunch is that the rally will prove to have been a one-and-a-half-day wonder after bears have done their puking Wednesday morning. Still, because the daily chart actually is impulsively bullish, we'll have to treat the expected pullback with the same deference today's commentary has accorded Kim Jong Il.  Allowing for the most bullish scenario I could possible see over the next eight trading days, my maximum rally target would be 12760, subject to midpoint interference at 12248.

U.S. stocks showed unbridled enthusiasm yesterday for the changing of the guard in North Korea, tacking 337 points onto the Dow Industrial Average. Could heir apparent Kim Jong Eun be the Man of Peace the world has been waiting for?  It sure looked that way on Wall Street, where a wave of optimism about something fabulous swamped sellers from the opening bell. Even if the young Kim – reportedly a huge basketball fan like his dad --  merely slows North Korea’s mischievous transfer of nuclear weapons technology to Iran’s mullahs, jihadists and terrorists around the world, it would be the best Christmas present our crisis-fatigued planet could receive. Small wonder, then, that North Koreans were sobbing in the streets as they grieved the loss of their Dear Leader.  And very dear he must have been, to judge from the tens of thousands of mourners who lined up for hours to pay their respects as Kim Jong Il lay in state, ensconced in a glass-covered coffin. Was he smiling when he died?  We couldn’t tell looking at the picture below, although we won’t be surprised if a future biographer reveals that Kim, who’s name means “regal hill,” was a world-class kibitzer in private. A few churlish newscasters said the distraught mourners looked like they were putting on an act. But then, the network anchors have always had it in for the Kims, especially after Richard Nixon died in 1994 and left them with a large surplus of loathing and revulsion to expend. North Korea’s leaders were bound to be a target of their opprobrium, given the Kim dynasty’s well-known penchant for cute girls, Cuban cigars and Remy. Granted, most of North Korea’s citizens are lucky to get 500 calories of food in a given day. But is that any reason to

The rally has made a mockery of the headline on today's commentary.  At the same time, it suggests that shorts had grown complacent, since bulls have never been capable of mustering this kind of buying power. Nonetheless, we must respect the fact that the upthrust is bullishly impulsive on the hourly chart and that it could go all the way to 1240.00 before hitting a Hidden Pivot impediment (A=1177.25 on November 30, B=1266.00 on December 8 = 1240.00 'p').  The proximal cause of this short-squeeze is an apparently successful auction of Spanish debt and an uptick in housing construction.  Interestingly, the uptick is mainly in multifamily apartments, implying that the powerful bull market in residential rentals is starting to get legs.

Minor targets were exceeded so easily yesterday that we should skip the small stuff and consider bigger bearish patterns. One projects to 26.010, and we should consider it a done deal if the 27.970 midpoint support with which it is associated gives way easily. Both numbers can be bottom-fished, but more immediately we should look for subtle opportunities to get short. Just such a one was manifesting itself on the hourly chart as we went to press, and I'll therefore recommend shorting on a sell-stop if the 28.855 entry trigger is hit. Take profits on half the position at the 28.755 midpoint, and on another 25% at D=28.550.  With the single contract that would remain from an initial position of four contracts, you should use a bullish impulse-leg stop on the one-minute chart until morning.  ______ UPDATE (2:13 a.m. EST): The short triggered around 9:45 p.m. but was stopped out at around 1:26 a.m. The theoretical loss was 11 cents, or $550 per contract.  There was no chance to take a partial profit to reduce the risk, since the downtrend did not quite reach the 28.755 midpoint support of the pattern where we would have done so.  In order to learn from this trade, I've substituted a 15-minute chart for the 60-minute so that you can see clearly where it went awry.  To begin with, the 15-minute chart was where we should have looked for camouflage, not the hourly.  And, as you can see, the 'X' where we initiated the short trade on the hourly fell within a bullish A-B impulse leg on the 15-minute chart. Under the circumstances, camouflage if properly applied would have told us to get long rather than short -- and with much less risk.  If you took this trade, please let me know in the

I'd be surprised if the next big rally doesn't come after late September's 1543.30 low has been broken, but we should be ready for one nonetheless.  Although there's no compelling, big-picture reason to try to get long at these levels via camouflage, the felicitous tedium of retracement rallies could provide us with some very low-risk spots to attempt it. For a precise idea of what I'm talking about, check out the annotated chart (inset), which shows two bullish patterns tied to a look-to-the-left external peak at 1611.40. (And yes, I know it is not a strictly-legit peak, since there is no stick-down low preceding it). Subtleties like the one shown, with a big-pattern impulse leg that has qualified as such by a single tick, are exactly what we should be looking for to get long.

The chart reproduced alongside yields a worst-case low of 1.2507 for the Euro over the near-  to intermediate-term.  The downtrend could breach that Hidden Support and go lower, of course, but it seems unlikely that this will occur without a tradable bounce from very near the pivot. That is not an exact number that can be used to bottom-fish with the usual penny-ante stop-loss, by the way, since it comes from coordinates taken from a composite chart. Still, our target should be close enough for government work if we want to bottom-fish with camouflage cover. More immediately, we should be look for ways to get short, presumably at the p midpoints and d targets of minor rallies. If there's any interest in doing so in the chat room, I'll put out some "live" numbers in real time.

No change. We hold two January 54-51 puts spreads for a debit of 0.07 and two January 53-50 puts spreads for a debit of 0.03.  We’re using a 52.13 downside target for now, but the Cubes would need to go lower before we think about taking off the position for a quick profit.  As noted here earlier, total risk is limited in theory to $20 plus commissions,  but we could make as much as $1200 if things go our way. Effectively, we have gotten 60-to-1 odds on the QQQs trading 50 or lower by January 20. ______ UPDATE:  The value of our position barely upticked over the five weeks we held it, since the Cubes, far from starting 2012 with a collapse years overdue, simply wafted higher. Our trading loss, not exactly staggering, was $20, but that shouldn't discourage us from making the same bet again and again and again, since one of these days stocks are going to fall and keep on going.

Someone in the chat room appears to have filled a bid down around 1196.50, a Hidden Pivot highlighted during Monday's impromptu online session. Although I'm not going to track the position because the trend is too well developed, perhaps we can try to get short when buyers run out of steam.  We haven't done much of this, mainly because it's been easier to nail swing lows that go against the trend in a presumptive bear market.  For starters, let's use the point 'X' of the downtrending pattern shown to get aboard. Entry will need to be via camouflage, though, since the implied theoretical risk here is about 2.50 points, or $125.  As I explained during yesterday morning's sessions, we want to "do" the trade in whatever time frame yields a downtrending abc pattern with no more than five ticks ($62) of entry risk from point 'X'.  I'll establish a tracking position for your further guidance if there's an entry signal that meets all of our criteria. _______ UPDATE (10:02 a.m. EST): Today's wicked upthrust has caught shorts with their pants down. The proximal cause of this squeeze is an apparently successful auction of Spanish debt and an uptick in housing construction.  Interestingly, the uptick is mainly in multifamily apartments, implying that the powerful bull market in residential rentals is starting to heat up -- to get legs, even.  Technically speaking, the short squeeze is bullishly impulsive on the hourly chart and could go all the way to 1240.00 before hitting a Hidden Pivot impediment (A=1177.25 on November 30, B=1266.00 on December 8 = 1240.00 ‘p’).