March 2012

The week ended on an encouraging note for bullion investors, but can we trust this rally? Only with caution. Our hunch is that it was a false start and that precious-metal futures and mining stocks will re-test their recent lows.  This puts in doubt a profitable long position we’d recommended  in GDXJ, the Junior Gold Miner ETF.  Our suggested entry point at 23.93 was hit on Thursday, three cents from the low. The number is a “Hidden Pivot support” that we’d disseminated to subscribers when GDXJ was trading above $26. We’d like to think the trade will work out beautifully, meaning an eventual doubler to $50 a share. Even so, we’ve already taken a precautionary step by closing out half of the initial position on the very small paper gain that existed prior to yesterday’s rally. Although we’ve characterized our short-term bearish outlook as a “hunch,” it is buttressed by technical reasoning.  What concerns us most is the heavy look of bullion-sector charts even after Friday’s rally. Indeed, there is such clarity in the larger, downtrending patterns on these charts that their respective downside targets look almost magnetic.  You can see this in the GDXJ chart above – and you don’t need to be a graduate of the Hidden Pivot Course to sense the earnestness of the selling. The ABC price points established a bearish Hidden Pivot target at 22.74 that lies $1.16 beneath the low where subscribers were advised to get on board. Notice as well that the upper red line – what we call a “midpoint support” – appears to have mutated into resistance. Not Goldman Sachs Now, if this were a stock that we love to hate -- Goldman Sachs springs to mind -- we’d probably tell subscribers to reverse their long positions and go short near

We shouldn't allow ourselves to be seduced by Friday's rally, since the larger downtrend had crushed a Hidden Pivot midpoint support at 31.680 with ease a day earlier (see inset).  Camouflageurs can attempt to get short near 33.385, the lower green line where a short to 30.270 was initially signaled. However, the hourly chart would swing back to bullish if buyers can push this vehicle above 32.495 today. The importance of that number is also shown in the chart.

Two weeks of range-trading have sapped my enthusiasm for trying to get short at a potentially important top.  Last week's high fell nearly five points short of the 1412.75 Hidden Pivot I'd had in mind, and the duel between bulls and bears since has been too feeble to care about. To be sure, bears held a small edge when trading drew to a close last week.  But bulls could parry with a mere 5-point rally that would even things up.   The chart shows what this would imply, but also a potential 'camouflage' opportunity from the long side for nimble pivoteers.

When I introduced Camouflage Trading two years ago, the Mother of All Bear Rallies was already a year old. As such, we haven’t gotten much practice applying the technique to trades from the short side. Is it time to start honing our chops in anticipation of a resumption of the secular bear market? My answer is no, not yet, for reasons that are made clear in this lesson. We also deconstructed a trade in gold that had been recommended the night before, and then finished the session with a look at Crude Oil futures.

A Hidden Pivot target at 31.230 evinced little support, shortening the odds of more weakness down to at least 29.355, a key Hidden Pivot support noted here earlier. On the way south, the futures will likely have one more chance to turn around -- at 30.270, the 'D' target of the pattern shown. Its p sibling at 31.680 got crushed yesterday, so the burden of proof will be on bulls as the week draws to a close.  Night owls looking to 'camo' their way short should note that tonight's rally has come up to the exact p midpoint of the bearish pattern shown.

We're slightly long in GDXJ, the Junior Gold Miner ETF, but there's a consolation prize if we wind up scratching the trade at the 22.79 stop-loss advised.  For details, check out the chart accompanying today's GDXJ tout. It identifies a very promising spot to try bottom-fishing again -- a Hidden Pivot support that is a back-up-the-truck number as far as I'm concerned.

We bought 400 shares yesterday when GDXJ bottomed within three cents of a 23.93 correction target flagged here a while back. After selling half the position later in the session for 24.07, we hold two round lots with a profit-adjusted cost basis of 23.79.  Retain the stop-loss at 23.79, since a breach of Thursday's low could spell more downside to 22.74, a Hidden Pivot support whose provenance is shown in the chart.  It looks like a back-up-the-truck number to me, and that's why I'll recommend bidding for 400 shares @ 22.81 bid, no stop; or buying 800 shares via camouflage. I'll help you with this if I'm at my desk with my screen alert triggers, so stay tuned. _______ UPDATE (2:05 p.m. EDT): A rally has put our 200-share position (or multiple thereof) nicely in-the-black, although it's now possible we won't get a chance to buy more shares at fire-sale prices. For what it's worth, the rally was not quite as powerful as it may have seemed, since it has yet to exceed any prior peaks on the hourly chart.  It would take a print at 25.46 to turn the chart bullishly impulsive, and one at 27.34 to negate the 22.74 target.

Thursday's rally was continuing into the night session, promising to reach a minimum 1650.30, the 'D' target of the pattern shown. That much is known. As you can see, however, buyers will need to do just a little better, pushing above the last-gasp peak #1 at 1652.30 recorded before bulls received a drubbing yesterday.  Regardless of how things turn out, leveraging a 'b-c' pullback from just above the #2 external peak would be worth a shot for night owls seeking to get long.  (Click here for information about the upcoming Hidden Pivot webinar and a coupon good for a $50 discount.)

Put the 1412.75 target out of mind for now, but please note that the futures' failure by nearly 5 points to reach that Hidden Pivot is not a healthy sign. Bulls could easily get back on track today with a push merely to 1398.25, but failing that, they could grope their way 20 points lower today before finding traction. Night owls should look for 'camouflage' opportunities to get long via b-c pullbacks from in-between the closely spaced series of peaks labeled in the chart.