How a ‘Bad’ Trade in Gold Made Subscribers Money

A key goal of Rick’s Picks is to offer trade set-ups that risk relatively little even when we are wrong.  This is of particular importance because our subscribers tend to be overly bearish on stocks and overly bullish on gold. Prices for the latter have been slipping for a month, and although that might discourage fair-weather buyers, it has only made our gold bugs more eager to try bottom-fishing with each new selloff. And with stock averages now entering their fourth consecutive year of stupidly rising prices, Rick’s Picks subscribers have been keener than ever to short that diabolically elusive Mother of All Tops.

We tried this for the umpteenth time yesterday, buying put options just as the QQQs were topping pennies from where expected. We’ll get to that trade in a moment.  But first, let’s talk about the trade in Comex Gold, since it illustrates how one can swim against the tide, buying the dips and dives in bullion without getting hurt even when the selling turns ugly, as it all too often does. We’d put out a buy recommendation in gold futures Tuesday night that was based on some precise “Hidden Pivot” correction targets in the Comex April and June contracts.  Ordinarily, we  tell subscribers to initiate such trades using the “camouflage” entry technique they’ve learned at the monthly Hidden Pivot Webinar. [Click here for details and a $50 discount for the April class.] This time, however, the bearish targets looked so appealing that we sanctioned dispensing with “camouflage” and simply buying either the April or June gold contract with a five-tick stop-loss. This entailed, in the case of the April, placing a bid two ticks above a 1669.90 Hidden Pivot target and using a stop-loss a hair below it, at 1669.60.  In the actual event, the micro-tight stop-loss proved more than adequate when the futures bounced $7.80 from a 1670.10 low.

If you had ridden one contract the entire way, the trade would have produced a gain of $780.  In reality, based on guidance disseminated to subscribers via bulletins intraday, those who bought four contracts at the Hidden Pivot support could have taken profits enough on three of them to reduce the cost basis of the fourth to 1659.90. The March futures ultimately got pounded down to 1656.00, but we’d already moved the stop-loss to 1666.20. Granted, the theoretical profit of $630 per contract was chicken feed compared to the $5,900 we might have made had the futures gone the “right’ way and rallied to a 1710.80 target.  However, the fact that we made a theoretical profit trading from the long side on a day when gold quotes got hammered was hardly a misfortune.

GDXJ Stopped, But…

Similarly, coming in Tuesday, we held a bullish position in GDXJ, the Junior Gold Miner ETF following a trampolined bounce off a 23.90 low last week that lay three cents from our Hidden Pivot correction target. The rally to 25.88 was a doozy, and although we tried to sell some call options against our stock near that price, we narrowly missed before GDXJ began a slide all the way down to $23.76 during the last two sessions. Bad news?  Not quite. We’d expected the relapse and had told subscribers to be alert to another buying opportunity at an even lower price if the first trade got scratched. [Click here for a free trial subscription if you want to know exactly where we expect this bottom to occur.]

Also yesterday, some subscribers reported buying May 68 QQQ puts when the “Cubes” came within 14 cents of a 68.65 rally target disseminated a while back. That position is still “live,” by the way — and profitable on paper. However, if the QQQs should suddenly reverse and lunge to yet another new recovery high, we are unlikely to lose on our bearish bet simply because subscribers, by taking a partial profit already, have reduced the cost basis of the puts to 1.34 from an initial 1.56.  And although we are likely to be wrong, wrong, wrong about this top being the end of “The Mother of All Bear Rallies,” what do we care as long as we can continue to get in and out of bullish and bearish trades without getting dinged even when things go awry?

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  • Rich March 29, 2012, 10:28 pm

    Gary and Rick might be amused I bot some SPY calls today and had to look up Cohiba…

  • Jill March 29, 2012, 9:50 pm

    We are in a plutocracy. Transparency would mean we dispense with voting and just have every political official bought and their salary paid directly by the highest bidding corporation or indiviudal. It would be the same as we have now, except it would save some money on politicians’ salaries and maintenance costs for voting machines.

  • Jill March 29, 2012, 9:45 pm

    Well, Gary, you’ll be richer than he is, if you keep predicting the market correctly.

    I have to hand it to you. You were bullish when most others were poo pooing the rally. Congrats on making good coin.

  • Jill March 29, 2012, 7:21 pm

    Gary, you have an interesting way of putting things. The top 1% is indeed getting subsidized by the middle class, as you say.

    BTW, are you by any chance the Gary Leibowitz who is a bankruptcy attorney?

    • gary leibowitz March 29, 2012, 9:23 pm

      I wish.

  • Bradley March 29, 2012, 4:40 pm

    Survival of the fittest.
    “Now we see the violence inherent in the system”

    • John Jay March 29, 2012, 5:49 pm

      “Bloody peasants!”

  • John Jay March 29, 2012, 2:20 pm

    I doubt gold or silver will fall very far.
    There are customers from mom and pop to Central Banks, from Manhattan to Calcutta waiting to buy some.
    On the political front lets see if the US Supreme Court has finally found its backbone and starts to defend the Constitution. Even a 5 to 4 vote would be welcome.
    How far we have fallen in the last 30 years. It is bad enough to live under the Feds ZIRP Doomsday Machine, while at the same time our Civil Rights are constantly under attack. Obama Care getting the hook would be good news indeed!

    • gary leibowitz March 29, 2012, 3:27 pm

      Survival of the fittest. Who needs government health care anyway. I say we should take away that silly subsidy called social security. Look at all the savings we could have if we didn’t subsidize the poor, elderly, jobless, weak minded. In the good old days the family took care of this. No need to get the government involved.

      If only the weak minded government officials didn’t cave in after the great depression. Had we allowed the greedy wall street brokerage houses, insurance companies and banks to deal with their own mess we would be so much better off. The homeowners that are in trouble today should have known better. Had we allowed nature to take its course we would be able to use our gold bullion as barter today.

      What a bunch of ninnies. The golden era is lost forever. Minimum wage, child welfare, environmental protections, worker safety, etc. are all just another reason for the fat bureaucrats to find ways to spend our money. They did finally do something right. Bring back the entrepeneurial spirit by cutting taxes on the people that create wealth. The days where the rich had to pay their hard earned money back is gone. Afterall, it is the middle class that need to stay where they are. No need for mixing class’s up.

      Lets hear it for the NY and NJ governors that believe a tax cut for the top end is needed immediately. Cutting public school money should have been done a long time ago. We don’t exactly produce many productive individuals from that system. The genius idea of making teachers responsible for the childs learning ability is a great way to get rid of government involvment in education. The other great idea is to blame unions for our problems. Getting rid of government payouts, so they can give more back to the most productive among us. Whats wrong with that? Good thing people are too dumb to realize that the wealthy have never before in our history received such a boost in their bottom line, while everyone else is losing ground. Yes, that IS the American Way.

      Why I suspect that as we fall into another great depression these bunch of government officials will be a lot smarter then they were in the 30’s. The propaganda is already working. Blame the blameless, divert attention and anger away from the people that control this country.

      &&&&&&&

      At last, a glimpse of the inner Gary. I agree with just about everything you’ve said, of course, although I’m surprised you didn’t save it for Sunday, April 1. Cutting public school money would be a great place to start, as you have facetiously suggested, since per capita spending on elementary and high school students correlates almost inversely with their academic performance. New Jersey outspends every other state in this category, and just look what it’s done for the schools of Newark, Camden and Atlantic City. RA

    • fallingman March 29, 2012, 7:34 pm

      Oh please.

      “Government is a disease masquerading as its own cure.” – Bob LeFevre

    • Robert March 29, 2012, 8:57 pm

      Gary-

      I know it was satire, but have you stopped to evaluate that the basis of your statement above is the preservation of the most primary form of ethics?

      Yes, private enterprise works, and government should only exist with the consent of teh governed, in order to promote fairness (and ethics) in the endeavor of private enterprise.

      That’s it.

      Things begin going awry when (unethical) people begin bending governments “fairness” mandate in the direction of a personal agenda, and then leverage this bias to promote greater personal gain (cleverly disguised as the “common good”)

      Private Enterprise works because everyone has a choice: Don’t like what I’m selling? Don’t buy it. Think I’m a crappy plumber? don’t hire me to fix your sink…

      However, then end result of this is that a natural Darwinian “advantage” begins to surface eventually. The best plumbers become the richest plumbers, and the marginal plumbers remain in the margins, and it is at THIS POINT that government always goes off the rails, because once the marginal plumbers outnumber the better plumbers, they “collectivize” into political groups (unions, PAC’s, etc) that serve no purpose other than to jeopardize the efforts of the more productive plumbers from doing their best…

      It’s as if some people believe that human development should not be “allowed” unless everyone develops together and at the same pace…

      This is a clear violation not only of natural law (survival of the fittest; which you may argue that humans are supposed to be “above”) , but it is also a clear violation of the personal individual rights of the better plumbers to meet their fullest potential.

      ergo: Collectivism (in any regard) is the first pavestone laid on the path to subjugation and serfdom.

      For the species, it can only lead to Terrestrial Dolphinhood…. 🙂

    • gary leibowitz March 29, 2012, 9:38 pm

      The school system has absolutely nothing to do with money thrown at it. Yes I agree. It also has nothing to do with so called teacher performance. Can you imagine blaming the American Auto Industry on the american workers. Perhaps if they had a performance test every year the industry would improve. Now that is as absurd as blaming teachers for the performance of their students. Lets not mention that the poorest and most disfunctional family groups happen to get the lowest scores. man what a shocker. Can’t blame the parents since it’s not politically correct.

      The disbanding of every single union, pension obligation, and social welfare would not have peoduced a different outcome then what we have today. Greed and the lack of, or enforcement of regulations is what caused this. Is anyone surprised that every single time we have a major crisis the disparity between the class is at the largest.

      Why not just put in place total transparency as a political figure. Under the microscope. It was never meant to be a money bonanza for the luck ones to get elected. It isn’t a lottery system. The original intent was for “sacrifice” for the good of the country. If this was ever to take place there would never be the heated blame game diversion between democrats and republicans. Wishful thinking, a dreM

  • Rich March 29, 2012, 3:00 am

    Rick, your last two essays demonstrated the value of money management:

    Sometimes the best way to double our money is to fold it and put it into our pocket…

    • Rick Ackerman March 29, 2012, 8:08 pm

      Let’s not forget, Rich, that sometimes the best way to use money, lest one’s trading profits become abstracted, is to treat oneself to a Cohiba.