April 2012

Timely profit-taking on Friday has helped us weather an off-hours avalanche, but we'll still need to manage the risk of what remains of our position: long two contracts @1373.50. Accordingly, I'll recommend exiting a third contract at currrent levels of around 1375.50 and tying the last to a 1372.25 stop-loss.  The two-minute chart would be impulsively bearish on a print at that price, since it would exceed by a single tick the last "external" low short of Sunday night's so-far bottom at 1371.75. Finally, on a one-order-cancels-other basis opposite the stop-loss, offer the final contract to lcose at at 1385.50.  _______ UPDATE:  The stop-loss survived the entire session as the futures traded as high as 1382.75.  If you still have any contracts you're on your own, since the trade has grown too boring and labor-intensive for me. 

Stocks were struggling to get airborne late Sunday night after dive-bombing the tarmac Friday on news that the U.S economy had created a measly 120,000 jobs last month. Index futures traded just briefly on Good Friday before electronic markets closed at 9:15 a.m. for the holiday, but that was long enough for DaBoyz to take stocks down to fire-sale levels on near-zero volume. The E-Mini Dow futures plummeted 120 points in less than two minutes, setting the glum tone when trading resumed Sunday evening. However, our hunch is that shares will not go much lower on the opening, since the dirtballs who work the night shift are so good at shaking down the rubes on ostensibly bad news.  We say “ostensibly” because, for every trader who was disappointed that the alleged economic recovery appears to be losing steam, there were undoubtedly others who saw a new excuse for yet more Fed easing. A cynical calculation, to be sure, since everyone understands by now that even though the central banks have been running wide open for years, it is not benefiting employment, only stocks. Not that Wall Street cares.  Who needs jobs when it’s possible to promote runaway asset inflation with less effort and at a fraction of the cost?  Granted, that’s not the way Mr. Obama and his supporters on Capitol Hill would prefer it, since higher share prices alone are unlikely to fool voters come November. But for the time being, a rampaging stock market still holds the promise of reviving job creation and perhaps even of causing home prices to start recovering. We see neither happening, implying that the stock market could be on shaky ground. For even as Q1 earnings estimates have come down, down, down, the broad averages have barely paused for breath since late November.

Harry's prediction more than  a month ago -- reiterated and amplified in the chat room on Wednesday --  of a tradable low at 46.15  was a near-bullseye, so I'm establishing a tracking position of 400 shares for your further guidance. For now use a 46.18 stop-loss. Please note that there is potential downside to 44.87 if GDX breaks down. _____ UPDATE (2:49 p.m. EDT):  That was quick. We exited on the stop a short while ago. Someone in the chat room asked whether the tight stop might have been a typo.  It wasn't. My intention was to deny GDX the opportunity to play me -- and anyway,"rules is rules."  By now, we should have learned that any trade we do in any vehicle even remotely tied to mining shares should not be based on faith, hope, trust, 'fundamentals', or, heaven forbid, optimism, but on purely mechanical indicators -- with a dollop of cynicism, and another of skepticism, thrown in for good measure.

The 'D' target of the squishy pattern shown -- its 'B' is very 'sausage' -- is 100.36 (or alternatively 99.83), but I wouldn't lean too heavily on it for purposes of bottom fishing.  It's okay for camouflage, but the larger pattern, with theoretically greater potential, is still bullish.

We hold a tracking position of two May 68 puts with a profit-adjusted cost basis of 1.34. For now, stop yourself out if the underlying vehicle trades above 68.29. You should also offer  single contract to close for 2.30. _______ UPDATE (12:25 p.m. EDT): With the market getting pounded for a second straight day, we sold the put option for 2.30. That effectively gives us one free put for each four-lot position acquired initially. It is my intention that this position be held until it pays for your subscription, but for now do nothing further. ______ UPDATE (May 1):  Like perhaps 99.999% of all unhedged puts purchased out-of-the-money by retail customers, these too will prove to have been a longshot bet. Even so, we will have held a risk-free play for more than six weeks on the unlikely demise of the Mother of All Bear Rallies.  Taking the blows easily in stride and surviving to fight again is what it's all about for us permabears, no? Continue to hold the position, since we are still likely to make a few bucks on it -- even with the broad averages surging to new recovery highs.  _______ UPDATE (May 4, 2:52 p.m. EDT): We hold a single May 68 put in the QQQs (or 25% of the original position, based on some multiple of four contracts purchased initially).   Since profits on this trade were earmarked to pay the cost of an annual subscription to Rick's Picks, I'll recommend closing out the single-contract position with a good-till-canceled offer of 3.50 for the put.  If you still hold more than a single put, hang on to at least half the position for a potential home run.

I see downside risk over the near term to as low as 29.940. To come up with this target and a compelling pattern, I took as its point 'B' the first low to breach last January's 31.600 bottom. That is the second most important 'external' low on the chart, after mid-February's 32.715, and that's why I consider 31.090 worthy of anchoring this bearish picture as its point 'B'.  All of this is more easily imbibed visually, so I'll suggest taking in the accompanying chart in a glance.  Most immediately, if further selling awaits, it should be telegraphed via corrective rallies that do not reach their 'd' targets.

Although I'd originally suggested backing up the truck at 22.74, I'll track 400 shares from 22.80 because I was slow yesterday in retrieving the trade, which had been shelved in the archive. I'll also record four August 23.63 calls @ 1.85, since I advised their purchase not only in the chat room but in a bulletin before the options fell to their intraday low at 1.75. Let's offer two of them for 2.25 today, day order, o-c-o (i.e., completion of one order will cancel the other) with a stop-loss on all four at 1.70. (Note, the options must trade for 1.70 before you hit the 1.70 bid.)   As for the stock, if it recedes into the same vortex that is threatening to pull GDX and HUI lower, it would likely mean a final low at 19.66, a Hidden Pivot 'D' shown in the chart. Accordingly, I'll recommend using an impulsive stop-loss on the three-minute chart.  This implies stopping yourself out on any downtrending A-B leg that exceeds two prior lows (one of them internal or better, the other external) without an intervening upward B-C correction.  To see this illustrated graphically, click on the thumbnail inset at right. _______ UPDATE (11:49 a.m. EDT):  We exited the stock on a 22.67 stop for a nominal trading loss of $52, but the option position remains.  This is mainly because they rarely come in for sale. For now, lower the stop-loss on the calls to 1.65.  With physical gold up nearly $20 at one point today, the price action in this vehicle is so abysmal it is dumbfounding. It is one thing for good stocks to be shunned at bottoms, but the level of despair reflected in the mining stocks in particular is beyond rationality.  We'll look to re-enter yet again at a

It was only after I'd prepared the chart accompanying this tout that I realized HUI had breached the pattern's midpoint support at 486.57 by way of a gap-down opening. This very strongly implies that the 'D' target at 418.23 will be reached, notwithstanding the fact that we bought promising lows yesterday in GDX and GDXJ.  The only potential mitigating factor I can find in the chart is the prospect of a final low coming not from the point 'A' indicated, but from the one just beneath it at 605.37.  That pattern would play out to 427.48, somewhat better than the worst-case 418.23.  In any event, you should be ready to bottom-fish in both spots -- aggressively if by camouflage.

The heavy look of two gold vehicles analyzed in today's touts -- HUI and GDX -- strongly suggests that this selloff has further to go. Note as well in today's touts that May Silver could have farther to fall.  Under the circumstances, we'll hold off patting ourselves on the back after nailing some nice lows yesterday in GDX and GDXJ, lest we be distracted from managing risk if these vehicles should fall anew.