July 2012

The hourly chart reproduced alongside should dispel any notions we might have about catching the next wave in Gold.  For in fact there are no waves in evidence at the moment -- other, perhaps, than the sine wave generated by this brain-dead Comex contract in recent weeks. The futures are trading almost exactly where they were two months ago, notwithstanding the crisis in Europe, mounting evidence of a global economic slowdown and  a plunge in consumer confidence around the world.  Perhaps hotter heads will prevail when the markets return to life after a five-day sort-of-holiday in the U.S.?  On the other hand, speculators may have completely forgotten what caused them to binge on paper claims to gold, stocks and crude oil on word last Friday that Europe had agreed to loosen the rules that have governed bailouts up till now.  ("Rules!? When we bail out banks here in America, we don't have no stinking rules!") Like to get on top of the markets in real time? Click here for a free trial subscription to Rick's Picks.

How much higher might Europe’s latest dog-and-pony show push stocks, bullion and oil? All three soared on news last week that bailout funds can now be plowed directly into sovereign debt without the pretense that the money be used to stimulate “growth.”  It’s tempting to say that the markets got it right, discounting Europe’s apparent lurch toward promiscuous, no-strings-attached, American-style monetization.  That would surely be inflationary, right?  In theory, yes. By threatening to walk if Merkel didn’t roll over, Spain and Italy have indeed set the European Central Bank on course to promote a credit blowout whose magnitude would be unprecedented for Europe. Trouble is, this approach wouldn’t be the brazen, hairy-knuckled sort of monetization that Helicopter Ben has used -- not without some success -- to inflate U.S. stock prices. Instead, a substantial portion of the eurofunds would come from actual lenders and not be pulled from thin air as is the Fed’s custom. To underscore the formality of the process itself, it was agreed that the eurofunds will not subordinate private creditors. This amounts to pre-emptive riot control, since private lenders will be able to fall back on the provision without fear of being laughed out of court. (Or do we believe that the Powers That Be would sit idly by as Spain and Italy -- is it too early to mention France? -- go down the tubes before allowing lenders to get stiffed.) So, does Europe’s decision to put Spanish fly in the punch bowl warrant an inflationary explosion in bullion, stocks and energy prices? We think not, mainly because the region long ago passed the point where it can hope to inflate much of anything, even by pumping a trillion euros into the financial system. Try as they might at this, Europe’s economy has begun to

We came to this session with a “live” trade on in Comex Silver that provided us with a compelling vantage point to watch the trade develop in real time. This lesson will be of particular value to any trader using “camouflage” who has wondered how much we can reduce the risk in Silver futures, where $25 ticks can be punitive if one gets it even a little bit wrong. Even though this trade had everything going for it from a technical standpoint, we were nonetheless hard-pressed to find a way that we might have reduced the theoretical entry risk to our established benchmark of $70 per contract.

Thin markets and boring price action seem likely today and tomorrow, the result of a Wednesday July 4 holiday that will have shredded the nation's work ethic, especially on Wall Street during this murderously hot summer. If there's activity in the chat room, however, I may offer an impromptu trading session around mid-morning, so stay tuned.

The stop-loss I'd recommended would have taken you out of the last of four contracts near 28.065 in thin markets on July 4.  Our paper profit on the trade was about $4300 if you impute to it hypothetical gains on three contracts exited earlier.  If you used a wider stop-loss and are still in the position swinging for the fences, there's immediate upside potential to 28.995, a Hidden Pivot target proffered here earlier.

Check out today's tout for September Silver, since it contains a very detailed sketch of a set-up that could get traders aboard with risk tightly under control.  If things play out as shown, this gambit holds high potential, since the projected target would represent an approximately 4% move above early Tuesday morning's highs.

Early Tuesday morning, Silver futures were out-frolicking Gold. While the latter had precisely achieved a minor rally target at 1607.00, the former was trading 17 cents above an equivalent resistance at 27.745 and seemingly game for more. Assuming this is prelude to a robust second thrust, we should use the 28.995 target of the pattern shown as a minimum upside projection for the near term. That would well exceed the 28.650 threshold I mentioned here yesterday as a bullish trigger point. For purposes of getting long, camouflageurs should focus on the two small external peaks that I've labeled in the chart. Between them lies the 28.090 midpoint resistance of the pattern targeting 28.995, and any B-C pullback from within that narrow range would be of the subtle kind that often brings us the best opportunities. _______ UPDATE (9:39 a.m. EDT): The pattern played out BEAUTIFULLY, with a picture-perfect, single-bar B-C pullback from 28.050  to 27.820. Since A=27.390 (10 p.m. Monday), we have a minor rally target at 28.480 in play as of around 9:40 a.m. versus a so-far high of 28.190.  If you caught a ride, please let me know in the chat room so that I can establish a tracking position for your further guidance. _______ FURTHER UPDATE (9:59 a.m. EDT): Assuming four contracts purchased near 27.985, you should take profits on half the position at current levels of around 28.230. Set a stop-loss at 28.065, o-c-o with a closing offer on a single contract at 28.310. An exit at 28.220 would give us a theoretical profit of  23.5 cents that, when imputed to the two contracts remaining, effectively lowers their cost basis to 27.750. _______ UPDATE (11:42 a.m. EDT): Based on a so-far high at 28.400, three-quarters of the original position should have been exited by now.  The

Tuesday's rally blasted through supply on the intraday charts near 1622, creating a bullish impulse leg in the process.  The shallow correction since looks promising for a follow-through to 1643.90 (see inset), but catching a ride via camouflage may require zooming down to the 5-minute chart or less to find your ABC opportunity amidst the tedium.

Yesterday's tired action lifted the futures to an interesting spot: i.e., a single tick from the 1362.50 target shown. The implication is that if the rally does not sputter out and die here, precisely -- if, in fact, it pushes past 1362.25 -- it could keep going all the way to 1404.00 over the near term.  The midpoint associated with that number is 1353.25, and so any pullback to it should be viewed as a buying opportunity via camouflage or with a tight stop-loss.  ________ UPDATE (July 5, 2:33 a.m. EDT):  The futures went on to reach 1370.00, shortening the odds of a further run-up to 1404.00. Camouflageurs should look to do their buying on a pullback to 1362.50.