August 2012

After scuddling sideways for two days, index futures are trading exactly where they were two weeks ago. It would seem that stocks are already on autopilot ahead of Labor Day weekend.  Will they hit the ground crawling come Tuesday?  That'd be my guess if there's 'no news,' but we'll have to wait and see.

Yesterday's low took out the 1404.50 midpoint support of the pattern shown, hinting of more weakness to come.  Assuming nothing happens to change traders' wishy-washy mood overnight, we might expect the downtrend to continue to 1393.25, the 'D' target of the pattern.  You can bottom-fish there, but only using camouflage, since the support lies in the thick of a bunch of "structural' lows made between August 5-13.  Click here for a free trial subscription that will allow you access to all features and services at Rick’s Picks, including real-time updates and a chat room that draws experienced traders from around the world 24/7.

[Sean Rakhimov, editor of SilverStrategies.com, is one of the savviest precious-metals commentators we know – not to mention, an early graduate of the Hidden Pivot Course that we offer each month to traders of stocks, options and commodities. In the article below, he explains why investable quantities of silver are shrinking. Mainly, it’s because some key South American countries have been nationalizing mines more and more aggressively, crimping supplies and scaring away outside investors.  What can we do about it?  With some specific suggestions, Sean advises watching the silver pros and putting our money where they have been putting theirs. RA] For a while, we’ve had a nagging feeling that we’ve been witnessing something profound that the markets have yet to grasp.  We are not talking about a global smorgasbord of events that has been amply covered elsewhere.  As readers might know, our particular interest is in silver, and that is where we see an elephant in the room that has yet to attract any headlines. No doubt most readers are aware of the recent developments in countries like Argentina, Bolivia, Peru and others, with respect to what can be broadly classified as “resource nationalism.” Our general views on the subject were detailed a few years ago.  As discussed by this writer and others, such developments are not new and certainly not limited to silver or even the mining sector.  However, in our opinion, it is in the silver space that these events are likely to have the most profound effect. Why? Because the silver sector is so small and the above-mentioned countries collectively make up a big piece of it. According to CPM Group’s 2012 Silver Yearbook, the countries named above are projected to produce some 170 million ounces of silver this year versus anticipated total global silver production

Crude oil plunged on Monday morning in response to a news item, and the extent of the follow-through, if any, will tell us a lot about the tone of the market.  The drop was sharply impulsive and came two trading days after a three-month high was set at 98.29.  After a retracement of part of the move, we now must watch for confirmation of a pattern at an 'X' point.  Follow-through to a 'D' target would suggest that last week's high was an important turn.  Bullish oil traders, however, should watch for a midpoint buying opportunity.  (Posted by Doug “harry” McLagan)

The gold market recently impulsed powerfully upward and might now be pulling back toward the "window" from which a robust bullish pattern will emerge.  The 'A' point that we should be watching is marked on the attached daily chart, at 1592.10.  On Sunday evening the impulse wave made its peak thus far, seven ticks above a landmark external peak made on May 1.  It was from that high that gold plunged into its first of several tests of the 1525 support area, a level that had been established at the end of last year.  The attachment highlights the 1640 area as a logical place to look for a 'C' point before the uptrend resumes.  (Posted by Doug “harry” McLagan)

Apple shredded a Hidden Pivot midpoint resistance yesterday near 671, shortening the odds of a further run-up to 700. Check out today's AAPL tout for details on how to expand the range of our put-spread position with some call calendar spreads keyed on the 700 strike. (And click here for a free trial subscription that will allow you to follow the action in real time.)

For now, forget about covering the four September 615 puts we shorted for 6.20, since Apple's powerful leap yesterday past the 671.68 midpoint resistance shown (see inset) implies the rally is likely to achieve a minimum 695.24. If that number is indeed reached it's going to somewhat reduce the value of the eight Dec-Oct 620 puts spreads we hold for 14.00. However, we can withstand a little adversity because profits on any September 615 puts eventually covered for near-zero would effectively reduce the cost basis of our spreads to around 11.00. Since we are now expecting a further $25 of upside, let's try to increase the range of our hedge by buying two October-September 700 call spreads for 10.00.  This spread could widen to as much as 26.00-28.00 with Apple at 700, which would effectively reduce the cost basis of our Dec-Oct 620 put spreads by another $4 per, to $7.  You should reduce your spread bid to 9.40 if the stock is trading below 673.00. Note as well that If Apple were to fall from here, our call-spread exposure would be at least somewhat offset by an increase in the value of our put calendar spreads. However, the decline would have to be pretty severe to cause the October 700 calls to be worth less than the $10 we're bidding for the Oct-Sep call 700 spread. Please let me know in the chat-room or via e-mail if you fill, since I don't want to track a position that no one was able to actually buy. _______ UPDATE (August 29, 1:59 a.m. EDT):  A fill at 9.90 was reported in the chat room.  Any others? _______ UPDATE (August 31, 12:59 a.m. EDT): I'm still waiting to hear from a couple more traders before I establish a cost basis for the

Index futures were surprisingly subdued Sunday night, hinting that DaBoyz may not be able to squeeze much more mileage out of Friday's after-hours patent news on Apple.  So far, the stock has bettered last Tuesday's bull-trap high by only a dollar, implying there is still plenty of supply lurking at this level even if the stock feints above it in the first hour or so Monday morning.

We hold a tracking position of two September 126 puts with a profit-adjusted cost basis of 0.45. Let's roll this bearish position into November while we are still ahead on the puts.  Accordingly, buy the November 126-September 126 put spread twice for 1.80 or better (see inset). At the same time, sell two additional September 126 puts for 0.50 with six cents' discretion.  We are effectively double-selling the September 126 puts from our position in order to turn a simple long-put position into a calendar spread.  The price your receive for the "extra" puts doesn't matter much, although the spread price of 1.80 should be adhered to.  If you were to receive, say, 0.50 when you close out the September 126 puts, the dime over our cost basis would effectively reduce the price of the new spread by a nickel, to 1.75. ______ UPDATE (September 4, 1:20 a.m.):  The Sep 126 puts traded as high a 0.64, so I'll use a 1.70 basis for the spread unless I hear of a less favorable fill in the chat room. Do nothing further for now. _______ UPDATE (October 2): As a low-cost bear play, we simply held onto the November puts after the Septembers went out  worthless. The Novs are currently trading for around 0.65, implying a paper loss of $210 on the position thus far. For now, offer two November 122 puts against them for 1.05, good till canceled. This order will fill only if DIA gets whacked, but good. _______ UPDATE (October 17, 8:43 p.m. EDT):  We'll drop this one from the sheets by zeroing out the Nov 126 puts for an additional $130 loss. With DIA up by only a couple of points since we acquired them, the puts are actually still worth about $60, but I'll "recall" them