August 2012

GDXJ didn't quite make it down to the 19.60 correction target where we'd intended to buy it.  That's okay, since there will always be another opportunity. For now, though, rather than chase the stock to its nearest rally target, 21.50 (it could conceivably gap to there on the opening bell) we'll look to buy the reaction. My inclination is to leg into a call spread that would eventually become stock, so stay tuned.  Click here for a free trial subscription that will allow you to be notified of trades like this one in real time.

We took note of Silver Wheaton's unaccustomed exuberance during the tutorial session earlier this week. The stock looks like it's just starting to develop thrust. Could this be an early indication that mining shares will lead bullion prices higher this time around?  If so, that would represent nearly as dramatic a shift as we are seeing in the bonds, whose decades-long bull market may be in its death throes. The logical implication is that inflation is about to return in a big way.  Hard as it is for me, a hard-core deflationist, to believe this, I'm prepared to let the charts do my thinking for me.  Regarding getting long in Silver Wheaton, I should have been paying closer attention when it bottomed near $23 in May.  Still, it's never too late, especially since the stock could be at $100 if silver prices are headed to new highs.

Fun while it lasted, eh?  We'll short the little sonofabitch again, for sure -- just not today, with the week drawing to a presumably buoyant close.  If I were to interpret the accompanying chart (see inset) as I would Gold's, there'd be no avoiding the conclusion that the September E-Mini S&P is going to 1480.50 -- equivalent to a 500-point Dow rally from these levels.  The good news is that Mr Market will  not possibly be able to avoid serving us a juicy short -- juicier than we're used to, anyway -- somewhere near the target:  the pattern is simply too clear to produce any other outcome.  We'll play this one from the long side while we bide our time, but for today I'll leave it to you to find a way in that suits your style.   With no more 'external' peaks to reference, finding camouflage cover is  apt to be more difficult, although certainly not impossible.

With U.S. stocks blithely on the rise against a darkening global economic picture, we keep telling ourselves it’s only a movie, it’s only a movie, it’s only a movie.  Except that it isn’t a movie. It’s an epochal tide of delusion; it is quite real; and if it hasn’t yet reached flood levels, it will soon, inundating stock markets around the world. For now, though, even as those once-tireless engines of growth, China, India and Brazil, grind their way toward economic limbo and the growing likelihood of synchronous global recession, it is still evidently possible for the Wall Street Journal to fairly rejoice over July’s modest 0.8% rise in retail sales. Hallelujah!  At long last, Americans have opened their wallets.  After a three-month string of declines, the Journal need hardly have reminded us that three-quarters of U.S. GDP is consumption-based and that a sustained uptrend in retail sales is therefore crucial to reviving consumer confidence and, in turn, economic growth. Would that a one-month credit-card spree were sufficient to lift us from the Great Recession!  The term “Great Recession” itself is used by everyone outside of politics and the news media to scandalize  economists’ declaration in 2009 that the recession had ended.  Yeah, sure.  Tell that to twenty million homeowners who are still underwater in a housing market that has barely upticked on 3% mortgages. Or to millions who are either unemployed or earning far less than they did before the financial crash. Or to legions of former shopkeepers who have abandoned storefronts and malls, turning the retail landscape into a visual reminder that the recession never really ended.  The Journal is hardly alone in cheerleading every statistical uptick that could serve to distract us from the previous day’s grim economic tidings.  The public may have a short memory, but

We looked at the charts of some popular vehicles as usual, but this session also contains a beginner-level discussion of how we can use option strategies to leverage Hidden Pivot swing points. Although an option calculator is useful for determining the fair value of puts and calls, it takes considerable expertise to use one. You'll see that there are ways of getting around this problem if you can "read" the grid of option bids and offers that comes with most trading platforms.

Although we remain short the September E-Mini S&Ps, the chart that accompanies today's tout makes clear that we're bucking the larger trend.  Traders with open positions should therefore pay close heed to the stop-losses I've suggested.

Yesterday's downdraft tore through a key support at 146^02 recorded back in May. Although the resulting impulse leg did not negate the bullishness of the long-term charts, it raised the possibility that the decades-old bull market has seen its highs. We'll be monitoring the September contract's vital signs closely for further evidence of this, but in the meantime those of you who trade this vehicle, or who have been itching to do so, should check out the chart. I am not drum-rolling this one for reasons that camoflageurs and Pivoteers will appreciate.

We hold a tracking position of four October-September 620 put spreads @ 8.40 as a proxy for any short positions initiated by subscribers at the recent top I'd forecast near 638.  For now, offer two of the spreads to close for 9.60, predicated on a drop in the underlying stock to around 625. I'm not advising a stop-loss at the moment, since a $5 move against us would not significantly diminish the value of our spread.  More likely is that once the August series has expired this Friday, pressure on the September puts that we are short will increase sufficiently to cushion us even further against an adverse move in the stock. What this means is that time decay will be working for us increasingly in the days and weeks ahead. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

I'm providing tracking guidance for two short contracts whose cost basis has been adjusted upward to 1413.00, reflecting partial profit-taking on an initial pullback to 1397.25.  Continue to use a fixed stop at 1408.25 for one and at 1411.50 for the other. On a one-cancels-other basis, you should also plan to cover one contract at 1391.00.  Check out the chart as well, since it shows how the rally of the last two weeks has created the kind of impulse leg that we might otherwise use to get long at some point in the near future.  In fact, despite our speculative short, the bigger picture remains undeniably bullish. _______ UPDATE (12:06 p.m.): Moments ago, and not unexpectedly, we were stopped out of the last of four contracts, coming away from the trade with a theoretical gain of $262. We'll look to re-short this pig, and to re-short it again and again at even higher levels, whenever a low-risk opportunity is there to make money even if we are "wrong."