December 2012

Subscribers should be holding four January 128 puts purchased for 1.00. (Some of you reported paying as little as 0.94, but it is our custom to use the worst price paid by a subscriber.) Our goal now, assuming DIA falls, will be to short puts of a lower strike for at least as much as we paid for the ones we hold.  If successful, we will have legged into a vertical bear put spread at no cost or a net credit, eliminating the possibility of loss. For now, be prepared to stop yourself out if the option falls to 0.70. The chart shows how yesterday's top closely coincided with a Hidden Pivot target that I'd deliberately ignored in choosing to use the 'one-off' A (labeled A2) instead of the more obvious one (A). It is mildly bullish that DIA slightly exceeded A=132.96, but I am suggesting nonetheless that you stick with the puts, using a 0.70 stop-loss, because I still like the trade. The stop-loss is necessary, at least for the time being, because it would be quite bullish if DIA pushes above such a clear target within a day or two of its being hit. The pattern itself took nearly a month to play out, after all, and that is why its 'D' target should be expected to show some tradable stopping power.

Stocks have ralled this week on the prospect of a budget deal, but don’t expect them to get very far. With a modest surge in the broad averages, investors appear to have upped their bet that Obama and his heartfelt enemies in Congress will agree to do what we have confidently expected them to do all along – i.e., kick the can down the road. No one will be surprised, since kicking the can down the road is what politicians do when they are not in recess, campaigning or buggering their clerks. Unfortunately for us all, the much-kicked can will still be lying there when 2013 begins, fueling worries about what this implies for the U.S. economy in 2013. The good news, such as it is, is that Obama’s “filthy rich” – mainly small-time entrepreneurs who toil 70 hours a week to net a princely $130,000 after taxes  – will get a temporary reprieve from 39% marginal rates.  The dollar will be spared too, at least for a while, since Obama will not be given the ruinous power to raise the debt ceiling without consulting Congress. And the military pork-barrel that feeds so many cities and towns will remain alive and well, albeit temporarily, since a $500 billion sequestration of defense funds will not automatically take effect. What will remain once the can has been kicked yet again is an economy that is probably already in recession, a housing market nearing the end of its dead-cat bounce, and a consumer hangover from the recent binge in, among other things, automobile purchases.  (This just in: A hitherto unnoticed provision in Obamacare will charge each and every insured person an extra $63 each to cushion the cost of covering people with pre-existing conditions.  This works out to tens of millions of dollars

There are many updates for today, including tradable details for anyone interested in the DIA short we've waited so patiently for. If our rally target is hit, it would fulfill a bullish forecasts made nearly two weeks ago when DIA was trading nearly three points lower.  (Click here for a free peek at the target.)

The 132.54 target (corrected by 0.03 points) still looks very short-able (see inset).  Camouflageurs should guard against a downturn from somewhere below that number, but officially we'll short it by buying four January 128 puts if and when DIA gets within 0.08 points of the target. The options would be a good buy for around 0.90, but you can pay as much as 1.00 for them (with DIA at or very near 132.54) if that's where they happen to be offered.  Stop yourself out if the puts trade for 0.25 less than you paid for them.  (Note: If any camouflageurs get short from an intraday high that falls shy of 132.46, please let me know in the chat room so that I can establish a tracking position for your further guidance.) _______ UPDATE: With DIA on its way to an intraday high at 133.12, subscribers reported paying as little as 0.94 for the puts. As is customary, however, I will use the worst price reported, 1.00, as our cost basis.  My intention is to spread off our risk by shorting puts of a lower strike against those we own. This will of course work out best for us if DIA is falling. For now, however, do nothing further.

And now, Priceline has joined the list of high-fliers that have gotten sacked as portfolio managers limp toward the goal line. Surely the Masters of the Universe could not have wanted December to turn out this way?  One suspects they had little choice, however; for not only was there insufficient buying power to goose the broad averages into year's end, there weren't even enough bidders to hold stocks at cruising altitude.  Under the circumstances, it's logical for DaBoyz to have allowed some of their bread-and-butter stocks, most painfully Apple, to fall to levels where shares can be more comfortably accumulated.  Even better for them, once sellers are either depleted or on holiday, it will be relatively easy to recoup the losses in mere hours via short-squeezes that are a reliable feature of the December trading calendar. From a technical standpoint, PCLN would become a moderately fetching buy at 617.79, the midpoint pivot (on the 30-minute chart) of A=661.86 (12/07 at 2 p.m. EST); B=626.53 (10 a.m. on 12/10).  That number should also serve as a minimum downside objective for this dive. _______ UPDATE (December 14, 2:30 a.m. EST):  Priceline took a $6 bounce, its only real rally on an ugly day, from 617.72 -- just seven cents from the Hidden Pivot target given above.  No trades were reported in the chat room, so I will not be providing a tracking position.  However, if you're interested in trading the stock, it is now an odds-on bet to fall to exactly 584.55. (60m, A=672.95, B=623.10). The midpoint pivot associated with that price is 609.47, so be prepared for a struggle at that price between bulls and bears.

[The guest commentary below introduces James Tolard, an old and dear friend as well as an exceptionally talented commodity trader. Jim’s style is to surf the big trends, taking perhaps just two or three new positions over the course of a year. Appearing relaxed and effortless is his great gift, and this quality is there in spades whether he’s managing a large soybean position, driving a golf ball 300 yards or cooking coq au vin for a dozen dinner guests. Jim lives in a secluded village, but I’ve coaxed him out of semi-retirement to write occasionally on any subject he chooses.  In the essay below, well off the beaten path for Rick’s Picks readers, he ponders certain epistemological questions that will necessarily remain unanswered.  RA] The idea of a 6,000-year-old earth is summoned time and again as if to prove that responsible adults do not hold elective office except as reactionaries.  We hear shrill voices trying to shout down superstition. And yes, I am all for this as long as the shouting is not by way of kangaroo courts, gulags, and surveillance.  But what is at issue? The Old Testament, or Torah, contains enough age references to the patriarchs to imply that the first man came into mortality, driven from the Garden of Eden, about six-thousand years ago. The Jewish calendar proceeds from this event and is currently at 5773. But the modern calendar, a Roman invention, didn’t come into being until what is now 42 A.D. So, back to the question of the age of things. The principal arguments all miss thepoint, which is that the enemies of revealed knowledge refuse to tolerate a conflict with cosmology and geology.  Persons of faith, for their part, refuse to budge from their belief that the Scriptures contain revealed knowledge. It is

With index futures and Comex gold trading within three points of unchanged early Monday morning, it would appear that DaBoyz are going to come out with cap-guns blazing when stocks begin the new week.

The hourly chart went impulsive last week, but there's no excitement yet on the 'daily'. In fact, the duel between bulls and bears looks like a draw at the moment, suggesting the dollar could slog sideways for a while before making a presumably minor move higher.  The trend has been up for nearly three months, but it has been unimpressive and looks like it wants to remain so.

Silver's rally early Monday morning is a clone of the pattern I'd suggested using to get long on Friday. (Note: The trade failed to trigger, even on the one-minute chart.) Considering the effort it required to track and revise that dud, I'll avoid this opportunity like the plague.  However, for those who are equipped with "camouflage" tools and a hazmat suit, I'll mention that the little nubbin at 33.430 highlighted in the chart could be used to leverage a bull trade with relatively little risk. Keep in mind, though, that although it can be satisfying to pare risk to relative nickels and dimes, the primary objective is to make money.  In that regard, the odds are not especially encouraging for a bull trade here, since the larger pattern from which we would be extrapolating it is just "dueling" impulse legs on the daily chart. _______ UPDATE (December 11, 1:53 a.m. EST): A feint above 33.430 did indeed produce a tradable ABCD pattern with a halfway decent 'camo' entry opportunity, but the C-D follow-through leg would have been good for a ride no higher than 33.495 before Silver relapsed.