May 2014

Yesterday's selling looked likely to continue into Wednesday, although the bearish target I've proffered for the E-Mini S&Ps implies that any weakness would be moderate.  By afternoon, traders will be running low on energy and initiative, fixated on the three-day weekend.

A breach of the 1865.25 midpoint support (red line) would imply more downside over the near term to its 'D sibling, 1857.75, or to 1855.00 if any lower. The second target comes from 'A2' and can be bottom-fished with an initial stop-loss at 1854.25.  A single contract is suggested, but you can increase the size if you use 'camouflage' to get aboard. The higher target can also be bottom-fished, and an 1857.00 stop-loss is suggested. _______ UPDATE (9:57 a.m. ET): The futures opened with a bullishly impulsive short squeeze after having gone no lower overnight than 1866.50.  They were up the equivalent of 100 Dow points 30 minutes into the session, but don't expect this gas-bag to get much further.

Yesterday's plunge generated the first bearish impulse leg we've seen on the daily chart in nearly six weeks. But is it any more threatening than the one recorded in early April, which reversed precisely on target to produce a rally to new record highs? My gut feeling is that, yes, the stock market's second consecutive failure to achieve more than a marginal new high is going to weigh more heavily on investors' greedy/fearful minds than the first. At the very least, it warrants hoisting a yellow flag lest we grow complacent about the possibility of an avalanche out of nowhere.  And make no mistake, that is how it will happen: with a few days of mild selling that instead of abating gathers strength like a hurricane over warm seas. A very bullish rally target at 171.67 remains viable nonetheless, and I'd be thrilled with the opportunity to get short there. But we may have to settle for less -- far less -- if the stock market's labored action since February turns out to be the start of a bear market rather than a correction. We'll know more after we've seen how far the nascent 'a-b' impulse leg travels, and what kind of follow-through 'c-d' leg it generates.

Predicting whether stocks will move higher or lower on the following day has been a coin-toss bet lately, but I've gone a few cautious inches out on a limb with today's E-Mini S&P tout nonetheless.  This is mainly because shorts received almost no respite yesterday and remained on the hook at the bell, and also because there is 20 points of running room and no real resistance between current levels and new record highs.  The only bearish argument I can think of is that because stocks were up yesterday, most traders will simply be expecting more of the same.

I've never been able to fathom Wall Street's infatuation with this stock. NFLX's streaming film catalogue stinks, their vaunted ability to predict which movies I'll enjoy has lost whatever accuracy it once possessed, and their odds of justifying high earnings multiples as a producer of 'content' are hit-or-miss at best. Nor do they appear to be doing anything that an upstart competitor couldn't do just as well, since there are few entry barriers. Some consider Netflix one of the best-run companies in America. If so, why did they shoot themselves in the foot a few years ago with a revamped pricing strategy so ill-conceived that the stock plummeted from $304 to $53 in less than six months? All of which should be taken into account when evaluating NFLX's long-term chart. Putting aside the perhaps too-obvious, bearish head-and-shoulder pattern that dominates the picture shown (click on thumbnail inset), my gut feeling is that the steep rally of the last three weeks is unsustainable and begs to be shorted.  Typically, we prefer to do so by buying put options at rally targets precisely defined by 'Hidden Pivot' resistance points.  The nearest one lies at exactly 376.33, but I won't necessarily be taking a plunge at that price, since it is closely coincident with a distinctive peak recorded about a month ago. That being the case, I will be monitoring the stock's lesser charts for the first sign of a turn-down. Ideally, we will buy out-of-the-money put options at a price top of at least short-term importance; then, if the stock subsequently drops as we might expect, we'll short puts of a lower strike for as much or more than we paid for the ones we would already own.  If successful, this would give us a riskless vertical bear spread at no cost. 

Bulls made lazy by the impending Memorial Day holiday aren't entirely to blame for yesterday's somnambulant rally.  Turns out the intraday high closely coincided with the respective 'D' targets of two ABC rally patterns. Double stopping power.  The larger and more important of the targets is shown in the chart, but there was also a minor 'D' Hidden Pivot at 1882.50 (labeled in purple) that was flagged in the chat room and which ultimately was exceeded by two ticks.  Although the rally was from Dudsville, it should be presumed self-sustaining for at least another day or two, for a couple of reasons. For one, shorts were pinned on the ropes the entire day, there having been no pullbacks greater than four points; and there they remained at the closing bell.  For two, the Masters of the Universe left nearly 20 points of running room between the end-of-day settlement price and new record highs. This means They can manipulate this vehicle at least somewhat higher Tuesday on merely vaporous buying before traders start feeling jittery about what might happen when it wafts into record-high territory again.  The last several such forays have been swiftly rebuked, and although seasonality will strongly favor the bulls ahead of the holiday, buyers could just as easily turn skittish on the realization that they've hoisted this erstwhile cinder block just a scoach higher than whatever the day's headline hum-drum might properly allow.

Assuming the covered write was closed out near the middle of Friday's range (0.50), our cost basis on the round lot still held has been reduced to 27.26. The stock looks like it could break either way this week, but I'd rather not chance getting ripped off trying to covered-write it again when the markets open Monday morning.  Instead, I'll suggest a lowball bid of 0.55 for a May 23 put at the 35 strike. If the order doesn't fill in the first 10 minutes of the session, continue to bid it shading toward the bid side rather than the offer. Check back in the chat room as well, since I may be able to provide guidance for a covered  write if this vehicle rallies.  I've highlighted a tiny downtrending ABC pattern that could provide useful information today or tomorrow. Zoom to the daily chart and you'll see that p=34.62 has already been breached, implying risk down to 32.12.  _______ UPDATE (1o:32 a.m.):  We benefited from market-maker sleaze, since, with the stock up on a gap at the bell,  they ripped off sellers of our puts on the opening for 0.51.  Now, offer a 34-strike put short for 0.60 against the one we hold, good till canceled. _______ UPDATE (May 20, 10:12 p.m. ET): Skip the spread-trade, since GDXJ is perched on ledge from which a fall could spell 33.13. Instead, offer the put we hold to close for  1.70.  _______ UPDATE (May 23, 11:45 a.m. ET): The puts never traded above 0.75, and so I'm recommending blowing it/them out today for 0.15 to 0.20 (current market 0.10-0.20). This will effectively raise the cost basis of our stock to 27.66. _______ UPDATE (May 27, 12:01 p.m.): I'm taking this dog off the list, since maintaining a bullish position in a

The futures are trading exactly where they were in mid-March, having done little but palpitate in the interim. Even the weekly chart doesn't offer much clarity, although it leaves me with the vague feeling that Gold wants to go at least somewhat lower for the running start it would take to resurrect the bull market begun in 2008 from around 680. Not necessarily a whole lot lower, though, since any swoon that marginally breaches the double bottom shown would induce the kind of fear from which powerful rallies often emerge. More immediately, though, the chart is nominally bullish, owing to the impulse leg from the New Year's low. A 'buy' signal would be tripped at 1321.10, about $5 above the recent top at 1315.80.

The suspicion grows that the bull market is in a broad topping process, with each marginal new high proving to be little more than a nasty trap.  More immediately, the stock market's tedious, exhausting feints are liable to grow still moreso early this week, since Wall Street's best and brightest like to finish their alleged business and retreat to the Hamptons for Memorial Weekend a good four or five days before the roads become clogged with working stiffs and civil servants. If whatever drama you might be hoping for hasn't occurred by Tuesday's close, my advice would be to prepare yourself with opiates for three more days of navel-gazing.