Commentary for the Week of March 8

Silver got out of a jam Thursday, in the processs exceeding our bull-trigger threshold by an impressive 4 cents. At day's end the July contract looked bound for a Hidden Pivot resistance at 19.250, provide it can bust past midpoint resistance at 18.930. As of around 10:30 p.m. EDT, buyers were looking pretty feisty.

A little greed is good here, since we don't want to sell our puts prematurely, just as the party as getting under way. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70. The paper gain on the position at yesterday's closing prices amounts to a little more than $400. Continue to offer four July 90 puts short for 1.40, good-till-canceled. If you want to see how far DIA would have to fall to get us filled on the order, check out the accompanying chart.

Although August Gold's sharp intraday recovery yesterday exceeded an imposing resistance peak at 1247.40, the rally failed by three ticks to get past a Hidden Pivot at 1249.70 that I'd implied was even more important.  Not to worry, though.  The pullback from the day's high at 1249.50 has been shallow so far, hinting that bulls are ready to take on whatever supply the bad guys throw at it on Friday. A thrust past 1250.50 will indicate liftoff toward two bullish targets: a minor one at 1260.90, and a more important one at 1272.60 flagged here earlier.

[Gary Tanashian writes a technical and macro-fundamental analysis blog, is the publisher of financial website Biiwii.com and the premium-content, market-analysis newsletter Notes From the Rabbit Hole. In the essay below he explains how the interplay between inflation and deflation is used as a monetary policy tool by the Fed and U.S. Treasury. For the record, Rick’s Picks has long predicted a deflationary depression, but with a precipitous and devastating hyperinflationary phase. RA] I would like to thank Rick Ackerman for the opportunity to continue a conversation that began in 2005 with an email I sent to him in response to an article he wrote about deflation that I felt was beyond the usual boilerplate that keeps insisting that a deflationary depression will bring all asset prices down. In fact, Rick’s constructive view of gold hints that he is not a knee-jerk gold booster like so many gold bugs, but rather a realistic believer in the idea that not all assets are created equal, especially during times of great monetary stress. There are several notable deflationists who absolutely hate gold, which makes sense since they have been micromanaging its “price” demise since 2002.  While they may be right for limited periods during an ongoing secular deflation against which ever more exponential inflationary policy is brought forth, they will never be right about gold’s “value proposition” in relation to assets positively correlated to growing (or more accurately, contracting) economies, at least during the current secular trend. The garden-variety deflationist preaches global depression and cash-as-king.  Well, he may be half right: cash is good for short-term liquidity and can play court jester, but gold is king of enduring value in the current system as policymakers fight the dreaded deflation beast ever-further off the macro balance sheets. More astute deflationists do not focus on asset prices, instead

The futures flirted yesterday with a 1235.00 danger zone noted by our colleague Ross Clark, pulling just above it at day's end. I made reference to his analysis in the chat room (logged at 12:48 p.m.), noting that Hidden Pivot analysis sees a fall to at least 1214.20 as very likely. We'll be better able to determine whether the weakness is apt to persist beyond that threshold by monitoring price action at the support. If it is decisively breached, however, that would indicate a likely fall into the $1100s.  Please note that it would take a dip below 1157.60 to jeopardize the daily chart's long-term bullishness. (Ross's bearish outcome calls for $1160 or lower.) For bulls to regain control decisively would take a push to at least 1258.00 today. _____ UPDATE (11:04 a.m. EDT):  For whatever reason, Gold has whipped around today and is close to challenging yesterday's high, 1247.40. A move above it would negate the 1214.20 downside target, but I'd like to see the rally clear 1249.70 decisively before I infer that the correction is over.  That number is the Hidden Pivot midpoint resistance of a rally pattern projecting to 1274.20 (hourly chart, A=1217.50 on June 14).

(Cam Fitzgerald’s recent guest commentary here, “Britain Becomes the First to Choose Deflation,” drew a heavy response – more than 120 posts in the forum. Here are some further thoughts from him concerning Europe’s turn toward austerity and the potentially profound impact of this on the rest of the world -- even on the U.S., which has yet to heave Keynesian quackery overboard. RA) A young friend asked me yesterday, “What on earth does negative growth mean?” and I had to laugh because it really is a ridiculous term dreamed up by political economists to put a positive spin on really bad news. I had actually never given the term any serious thought until then. “It means,” I said, “economic contraction and recession.” It really is no wonder the kids cannot figure out what is going on with all the nonsense terminology flapping about. With France, Italy, Britain, Spain and of course Greece all now seemingly embracing austerity measures to bring their economies into line with EU terms specifying deficits be no larger than 3% of GDP, they are all about to experience “negative growth”.  A double dip recession is now hurtling our way and it will affect Canada and our housing markets in a very big way. Britain itself is targeting a debt reduction policy that it hopes will see that country’s massive debt fall to 40% or 50% of GDP by the year 2030. Prime Minister David Cameron has suggested that this will fundamentally change the lives of his countrymen for years to come. He is right. Some economists and politicians are already spinning this development as a positive change and suggesting that inflation targets and growth objectives can be met while the engine of the economy is put into idle (if not reverse). That is nonsense, of

The 18.115 downside target given here yesterday remains valid, but if there's going to be a respite in the selling -- and possibly an opportune spot to try bottom-fishing -- it would come at the 'p" midpoint shown in the chart. The support is subject to  'C'  (18.560) remaining intact, but if that peak is exceeded, you can simply plug in the new high to calculate a revised Hidden Pivot midpoint and target.  If it coincides with Wednedsay's 18.310 low, however, its value for trading would be diminished. ______ UPDATE (9:37 a.m. EDT): The futures blew out 'C' before retreating lower.  The new pattern presaged a move down to 17.960, with a midpoint suypport at 18.285 that has already been crushed. To undo the damage would take a rally today exceeding 18.770. 

Yesterdays afternoon's 20-minute wilding spree should have scared hell out of shorts (yet again), which is why it occurred to begin with. From a Hidden Pivot standpoint, the rally was ineffectual for two reasons: it surpassed nothing nada zilch, even on the 15-minute chart; and it occurred after the downtrend had already punctured a key low from June 15, creating a robustly bearish impulse leg on the intraday charts. The pattern has become too ragged to read with much confidence, but it points ambiguously toward 1063.25, a Hidden Pivot support that is not recommended for bottom-fishing.  Getting short is another matter, of course, but it will not be possible to do so by way of an entry price I can project overnight. Incidentally, bulls would have a chance of temporarily reviving their hoax with a print today at 1098.25.

AAPL is one of the very few stocks for which the May 6 "flash crash" became a corrective leg in a still-viable long-term bull market. That's the good news.  The potentially bad news, at least for the intermediate-term, is that Monday's high at 279.01 came within 1.85 of an important Hidden Pivot rally target at 280.86. If the stock feints higher over the next day or two, reaching that number, I recommend shorting a round lot of stock with a stop-loss at 282.01.  Although I am not bearish on Apple's long-term prospects, this looks like as good a spot as any to attempt shorting the stock. ______ UPDATE:  We'll put this one aside for the time being, since AAPL has worked lower.