Webinar

Positioning trades was challenging on this particular morning, since the broad averages were only moderately lower on appalling economic news. Europe was sinking further into recession, U.S. factory orders had taken their steepest dive in three years, and the private economy had created only 119,000 new jobs in April. Our approach was cautiously bullish nonetheless, and we considered a strategy for bottom-fishing in the E-Mini S&Ps on the assumption they would recover later in the day. An actual trade was signaled in Silver Wheaton as we watched, although the signal turned out to have been based on inattentiveness to the ‘Rodney Dangerfield’ of our short list of rules.

On an funereally slow Friday, we found interesting things to observe, including ‘technicals’ for Treasurys and a way to trade them that morning from the long side. The timely set-up we looked at did not trigger during the session, but we observed it in sufficient detail that it will be worth your while to ponder the camouflage aspects of the trade. The E-Mini S&Ps were up the equivalent of nearly 90 Dow points, but there were sound technical reasons for inferring they would make little further headway that day.

Gold and Silver had rallied a day earlier, but we found good technical reasons to avoid having this color our usually grey objectivity. Weakness was in fact evident, mainly in the narrow failure of June Gold to reach a clear and compelling rally target. A similar observation obtained for the E-Mini S&P, which was rebounding after the previous day’s selloff, the biggest so far in 2012. This vehicle ,too, had fallen just shy of a clear rally target, giving us reason to infer that weakness would soon return. Finally, we talked about preparing psychologically to trade in a bear market. Because the camouflage technique was developed in the context of a market that has been trending upward for more than three years, we will need to adapt our thinking before we are comfortable shorting tops rather than fishing bottoms.

Stocks and precious metals were getting pounded, so we looked for bottom-fishing opportunities in real time in some of the more popular Rick’s Picks trading vehicles. Using the intraday charts, we trained our attention mainly on the E-Mini S&Ps and on two mining-stock ETFs, GDX and GDXJ. Both were hitting downside targets that had been drum-rolled in the newsletter weeks ago and in which there were working buy orders that morning. We also scrutinized the lesser charts for a possible ‘camo’ trade in the E-Mini S&Ps that went against the day’s selloff.

This session contains some of the most detailed material presented to date on how to use puts and calls to leverage Hidden Pivot targets. The specific stocks discussed were Newmont Mining, which was nearing a downside target where calls could be purchased to bottom-fish; and the QQQs, in which we had recently initiated a bearish position by purchasing puts within pennies of a predicted top. We also examined in exhaustive detail a “live” trade initiated in Comex Gold earlier that morning. Risk management in real time was our chief focus.

When I introduced Camouflage Trading two years ago, the Mother of All Bear Rallies was already a year old. As such, we haven’t gotten much practice applying the technique to trades from the short side. Is it time to start honing our chops in anticipation of a resumption of the secular bear market? My answer is no, not yet, for reasons that are made clear in this lesson. We also deconstructed a trade in gold that had been recommended the night before, and then finished the session with a look at Crude Oil futures.

We bought the E-Mini S&P futures during this session, so it could be an especially illuminating one if you want to see a ‘camouflage’ trading opportunity rationalized in real time. There are also some finely nuanced observations concerning certain uses of the k-A segment. Issues covered include the E-Mini S&P, gold and silver futures and the Dollar Index.

Having established a long position in Silver Wheaton two days earlier just 13 cents from a potentially important corrective low, we took a close look at the stock’s vital signs to determine what to do next. SLW had in fact rallied $1.80 from the bottom, or a little more than five percent, turning June 40 calls that we’d acquired into solid winners. With the goal of shorting June 42 calls against them, how far should we try to stretch this one? As you will see, there were good technical reasons to let our profits run.

Bullion shares and futures were chugging higher when we looked in on them this morning, but S&P futures were not blithely following their lead. Are stocks nearing a potentially important top? The suspicion grows, and so we took a good look at some Hidden Pivot rally targets in the E-Mini S&P that are close to being achieved. They line up all-too-nicely with a Dow target at 13085 that has guided us for nearly two months. As this session makes clear, it is time to reef the sails.