Diamonds

We are short a round lot, effectively from 101.68 after closing out half of the original position at 99.74.  Tie it to a stop-losss at 100.51, but plan on shorting a November 98 put against the DIA if it falls to 98.95.  That's a few ticks above a Hidden Pivot target, and therefore a good place to try and "work" the position.

The rally spike in the final seconds of yesterday's session pushed the Diamonds to a high that lay just 0.02 points above the 100.65 target flagged here earlier in the week.  Although I typically don't advise taking positions that late in the day, I'll  establish a tracking position for the guidance of anyone who took the short: 200 shares from 100.65. For now, tie them to a stop-loss at 100.71, but bid 100.31 or better at the same time (i.e., o-c-o) to cover half of the position.  Those who earlier played the rally from 98.77 in the way I'd suggested, buying Dec 101-Nov 101 call spreads for 0.65, can take profits at will, since the spread is an easy sale in the mid- to high 0.70s. _______ UPDATE (9:58 a.m.): The Demons opened on a nasty gap down, allowing us to cover half the position at 99.74. That gives us an effective cost basis of 101.68 for the round-lot short remaining.  Tie it to a 100.32 stop-loss for now. Today's weakness projects to 99.42, a Hidden Pivot midpoint whose breach would spell more trouble down to as low as 98.88. Those numbers will remain valid as long as the point 'C' of the pattern, 99.97, remains intact.

A Hidden Pivot at 100.73 looks like a potentially fat pitch for those of you who have waited patiently to get short. We'll look to buy some December out-of-the-money puts if and when the target is closely approached, so stay tuned for a possible intraday update. Meanwhile, a cheap way to play the rally would be to buy Dec 101-Nov 101 call spreads for 0.65 or better. If you fill, please let me know in the chat room or via e-mail so that I can establish a tracking position for your further guidance.

We can use a midpoint support at 96.97 this morning to attempt bottom-fishing in this vehicle. Bid 1.55 for two October 97 calls (DAVJS), but stop yourself out if the stock trades under 96.89.  DIA would be signaling more weakness over the near term to as low as 95.58 if the stop is hit. _______ UPDATE (10:20 a.m.):  DIA was trading below the stop when the calls hit 1.55, but if you bought them anyway your loss on exit moments later would have been no worse than $12 per contract.  The 95.58 target is still valid.

Bid ____ for two November 95 puts (DAVWQ), day order.  That's about what they should sell for if the Diamonds trade as high as yesterday's opening price, 98.36. Stocks seemed too spooked at the close to suggest that that much of a recovery is likely, but DaBoyz will be doing their best to unload at at least somewhat higher levels, since they too were caught by surprise.

The Diamonds are  creeping up on a shortable Hidden Pivot at ____. It's possible we won't get a better opportunity to lay 'em out than yesterday's 97.31 high, but if the opportunity arises today we can at least be ready.  Accordingly, I'll suggest buying two October 97 puts (DAVVS)  if DIA gets within 5 cents of the target.  A _____ stop-loss would be appropriate.  If you want to use a limit order, I estimate that the puts will be trading for about ____ with DIA at or near _____.

We took a small speculative position on Friday's close, buying four September 93 puts (DAVUO)  for 0.86 apiece. I'll recommend closing them out at-the-market if the Diamonds are trading 94.60 or higher an hour into the session. Otherwise, you can offer two to close for 1.16, day order. _______ UPDATE (11:22 a.m.):  The post-Labor Day surprise we'd anticipated was not to be, so we exited our puts for 0.63, realizing a trading loss of $92 on the position.  The fact that the market passed up a perfect chance to  catch investors with their pants down and is headed higher on the first day of the new season suggests that it will continue in bullish mode for a while, at least.  If we are to look now for an "October Surprise," the trick will be to determine which would be the more surprising: a melt-up or a melt-down?

I usually ignore hot tips, but a pen-pal of mine, Phil C., sent me a breathless, totally out-of-the-blue alert predicting that the Dow would rally 100-150 points this morning, forming a top from which it will collapse when traders return after Labor Day.  Putting aside the details, this sounds so absolutely right to me that I'm inclined to speculate modestly.  Mr Market loves to spring dirty, stinking, vicious surprises whenever possible, and what could be more vicious -- or more surprising -- than a tsunami to greet us as we return from our final summer vacation, tan, rested and anything but ready?  To get short, we can use the midpoint resistance at _____ shown in the chart, buying two September _____ puts if and when the Diamonds get there.

Our bearish position was short-lived, since we scratched September 95 puts acquired a day earlier when the Diamonds hit our stop-loss early in the session. There were two more spots where we could try to intercept -- at 96.00, or _____ -- but they come from an ABC pattern that is starting to look too obvious. Better to get long for the pop to the higher number, assuming it comes. This would perhaps be best accomplished using "camouflage" in the first 15 minutes of Wednesday's session, so I'll make that an assignment for pivoteers who are in the chat room at the time.