E-Mini S&P

By day's end the futures had surpassed all of the immediate 'external' peaks on the hourly chart, signaling their intention of moving still higher into week's end. DaBoyz will face a pocket of supply just above, in the range 1390-1397 where some distribution took place last week. However, if They are serious about scaring hell out of bears, setting the stage for a short-squeeze start to next week, they'll go all-out to close this cinder block near 1415.00 where there's some serious supply from late March/early April. ______ UPDATE (2:05 p.m. EDT): The effort peaked overnight at 1388.50, a tad beneath the 1390 supply threshold noted above.  The moderate selloff that ensued has done little technical damage. Indeed, the futures would need to fall all the way to 1332.50 before the weakness begins to look menacing.

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.

We saw signs of weakness in yesterday's rally when the futures failed to reach the 1372.00 target shown in the chart.  At the time, during the weekly tutorial session, we were looking for a real-time trade to bring some excitement to the class. It was not to be, however, since the futures provided little in the way of opportunity, even of the camouflage sort. My bias will be bearish at the outset Thursday morning, but price action was too constipated on Wednesday to promise a compelling trade set-up overnight. ________ UPDATE (11:43 a.m. EST):  With today's sharp upthrust the futures have recouped all of the losses from Tuesday's selloff. They have also generated a bullish impulse leg on the hourly chart by exceeding two internal peaks and one small 'external' (although suspiciously not two others just above it).   To be convinced, we await further evidence of buyers' resolve.

The futures easily exceeded some minor Hidden Pivot supports yesterday, hinting that they'll grope their way down to the March 6 low at 1332.75 in search of traction. Bottom-fishing via camouflage from 1335.00 and above is warranted, since our method affords us more than randomness in trying to guess exactly where the all-but-inevitable turn will come. You could also try camo-fishing at the 'p' midpoint of a pattern like the one shown.  As noted in today's commentary, an unpaused follow-through today to the downside that breaches 1332.75 would have very bearish implications going forward.

A few consecutive days of hard selling does not a bear market make, but it’s heartening to see that stocks are still capable of deferring to reality – in this case, weakening corporate earnings. For what it’s worth, the sharp decline has produced the first bearish “impulse leg” that we’ve seen on the S&P 500’s daily chart since last November. This triggered a negative warning according to our proprietary Hidden Pivot Method of analysis. Although the weakness does not necessarily portend the onset of a major bear market, odds of this will increase if, for one, the E-Mini S&Ps smash the key low at 1332.50 recorded on March 6. This is shown in the chart below. So why the selloff?  The headline on a commentary featured here earlier this week may explain it: Pumped Stocks Have Yet to Glimpse a GDP Slowdown.  Perhaps now they have, and investors with the foresight to have trimmed their sails should be feeling good about it.  Our own portfolio, such as it is, contains a short position in the QQQs – specifically, May 68 puts that were recommended for purchase a couple of weeks ago before the underlying index topped pennies from a 68.65 Hidden Pivot target. We used a conservative basis of 1.56 for the puts after subscribers confirmed having bought them for as little as 1.48. But with yesterday’s nasty selloff the options fetched as much as 2.80 apiece, allowing us to take a partial profit that reduced the cost basis of the puts we still hold to nothing.  Incidentally, that’s the goal of nearly all options plays recommended in Rick’s Picks – to work into a position that has no risk but upside potential sufficient to at least cover the cost of a year's subscription to the service. Win a $106

The gratuitous slop that was yesterday's price action should put us off trading this vehicle today, although rogue operators could be forgiven for taking a stab near 1371.25, a midpoint support that is "out there" just enough to be moderately enticing for bottom-fishing. Specifically, you should switch to the 5-minute chart if the futures breach yesterday's  1371.75 low; then, look to board the first uptrending abc pattern that occurs thereafter. _______ UPDATE (11:34 a.m. EDT):  The futures bounced weakly from three ticks beneath the midpoint, but without generating any bullish impulse legs on the lesser charts. This effectively telegraphed the weakness that followed and which continues at this moment. Presumably, it points to a potentially tradable low at 1359.75, the 'D' sibling of 1371.25.

Timely profit-taking on Friday has helped us weather an off-hours avalanche, but we'll still need to manage the risk of what remains of our position: long two contracts @1373.50. Accordingly, I'll recommend exiting a third contract at currrent levels of around 1375.50 and tying the last to a 1372.25 stop-loss.  The two-minute chart would be impulsively bearish on a print at that price, since it would exceed by a single tick the last "external" low short of Sunday night's so-far bottom at 1371.75. Finally, on a one-order-cancels-other basis opposite the stop-loss, offer the final contract to lcose at at 1385.50.  _______ UPDATE:  The stop-loss survived the entire session as the futures traded as high as 1382.75.  If you still have any contracts you're on your own, since the trade has grown too boring and labor-intensive for me. 

You know the drill by now, and there should be no illusions about catching some sort of fabulous ride. Practically peaking, what we might catch is a swing low at the 1384.25 hidden pivot of the pattern shown.  This is not worth the effort that a diligent camouflageur might expend in attempting to make the trade riskless, or very nearly so, and I will therefore counsel bottom-fishing with a 1384.50 bid, stop 1383.75.  You'll be on your own if it fills, but I wouldn't recommend taking a position home over the long weekend. _______ UPDATE (11:59 a.m. EDT):  This one filled perfectly, since the futures bottomed this morning at exactly 1384.00.  Tracking a four-contract entry, I'll recommend exit two of the contracts now for around 1394.50. That will leave us with two and a profit-adjusted cost basis of 1373.50.  Stay tuned for a further update today, since we may actually take these home over the weekend.

Try a Hidden Pivot at 1394.25 (A=1414.25, 30m) for bottom-fishing if you get bored, but note as well that the point 'B' low here is low-grade sausage and therefore hardly conducive to creating a precisely tradable low. Also, because the futures are trading almost exactly where they were three weeks ago, we shouldn't have any illusions about easily catching the breakout toward some aging targets above these levels noted here earlier.