Silver Wheaton

Gold and silver racked up another day of solid gains yesterday, providing some of the most encouraging technical signs we’ve seen in several months.  Most impressive was that numerous bullion-related issues that we track were able to generate fresh, bullish “impulse legs” on their hourly charts, much as we might expect from a rally with more than merely short-term potential. (Click here if you’d like to learn more about our proprietary Hidden Pivot Method.) This was true not only for Comex precious-metal contracts, but for such high-octane performers on the equity side as Silver Wheaton, a Rick’s Picks favorite that has been on a rampage, gaining nearly 22% in less than three weeks. Although we’re always eager to go-with-the-flow, it is our practice to closely monitor rallies like this one lest we be caught unawares by the sort of nasty downdrafts that are common in prolonged corrections. The purpose of such corrections is to shake loose all but the hardiest bulls, and that is why we are always guarding against the unpleasant surprise.  Technical analysis aside, we remain open to points of view that differ from our own, currently bullish, outlook for bullion.  To help readers keep an open mind, here is a bearish note that turned up yesterday in the Rick’s Picks forum. The author is Cam Fitzgerald, a frequent contributor. He argues that the looming 2012 election will put a lid on commodity prices. Cam begins his post by addressing the sunny outlook of “Charles,” who wrote that predicting a bullion rally “just ahead” is a no-brainer. ‘Sympathetic’ Decline “I am not with you, Charles. There is something else at play now that relates to elections next year. Commodities will decline and so will the commodity induced inflation threat. This is not bullish for metals. Gold and Silver,

The stock is sitting at a precipice, since yesterday's close was on a major trendline (see inset). The support is so obvious that we should be alert to a possible false breakdown that could afford us a bottom-fishing opportunity.  The nearest Hidden Pivot support lies at 31.91 (A=37.72 on May 10, daily chart), so that's where it should be attempted.  Camouflaged entry is preferred, but if you don't want to bother, or if you don't know how, bid 31.93, stop 31.86, for 400 shares. Please note that if Wheaton should really fall apart it could fall all the way to 26.77, the 'D' target of a pattern shown in the chart.  We continue to hold 300 shares @ 42.01 against three June 40 puts with a 4.00 basis, but option expiration will soon put it out of its misery.

We hold 300 shares @ 42.01 against three June 40 puts with a 4.00 basis. The stock will have to push above the 37.72 peak recorded on May 10 to revitalize bulls, but failing that, it seems likely to succumb to the gravitational pull of a trendline that comes in today at around 33.48. Our short offer of June 40 calls  for 3.10 -- a riskless sale, since it would give us a "conversion" position --  is a distant longshot at this point, but you should nevertheless bring the offer down to $2 and let it stand.

With just a little more oomph, Silver Wheaton will create its first bullish impulse leg  in more than six weeks on the daily chart. To be more precise, it will take a stab above a 37.72 peak recorded May 10 on the way down to do the trick.  That would make for clear sailing to 41.805, and thence open a path to its 'D' sibling at 51.18.  We hold 300 shares @ 42.01 against three June 40 puts with a 4.00 basis.  Continue to offer three June 40 calls short for 3.10. This would lock us into a risk-free "conversion" while recouping a substantial piece of a currently unrealized loss of around $1800.

We hold 300 shares from 42.01 against three June 40 puts with a 4.00 costs basis that reflects a loss booked on May 38 puts that we'd shorted. Continue to offer three June 40 calls short, but for 3.10 now.

We hold 300 shares from 42.01 against three June 40 put-May 38 puts spreads legged on for a 0.50 CREDIT. Legging out of it has proved to be more than a small annoyance, since the stock hasn't quite reached our rally targets although its declines have been on opening-bar gaps. I will nonetheless recommend exiting the May puts today at-will, catch-as-catch-can.  Officially, I'll buy them back at-the-market on the opening. But subtler, more profitable tactics will be possible if you use Hidden Pivot coordinates as follows: On weakness, my minimum downside target would be 33.44, the 'p' midpoint of the Daily-chart pattern A=42.89, B=34.34, and C=37.72.  Slippage beneath the midpoint would therefore imply 29.17, the midpoint's 'D' sibling. However, there is one more possible support where you could look for -- and potentially leverage -- a bounce: at 32.76, where trendline support would come in today on moderate weakness. ______ UPDATE (1:22 p.m. EDT):  May 38 puts could have been covered anywhere between 5.75 and 3.70, so we'll use the 4.50 midpoint as our price. Since we shorted them for 2.85, we'll impute the 1.65 loss to the 2.35 we paid for the three Jun 40 puts that we still hold, bringing them to 4.00.  We are also long 300 shares from 42.01. At current prices, the position loss nets out to around $1600.  The position gives us the ability to short three June 40 calls without risk, since it would give us a "reverse conversion" that nets out to no position at all at June expiration. Accordingly, I'll suggest offering three June 40 calls short for 3.70, good-till-cancelled. They are currently trading for around 0.80, so the stock would have to rally powerfully to get us filled. And, yes, this is much busier than I'd ever intended for a

The distributive, opening-bar feints are growing hell of tiresome, besides making it more difficult to cover the May 38 puts we shorted against June 40 puts we are long. SLW is working on a minor, 38.620 rally target that would become an odds-on bet if its sibling midpoint at 37.510 gets roughed up. Unfortunately, downside risk is $2+ if the stock catches another air pocket.  All things considered, I'll recommend bidding 1.05 to cover the three May puts, day order.

Yesterday's price action looked like sleazy, skillful distribution, so let's try to adjust our position if the stock makes further progress toward a minor, 37.96 target.  We hold 300 shares against three June 40-May 38 puts spreads legged on for a 0.50 credit.  For today only, cover the short May 38 puts if they trade down to 1.20.  I may update this recommendation intraday, so be sure to check in if the stock is on-the-move.

We hold 300 shares against three June 40-May 38 puts spreads legged on for a 0.50 credit.  The stock has fallen to within inches of the 34.17 target.  I still expect a bounce from these levels -- perhaps this is it, and the target will not be reached -- but the magnitude of the rally is beyond speculation at the moment.