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Black Box
Forecasts: "Six hours ahead of its time" $415 Gold Soon?TRADING NOTES: I'd all but given up on the idea of spreading off our premium risk in Hecla calls, but another couple of days like yesterday, and who knows? A couple of months ago we bought some December 7.50 calls in Hecla, intending to short some October 7.50s against them later, then Nov 7.50s after the Octobers expired. This strategy has worked for us many times in the past, but this time around we sat with the long calls while Hecla traced out a lazy correction over a two-month period. As a result, the Oct and Nov 7.50s never reached a price that would have made them worth shorting. The idea behind our strategy - one that we've used fairly often, and not just in gold shares -- was to trade Hecla calls from the long side, reducing time-decay costs by turning naked-call positions into calendar spreads. We've usually tried to leg into such spreads, paying, say, 1.50 for a far-out month when the stock falls to a bearish target, then, when it rallies, shorting a closer-in month for at least what we paid for the long calls. On numerous occasions, we've actually succeeded in selling the short side of the spread for more than we paid for the long side, effectively giving us the spread for a net credit. This guarantees that we cannot lose money on the spread - that we will make at least a small gain equal to the amount of the credit itself less commissions. Additionally, there is a good chance of reaping an extra bonanza if the stock is sitting near the strike price when the options that have been sold short expire. It's Not Rocket Science Of course, our gold positions have taught us many times that one does not need a sophisticated strategy to profit in the mining stocks these days. We've simply added to our gold positions on weakness and have taken partial profits on strength. A no-brainer, really. Trading in and out of our long positions in this manner, I did screw up once - in DROOY, when I missed nailing an important top by a few cents and we wound up riding the stock all the way down to its 12-month lows - about 20 cents beneath where we'd originally purchased the stock. But there have been no other such errors, and we've more than made up for it with good timing in the other gold stocks. Timing was in no way crucial to the paper profits we made yesterday, when the gold sector turned feisty. Patience was the key - buttressed by our strong confidence that gold prices will only continue to rise for years to come. For now, the POG looks to be headed toward the short-term top at $403 that I'd projected a while back for the Comex December contract. But $403 is just a weigh station - a minor stop on the way to heights that few can imagine right now. There is also the possibility the hidden pivot at $403 will be easily brushed aside. If so, this minor-cycle rally could take the futures up to the next hidden pivot worth noting, $415.30. *** Hidden Pivot Secrets Revealed Want to learn exactly how I calculate hidden pivots and use them to trade and forecast? If so, please join me next Wednesday and Thursday afternoon, November 19-20, for a seven-hour seminar that will cover this topic in great detail. Each session will begin at 4:00 p.m. EST and end at 7:30. To sign up, or to obtain more information about this course and others offered by MarketWise, please go to the following URL: http://www.marketwise.com/mw_main/Calendar_OnlineC.asp *** [The + symbol means we have an open position, while $ means there is actionable advice.] DEC DJIA (9839): A look at the weekly chart confirms that I overlooked a potentially important hidden-pivot resistance at 9908 - 7 points below the 12-month high achieved by the Dow last week. It may prove to be an important one, but please note that any progress whatsoever above it would indicate a new short-term rally target of 10145 (a hidden pivot). DEC E-MINI S&Ps (1045.25): From the same weekly perspective that I've used to assess the DJIA, it would appear the futures are bound for a minimum 1070.00. If that hidden pivot is exceeded by more than a point, though, I'd infer there's enough wattage left to carry this vehicle to at least 1089.75. DEC BONDS (107.24): Again, no change. If and when 106.09 is touched, it will signal a likely fall to at least 103.01, as well as a probable end to the bear rally begun in mid-August. Alternatively, a close above a hidden pivot at 109.27 would give the bull a new lease on life for the intermediate term. OEX (524.19): I've identified a new rally target at 537.53 (pivot-seminar grads, try A= 459.55, going back to May) that will serve as a minimum upside projection from here. The number will be short-able if and when the OEX gets there, but for now hang loose. $ QQQ (35.81): If the cubes rise into week's end, look for a potentially important top to form at exactly 37.29, a hidden pivot. Plan on shorting 200 shares there, stop 37.41. DEC GOLD (395.00): We've been focused on a rally target of $403, but as I've noted above, if that hidden pivot is swept aside, the minor-cycle uptrend would likely continue to at least $415.30. DEC NASDAQ E-MINI (1444.50): We had little success forecasting lower price yesterday, so let's go with the flow and set rally benchmarks at 1489.00 and 1500.50. Both are hidden pivots, and if the first is exceeded by more than a point, I'd infer the second will be achieved shortly thereafter. *** INTC (34.10): The hidden pivots that are coming to define this rally are hard to read, but my shoot-from-the-hip projection for the rally cycle begun in late September is 35.70. FNM (69.98): I'd forecast a decline to around 68, but stochastic influences on the daily chart look sufficiently buoyant enough now to make this would-be short trip a tedious grind. C (47.39): Citi is dropping down into a comfortable cruising range between 46.00 and 47.50. No new action is advised. The stock would need to close above a hidden pivot at 72.84 to reignite. $ + GG (16.17): We hold 400 shares with an average cost of 8.04 per share. Let's try to take some profits at a hidden pivot immediately above: 16.71. Offer a round lot at 16.69 to close, g-t-c. $ HL (6.76): We hold ten December 7.50 calls for 0.30. As I noted above, perhaps it's not so farfetched to think we might be able to spread off some premium exposure by offering some Nov 7.50 calls short. Accordingly, I'll recommend offering five of them for 0.15 and another five for 0.25, both day orders. $ + RANGY (13.98): We hold 400 shares for an average 10.12. Instead of bidding for some stock, let's try to take some profits at the nearest hidden-pivot target above. On a g-t-c basis, offer 100 shares to close for 15.65, two cents below the actual pivot. RGLD (19.97): We hold 300 shares with a cost basis of $8.84 per. Immediate upside potential is to 21.78, a hidden pivot, but I have no plans to disgorge any Royal shares until the stock moves above $30 -- which it will. IBM (90.69): IBM seems to be comfortable hanging
around 90, so we'll let it do its thing for a while. Stochastic
influences on the longer-term charts are close to turning mildly
felicitous. EBAY (55.49): Yesterday's strong close increases the odds that eBay's recent low at 54.01 will hold for a while. Let's see how well it handles two minor pivots just above: 55.62 and 56.01. An easy move through them would portend still higher prices ahead. Rick Ackerman ***
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