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-- Posted Friday, 30 May 2003 | Digg This Article
Yesterday’s forecasts zigged into a market that brazenly zagged, mooting much of what I had to say by way of analysis. But I did get a couple important things right, locking in a riskless call spread in KLAC with more than $1,000 of profit potential, and buying August gold futures a single tick off a bottom from which the biggest rally since early February ensued. The nice timing of the gold trade was somewhat ironic, since the headline on yesterday’s edition of Black Box was: “A Pause for Gold?” Concerning KLAC, we already owned a few June 42.50 calls for 0.80 and had been waiting for the rally that would allow us to short some June 45s for more than we’d paid for the 43.50s. We got that rally yesterday, our goal easily accomplished with the help of exploding relative strength in the stock. KLAC, a favorite of day-trading cowboys, was up nearly 5 percent on the day as the Dow languished in negative territory, and this helped the June 45 calls more than double in price. We didn’t get the day’s richest sale, but the 0.90 premium we did receive effectively gives us a 2.50-point vertical spread for a 0.10 CREDIT. This means that, no matter what the stock does between now and the June 20 expiration, we will make as much as $1040 of profit on our four spreads with no possible loss. The gold strategy was pegged to a hidden pivot that worked very precisely. At Wednesday’s close, the August contract appeared to be headed into a 5-point retracement that semmed likely to carry to a minor pivot at 361.20. In fact, the pullback reversed at exactly 361.10, allowing us to get long from a single tick above the start of an explosive 10-point rally. The pivot was sufficiently well defined that we were able to enter this trade with minimal risk, placing a stop-loss at 360.90 -- just 0.30 below where we’d sought to enter the trade. A Tip from the Inside? I’ve repeatedly stressed that, with the stock market at these levels, downside risk vastly exceeds upside potential. It would appear that at least a few key insiders agree. As my friend and trading colleague Rusty Stratton points out, insider selling has been running at an astounding clip lately. For one, Michael Dell recently sold ten million shares of his company’s stock; and for two, Microsoft honcho Steve Ballmer unloaded a billion dollars worth of MSFT. Do you think these guys might know something? The bullish interpretation – the one we might expect to hear from, say, Maria Bartiromo – is that these guys sold millions of insider shares not because they are bearish on their companies’ prospects, but simply because they’ve got some bills to pay. We gravitate toward a less sanguine view, however – that at current prices, two crucial bellwether stocks make for an irresistible sale. [The + symbol means we have an open position, while $ means there is actionable advice.] | | 125% TUITION REIMBURSEMENT PROGRAM | | 125% TUITION REIMBURSEMENT PROGRAM: Through our partnership with Terra Nova Online, MarketWise Trading School provides its graduates with the education necessary to adapt to these volatile markets, while taking advantage of our Tuition Reimbursement Program designed to provide 125% of the graduate's tuition back to them. click here |
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Gold
AUG GOLD (370.70): Yesterday’s advice was good for a hugely profitable 7-point ride, since you were told to bid 361.20 -- just one tick off what proved to be a powerful inflection point that launched a 10-point rally. The take-no-prisoners demeanor of the rally has impelled me to consider an alternative to the unexciting picture I painted here yesterday – of a muddled correction into late June or early July. Under the new scenario, the most bullish reading I can extract from hidden-pivot analysis keys off the futures’ apparently unstrained ability to maintain altitude above an important long-term resistance at 363.05. This suggests that the current rally cycle will carry to at least 405.60 over the next 3-4 weeks. The target is a few dollars beneath a 409.00 target that itself is a significant hidden pivot.
GoldCorp (NYSE:GG)Quote - Options - News - Profile - Message Board - Website
+ GG (11.41): We hold 400 shares for an average 7.20. We were using a minimum upside target of 12.50 while allowing for the possibility of a pullback first to 10.84. No changes in our position are warranted.  
DURBAN DEEP (NasdaqSC:DROOY) Quote - News - Profile - Message Board - Website
+ DROOY (2.52): We hold 200 shares for 2.41. The nearest resistance worth mentioning is a hidden pivot at 2.72. If the stock closes above that number, or trades more than 4 cents above it intraday, we should infer it’s on its way to at least 3.06 in the current, minor bull cycle.
+ RANGY (13.30): We hold 200 shares for 10.35. Randgold bottomed somewhat below our 12.47 target, but the subsequent bounce has brought back into focus a 14.85 upside target we were using earlier. We’ll make that our minimum projection while noting that no changes are necessary in our position.  
Royal Gold (NasdaqNM:RGLD)
+ RGLD (20.08): We hold the July 17.50 – June 17.50 call spread eight times for a 1.00 CREDIT, yielding a profit range of $800 to $1,680 regardless of what the stock does between now and mid-July. No changes are suggested, although it’s worth mentioning that a 29.70 print today would trip a theoretical “buy” signal.
 
DJIA (8711.18): The Indoos had fatal problems getting aloft yesterday – a fact made even more disconcerting by a cautious opening, well staged by Da Boyz, that seemed calculated to shake loose some bargains before a short-squeeze. We’ll nonetheless stick with the 9034.85 upside target, but it would be cause for concern if any correction this morning takes out a hidden-pivot support at 8638.42 easily. JUNE E-MINI S&Ps (949.00): Like the Dow, this vehicle has a hidden-pivot support we can monitor for signs of further weakness. It lies at 940.25, and if that number is breached decisively, the next place the futures could find traction would be in the range 929-932, where a consolidation took place last week. JUN BONDS (120.19): My outlook for the next 4-6 weeks is still quite bullish, with an upside target of 124.14. However implausible and illogical this may seem, it comes from a purely mechanical reading of the charts that I trust. We’ll want to back up the truck and load it with shorts at that level, assuming the opportunity arrives. OEX (477.42): The key support to watch today is a hidden pivot at 473.29, but a decisive penetration of that number (i.e., more than 1.50 points) would imply additional downside to at least 468.76, a Fibo. Alternatively, once above 488, the OEX would become a decent bet to reach 500.38 (a hidden pivot) within 3-4 weeks. + QQQ (29.31): We hold twelve June 30 calls for an average 0.33 and two dozen July 23 puts for an average price of 0.175. The cubes closed well below their intraday peak, suggesting further weakness today. If so, a Fibo level at 28.30 will make a logical target, though not one we’d risk bottom-fishing.
JUNE NASDAQ E-MINI (1180.00): We will grow warier each day hence if an upward-bound Nasdaq index continues to diverge from a falling Dow. Were the two to begin falling in tandem – a scenario that would feel right as rain to me at the moment – the Naz would likely grope its way down to at least 1147.50 (a Fibo) over the near term. *** $ + IBM (87.36): No change. We hold eighty July 105 calls for an average 0.13. Continue to offer 80 June 105s short for 0.10. If weakness continues, the closest support is 86.08, a (very) hidden pivot whose provenance is probably too fuzzy to risk bottom-fishing there. FNM (73.09): Fannie needs to close above 75.90 for bulls to regain the upper hand. Once that happens the stock would be an odds-on bet to achieve a minimum 81.26 (a hidden pivot). Meanwhile, any weakness today would likely send this stock down to at least 72.17, where a minor, Fibo-related support awaits a test. C (40.77): Citi’s adroit handlers could manage no better than an inside day, one that will have at least mildly bearish implications going forward. If I’m right, there’s a Fibo at 39.68 that will serve as our minimum downsid e target for today. No action is advised. + KLAC (44.30): We are long the June 42.50s – 45.00 call spread four times for a 0.10 CREDIT after shorting four of the June 45s yesterday for 0.90. Sit tight for now, since this is a position on which we cannot lose. Our immediate upside objective is 46.42, a hidden pivot that should be shorted with a 6-cent stop, provided the trade is cushioned with profits made on the way up. EBAY (100.15): We’ll remain spectators as eBay continues to shred traders unable to parse its wicked wildness of late.
-- Posted Friday, 30 May 2003 | Digg This Article
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MarketWise Black Box is published on weekdays 240 times per year. Copyright 2003 by MarketWise. For further information please go to www.marketwise.com. All information was gathered from sources believed to be reliable The risk of loss in futures, stocks or options can be substantial; therefore only genuine risk s should be used for such trading. Futures, stocks and options may not be a suitable investment for all individuals, and individuals should therefore carefully consider their financial condition in deciding whether to trade. Commodity option traders should be aware that the assignment of a short position will result in a futures position. Past profits are not indicative of future profits.
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