Shorting the Top of Yesterday’s Wilding Spree

Today’s list of trading “touts” includes tracking guidance for three new positions initiated yesterday. First was a short in the Diamonds (DIA) based on a 155.30 rally target that had been posted on May 8, when the DJIA itself was trading 600 points lower. Our ‘Hidden Pivot’ caught yesterday’s high within 16 cents, just in time to enjoy a subsequent 2% plunge to 152.40. The equivalent reversal in the Dow Industrials, which had risen sharply while Bernanke blathered away on Capitol Hill, amounted to 242 points, or 1.4%.  In Johnson & Johnson, although we’d backed away from a short recommendation a while back, giving wide berth to the institutional lunatics who have binged on the stock since December, an 89.46 target was good enough to position subscribers within 53 cents of the 89.99 top.  JNJ subsequently reversed down to 88.20, finishing the day at 88.43 on a weak bounce. Finally, subscribers reported buying GLD August 160 calls for 0.21, a penny off the intraday low, based on a 131.83 correction target. The target had been aired intraday in the chat room in response to a timely query.

The short positions are speculative and go against our very bullish, 16800 rally target for the Dow.  However, based on Hidden Pivot Analysis, if the predicted blowout rally was going to fail, it was likely to occur precisely at yesterday’s highs. Shorting into the Bernanke-induced wilding spree that began the day was undeniably speculative and even a little scary, but anyone who did so was a winner by the final bell.

Taking Partial Profits Is Key

Our practice when going against a bull market now in its fifth years is to take a partial profit on any position that has gone even modestly in-the-black, and to tie the rest of it to a tight stop-loss.  This makes it possible to exit such positions with no loss or even a small gain if stocks should come roaring back, as they invariably have.  If the all but unthinkable were to happen and stocks continued to fall – something that has not occurred in years – we would be in good shape to reap a windfall on whatever portion of the original position remained.

If you’re skeptical that permabears can find pleasure and profit in a market that has been climbing as steeply and steadily as this one, we invite you to drop by the Rick’s Picks chat room and ask subscribers yourself. For a free trial subscription that will give you entrée to the room, as well as to daily trading touts and intraday alerts, click here.