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With the E-Mini S&Ps and Apple shares stealing up on potentially important
Hidden Pivot targets yesterday, we shorted both on the off chance that we
might be catching the Mother of All Bear Rally Tops. Of course, we’re
not so crazy that we actually believe we’re going to nail the exact top
of a bear rally that is now well into its fourth year. Still, it’s great fun to try, especially if you’re a permabear who believes, as we do, that one of these days
stocks are going to take a plunge so nasty that it will make the 1987 Crash
look like a picnic. Regardless of whether we’re right or dead wrong,
however, we expect to make money on these trades. The trick is to catch a “a top,” if not “The Top,” and
to take a small partial profit right away if possible. This helps build a
risk cushion if our short whips around and heads higher, as happens so often.
But it also allows us to book at least a small gain if we should eventually
be forced to bail out just above where we got in. Rather than make bold claims about how often we succeed at this, we’d
suggest asking subscribers yourself. Click here for
a free trial subscription that will give you a week’s access to the Rick’s
Picks chat room, which attracts experienced traders and ‘Pivoteers’ from around the world 24/7.
So how did yesterday’s two trades
against-the-trend work out? Not too badly, actually. Although the Apple short
was stopped out for a small loss because of a Hidden Pivot miscalculation
(more on that below), at the final bell subscribers who followed the futures
recommendation were still short the E-Mini with a paper profit of more than
$400 per contract. Earlier, we’d advised them to get short at a 1409.00
target derived from Hidden Pivot
Analysis. The target had been a
while in coming, since we’d flagged it in the newsletter more than a
week ago. But we were ready to pounce yesterday when it was finally hit,
offering contracts short at 1409.00 with a stop-loss at 1410.25. The
micro-tight, 1.25-point stop-loss carried a theoretical risk of $62.50, which
is as much as we ever advise for trades, even long-termers, in this vehicle.
As it happened, a stop-loss as tight as three ticks (i.e.,
0.75 points, or $37.50 of theoretical risk per contract) would have held,
since the futures went no higher on Monday than 1409.50. After apexing there, the September E-Mini S&P fell to a subsquent low of 1397.25, representing a theoretical gain
thus far of $575 per contract. In practice, the paper gain could be even
higher for some subscribers, since we advised them via an intraday bulletin
to cover half of the initial short position when the futures were trading
around 1404.00. For us, conservative, risk-averse play is standard operating
procedure on both long and short trades – but especially on shorts,
since odds will always be against hitting a major, major top on a given day.
Calendar Spreading ‘Directional’ Plays
Concerning the short in Apple, based on a Hidden Pivot rally target at
637.71, we told subscribers in an intraday bulletin to initiate the trade at
637.59, stop 638.05. (Alternatively, they could have bought
far-out-of-the-money put spreads at the 620 strike – one of our
favorite tactics for significantly reducing the risk of
“directional” plays). A 46-cent stop-loss may sound too tight for
a stock that has swung as much as $40 in a day, but it was actually somewhat
wider than we usually advise, since it had been a while since we last
suggested a trade in Apple. In the actual event, the stock topped at exactly
638.61 — 90 cents above our initial target — after rallying
nearly $9 from the previous day’s close. On recalculating the target,
however, we discovered an error that when corrected shifted it to 639.29, or
68 cents above the actual top. Oh well. Fortunately, there will always be
another chance to short The Mother of All Tops – or, for that matter,
to get long enroute to it if we can control the
entry risk tightly enough.
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