As we went to press Monday night, February Gold was fixing to stop out a bullish position we’d advised that produced explosive, although perhaps fleeting, gains. For subscribers who acted on the initial recommendation made here last week, there was a theoretical profit of nearly $6000 per contract at recent highs near $1767. (Click here for a free pass to our daily recommendations and forecasts.)  But because we had resolved to stick with this bullish play and swing for the fences, we watched passively as bullion quotes receded back into the by-now-familiar muck of uncertainty. To be sure, our position will survive if the futures trade no lower than 1716.20. But we’re not counting on it.  And if gold were to trigger the stop-loss and continue south, the next place we might consider bottom-fishing would be near 1702.60, a “Hidden Pivot” support determined by our proprietary forecasting method.

Would such a move portend corresponding weakness in the broad averages? It seems logical, since stocks and bullion have been moving in tandem, if not in lock-step, for months.  Most recently, however, shares have acted far stronger than bullion, suggesting the two might be decoupling. We doubt it, though. More likely, in our estimation, is that the 1000-point rally in the Dow since last Monday is about to reverse and take the precious-metals complex with it, at least for a spell. The rally, after all, was based on optimism over Europe’s latest bailout nostrums and on strong retail figures thus far for the holiday shopping season, but we don’t see either affecting a big picture that remains bleak.

No Crystal Ball

Even so, because we employ charts and not a crystal ball, we remain open to the possibility that the Dow has more upside potential over the near term. We gave the prospect some thought during an impromptu trading session held online yesterday morning for Rick’s Picks subscribers. During these sessions, which are offered spur-of-the-moment, we try to set aside our biases so that we can trade and predict with coldly mechanically detachment.  It is under such strictures that we were able to “see” a rally of about 10 percent unfolding in the S&Ps, even though it wouldn’t “feel” right. Accordingly, in the days ahead, we’ll be looking to leg into a virtually riskless butterfly spread in the SPY options. This implies shorting January 137 calls and later buying offsetting calls at, in this instance, the 134 and 140 strikes.  If we can do so with no net debit, or perhaps even at a credit, it will allow us to leverage any Santa rally that’s coming with no possibility of loss no matter what happens. Click here if you’d like to follow along –in real time, during market hours.  You’ll also gain access to our 24/7 chat room as well as to round-the-clock updates for recommendations and forecasts.

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