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Equity futures mixed

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Later today at 02:15 EST, we'll get the news on interest rates from the Fed. Until then, traders will have to navigate a choppy market. This morning we're seeing S&P futures off 2, NASDAQ futures are higher by 2 and Dow futures are off 10. Fair value for today is $7.77 with buy programs set at $9.34 and selling set at $5.98.

Our "contingency plan" for today, if things don't go as expected

Many traders probably have a plan put together for how to trade today's market. I've got several plans and here's one that some traders might not have developed. I'll call it my "just in case the wheels come off" plan. The key indexes I feel traders should be monitoring, along with the stocks and indexes they normally trade are the Gold/Silver Index (XAU.X), bond market (FVX.X), (TNX.X) and (TYX.X) along with the broader market indices.

Gold/Silver Index Supply/Demand Chart - 2-point scale

Back in November (red B), the XAU.X reached a level of 42 on the above chart, or 41.61 at its ultimate low on a bar chart. This 41.61 is very close (within 0.39) with a bearish vertical count taken from 88 to 66 (first sell signal off the top). I point this out to alert traders once again that this index may have reached a low back in November and to be careful with any shorting ideas. Right now we don't have a bullish vertical count to work with on the above chart (2-point box), but a 1-point box interval chart indicates a bullish price objective of 69. This 69 level looks suspiciously correlative with our bearish resistance line currently at 72. This has me posing the question, "why would this index reach the 69 level?" As it relates to economics, the MARKET may be thinking a hedge against inflation, or currency risk. I would also point out that the "bullish percent" or number of stocks in the precious metals group now reads 32% which is bull confirmed. This is a very bullish indicator of this group of stocks. The last time this index had a 32% bullish reading was in September of 1999. At that time, the XAU.X was trading near the 66 level, right before a powerful move to 92!

Barrick Gold Supply/Demand Chart - .5 and 1.0 scale

Some may think it's coincidence and it may be, but the bearish price objective for Barrick Gold (NYSE:ABX) indicated $12. On October 25, 2000, shares of ABX traded as low as $12.31, but finished the session that day at 12.75. Just three days later ABX traded as high as $14.25. Here's the key I'll be watching today!

This is key, so take notes here!

On January 3rd of this year, just before the Fed cut interest rates, shares of ABX traded as high as $17.34. After the Fed came in and surprised the market with a 50-basis point cut, shares of ABX retreated to a low of $14.87 this past Monday, January 29th. On January 3rd, just before the Fed came in and surprised the market with a 50-basis point cut, bond yields were at yearly lows. When the announcement was made, bond yields jumped, as did stocks!

What to keep an eye on Today and tomorrow morning!!!

What equity bulls DON'T want to see today when the Fed announces their rate decision is a divergence of what we saw on January 3rd. If traders will watch bond yields, the XAU.X and the stocks they're trading, you will have a good feel for what you should be doing. We know now what happened on January 3rd. The "general consensus" today is for a 50-basis point cut. We all can manage pretty well if today goes like January 3rd did. If for some reason, things don't go like they did on January 3rd, the U.S Treasury Yields and XAU.X will help you immensely and you should know what to do.

If the wheels come off today, you've got a place to go!

Most traders probably have a plan today that is bullish for stocks if the NASDAQ Composite surges. What most subscribers probably lack (until now) is a potential way to make money today if the "wheels come off." You're now perhaps alert to a strategy for making money on the long side (in gold stocks) if things don't go as you originally planned. Use a bullish strategy in Barrick Gold (NYSE:ABX) with a stop just below $14.50 as a relatively low risk hedge. Just in case the wheels DO come off!

Call Option Chain for Barrick Gold (NYSE:ABX)

Above is a list of call options for ABX, just in case January 3rd doesn't happen again. This may serve as a backup plan just in case. Never say "never", and never say "always." We're ready for anything and now you've got a plan just in case the "wheels come off."

Jeff Bailey
Staff Analyst

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