Wednesday, June 30, 2010

Deflation Questions Answered

Deflation
20 Questions with Financial Lightening Rod Robert Prechter


Free Download: Our friends at Elliott Wave International have just released a brand-new interview given by Robert Prechter. A devoted inflationist asks the leading proponent of deflation tough questions about fiat currency, gold, the Fed, the Great Depression, financial bubbles, government intervention and how to protect your money -- and even profit -- in today's environment. Learn more below or access the 20-page report now.

There has been a lot of debate about what the government is doing to stave off a so-called double-dip recession. Some say it will cause runaway inflation; others say it's simply delaying the inevitable. The man you'll hear from below says DEFLATION is the true concern.

It's true that Robert Prechter is a polarizing figure in the world of finance. Some write off his technical analysis theories as esoteric market hocus-pocus. Others swear by the natural order of the markets, which is why they believe Elliott waves and Fibonacci are the purest forms of technical analysis.

Whatever your opinion, it's hard to deny that Prechter is on to something. Virtually no one has called the crisis like him.

MarketWatch columnist Peter Brimelow recently reported, "Over the past three years, [Prechter's] bearishness paid off handsomely. It's up an annualized 5.25% against negative 8.12% annualized for the total return Wilshire 5000."

Some might say it's luck. Those familiar with Prechter's writing call it unique insight.

After all, who else warned (as early as 2002, early enough to take action) about the impending tops in real estate, commodities and stocks or about defaulting pension plans, municipal bankruptcies and massive bank failures -- plus a huge rally in the once-"doomed" U.S. dollar?

Only Prechter.

You can read what Prechter is saying now in a compelling new XX-page interview, where he's asked tough questions about fiat currency, gold, the Fed, the Great Depression, financial bubbles, government intervention and how to protect your money -- and even profit -- in today's environment.

Read Prechter's candid answers for free, and find out where he thinks the markets are heading next.

Click here to access the 20-page report now.

Tuesday, June 29, 2010

High Velocity Market Master Go-LIVE!

High Velocity Market Master
High Velocity Market Master Go-LIVE Free Webinar Tue, Jun 29, 2010 6:00 PM - 7:00 PM EDT Click Here


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Monday, June 28, 2010

Yuan Flexibility and Global Markets

Chinese Yuan

China is now publicly stating they have ended the peg of the Yuan to the US Dollar last week, giving some strength to the Japanese Yen, Singapore Dollar, other Asian currencies, as well as the Yuan. The Yuan should strengthen more fundamentally. The Yuan is without a doubt the leading currency of Asia, and shall I say, possibly the entire world right now, with the rest of the world trying to cover their collateral damage and survive another round of debt crisis problems.

Yuan Up China Stocks Down?

If this turns out to be true, I would then be looking to possibly short sell some China stocks which I have a short sell on China Life Insurance posted below. I’m not so inclined of the idea of shorting the worlds third biggest economy or any company involved in it, but this may be the best low-risk high-reward to do that. Long-term China is a solid green light buy signal. For the short to intermediate term, short a few highly liquid China stocks may provide some good short term returns, while creating a setup to buy longer term.

The US Dollar and Near Term Weakness Forecast

The US Dollar has been pretty strong lately, and at a rate faster than normal. I suggest a short to intermediate term reversal to the downside could happen for the USD for the time being. The last two weeks have been seeing a slight uptrend of the Euro and Pound to the Dollar. This forecasted reversal of the USD could be a matter of weeks to months depending on if there are more shocks from debt laden Europe affecting the Euro. The Yen, Australian and New Zealand Dollar look to be leading the way already for a softer Dollar now. Long-term the Euro looks worse off than the US Dollar, but for now the Euro is still holding its line in the financial sand.

What If the Yuan Devalues?

The fear in the markets right now is that if the Yuan devalues, instead of appreciating, having the opposite effect of what many around the world and especially what the USA wants. I’m looking for continued appreciation of the Yuan but in a structured manner as China would not like to see a lot of volatility on the Yuan, lessening the shock to its economy, and I would say the global economy too. I commend China for doing it their way even with all the global pressure on them to do it. They already have been doing it for a few years now by tightening their money supply to slow down their economy step by step, and setting up currency swap agreements with central banks around the world, especially the ones they trade with. It’s all going to work out good for everyone with the ending of the Yuan peg in time I think.

Buy the Yuan Sell China Stocks?

With the Yuan increasing, then very possibly China economic growth should slow at the same time. It would be prudent to watch this closely going forward for the time being no matter where in the world you invest. On this fundamental forecast theme, and my low-risk high-reward swing trade trade plan strategy, I’ve got a short-sell on China Life Insurance this week. If all goes well, the extended take profit targets may be met here making for some very attractive buy and accumulate lower prices in the future.

Sell Short China Life Insurance – Ticker LFC

Sell Entry: 69.39 to 67.59

Stop-Loss:73.96

Take Profit Areas: 59.61 to 58.23, 55.22 to 53.87, 45.82 to 44.76, 33.63 to 32.95, 21.38 to 20.96

China Life Insurance Company Profile

China Life Insurance Company Limited provides various insurance products to individuals and groups in China. The company operates in three segments: Individual Life Insurance, Group Life Insurance, and Accident and Health Insurance. The Individual Life Insurance segment offers participating and non-participating life insurance and annuities to individuals. Its products comprise long-term health and accident insurance products. The Group life insurance segment provides participating and non-participating life insurance and annuities products to companies and institutions. It offers various long-term insurance products. The Accident and Health Insurance segment provides short-term accident insurance and health insurance to individuals and groups. The company distributes its products through its direct sales force, exclusive agent force, and various intermediaries, as well as through bancassurance arrangements. The company was founded in 1949 and is based in Beijing, China. China Life Insurance Company Limited is a subsidiary of China Life Insurance (Group) Company.

Click here to review different investing trading software that scans analyzes stocks for different technical criteria, and trade pattern setups.

Click the China Life Insurance stock chart for a larger view.

China Life Insurance Stock Chart

Thursday, June 24, 2010

Will Dow Stay Above 200-Day Moving Average?

DJIA Ticker
DJIA's 200-Day Moving Average: Will the Dow stay above or below this demarcation line?


Moving averages are one of the most widely followed indicator in technical analysis.

Simply put, when the price of an index or stock stays above a particular price moving average line on a chart, that price level serves as support -- a level where buyers reside.

If the price falls below a moving average line and "can't" break through from the underside, this price level is a line of resistance -- a price level where sellers hover.

That's an easy explanation of moving averages for you.

Learn to integrate Elliott wave analysis with other technical disciplines. Read the Free Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.

A commonly watched line is the 200-day moving average.

After the DJIA fell below its 200-day moving average in May, prices remained mainly below the line until June 15, when the market rose 213 points. But, as this chart from Elliott Wave International's June 16 Short Term Update shows, the NYSE volume has remained muted:

DJIA Daily Chart
"There was no follow-through today. More stocks closed down than up on the day on the NYSE, within the S&P 500 and also for the DJ Composite. Today's Big Board volume was similarly slow relative to yesterday. ..." -- Steven Hochberg, Short Term Update, June 16, 2010

With a lack of buying conviction, how long will the stock indexes remain above the 200-day moving average?

For the answer, you need to look at the DJIA's Elliott wave structure. It strongly suggests the market will move in a definite direction in a matter of days or weeks.

Learn to integrate Elliott wave analysis with other technical disciplines. Read the FREE Ultimate Technical Analysis eBook to discover some of the favorite technical analysis methods used by the analysts at Elliott Wave International. Learn more and download your free, 50-page technical analysis ebook here.

Wednesday, June 23, 2010

High Velocity Market Master Free

High Velocity Market Master
The High Velocity Market Master is Free!


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Answer the 2 questions below, post your answers and on Tuesday, June 29th we’ll announce the winner of an entire HVMM System.

Where are you in your trading career and describe your level of success? (Just starting out or have you been at this a long time?)

How do you think the High Velocity Market Master will help you attain your trading goals?

*BONUS:* For an extra entry into the contest attend the live demo and answer this question in addition to the ones above.

In the Live Demo on Thursday June 24th, what market(s) did Brian trade?

Be sure you’re registered for the live demo by clicking one of the webinar links below:

The winner of the free system will be announced during the HVMM Red Carpet GO-Live Webinar Event Tuesday June 29th (during both times)!

June 29th, 2010 at 12pm EST U.S. (New York Time) / 9am PST / 5:00 GMT:

June 29th, 2010 at 6pm EST U.S. (New York Time) / 3pm PST / 11:00 GMT:

To have your chance at winning, you must be online at the event June 29th. Also, be sure to post thoughtful responses – that means no 1-sentence postings! We don’t want a novel but give us something to work with.

Good luck!

Tuesday, June 22, 2010

How To Master the Markets?

Market Mastery
Click here for more information.


Improved Trading Results?

Could you improve your current stock trading results? Would you like to be “constantly confident” every single time you place a trade? Would you like to spend less time trading and more time enjoying life?

If you answered “YES” to any of those questions, then keep reading, because I have some great news for you. It doesn’t matter if you’re a complete beginner or a seasoned pro in the markets; and, it doesn’t even matter whether or not you currently have a trading method, and it doesn't even matter what's going on the economy; "good", or "bad".

Regardless of your personal background and experience level with trading, the information I’m about to reveal to you in this letter has the potential to make a profound impact on your life in many ways.

But before I begin, let me just say this: I truly believe that if you're a dedicated and serious individual, your trading results could change forever after you read this letter, and you'll never look at trading the markets the same way again. And when you fully realize the power and lifetime value of becoming an INDEPENDENT TRADER in the markets, you’ll never feel the need to listen to another so-called “expert” again, because you’ll be empowered to make all the decisions. Keep reading to discover why I'm making these bold statements, and why I think you'll agree with me.

“Unexpected Market Move Sucker-Punches Hapless Trader (Again)”

Does that fictitious headline sound a little too much like reality for you? Trust me; I know from experience what it feels like to do your best to place a trade, thinking you’ve made a smart move, only to have the market knock the wind out of you, again and again. It certainly doesn’t give you much confidence to get back in the market.

I know, because I’ve been trading the markets since 1974 – that’s over 30 years. And I believe I’ve made just about every mistake you can make. I learned the hard way. The very hard way. Because I’m engineer by trade, I thought I could figure out the perfect way to trade the markets… and boy, was I wrong.

My personal life suffered quite a bit, too, as I spent countless hours with my nose buried in trading manuals, staring bleary-eyed at hundreds upon hundreds of charts, carefully drawing trendlines with my mechanical pencil and straightedge (remember, no personal computers back in the 70’s).

Many years later, I finally figured out the keys to being a successful trader. It was a long, hard journey. And if I could have one wish today come true, I would send my younger self the letter you are reading today. Had I read what you're now reading way back in 1974, I believe my life would have been very different.

So even if you’re just getting started with trading, you can probably relate a bit to my experience. There’s an enormous amount of information out there, and frankly, it would take years to get through just a small portion of it.

Well, thankfully, you don’t need to. You can stop spending hours reading big, heavy, boring books filled with trading theory. You can turn off the TV, realizing that the next “hot tip” from the “guru of the day” probably isn’t going to pad your wallet any time soon. And you can stop wondering and worrying what to do in the markets.

Imagine knowing exactly what to do in the markets. Always. Every time. And imagine confidently trading from anywhere in the world - when you want to trade, and not because you have to trade.

Why do I say all this? Click here to keep reading to find out.

Monday, June 21, 2010

China's Yuan UnPeg and Energy

PetroChina Gas Pumps
China and the Yuan

China said Saturday it’s going to unpeg the the Yuan to the US Dollar now. So, what’s the future for energy prices for the rest of the world now? Below I’ve got Devon Energy as a stock pick this week. A strategy to buy and or sell it depending on which way you think the energy market and associated stocks are going.

The Yuan and Oil

Oil has just popped to $78 plus a barrel in Europe trade this Monday after China’s statement saying that it’s lifting its currency peg to the US Dollar Saturday, or so some say why oil moved up. So this might be suggesting that investor confidence is still strong and a global economic recovery is intact.

Dr. Doom

Nouriel Roubini said last Saturday, China's decision to remove its currency peg to the USD might mean that the Yuan weakens against the dollar instead of strengthening as the USA Feds want. Yea, don’t jump to conclusions too fast is what I would suggest.

Two-Faced Oil

On one side of the oil trade is energy traders are looking for a stronger Yuan to make commodities such as oil cheaper spurring more demand, and a positive for energy demand around the world. On the other side of the oil price issue is that the recent increase in oil prices does not have long-term fundamental legs to it.

Give Me Some Reality Not Hopeful Promises

The fact is right now, the ability of the Yuan to fluctuate to the US Dollar now cannot be seen just yet as to how it affects the supply and demand for oil. Oil supply and demand in the long-term would be more due to increased or reduced refining capacity, demand for it, and I suggest oil could move higher or lower with or without the Yuan being un-pegged to the USD now.

Oil Short Term

Short term, crude oil closed higher on Friday and the high-range close sets the stage for a steady opening this Monday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near-term. If it extends the rally off May's low, the 50% retracement level of last month's decline crossing is the next upside target. Closes below the 20-day moving average crossing would confirm that a short-term top has been posted.

BP & Natural Gas Alternatives

The BP oil spill is seeing recent strength in the natural gas producers. The real question is how long is this going to last? Maybe BP can cap that bad leak. What then? Is the recent move up in oil sustainable to take oil back to the 80’s & 90’s or higher? I think not with all the other economic things going on around the world, but I could easily be wrong, so the strategy to buy and sell it if you’re so inclined.

Simple Economics 101

I suggest keeping things as simple as possible. If global un-employment stays high as it is now, and forecasted to be for the next few years, then lower oil and energy prices could be a natural result of that with lower gross domestic product. Of course the spin from the bulls is that jobs are increasing, but are they really? Last month’s non-farm payroll report was a testament to that they are not right now.

China To Bailout the Rest of the World?

Now you could say that China, Asia, and the emerging parts of the world will grow at a healthy pace, helping lift the entire global economy, and that could happen, but I’m not betting on it just yet either. With it actually happening and for many months in a row, I would be more of a believer in that idea, but not yet.

Is Oil Really Running Out?

Today, many oil investor’s traders will tell you that oil running out, and that oil prices have to go higher with less supply. They were saying that 100 years ago also. If I were in the oil business, it would be easy for me to say the same thing to keep the price up.

Short Term News Flashes and Long Term Trends

I say, no one person, institution, or central bank for that matter can support or resist prices for an extended period of time. So news flashes may affect the markets in the short term, they do not make a trend for the long term. It’s going to take more than just a news flash of any kind to create the primary trend.

Lets Make Some Money!

So how do you make money this week with energy? One way I suggest is with Devon Energy. Devon is has good fundamentals and technical’s right now. Maybe you want to buy long? On the other hand maybe you think this oil upside pop is a fake out, and willing to take the risk of selling short. Or hedge the whole thing, buy buying and selling it. I suggest you review these strategies and figure out your risk reward ratio to see where you want to fit in. The sell has a better risk reward ratio, but the trend is your friend, and near term Devon could continue up so trade accordingly.

Buy Long and or Sell Short Devon Energy – Ticker DVN

Buy Entry: 68.29 to 70.19

Stop-Loss: 62.65

Take Profit Areas: 71.49 to 72.63, 77.18 to 78.49

Sell Entry: 71.49 to 68.69

Stop-Loss: 72.63

Take Profit Areas: 59.56 to 58.65, 57.35 to 56.31, 51.50 to 50.59,

Devon Energy Company Profile

Devon Energy Corporation, together with its subsidiaries, engages in the exploration, development, and production of natural gas and oil; transportation of oil, gas, and natural gas liquids (NGLs); and processing of natural gas. The company owns oil and gas properties principally in the Mid-Continent area of the central and southern United States; the Permian Basin within Texas and New Mexico; the Rocky Mountains area of the United States; the offshore areas of the Gulf of Mexico; and the onshore areas of the Gulf Coast, principally in south Texas and south Louisiana. It also owns oil and gas properties in the provinces of Alberta, British Columbia, and Saskatchewan, Canada. In addition, the company owns properties located in Azerbaijan, Brazil, and China. Further, Devon Energy's marketing and midstream operations include the marketing of crude oil, gas, and NGLs, as well as the construction and operation of pipelines, storage and treating facilities, and gas processing plants in North America. As of December 31, 2009, the company had proved developed reserves of approximately 1,922 million barrel of oil equivalent. Devon Energy sells its gas production to various customers, including pipelines, utilities, gas marketing firms, industrial users, and local distribution companies; crude oil production to refiners and remarketers; and NGL production primarily to customers in the petrochemical, refining, and heavy oil blending activities. The company was founded in 1971 and is based in Oklahoma City, Oklahoma.

Click here to review different investing trading software that scans analyzes stocks for different technical criteria, and trade pattern setups.

Click the Devon Energy stock chart for a larger view.

Devon Energy Stock Chart

Friday, June 18, 2010

Whats In the Trading Box?

Market Mastery
Group coaching feedback + "what's in the box" video . . . Click Here


Bill Poulos just released another new video today that shows
exactly "what's in the box" when you grab one of the remaining
copies of his Market Mastery Protege Program home study
course...

-but this time you get to see his computer genius son, Greg,
walk you through the course contents.

BTW, this is one of the reasons I get behind all the training
released by Bill. I've watched his training company grow from
its start all the way back in 2001 to a professional
organization that works tirelessly to take care of its students.
And while Bill now has many full time staff members working for
him, his company is still very much a "father & son" operation,
so they don't lose sight of what's really important -- your
potential success in the markets!

ALSO, and this is a "biggie"... Bill didn't mention anything
about this yet, but I wanted to bring it up because I think it's
important: He's essentially giving you "half off" the regular
enrollment fee for his Market Mastery home study course during
this limited release...

-PLUS, he's throwing in 8 weeks of group coaching "on the house"
which used to cost 5,000 bucks... So, if you do the math, you're
getting about 7,000 dollars of value for about $2.74 per day
spread out over a year...

(That's like an unheard of 85 percent discount!)

-all backed by his "no questions asked" 60 day guarantee...

-and it all goes away next Tuesday, June 22nd.

Now, I don't know about you, but that sounds like the "deal of
the decade" to me, and I think the only reason you WOULDN'T want
to grab a copy of Bill's Market Mastery course at this point is
if you're already raking in more money from the markets than you
know what to do with.

So, go ahead and watch the "what's in the box" video here:

-and then follow the link on that page to reserve your copy of
Market Mastery TODAY.

(Your portfolio will thank you for it later ;-))

Good Trading,

P.S. Bill also just released these real attendee comments from
the end of his last live group coaching sessions he held for
another one of his training courses. As you can see, his
students are pretty darn happy:

Thursday, June 17, 2010

More Bailouts for U.S. and Europe?

U.S. and Europe: New Bailout and Freebie Proposals

You'd think, by now, some fiscal restraint would be in order -- in the U.S. and Europe.

Before getting to the new bailout proposed by a U.S. senator, a real humdinger from a European Union commissioner -- government subsidized vacations! According to Steve Forbes in the June 7 issue of Forbes, "At a time when European economies are drowning in debt...along comes the EU to declare that tourism is a human right and that governments should subsidize vacations for those who can't afford nice trips."

Apparently, Antonio Tajani, the EU commissioner for Enterprise & Industry, didn't get the "belt-tightening" memo.

In America, it's U.S. senator Bob Casey who is the main driving force behind a proposal to bailout union-sponsored pension plans. The senate bill has an interesting title: "Create Jobs and Save Benefits Act." According to The Wall Street Journal, "the bill would transfer tens of billions of dollars worth of retiree liabilities to the Pension Benefit Guaranty Corporation, i.e., to taxpayers."

No uniform agreement exists on the cost to taxpayers; estimates range from $8 billion to $165 billion.

EWI's President Robert Prechter warned his Elliott Wave Theorist subscribers of major problems with pensions well before the financial crisis began.

"...we fully expect to see bankruptcies, bond defaults, the evaporation of pensions, unemployment, bank failures, economic collapse, and depression. Some still wonder, when will they come. But the trend is already underway. The U.S. is in fact already bankrupt and poverty-stricken; these facts just haven't yet become a matter of record. When they do, the public's anger and dismay will be tremendous because its current expectation of business as usual is the complete opposite of the reality that's coming." -- Bob Prechter, October 2005 Elliott Wave Theorist

We at Elliott Wave International believe the financial excesses and the extended topping process in financial markets are all coming to a natural conclusion -- a conclusion which has only started to unfold. "We've turned the corner" news stories will likely only be temporary.

Click here for more Elliot Wave Market Forecasts & Commentary

Click here for the Stock Market Mastery Program

Click here for the High Velocity Market Master Trading Commandments

Wednesday, June 16, 2010

Stock Market Protege Mentorship

Market Mastery
Market Mastery Protege Program Enroll


Protege Definition

"one who is protected or trained or whose career is furthered by a person of experience, prominence, or influence" - Merriam Webster Dictionary

a person who receives support and protection from an influential patron who furthers the protege's career The Free Dictionary

Stock Market Mentoring

Being a Protege is one of the most significant and valuable things a person can be in learning and doing something new, and being successful at it afterwards. Especially to putting real money on the line investing and trading the financial markets. Receiving mentorship from a very experienced successful professionals is priceless. Consultancy to this magnitude traditionally can cost thousands. Did old school teach you how to profit from the stock market?

If not click here to get and benefit from Protege Mentorship:

Being a Protege, mentorship is the personal developmental relationship where a more experienced knowledgeable person or persons helps you as a less experienced knowledgeable person. The receiver of mentorship in the past was referred to as a protégé, or apprentice but today with more and more mentoring being offered the name for is "mentee".

Protege Mentorship

There are several definitions of being a Protege and mentoring in literature. First, successful mentoring involves quality communication and is relationship based. Mentoring these days is a process for the quality transmission of knowledge, social capital, and the psycho-social support by the recipient as relevant to work, career, or professional development. Mentoring entails quality communication, either face-to-face or online for a sustained period of time, between a person who is has greater relevant knowledge, wisdom, and or experience called the Mentor and a person who is the Protege.

Click here for review and enroll in the Market Mastery Protege Program

Tuesday, June 15, 2010

Deflation and How To Survive It Warnings

Financial Risk
Deflation: How To Survive It Important Warnings About Deflation


Telegraph.go.uk, May 26: "US money supply plunges at 1930s pace... The M3 money supply in the U.S. is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history."

Deflation is suddenly in the news again. It's a good moment to catch up on a few definitions, as well as strategies on how to beat this rare economic condition.

And who better to ask than EWI's president Robert Prechter? He predicted the first wave of deflation in the 2007-2009 "credit crunch" and has written on this topic extensively.

We've put together a great free resource of a 63-page "Deflation Survival Guide eBook," Prechter’s most important deflation essays. Enjoy this excerpt, and for details on how to read the eBook in full free, click here.

What Makes Deflation Likely Today?

Following the Great Depression, the Fed and the U.S. government embarked on a program...both of increasing the creation of new money and credit and of fostering the confidence of lenders and borrowers so as to facilitate the expansion of credit. These policies both accommodated and encouraged the expansionary trend of the ’Teens and 1920s, which ended in bust, and the far larger expansionary trend that began in 1932 and which has accelerated over the past half-century. Other governments and central banks have followed similar policies. The International Monetary Fund, the World Bank and similar institutions, funded mostly by the U.S. taxpayer, have extended immense credit around the globe.

Their policies have supported nearly continuous worldwide inflation, particularly over the past thirty years. As a result, the global financial system is gorged with non-self-liquidating credit. Conventional economists excuse and praise this system under the erroneous belief that expanding money and credit promotes economic growth, which is terribly false. It appears to do so for a while, but in the long run, the swollen mass of debt collapses of its own weight, which is deflation, and destroys the economy. A devastated economy, moreover, encourages radical politics, which is even worse.

The value of credit that has been extended worldwide is unprecedented. Worse, most of this debt is the non-self-liquidating type. Much of it comprises loans to governments, investment loans for buying stock and real estate, and loans for everyday consumer items and services, none of which has any production tied to it. Even a lot of corporate debt is non-self-liquidating, since so much of corporate activity these days is related to finance rather than production.

Survive Deflation
Figure 11-5 is a stunning picture of the credit expansion of wave V of the 1920s (beginning the year that Congress authorized the Fed), which ended in a bust, and of wave V in the 1980s-1990s, which is even bigger.

It has been the biggest credit expansion in history by a huge margin. Coextensively, not only is there a threat of deflation, but there is also the threat of the biggest deflation in history by a huge margin. ...

Click here to read the rest of this important 63-page deflation study now, free.

Here's what you'll learn:

What Triggers the Change to Deflation

Why Deflationary Crashes and Depressions Go Together

Financial Values Can Disappear

Deflation is a Global Story

What Makes Deflation Likely Today?

How Big a Deflation?

Click here for more market commentary and forecasts from Robert Prechter at Elliottwave.

Monday, June 14, 2010

Did You Sell in May and Go Away?

Bear Bull Fighting
Did you sell in May and go away as some suggested?


I hope so. If not, you still have time to adjust your portfolio to survive and profit moving forward.

Making Money This Week and Next in the Markets

Look for continued choppy volatile stocks whether or not the Europe debt problems stabalizes or not. This Friday is quadruple expiration for futures and options which can easily add to volatility. Energy will stay in focus as President Obama talks with BP's CEO and Chairman on Wednesday, and other oil executives testify in front of Congress Tuesday and Thursday regarding the gulf oil spill disaster. Major producer and consumer inflation data reports this week are Wednesday and Thursday.

Trichet and the European Banks

The markets are still watching Europe with intensity. Trichet said to his European bankers “we won’t bail you out twice”. That’s a scary headline risk idea to think about if they have to later on. I wouldn’t be surprised to see the Euro stabilize here at least in the short term for a profitable upside bounce. Long-term still looks down as they have much more work to do to try and stabilize everything longer term.

Good Earnings Reports To Help?

Good earnings reports may not even lift stock prices right now as we have seen with the first quarters reports. Stock market investor’s traders will most likely stay nervous whether the new earnings reports are going to help or not. I would suggest they won’t help right now. The much bigger picture of the globalized economy, and its problems are currently much more in focus than the positives to solve the problems still. Let’s call it the confidence crisis trade for a different theme for the fun of it.

Market Correlations

Asset class correlations have never been higher at 60% plus lately. I suspect this as a deflation signal with all asset classes looking to decline further now for awhile. It’s possibly the risk-trade still coming off and being de-levered.

Indicators - Bear Markets and Bear Market Rallies

As many of bears have already mentioned, the March 2009 bottom was the beginning of the bear market rally, an April 2010 is the continuance of the bear market that started in 2008. There’s plenty of indicators to compare and correlate what’s happening now to what happened to spark the 2008 downturn. What’s scary is that it looks possibly worse this time.

Is China Going To Bail The Globe Out?

China is slowing down relatively now and may not be the global markets savior as some people think. China will be fine over time, but the time to help elevate sinking global markets right now may take a little longer than some are hoping for. This week I expect some consolidation as stock and currency markets take a breath from the big moves they’ve made in the last 30 days plus to figure out whats coming next and get setup for it. Sharp moves can still easily happen this week with un-expected negative headlines from anywhere in the world, so pay attention be ready to move to protect your portfolio.

Sovereign Debt Under Control Now?

Sovereign debt seems to be under some kind of control for the time being, but what happens months from now if and when these distressed countries cannot service their debt internally? Another round of bailing out and Euro selling? Remember what Trichet said. The market seems to be seeing this right now, and getting ready for it with the big buying of US Treasuries. The lesser of all the evils I guess is the best approach right now. It seems the major global market players as a whole thinks so right now.

The Confidence Crisis Trade

Confidence around the world currently seems to still be losing ground to keep the market stable and or moving up. The images in our mind are the most likely to manifest. What do you see near-term and long-term? Near-term is fairly easy. Invest and trade short term and get back to cash as fast as you can is my best suggestion. The long-term is more difficult, and I know I would not be able to survive the big swings expected as a relative small investor and trader. Volatility is on the increase and I expect it to stay that way for quite some time until the problems are solved. If you get it wrong on long-term bets and don’t have a large money war chest, you could lose the battle and the war. Long term investing is not back in vogue yet. Give it another five years so to go long, long-term.

My Stock Pick This Week

I don’t suggest buying any stock this week, even if you think this is a short-term selloff in the markets. I see the SP500 major resistance at 1092.30 1116.55 area right now, and major support coming in at below 1040.78 with the 1015 and lower area being a possible area being a good buy in point for the bulls for a possible intermediate term up move.

My list of short term short-sell stock candidates for this week are the following tickers.

ACV, ALU, EGN, HRL, NJ, PTEN, RRST, SJR, SU, AND UN.

Ticker UN or Unilever is my best short bet this week.

From the looks of Unilever’s current fundamentals and technicals, a low-risk high-reward swing sell-short trade looks good here. They currently have the highest price to earnings multiple of their other big global peers, with an 18 multiple that could easily reduce in the short to intermediate term with global slowing or even the idea of it. Their 3% plus dividend yield does not make it so attractive enough to buy into yet for me. I would be more interested in buying value in Unilever at PE levels of 13 or below. Their total debt to equity right now is much more than 50% which raises red flags and loud alarms making it a big time sell for me in illiquid financial crisis cashflow times like now. Like Nouriel Roubini said so well, “if banks are too big to fail, then banks are simply to big, and they should be downsized.” The same could apply to any large company in economic times like this.

Unilever is trying to buy Sara Lee right now. They’re so big it seems that they can’t create their own organic growth now, so they try to buy it. History has shown that most mergers do not benefit the acquiring company. Also the European Commission last week said it has opened an in-depth investigation into Unilever's planned acquisition of a part of Sara Lee business units. Instead of Unilever buying more companies, I would rather see them downsize their company, reduce their debt load, and raise more cash.

Sell Short Unilever – Ticker UN

Sell Entry: 28.95 to 28.33

Stop-Loss: 29.18 or above to 8% from your entry point.

Take Profit Areas: 25.96 to 25.86, 25.32 to 25.21, 23.42 to 23.31

Unilever Company Profile

Unilever N.V. and its subsidiaries produce and supply fast moving consumer goods in nutrition, hygiene, and personal care categories in Asia, Africa, Europe, and Latin America. It offers savoury, dressings, and spreads, such as soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines, spreads, frozen foods, and cooking products under Knorr, Hellmann’s, Becel/Flora, Rama/Blue Band, Calve, Wish-Bone, Amora, Ragu, and Bertolli names; ice creams under Cornetto, Magnum, Carte d’Or and Solero, Wall’s, Kibon, Algida, and Ola brands; beverages under Lipton, Brooke Bond, and PG Tips brands; weight management products under Slim•Fast brand; and nutritionally enhanced products under Annapurna and AdeS brand names. The company also offers personal care products comprising mass skin care, daily hair care, and deodorants products under Dove, Lux, Rexona, Sunsilk, Axe/Lynx, Pond’s, Suave, Clear, Lifebuoy, and Vaseline names; oral care products under the Signal and Close Up names; laundry products, such as tablets, powders, and liquids for washing clothing by hand or machine, and soap bars under the Omo, Surf, Comfort, Radiant, and Skip names; and household care products consisting of surface cleaners and bleach under the Cif, Domestos, and Sun/Sunlight names. In addition, it provides solutions for professional chefs and caterers. The company sells its products through its sales force, independent brokers, agents, and distributors to chain, wholesale, co-operative, and independent grocery accounts; food service distributors and institutions; and a network of distribution centers, satellite warehouses, company-operated and public storage facilities, and depots. Unilever N.V. was formerly known as Naamlooze Vennootschap Margarine Unie. The company was founded in 1927 and is based in Rotterdam, the Netherlands. Unilever N.V. is a subsidiary of The Unilever Group.

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Friday, June 11, 2010

Weekly Forex Global Forecast

Forex Forecast
Weekly Forex Global Forecast June 14 to 18, 2010


The global budget deficit trends will remain important in the short-term as sovereign debt developments will continue to be watched very closely with any downgrades having an important negative impact on currency sentiment. Official exchange rate policies will also be watched very closely as there will be speculation that governments will look for weaker currencies to help underpin economic recoveries with the risk of competitive devaluations over the next few months, especially if growth falters.

US Dollar

The US economic data has not provided any fresh support for the dollar and any evidence of a more serious reversal in trends towards recovery would undermine yield support. There will also be very important doubts surrounding the US fundamentals, especially given the substantial trade and budget deficits. In this environment, the US currency will tend to remain dependent on defensive demand to make much headway. Although international confidence will rally at times, the net risks suggest that underlying sentiment will be fragile which will help limit dollar losses.

The dollar gained strongly at the end of last week following the US employment data. The headline data was weaker than expected with an increase of 431,000 in employment for May which was the highest increase for over 10 years. A very high proportion of the gains were due to government hiring for the census and the increase in private-sector payrolls was limited to 41,000 compared with expectations of a 190,000 gain. The data may cast some doubts over the strength of the US economy.

Jobless claims only fell marginally to 456,000 in the latest reporting week from a revised 459,000 previously which suggests that labour markets are still relatively weak. The trade deficit rose to a 16-month high of US$40.3bn for April while the May budget deficit remained firmly in deficit.

Volatility remained a key factor, but market fears eased to some extent during the week and this curbed defensive dollar demand. The US currency drifted weaker against European currencies while it held steady against the Japanese currency.

In testimony to Congress, Federal Reserve Chairman Bernanke stated that the economy was improving with gains in private demand. He did, however, also state that the recovery was modest and there was no suggestion in the rhetoric that the Fed was looking for a near-term policy tightening.

The Fed’s Beige book recorded gains in all 12 Fed districts which maintained some degree of optimism over the economy, but there was still an element of caution, especially surrounding investment.

Euro

Underlying confidence in the Euro-zone economy and Euro will remain very fragile with persistent doubts whether the Euro area will survive in its current form. From a longer-term perspective, a further orderly currency decline is unlikely to meet serious opposition, especially as the currency could still be considered over-valued and further losses are certainly realistic. G7 policy-makers will, however, be alarmed over the pace of recent declines and it is also the case that will be scope for sharp rallies at times on position adjustment.

The Euro remained under heavy pressure early in the week. There were reports that the French Prime Minister had stated that Euro at parity against the dollar would be good news. These comments were denied, but there was still an important loss of confidence in the Euro.

The new Hungarian government also warned over potential default and claimed that the previous administration had issued false information.

Sovereign debt issues remained a key market focus while there were fears that weaker members could be forced to withdraw from the Euro area. The evidence suggested that policy-makers remain uneasy over the pace of the Euro’s decline, but also that there are no significant concerns over the currency’s level. In this environment, there were market expectations that the Euro would weaken further in the medium term.

As expected, the ECB left interest rates on hold at 1.0% following the latest council meeting. Principal attention focussed on the special policy measures and the central bank press conference following the meeting. There were no additional liquidity measures announced by and Bank President Trichet stated that the measures enacted so far were strictly temporary in nature and did not represent quantitative easing. Trichet also commented that the Greek budget deficit appeared to be on track for the first five months of the year.

Trichet’s comments were clearly designed to bolster confidence in the Euro-zone economy and Euro while providing reassurance to global investors. There was a short-term favourable Euro reaction on the comments while the currency also gained traction from an improvement in risk appetite.

There were successful bond auction which helped underpin confidence to some extent as yield spreads within the Euro area narrowed and the currency recovered to above 1.21 against the dollar from initial lows below 1.19.

Japanese Yen

There will be further expectations that the government will look to block any yen gains, especially as domestic and international underlying confidence in the Japanese fundamentals will remain very weak. The yen will also tend to lose ground when risk appetite improves, especially with a lack of yield support. Overall confidence in the global economy is still likely to be very fragile and the risk profile still suggests that heavy yen selling is unlikely as there will be a reluctance to sell the currency aggressively.

The yen found it difficult to sustain gains during the week. Risk appetite managed to stabilise during the week with confidence in the global economy boosted by confirmation of a strong Chinese export performance for May. There were also renewed gains for the Australian dollar which helped sustain interest in carry trades and tended to weaken the yen.

Domestically, an annual rise in wholesale prices and firmer consumer confidence could have a small positive yen impact, but the impact is likely to be limited. Core machinery orders rose 4.0% in the latest month which was below market expectations and structural fears surrounding the Japanese economy remained an important feature.

The latest domestic banking-sector data recorded a 2.0% decline in lending in the year to May which will maintain expectations that Japan will need robust export growth to offset the impact of very weak domestic demand and credit. There were further expectations that the government would resist any significant yen appreciation.

British Pound

The inter-play between government budget trends and the Bank of England monetary policies will remain extremely important over the next few months. There is scope for greater confidence in an orderly deficit-reduction programme which will ease immediate credit-rating fears. The fiscal tightening will increase pressure for interest rates to be left on hold and this will leave Sterling exposed to potential inflation fears. Underlying confidence is likely to remain very fragile and fears could return quickly even if there is a near-term Sterling advance.

Credit-ratings agency Fitch warned that the UK government faced formidable challenges over fiscal policy and that speedy cuts in spending levels were required to stabilise the deficit. To some extent the report held no new information as the government had already warned that there needs to be greater than expected spending cuts. The remarks still triggered significant selling pressure with Sterling losses to important support levels close to 1.4350 against the dollar before a tentative rally.

The Bank of England left interest rates on hold at 0.50% following the latest MPC meeting and there was no expansion of the quantitative easing programme. The bank also decided not to issue a statement and this will tend to curb Sterling support to some extent as the bank is likely to warn markets over a potential rate increase. The lack of comments suggest that the bank is not looking for an immediate rise in rates.

The underlying fiscal and monetary policy mix will remain unfavourable for Sterling, but it continued to gain important support from a lack of confidence in the fundamentals elsewhere.

As international risk appetite stabilised and there was some merger-related Sterling demand the currency rallied to highs above 1.47 against the dollar while it held near 18-month highs against the Euro stronger than the 0.83 level.

Swiss Franc

The franc will continue to gain defensive support from a general lack of confidence in the Euro and Euro-zone economy. The National Bank policies will remain under very close scrutiny in the short - term, especially as recent policy actions have appeared inconsistent. There will continue to be pressure on the bank to curb excessive currency appreciation within Europe to help maintain competitiveness, although recent losses against the dollar will tend to ease deflation fears which will lessen pressure.

The dollar was unable to hold gains above 1.17 against the Swiss franc and weakened to lows near 1.14 due to a firm Swiss currency and some loss of US support. There was further volatility against the Euro as National Bank policies remained important.

The Euro weakened to fresh record lows near 1.3750 against the Swiss currency before finding support and rallying back to around 1.3850.

There was evidence of central bank intervention, but there was a high degree of confusion over the policy stance as it was unable to deliver a coherent message.

Australian Dollar

The Australian dollar was subjected to substantial selling pressure following the US employment data at the end of last week while selling continued early in the week. There was support on dips towards the 0.80 level and the currency rallied strongly later in the week with highs back near the 0.85 area.

The domestic data recorded a decline in home - loan demand while Reserve Bank Governor Stevens was generally cautious over the outlook, but the overall impact was relatively limited and another robust monthly employment report provided support.

The Australian currency drew support from a measured improvement in risk appetite while robust Chinese export data also provided some degree of support.

The Australian dollar moves will be influenced strongly by trends in risk appetite and degrees of optimism over the world economy. Volatility is liable to remain higher and the currency will find it difficult to make much strong headway.

Canadian Dollar

The Canadian dollar again found support weaker than the 1.06 area against the US dollar and strengthened to highs beyond 1.04. Trends in risk appetite remained important with the currency gaining renewed support when stock markets and commodity prices rallied.

There was a weaker than expected housing starts report, but there was still underlying confidence in the fundamentals which offered important underlying currency support.

Volatility levels are liable to remain higher in the short-term and the Canadian dollar will find it difficult to advance much further given the global risks.

Indian Rupee

The rupee weakened to lows near 47.50 against the dollar during the week before a recovery back through 47 later in the week.

Trends in risk appetite remained very important for the currency and there was selling pressure as global equity markets declined with some net capital outflows. Confidence generally recovered later in the week and there was also some evidence of corporate dollar selling which helped underpin the currency.

Despite losses when international risk appetite deteriorates, the rupee should be able to maintain a solid tone given underlying optimism over the fundamental outlook.

Hong Kong Dollar

There was a further decline in Hong Kong dollar volatility during the week with support stronger than the 7.80 area against the US dollar.

There was a stabilisation in risk appetite during the week which helped underpin confidence to some extent.

The Hong Kong dollar trends will be influenced by developments in risk appetite and substantial losses look unlikely even if there is little prospect of a strong advance.

Chinese Yuan

The spot yuan rate remained trapped in a narrow range while the Chinese currency also reversed some recent gains against the Euro.

The latest trade data was stronger than expected with annual export growth of close to 50% . There were still some concerns over the impact of a stronger yuan over the second half of 2010 and there were official reservations over and policy changes.

There was renewed international friction over the yuan’s exchange rate with US Treasury Secretary Geithner stating that China’s exchange rate policies were hampering a balanced global economic recovery.

Fears over global market volatility and doubts over the economic outlook may ease slightly in the short -term, but there will still be reservations over any major changes to the yuan’s exchange rate mechanism in the short-term.

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Thursday, June 10, 2010

Strong Breadth, Strong Momentum, Strong Market?

Trillion Dollar Meltdown
Here's something I bet you never thought you'd hear from a company that prides itself on being the world's largest market forecasting firm: Taken in isolation, traditional technical indicators can bite you in the [place where the sun don't shine].

Case in point: In early afternoon trading on Wednesday, June 9, the Dow Industrials enjoyed a triple-digit rally and regained the coveted 10,000 level. And as prices rose, one popular buzzword made its way into the financial blogosphere: Breadth. The stock market's advance/decline (A/D) readings suggested that the tank for further gains was full.

"Stocks Surge. Volume: On the NYSE, winners beat losers more than five to one on volume of 600 million shares." (June 9 CNN Money)

Yet -- by the market's close, street had erased its entire gains, and then some.

So, what went wrong? The short answer: Markets don't exist in a vacuum. If they did, a 5:1 A/D ratio would be reasonable to conclude that a bottom was in place. But there is a larger picture to consider, one that is never complete until the Elliott wave structure says it is.

On this, EWI's team of experts prepared the following close-up of the DJIA from April 1930 to July 1932.

Dow Jones Industrial Average Breadth 1929
Check it out: This period includes 42 days in which the A/D ratio was 4:1 or higher, and still, the Dow plummeted 86%. Moreover, the strongest A/D ratios occurred near the top of countertrend rallies.

Bottom line: Without the context of Elliott wave patterns, positive breadth is an insufficient indicator and does not always suggest a strong market.

The same conclusion can be drawn for widely held gauges of momentum, such as buying and selling climaxes. Taking nothing else into account, a high buy number rightfully suggests a market that is firing on all cylinders. Yet, an extreme buy climax, paired with a rapidly maturing wave pattern, is a surefire sell signal.

For example, in the days leading up to the April 26, 2010 peak in stocks, our analysts used this very combination to foresee a coming reversal in the market's gains. Here, the April 19 Short Term Update presented the following close-up of buy/sell climaxes versus the Dow since May 2009 and wrote:

"Last week saw 467 buying climaxes, a number that places the weekly tally on the list of the ten highest readings in the 20 + year database. The evidence... implies the market is at the start of a decline."

Dow Jones Industrial Average Breadth 2009
The 1,000-plus point plunge since then speaks for itself.

Now, if you want to see these indicators in their rightful context, subscribe risk-free to Financial Forecast Service today.

Wednesday, June 09, 2010

Heuristics & Biases Trading Systems

Heuristics
Judgmental Heuristics Or Biases and Developing Your Trading System by Van K. Tharp, Ph.D. - Van Tharp Institute


Click here for Dr Van Tharp's 2010 Trading Workshop Schedule

Heuristic (pronounced /hjʉˈrɪstɨk/, from the Greek "Εὑρίσκω" for "find" or "discover") is an adjective for experience-based techniques that help in problem solving, learning and discovery. Archimedes is said to have shouted "Heureka" after discovering the principle of displacement in his bath, which is later converted to Eureka. A heuristic method is used to come to a solution rapidly that is hoped to be close to the best possible answer, or 'optimal solution'. A heuristic is a "rule of thumb", an educated guess, an intuitive judgment or simply common sense. A heuristic is a general way of solving a problem. Heuristics as a noun is another name for heuristic methods. Wikipedia.com

So far in this series, we have looked at biases regarding randomness, which is the tendency people have to seek patterns where none exist and to invent the existence of unjustified causal relationships. Because people attempt to understand and make order out of the market, they assume that the longer a trend continues, the more likely it will suddenly turn around. This manifests into the "gamblers fallacy," which is a very common trap that traders fall in to and lose money when they do. And, last week we examined data reliability as it relates to the degree to which information reflects what is really happening. We focused on the representation bias, availability bias, anchoring bias, and hindsight bias.

Today we continue with four common misuses of sampling variability in relation to system development, and finish with some tips to help overcome all of these biases.

Sampling Variability. Most people misuse the basic concepts of sampling theory in making predictions and designing trading systems. The first principle, which is highly abused, is that you can make more accurate estimates of the true population probability from larger samples than from smaller samples.In other words, you can get a much more accurate estimate of the reliability of a trading signal from a large sample than from a small sample.In our earlier example, Jack said that his pattern predicted a higher market price 35% of the time. The accuracy of his estimate would be much better if it were based on 100 measures of the pattern than if it were based on 20 measures. Unfortunately, most people follow a bias called the law of small numbers. Once they observe a phenomenon occurring a few times, they believe they understand it and know its likelihood.

People tend to form their opinions based on a few cases, and fail to revise their opinions upon the receipt of new data to the extent that they should, based on probability theory. Traders tend to stick to their old opinions rather than updating them as new information becomes available.

We call this the conservatism bias. This points out the importance of doing a thorough, objective testing of your market observations on a set of data that is different from the data in which you made the observation.

Traders want consistent information from various sources, such as three oscillators based upon the same data (which of course are likely to show similar results). However, this consistent information will lead to increased confidence, but not to increased accuracy of prediction.

We call this the consistency of information bias. What it means is that traders are likely to add more indicators in order to get more consistent information so they can feel confident about it. But adding more indicators is not likely to give one more accurate information. This points out the importance of developing a simple, robust trading system.

A fourth major misuse of sampling variability is that people fail to understand that the amount of variability in a sample is positively related to the degree of randomness in the sample. Once you have observed a relationship in a set of data, it is no longer random with respect to that relationship. The more relationships you observe with respect to various parameters in the data, the less random the data is with respect to those parameters. Unfortunately, system developers frequently make this mistake when they use a sample of data to optimize a system and then test the system on the same data. Once a set of data has been used to optimize a system’s parameters, then it is not random with respect to those parameters.As a result, when you use the same sample of data to test the system, you can expect it to do well in the test, but this has nothing to do with how it will work as a system trading real money. Data must be tested on a sample that is independent from the sample used to observe the original relationship.

How to Overcome Judgmental Biases

You probably cannot totally overcome the effect of the various judgmental biases. One reason is that one of the most prevalent biases is the ego bias in which people decide, “Yes, I understand all of this, but it applies to other people, not to me. I’m a very special person and it doesn’t apply in my case.”Nevertheless, if you are willing to assume you are human and that these biases do apply to you, then you can take steps to minimize their impact.

Remember, your job as a trader is to find an edge in the markets. You must capitalize on that edge, so you will make money in the long run, while doing everything possible to preserve your capital in the short run. As a result, I strongly recommend that you spend a lot of time writing down your objectives and designing something to meet those objectives.

What Is An Objective?

Your objective is your goal, your target. It is the thing that you want to attain or accomplish.

Objectives set the roadmap for the entire system development process. How would one know how to get someplace if they didn’t know where they were going first? It is easy enough to see that if one trader had an objective such as “I want a system that trades long-term stocks, that requires my attention only once each week and makes 20% per year” compared to a trader’s objective that was “I want to actively trade my mother’s retirement account for four hours each day, without holding overnight positions” then two completely different systems would be required. The objectives or goals are very different. There are endless configurations of objectives. The point is you need to specifically know what it is that you are trying to attain; and only then can you develop a trading system that will help you attain it.

Observe the markets as an artist would. Be creative. Determine relationships in the market that occur over a wide variety of markets and market conditions. Remember, you are not trying to explain the markets, but just determine some market relationships you can capitalize upon. The more widespread the relationship—does it occur in different markets and different types of markets—the more likely you will be able to profit from it.

Be willing to be unique. Think about how you can best represent the price of the market. Notice relationships in the patterns of price movement that you can capitalize upon. Once you have observed some relationships, figure out how to measure them. If you can avoid common indicators, then you probably have a real edge.

Simple is probably better. Why? Because the more complex the relationship, the more likely it is to be unique to particular markets and the less likely it is to make you money.

Be sure you understand the edge the relationships you observe in your data give you. Do your observations make sense? How do they give you an edge? Also be sure that you can write down your observations in enough detail so you can recognize them as they occur and not just in hindsight.

Understand money management so you can capitalize on your observations. Trade according to a predetermined plan rather than your emotions.

Be sure to objectively test your observations on extensive market data that is different from the data you used to observe the relationships in the first place. Objective testing is very important because with subjective testing you will tend to see what you want to see. In other words, the market will confirm your expectations.

Many of the psychological issues described in this article are covered in my How to Develop a Winning Trading System that Fits You workshop and home study program.These programs will help you clarify your objectives, and then show you how to design a trading system to meet those objectives.

Click here to learn more about Dr. Van Tharp Trading Education Programs at the Van Tharp Institute

Tuesday, June 08, 2010

Rouge Trading or Market Mastery?

Rouge Trader Jerome Kerviel
Market Mastery


Jerome Kerviel is the latest rouge trader who made unauthorized trades that cost French bank Societe Generale almost 5 billion euros or about $6 billion US Dollar in 2008.

Kerviel shares the list of top rouge traders of Nick Leeson Barings Bank, Toshihide Iguchi Daiwa Bank, Liu Qibing Chinese Metals Trader, John Rusnak Allied Irish Bank, Yasuo Hamanaka Suitomo, Peter Young Morgan Grenfell, Brian Hunter Amaranth Advisors, and the Hunt Brothers.

Who Is A Rogue Trader and What is Rouge Trading?

A trader who acts independently of others, and many times recklessly, most of the time to the detriment of both the clients and the institution they are employed with. Many times this style of trading is high-risk which ends up to be extremely low-reward in the end and has the potential to create huge non-recoverable losses.

Rouge Trader Nick Lesson

The last major rouge trader to get a lot of media attention is Nick Leeson. Nick was trading derivatives at the Singapore office of Barings Bank. Leeson's postions created heavy losses through his unauthorized trading of large amounts of Nikkei futures and options. Leeson was taking huge over-leveraged derivative positions on the Nikkei that eventually imploded. During his unauthorized transactions Lesson had close to 20,000 futures contracts valued at about $3 billion, then a major earthquake hit Japan, then the Nikkei sold off big, Barings went bankrupt, and Lesson went to jail for awhile.

Are You Your Own Rouge Trader?

Are you taking trades that are blowing out your trading account time and time again? It happens to the best of us. The difference from those to succeed and those who blow out and go bankrupt the traders who admit to their mistakes, takes steps to change them, and keep them change. If you are only getting average returns in the markets at best, not performing better than the index averages, and blowing out your account over and over again, there is good news, and it starts with you.

Market Mastery To Stay Out of Financial Jail

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These are 4 trading methods that can consistently put risk reward in your favor when trading and investing in the stock market. It's so simple that most most traders have no idea how to use them and profit from them.

If you hate staring at your computer all day long trying to "day trade" every nook & cranny of the market, then then get this free training video now. It shows you how to spend less time trading profitably, and more time living the lifestyle you really want to live.

Click here for the free Market Mastery training video.

Monday, June 07, 2010

Buy Sell or Panic?

Buy Sell Panic
How to Survive and Profit in these Current Market Conditions


Monday's is when I talk about buying selling or holding positions. Maybe now its more appropriate to buy sell or panic. First I would suggest not to panic, and if you are, your portfolio most likely needs some attention and adjustments.

Do you want to buy long or put more short sells on right now? I would suggest that near-term the downside looks to show more reward than the upside. That’s not to say there’s no money to be made on an oversold bounce here right now, but more caution is advised right now on the long side. See more information below on how to survive and profit in the current market conditions.

Short Bias

Long-term I’m leaning to the short side, but I will wait for some near-term retracement of the last bloody downside 30 days of May or simply have to sell-stop into continued downside.

Long Picks for this Week

For those that want to buy long, here’s a list of stocks that could see some near-term upside. Using stop-loss has never been so important in a volatile market like now. APOL, PDA, PETS, EME, EPL, FDP, HTLD, NTGR, OIS, QSII SLH, AND WBSN.

Astrazeneca AZN looks like an interesting buy right now. Could be a good long-term hold for awhile maybe.

Short Picks for this Week

For those that want to initiate new short sells immediately this week, the following list looks to possibly provide the best low-risk high-reward short sells right now. AET, AMR, BMA, CAL, MANT, TOO, and VR. The best short sell of this list is AMR or American Airlines I believe.

First American Airlines fundamentals are not the best in the industry. Fundamentally moving forward, continued high un-employment and lower gross domestic product lends itself to less airline flying and potentially lower stock price. I do see lower oil and jet fuel prices going forward near-term, but I don’t think they will have the affect yet to bring more flyers back to the airlines to increase their earnings per share and stock price near-term. Normally summer would be a busy vacation traveling season, but with the stock market declining as it has this May, also traveling the friendly skies looks to be less also for now.

Technically, I see current AMR near-term major resistance at 8.68 and major support at 5.95 with AMR’s current price June 04 closing price at 7.71 making for a liquid low-risk high-reward short sell. Starting December 01, 2009 a head and shoulder top looks to be forming with the right shoulder forming now. If you didn’t know already, head and shoulder tops and bottoms have historically been low-risk high-reward buying selling trend reversal opportunities.

Sell Short American Airlines – Ticker AMR

Sell Entry: 8.14 to 7.58

Stop-Loss: 8.48

Take Profit Areas: 5.95 to 5.62, 5.27 to 4.97,

How to Profit in Declining Markets

How has the market been for you in the last 30 days? If you were long equities, I hope you survived. Never in a long time has the cliché “sell in May and go away” been so significant. How can you survive and better yet make money in the current market environment? Below I’ve listed a number of ways.

Dead Cat Bounce Due?

First, the global markets have been sold off so big in the last month that could possibly see an upside bounce for a variety of factors. Short covering, investors coming in to buy and hold at relative deep discounts, speculators looking for a counter trend move to the primary trend, which the primary trend looks to me as down now, and traders trading the dead cat bounce and the volatility moves.

Selloff Continues?

Then again, the fear could accelerate as armchair investors traders review their portfolios over the weekend and the last month, and then decide that they can’t handle more pain and suffering from their long position with more selling pressure. Mutual fund managers seem to be trying to keep their jobs by talking up the market to get some inflows into their funds as current inflows have been declining. I suggest getting involved with the short mutual funds long term if you don’t want to trade and managed your own short-sells, and or trade futures or have a managed futures account to participate in food commodities as everyone has to eat.

Euro

The euro has now broken the 1.20 psychology price handle to the downside, and could possibly find some near term support at 1.1931 for a tradable upside move. If things don’t get better in Europe, intermediate term, the euro could start hitting 1.18 to 1.16 areas with 1.20 as new major resistance. A little further out, if things stay bad longer term or get worse in Europe, 1.12 to 1.10 areas is possible. I remember when the EURUSD went below 1.20 in November of 2005. On the rebound from the mid 1.16 rumor had it that the Saudi’s where heavy buyers of the euro in the 1.20 to 1.25 area, and then its subsequent move up topping out at 1.6038 in July 2008. Maybe they’re rethinking their Euro positions now as everyone is. Very long term, 10 to 20 years from now, the Euro could be possibly no longer as many of the great analysts are saying. Take note that the Gulf Arab countries just removed for now the idea of one regional GCC currency, possibly heeding what is going on in Europe now and what will happen going forward.

What Should You Do Now?

The global stock markets currently look to be pricing in a double dip, recession and or a depression whatever you want to call a bear market. Long term I do see the markets going to new lows taking out the lows of March 2009. Based on long term cycle forecasts, I see a bear market bottom in June of 2016. Right now the markets look real bad right now if you’re long. For the nimble investor, meaning you’re more active in the markets like a speculator and or trader, there are ways to profit from volatile and declining markets. As the markets move, so do you with them buy or sell, win or lose. Never hold a losing position in a strong up or down trending market is my best suggestion no matter how much money you have. It’s psychological and financial suicide in the long term. As Nouriel Roubini says, “maybe too big to fail means, some companies are simply too big, and need to fail, be downsized or restructured.”

Cash is the Ultimate King of Kings Right Now

Go to and or stay in cash. Cash is a good trade and investment in markets like this. During hard times in the markets, the best course of action is simply be defensive by staying on the sidelines and being liquid with cash waiting for low-risk high-reward trades and investments.

Trade the Cash Market

Trade the forex market. With $3 trillion in daily volume, liquidity is the best you can find in the financial universe, you can take buy long and sell short positions with few restrictions and you can leverage up or down if you want. In a current world of de-leveraging by the big players around the world, I would suggest to the small players that possibly increased leverage could be of benefit at times but it has to be managed and adjusted constantly to keep you out of trouble long term. This is one major reason why the global economics are where they are right now. Exponential leverage was applied for far too long, creating a major bubble. Normal leverage in the forex market would be 1:100 or less. Extreme leverage is 1:500. Pick your risk appetite point depending upon how much cash and cashflow you have. Good currencies to buy long right now I would suggest are the US Dollar, Swiss Franc, New Zealand Dollar, and the Singapore Dollar. A balance of these has the ability to keep currency risk to a minimum.

Gold Silver Linings?

Buy a little gold on a regular basis but don’t overload your portfolio with it at these current prices. 5% to 10% of your total portfolio is quite adequate. Consider small amounts of gold purchases every month or quarter to average in, in case the price is declining. Near term silver looks down some. Near term gold looks to be down too, but long term gold looks like it can possibly move up to new highs. If deflation continues with lower assets across the board, gold and silver could follow them too. The best times for buying gold are during early inflation economic expansions which have not happened yet. Deflation is the actual reality right now. Gold has lost its momentum since its 2006 peak. And with late night television shows and other media pitching to buy gold, makes me suspect to a low-risk high-reward buy on gold right now.

Safety in Defensive Non-Cyclical Stocks?

Possibly buy defensive and non-cyclical stocks, but be very careful here too. Approximately three out of four stocks go down in a bear market. This ratio doesn't just apply to high beta names historically. 75 percent of all stocks go down when the general market falls. Potentially past good safe haven stocks are non-cyclical, soft consumer goods, pharmaceutical, and healthcare companies. Most of the time, these companies make money during good and bad times. Go for those stocks that pay a good dividend rate. So you’re getting paid while waiting for the economic recovery. Again be careful with this idea of investing long-term. Back during the 1973 – 1974 bear market, some US blue chip companies went down 80% to 90% and or went bankrupt.

Long Term Investing Now?

If you’re buying for minimum of five years or longer I would say maybe you’ll be okay and I’ll emphases maybe. I would suggest that if you buy now, you might breakeven in five years from now and start to show a better than average profit after that, so with dividend stocks you could possibly outperform the market averages. If you bought the market in 2000 and held until now, you would still be at a loss so long-term investing is not guarantee of profiting for now at least. If you do invest long term, look for the best managed companies paying a dividend with 50% or less debt to equity. Actually these days of financial crisis, 25% or less debt to equity would be better long-term. To survive a long-term bear market requires a war chest of cash to survive and rule later.

Selling Short

Short sell the market and stocks if you’re able to. Some markets don’t allow it though. Being an active short-seller can be very profitable, but close management is required. Or buy into a short ETF or Mutual Fund and leave the management to professionals. Short selling is just like buying stock long during an uptrend market, except your doing it in a declining market. Look for major resistance price points, market upticks, and Fibonacci retracements to initiate new short sells to attempt to get the best selling price, always use stop-loss, watch your leverage if using, and watch for the short covering rebound to lock in profits by using a trailing stop-loss.

Put Options

For those interested in getting aggressive to the short side, sell out of the money put options on the stocks you want to purchase. If you’re a value bargain hunter, you can sell the puts and earn a premium. If the option gets exercised, you now own the stock at a lower price less the premium you earned.

Go To Work In a Job and or Create and Build A Business

Lastly and I would suggest the most important right now. Go to work in a job, and better yet, create your own job buy building a business from any size, and be a part of creating gross domestic product for the country you live in and the world as a whole. If you don't have a job, create your own, but try to do something that contributes and benefits the area of where you live.

Price bubbles infancy starts with the optimism of a growing economy, the companies involved in that growth, and excess cash from individual to institutions buying into that growth. Real economic growth is from the people working hard to building business, and those investing into it after, that elevates investment instrument prices over time. When price bubbles pop, the best thing for anyone to do is go back to work at least until the economy and investments start growing again, then step back into the markets with your risk money to make a bet on a better future.

I do believe good prevails in the end. It has so far, and if the world ends tomorrow, you’re not going to take with you into the afterlife anyway.

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