Monday, October 31, 2011
I don't have a buy or sell stock pick this week. I suggest getting ready to sell-short for the short term. I see the SP500 index making a short-term top here now at 1292.66 with 1074.77 support as my target and below to buy in for a very low-risk high-reward upside bear-market rally after that. Some think that now there's a supposedly a European Union solution for the Greek debt default, that its a bull-market again. I don't think so, but a lot of pressure has been released to keep the markets from continuing crashing hard and fast it seems. Short-term now I'm selling short looking for the break of 1074.77 on the SP500 then cover, and buy long.
What Kind of Trader Are You?
The idea of being a successful trader is exciting. The reality of becoming one is another thing. You need to understand more than the markets -- you need to understand yourself.
EWI's Senior Analyst Jeffrey Kennedy knows what it takes. He has analyzed and traded the markets for over 15 years. Jeffrey has learned what it takes to be successful, and he has the discipline to apply that knowledge. Enjoy this excerpt from his free Club EWI eBook Best of Traders Classroom, in which he answers: What kind of trader am I?
As a trader, it is imperative that you define your approach to the markets. For instance, do you follow the trend or do you like to play breakouts? Are you a commodity trader or an index trader at heart? What's your trading time frame, five minutes or five weeks? Moreover, how do you analyze markets, fundamentally or technically? Do you prefer using a black box type trading system or making your own calls?
My trading style is to trade with the trend. Specifically, I like to buy pullbacks in uptrends and sell bounces in downtrends. My markets are commodities, and my time frame is three to five days. If I catch a trade that has some legs to it, and it lasts a little longer, that's fine with me. Bottom line, though, I'm a take-the-money-and-run kind of guy. This is who I am as a trader.
In addition to the Wave Principle, I include basic chart reading and bar patterns in my analysis. While I do use a few select technical studies in arriving at my decisions, I have always believed that "price" is the ultimate indicator and that everything else is secondary.
Remember, success in trading comes from the consistent application of a proven methodology. If you don't define your methodology, then your trading style could change with each new issue of Stocks and Commodities magazine. Trying a variety of analytical techniques rather than consistently following one is a problem for traders, and it's also a great way to lose your trading account.
Read more of Jeffrey's lessons in his free 45-page eBook: The Best of Trader's Classroom. This valuable eBook, adapted from the $189 set of the same name, offers the 14 most actionable lessons every trader should know.
Click here to download your free eBook now.
Click here for the video Portfolio Profit Results report card on some very successful traders.
Thursday, October 27, 2011
TradeMiner is a new software trading tool that helps identifies trading opportunities through the use of Artificial Intelligence and brute force mathematics.
What used to take days of time consuming mathematical calculations through an Excel spreadsheet is now done in a matter of seconds.
For the past 10 years, TradeMiner has been a proprietary trading tool developed for market analysts, system signal providers, and Stocks, Futures and Forex newsletter authors & magazine publishers.
This tool, until now, has only been available to a small select group of industry professionals & traders -- For now, this tool is available to you.
The software finds historically accurate trends that have been profitable 80%, 90% or even 100% of the time over the past 5,10,20, or even 30 years.
This is all done through a proprietary, artificial intelligent, data cube that allows the computer to calculate and find (mine) millions and millions of trades in seconds.
TradeMiner is NOT a website, it’s an installed application on your own PC. No Internet access required to run, you can use it on the airplane!
How Does TradeMiner Work?
The inner workings of the TradeMiner technology is a proprietary company secret, but the quick and dirty details are that we’ve developed a masterful way of searching through millions of data records from a 3D point of view, in what we call a Plug ‘n Play, portable 3D Data Cube. Market data goes in, and winning trades come out.
While most databases search through data in a linear fashion, TradeMiner has the ability to search through data from multiple points of access, then, using artificial intelligence, each subsequent search through the data gets faster and faster each time. What used to take hours and hours of computer CPU time now takes seconds.
TradeMiner Provides You With The Following Guidelines:
Entry Date: When the historical trend begins.
Exit Date: When the trend ends.
Profit & Loss: How much money the trade has made over the past 5, 10, 15, 30, 40 or more years.
Exit Strategy: Recommended stop loss order placement and profit targets.
Detailed History: Review the actual trade history of each trade.
Risk Vs. Reward: Risk Levels that were required to obtain the stated profit.
Profit Probability: Probability percentages of potential profitability.
Trading Style: Supports both short term trend identification for day traders, as well as long-term trends for position trading.
Brokerage: Works with any brokerage account, no expensive EA’s or other special software required.
No Programming: No programming required, no complicated installation.
Which Computer?: TradeMiner is not a website, its a downloadable application that’s Java based, therefore it works on PC, MAC, or Linux! Run TradeMiner, even when you have no Internet access. Only requires 2Gigs of memory to run! (Recommend four.)
Click here to review information about TradeMiner
Wednesday, October 26, 2011
If the "lost decade" has taught us anything, it's that we need to change the way we invest in stocks. Today's generation of investors--myself included--came of age in a world where capital gains were easy and the homework was light. Although generating returns today isn't nearly as easy as it used to be, Wall Street continues to perpetuate the myth that capital gains are the be-all and end-all in investing.
It's been almost seven years since I charted a new course. I'd had quite enough of the buy-low, sell-high circus and found that there were other ways of making money in stocks--strategies that didn't rely on analyst upgrades, quarterly earnings estimates, celebrity CEOs, or patterns on charts.
I went back to first principles: investing in stocks that paid me back in cash through large, reliable, and growing dividends. If I could get the dividend right, everything else would take care of itself.
These principles became the cornerstone of Morningstar Dividend Investor, the newsletter I founded in 2005. Its goal is to provide you with practical, actionable, and timely investment advice from someone who is not trying to double your money every 90 days with high-risk picks, but rather to preserve capital, earn attractive income, and encourage long-run wealth accumulation.
Given the turmoil and tragedy in the years since Dividend Investor's inception, I'm pleased to report that we've made money while others have lost it. Our real-money Harvest and Builder portfolios have collected steady dividends--over $33,000 on a $100,000 initial investment based on one measure--while stocks have gone up, crashed, rebounded, and fallen again. Even without trying to "beat the market," Dividend Investor's recommendations have beaten Wall Street at its own game, with more total return and less risk.
I believe passionately in the principles and procedures that have produced our results thus far. In fact, our recommendations aren't just on paper. We've actually bought everything we've called a "buy" with Morningstar's own money. The same goes for our sells and holds. Sure, we've made some mistakes--who hasn't? But we always provide complete transparency for our subscribers. You get to learn from our steps and missteps. I will say, however, that our overall record speaks volumes about the true nature of stocks and the best way to profit.
How many of Wall Street's myths are you holding dear?
For me, this is more than a business. It's a mission. Wall Street is not telling the truth about how stocks really work, and almost no one seems to have a vested interest in making money for clients first and themselves second.
Though I am a professional investor by trade, I'm a historian at heart. Let's reach past the media-driven, debt-fueled bubbles of the past 20 years to examine how to really make money in stocks, starting by exploding a few myths that seem nearly universally held by investors.
Myth: Stocks are all about capital gains.
Fact: More than 90% of stock market returns are explained by dividends.
Depending on who and what you read, you've probably heard that the stock market returns 9%, 10%, or 11% a year. Do you know how many times the stock market has actually returned between 9% and 11% since 1945? Just once! (That was in 1993, in case you want to impress your friends.) In all other years, the returns on stocks were either higher or lower--sometimes a lot lower.
Yet amid all these fluctuations, dividends are the steadying factor. Not only does dividend income account for 36% of the total returns of the stock market* over the past 65 years, but dividend growth--the increasing income you can't get from bonds or other fixed-income investments--accounts for another 53%. The pure speculative piece (and what occupies 90% of Wall Street's attention) accounts for only 11%.
The Dividend Investor strategy seeks companies that pay solid yields--generally at least 3% and sometimes as much as 7%, but not so high that they're at risk of being slashed. But we don't stop there. We also want dividend growth that is at least equal to inflation, and the lower the yield on the stock the more growth we insist upon. This simple goal has paid off with over 230 separate dividend increases for our portfolio recommendations since 2005--and only 16 cuts.
Myth: A stock is worth whatever someone will pay for it.
Fact: The value of a stock comes from its future dividend payments.
I could wander off into the tall weeds of financial theory, but it's really not all that complicated. Think of it this way: You wouldn't put your hard-earned savings into a bond that paid no interest and never gave your original investment back, would you? Or invest directly in a small business that would never share its earnings? Why should the publicly traded stock of a large corporation be any different? Unlike bonds, stocks don't pay interest and they don't mature. An awful lot don't pay dividends either. But the ones that do are providing real, tangible, spendable value to their shareholders every year. Why make investing any more complicated than it needs to be?
One of my favorite companies, one that pays dividends every month and raises its dividend four and sometimes five times a year, puts this phenomenon in sharp relief. Since the end of 1994, when its stock traded at $8.56, it has paid dividends totaling almost $20 a share. The dividends keep right on coming, and right on growing, even as that stock now trades for $35.
Myth: You don't need income from your investments--you can always sell shares.
Fact: Only dividends can help you avoid selling shares at the worst possible prices.
We all remember that 2008 was a terrible year for the stock market. The Dow Jones Industrial Average dropped 4,488 points and the Standard & Poor's 500 Index fell 38.5%. The value of my portfolio holdings dropped too--it isn't as though dividends are guaranteed to prevent short-term paper losses. Excluding income, my two model portfolios lost 29.1% of their starting value of about $223,000. Even so, they threw off more than $11,000 worth of income--cash that could be used to pay the bills without having to sell stocks at 30% or 40% below their peaks. And since I didn't have to sell out, I could enjoy the recovery in full.
If you remember nothing else from this letter, remember this: dividends, and only dividends, provide returns that are always positive and paid in cash. That much should make dividend-paying stocks and strategies worth getting to know!
Introduce your portfolio to our dividend recommendations, market commentary, and detailed company reports from our unrivaled equity analyst team.
Stay current with ongoing editorials on income-producing industries, roundups of significant dividend actions, and a watch list of dividends we think are likely to be cut or eliminated.
Follow our strategy in action, through the performance of our real-money Builder and Harvest portfolios.
Get weekly recaps of the week's events and timely buy/sell alerts, sent all to your email in-box.
Enjoy 24-hour access to online editorial, videos, performance data, past issues, and research.
Josh Peters, CFA, Equities Strategist, Editor, Morningstar Dividend Investor
Tuesday, October 25, 2011
Yesterday Dustin Pass and Tom Flora opened up access to anyone who wants to use Tom’s EA. That means you can download, install, and run it on your Metatrader 4 platform, and see how a trader turns a working manual strategy into a hands-off automated strategy.
Here’s the link, make time for this before they rescind the offer, it’s
well worth it:
Click Here for Tom's EA Software Free Download Trial
Yep, robots sometimes fail, and I was very skeptical about Tom’s EA, but that changed when I got to know Tom and learn more about his strategy. He’s been really open and transparent about how it works, why he created it, and the results it has earned for him personally. I appreciate his offer and I recommend you give it a shot.
It’s totally complimentary, and this gives you a chance to evaluate something up front - they don’t even require an opt-in, so hit that link. He already published the mechanics of the strategy in the ‘robot report’ I emailed you about, and now it’s your turn to make it work for you, but this time, there’s pretty much no effort required on your part, as this EA installed to Metatrader as a fully automated robot.
You just choose risk/aggressiveness levels 1,2, or 3, choose your currency pairs, and let it trade for you.
I know this can be scary at first, so just run it on a demo account until you have it mastered.
Don’t get greedy. While this software WILL run on a live account, you shouldn’t do it until you see it consistently making a profit for you. And make sure you follow the guidelines they’ll provide you.
Click here for the direct no-optin free software download link.
Monday, October 24, 2011
First, I don't have a low-risk high-reward buy or sell stock pick this week because I don't see any stocks worth taking a risk on this week. The indicies are now hitting major resistance and I see sideways range bounds markets this week getting primed to sell off again next week or the week after that. Get ready to sell short again is my best suggestion or trade the forex or futures market for some price moves.
How To Trade Gold & Oil – The past couple weeks have been tough for most investors. The recent light volume rallies which have taken place in gold, oil and stocks has been generating mixed signals for technical analysts like myself. In order avoid a large draw down on your trading capital you must focus on the long term intraday charts.
What is a long term intraday chart you ask?
It is simply a 4 or 8 hour candlestick or bar chart. For example the charts below in this report are 4 hour charts. So each candlestick represents 4 hours.
Why should you use these long term intraday charts instead of say a daily chart? There are four main reasons for this:
If you used a daily chart then this information would be condensed showing you the daily high, low, open and closing prices. While the 4 hour futures chart shows you large multi intraday chart patterns that most traders would never see… Patterns not seen by the average investor have a higher probability of working in your favour. Also these patterns are much larger than just normal intraday patterns which you see on the 5, 10, or 60 minute charts. Remember the larger the pattern the more potential profit there will be.
These longer time frames allow us to follow gold, silver, oil and stock indexes around the clock 24/7 using futures contracts. Think about it… regular trading hours from 9:30am – 4pm ET only allows you to see 1/3rd of the price action each day. That means you are only seeing parts of larger patterns while the 24/7 contracts show you ALL Price Action.
The last reason you must use futures charts is for the volume readings. Futures show real volume levels which can be used for trading. So the volume you see on ETFs will not have the proper volume levels for that specific commodity or index. More times than not it almost the opposite…
My last reason for trading long term intraday futures charts is because the price of the underlying commodity or index moves true while the ETFs which try to shadow these commodities generate false breakouts and breakdowns on a regular basis.
Let’s take a look at the charts…
Gold Futures Contract – 240 Minute (4 Hour) Chart
Gold finally broke down from the bearish rising wedge which it had been forming through late September until mid October. I know the majority of traders, investors, and financial newsletters have already positioned themselves either long or short the metal as they anticipate the next major move.
I will agree that a large move either up or down is just around the corner but what sets me apart from others is the fact that I don’t bet my hard earned money when the odds are 50/50. I don’t pick tops or bottoms; rather I wait for a clean break out or low risk entry point. Only then will I take action. Until the blue box on the chart has been broken with some type of retest I will continue to observe and analyze the chart of gold.
Crude Oil Futures Contract – 240 Minute (4 Hour) Chart
The past month crude oil trading has been very profitable for subscribers and me. We shorted crude oil using an inverse etf in September which moved over 20% in our favour within a few trading sessions. And just last week we shorted it again for a 7.5% move in less than 24 hours.
Overall I am still bearish on oil but have moved to cash until I see another high probability setup unfolding. The recent price action in crude oil makes the odds about a 50/50 bet as to which way it will break next. This is why I have moved back to cash and pocketed the quick gain.
SP500 Exchange Traded Fund – 240 Minute (4 Hour) Chart
This chart is not the SP500 futures contract. This is just the SPY ETF but what I wanted to show was how the market was showing mixed signals. The past couple weeks price has been broadening and this can be taken two different ways…
More times than not it is seen as a bearish pattern and price generally falls afterwards. But in rare situations which I think we could be experiencing now this broadening price action can be very bullish, meaning much higher prices ahead. So I continue to observe and prepare for a possible trade setup.
Weekend Gold, Oil and Stocks Trend Conclusion:
In short, I feel the market is on the verge of a strong move. The problem is that price action, market sentiment and economic news are all giving mixed signals…
The best position right now is in cash and if something unfolds this week to our favour, then we will get involved but I am not going to take a 50/50 guess on what the next move is until the odds are in favour to one side or the other.
August until now (October 24) the SP500 is down -3.7% and Gold is up 1.1%, Silver is down 20% and oil is down -7.2.
Click here to review more Market Trend Forecasts
Friday, October 21, 2011
Elliott Wave International has just announced the beginning of their popular commodity FreeWeek event, where non-subscribers can test-drive some of their most popular premium services.
Now through noon Thursday, October 27 (Eastern time), you'll get complete access to all of EWI's most-promising daily, weekly and monthly opportunities in the world's leading commodities, plus all the charts, world-class analysis, video forecasts along with a treasure chest of trading lessons and more! (Subscribers normally pay $49/month for these services.)
Learn more and get instant access to EWI's FreeWeek of commodity forecasts and trading education now -- before the opportunity ends for good.
FreeWeek is one of EWI's most popular programs, and it's perfect for anyone curious about EWI's subscription services. Please don't hesitate to tell your friends about the exciting opportunity FreeWeek provides.
Click Here to Review more Elliott Wave Information and Resources
Click Here to Review Elliott Wave Trading Software
Wednesday, October 19, 2011
While researching new ways to save time trading Forex (without sacrificing pips), this trader kind of stumbled upon 2 'discoveries' that may surprise you.
The first one has to do with a 'flaw' in how 90% or more of Forex traders think about trading these markets.
It's deceptively simple . . . yet it led him to develop a pretty unusual technique around 'scalping' the 'sweet spots' of the best Forex markets.
Watch this special video he recorded that reveals these discoveries, along with an unusual 'scalping' technique.
Click here to review it:
If you really, really enjoy staring at your computer all day long day trading every nook & cranny of the markets, then you might not like this video, because it shows you how to spend LESS time trading and MORE time 'having a life'.
Click here to review more forex resources and information.
Click here to review forex signals.
Click here to review forex Metatrader Expert Advisors
Tuesday, October 18, 2011
I received some questions last week on my recent solar pieces as to whether I minded paying more money for “green” power. My answer is “hell no,” and I’ll tell you why. My annual electric bill comes to $1,500 a year. Since the California power authorities have set a goal of 33% alternative energy sources by 2020, PG&E (PGE) has the most aggressive green energy program in the country (click here for “The Solar Boom in California”). More expensive solar, wind, geothermal, and biodiesel power sources mean that my electric bill may rise by $150-$300 a year.
Now let’s combine my electricity and gasoline bills. Driving 15,000 miles a year, my current gasoline engine powered car uses 750 gallons a year, which at $4/gallon for gas costs me $3,000/year. So my annual power/gasoline bill is $4,500. My new all electric Nissan Leaf (NSANY) will cost me $180/year to cover the same distance (click here for “Getting Something for Nothing”). Even if my power bill goes up 20%, as it eventually will, thanks to the Leaf, my THE total plunges to $1,980, down 56%.
There is an additional sweetener, which I’m not even counting. I also spend $1,000/year on maintenance on my old car, including tune ups and oil changes. The Nissan Leaf will cost me nothing, as there are no oil changes or tune ups, and my engine drops from using 400 overcooked parts to just five. We’re basically talking tires rotations only for the first 100,000 miles.
There is a further enormous pay off down the road. We are currently spending $100 billion a year in cash up front fighting our wars in the Middle East, or $273 million a day! Add to that another $200 billion in back end costs, including wear and tear on capital equipment, and lifetime medical care for 3 million veterans, some of whom are severely torn up.
We import 9.1 million barrels of oil each day, or 3.3 billion barrels a year, worth $270 billion at $82/barrel. Some 2 million b/d, or 730 million barrels/year worth $60 billion comes from the Middle East. That means we are paying a de facto tax which amounts to $136/barrel, taking the true price for Saudi crude up to a staggering $219/barrel!
We are literally spending $100 billion extra to buy $60 billion worth of oil, and that’s not counting the lives lost. Even worse, all of the new growth in Middle Eastern oil exports is to China, so we are now spending this money to assure their supplies more than ours. Only a government could come up with such an idiotic plan.
There is another factor to count in. Anyone in the oil industry will tell you that, of the current $82 price for crude, $30 is a risk premium driven by fears of instability in the Middle East. The Strategic Petroleum Reserve, every available tanker, and thousands of rail cars are all chocked full with unwanted oil. This is why prices remain high.
The International Energy Agency says the world is now using 87 million b/d, or 32 billion barrels a year worth $2.6 trillion. This means that the risk premium is costing global consumers $950 billion/year. If we abandon that oil source, the risk premium should fall substantially, or disappear completely. What instability there becomes China’s headache, not ours.
If enough of the country converts to alternatives and adopts major conservation measures, then we can quit importing oil from that violent part of the world. No more sending our president to bow and shake hands with King Abdullah. Oil prices would fall, our military budget would drop, the federal budget deficit would shrink, and our taxes would likely get cut.
One Leaf shrinks demand for 750 gallons of gasoline, or 1,500 gallons of oil per year. That means that we need 20.4 million Leafs on the road to eliminate the need for the 2 million barrels/day we are importing from the Middle East. The Department of Energy has provided a $1.6 billion loan to build a Nissan plant in Smyrna, Tennessee that will pump out 250,000 Leafs a year by end 2012. Add that to the million Volts, Tesla S-1’s, Mitsubishi iMiEV’s, and other electric cars hitting the market in the next few years. Also taking a bite out of our oil consumption are the 1 million hybrids now on the road to be joined by a second million in the next two years. That goal is not so far off.
Yes, these are simplistic, back of the envelop calculations that don’t take into account other national security considerations, or our presence on the global stage. But these numbers show that even a modest conversion to alternatives can have an outsized impact on the bigger picture.
By the way, please don’t tell ExxonMobile (XOM) or BP (BP) I told you this. They get 80% of their earnings from importing oil to the US. I don’t want to get a knock on the door in the middle of the night.
Click here to learn more about John Thomas and Wealth Insider Alliance
Monday, October 17, 2011
I don't have a buy or sell stock pick this week as I see the market continuing up although now hitting heavy resistance so any gains should potentially be minimal with high-risk and low-reward in my opinion. Instead I've got some analysis on the SP500 below. I would be getting ready to sell short again either this week or next.
The S&P 500 is Getting Close to a Top
By JW Jones of Market Trend Forecast
The past few months have been very difficult to navigate for retail investors and institutional money managers. The huge week to week price swings and increased volatility have made the current market conditions exceptionally difficult to maneuver. Day traders are about the only group of market participants that outperform during periods such as we have seen since the beginning of August.
Before I jump into the analysis, I would like to point out to readers that the S&P 500 Index (SPX) has rallied from 1,075 on October 4th to 1224.50 on October 14th. The S&P 500 has rallied almost 150 handles or 14% from the lows to Friday’s close in 10 calendar days. As an options trader and a market participant, I trade the market that I see, not the market that I want. With that said, ask yourself this question: Does a healthy financial construct rally 14% in 10 calendar days?
To put the recent price action into perspective, since the beginning of the year 2000 the S&P 500 would have had a poor track record on an annualized basis when compared to the past 10 calendar days’ trough to peak performance. Only in the years 2003, 2006, 2009, & 2010 would an investor have been able to best the previous 10 calendar days’ performance (Performance data courtesy of Wikipedia). The most amazing thing about the recent price action is that the S&P 500 Index is still underwater for the year even after rallying roughly 14%.
At this point two scenarios are likely to play out. One scenario involves a rally on the S&P 500 towards the key 1,250 – 1,270 resistance zone which is outlined on the chart below. The recent price action in the S&P 500 has been volatile and at this point it has gone nearly parabolic. The daily chart of the S&P 500 Index is shown below:
The resistance level shown in the chart above outlines the key 1,250 – 1,270 resistance zone that will be tested if the S&P 500 can breakout above the 1,230 resistance level. However, it is critical for traders to recognize that probabilities are starting to favor the short side. Let me explain.
If the S&P 500 is able to rally into the 1,250 – 1,270 level it would represent a gain of less than 4%. The bears will vigorously defend the S&P 1,250 – 1,270 resistance zone and it is unlikely that price action will be able to take out that resistance zone on the first breakout attempt.
With only 4% upside, the odds of some sort of correction are favorable at this point in time. Whether the correction begins early next week or whether we have to wait until the key resistance zone is tested, sellers will step back into the driver’s seat in the not-so-distant future.
A few data points that exemplify the overbought status of the S&P 500 are shown below. The first indicator is the McClellan Oscillator that my trading buddy Chris Vermeulen pointed out to me.
50 Period Moving Average Momentum Chart
The momentum chart shown below illustrates the number of domestic equities trading above their key 50 period moving averages:
Both charts above are warning signs that this rally is starting to get a bit overheated. I would point out that the past two times the McClellan Oscillator and the momentum chart peaked a nasty selloff occurred shortly thereafter. The one point that I would like to make clear to readers is that each time both indicators peaked prices eventually went much lower.
The evidence would lead astute traders to believe a top was near. The more arduous details about the future of the S&P 500’s price action revolve around where the topping formation will be. Will the S&P 500 find resistance on a second test of the key 1,230 resistance level?
The other scenario would involve higher prices next week that eventually reach the key 1,260 – 1,270 area on the S&P 500. Will price work roughly 4% higher before confirming a top at the key breakdown level that initiated the selloff back in August?
I am of the opinion that a topping formation or pattern is likely near, but the location of the top is unknown to me presently. More importantly the forthcoming selloff resolution will be very telling about the current trend of the marketplace.
The most constructive price action that we could see would be a selloff that results in a higher low on the daily chart. If that type of price action plays out a new bullish run could begin. However, if we form a top and price action breaks down below recent lows it would not be surprising to see another lower low form which would put the trend squarely in favor of the bears.
The most important aspect of coming weeks will not necessarily be where a top forms, but if and when a selloff begins. Ultimately the depth, momentum, and ferocity of the selloff are more important than where the topping pattern begins.
At this point I have no purely directional trades on the books, but I am developing a laundry list of shorts that make sense. After all, volatility has declined quite a bit and puts are starting to get a whole lot cheaper!
In closing, a top is likely in the cards in the near future. However, the strength and momentum of the forthcoming selloff will tell the real story about the future direction of stock prices. The next few weeks should be quite interesting!!
Click here to review more Market Trend Forecasts
Friday, October 14, 2011
Any trader will tell you the trend is your friend, and the overwhelming direction for the US dollar for the last 220 years has been down.
Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in scandals. Take a ten dollar bill out of your wallet and you’re looking at a world class swordsman of the first order. When he wasn’t fighting scandalous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.
Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts. Hamilton settled many of these by giving creditors notes exchangeable for then worthless Indian land west of the Appalachians. As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a centuries long government tradition of stiffing its lenders, a practice that continues to this day. My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California—and am part Indian.
It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr’s intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord. Cheney, eat your heart out.
Since Bloomberg machines weren’t around in 1790, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold. A chart of this data shows an undeniable permanent downtrend, which greatly accelerates after 1933 when FDR banned private ownership of gold and devalued the dollar.
Today, going short the currency of the world’s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long term growth rate is a no brainer. But once it became every hedge fund trader’s free lunch, and positions became so lopsided against the buck, a reversal was inevitable. We seem to be solidly in one of those periodic corrections, which began with the big “RISK OFF” trade on April 29, and could continue for months or years.
The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations. I’m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback. Think of these as emerging markets where they speak English, best played through the local currencies. For a sleeper, buy the Chinese Yuan ETF (CYB) for your back book. A major revaluation by the Middle Kingdom is just a matter of time.
I’m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary, Tim Geithner, to talk the dollar up, but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation. Given Geithner’s performance so far, I’d say he studied his history well. Hamilton must be smiling from the grave.
Click here for the Worlds Greatest Ground Floor Trading Opportunity by John Thomas of Wealth Insider Alliance
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Thursday, October 13, 2011
A lot of eyes were watching the Slovakian Parliament around the closing bell today as they voted on the European Financial Stability Fund (EFSF). The first vote failed to pass the pending legislation, but members of the opposition party have indicated that they will vote for the bill in a second scheduled vote.
The S&P 500 E-Mini futures contract has not sold off sharply on the news, but the trap door risk for equity traders is that the second vote comes up short and the legislation fails unexpectedly. The marketplace is expecting the second vote to pass without issue and if a different scenario plays out selling pressure could become extreme potentially. With earnings season now upon us, there is plenty of headline risk to go around and this Slovakian situation just adds more complexity to the news flow.
We have seen the S&P 500 Index rally more than 10% in five trading sessions which could potentially mean we have more downside work to accomplish before probing higher. The flip side of that argument is that prices continue to rally and push towards key resistance levels overhead. At this point in time, I do not have an edge for a directional trade so I am sitting on the sidelines presently. I do have a few time decay based trades in place, but they do not have a directional bias so my book is flat here.
The S&P 500 is a tough buy after a 10% rally in such a short period of time, but the strength and momentum are tough to short. The buyers seem to be higher and the sellers appear to be lower which complicates a potential entry even further. Presently there appears to be two possible scenarios:
SP500 Bullish Forecast
The daily chart of the S&P 500 Index is shown below with key overhead resistance levels illustrated on the chart and the potential price action in coming days:
SP500 Bearish Forecast
The daily chart of the S&P 500 Index is shown below with key support levels and the potential price action if price works lower:
Overall, I do not have a real edge on the S&P 500 at this point. A pullback makes some sense here, but defined risk metrics and a trading plan must be used to reduce risk. Regardless of the price direction traders are considering, this is a situation where proper position sizing and stop orders can allow a trader to take on a defined risk that he/she is comfortable with.
This market has been tough to trade for several weeks. The price action has been choppy and volatility levels have been elevated since the early part of August. This type of market environment chops up a lot of traders and it sucks bulls and bears into the price action late in the game opening the door for potentially devastating losses if risk is not properly defined.
As an option trader familiar with a variety of spreads, recently I have been utilizing the elevated volatility levels to sell option premium and use the passage of time as a primary profit engine for my open positions. Currently I have 3 open positions which are all taking advantage of the passage of time as a profit engine.
Back on 9/26 I entered a $DIA Iron Condor Spread to take advantage of heightened volatility and capitalize on time decay leading up to the October monthly option expiration. On 10/06 I was able to close the $DIA position to lock in 15% based on maximum risk. Even though price action was excessively volatile during the past several weeks, my $DIA trade was never a major concern in terms of price action. No adjustments were necessary and members and I pocketed some relatively quick money watching the days pass by.
The recent price action in gold has been equally as tough to trade as the S&P 500 Index. After rallying sharply into early September, gold prices plummeted and price action has been consolidating ever since. Similar to the price action in the S&P 500, gold prices have just chopped around for several weeks. Gold is currently trading in a bear flag formation which if triggered could result in additional downside.
In the short-term more downside is always possible, but in the longer-term I think higher prices are probable for both gold and silver as this money printing binge will one day end and inflationary pressures may present themselves at that time. The weekly chart of gold futures is shown below:
As can be seen above, gold has traded in a long term rising channel for over a year. Back in August and September gold prices broke out to the upside of the rising channel and went parabolic. In the beginning of September, gold prices sold off sharply back down into the previous rising channel. As it stands right now, gold prices remain near the upper resistance level of that channel and have not tested the lower support line since February.
If gold prices do begin to rollover in the days and weeks ahead, a logical entry point would be a test of the lower channel. The price level I would be watching for would be around $1,500 an ounce. If we get to that area, I would not be shocked to see an overthrow of that support level and a test of the 1,480 price level before reversing to the upside.
The other side of this story is that the U.S. Dollar Index falls out of favor again and its price gets crushed. If the U.S. Dollar gets hammered lower, it would make sense that U.S. domestic equities would rally along with other risk assets such as gold, silver, and oil. Right now I do not have a clear short term bias, but in the intermediate to longer term cycles I remain quite bullish. If the gold price does work back down to that support level, I will be looking to get long. Another possible long entry would present itself on a breakout to the upside back out of the upward sloping channel.
Gold is quite volatile and is impacted by a litany of outside forces such as foreign currency and the U.S. Dollar. For right now the short term bias could be to the downside, but when this period of malaise in the yellow metal ends the next bullish phase of this move higher is going to be quite strong.
As I have said many times, sometimes the best trade is no trade at all. Right now I do not have an edge in either the S&P 500 or gold so I am just going to sit and watch price action patiently while looking for high probability, low risk setups to emerge.
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Wednesday, October 12, 2011
Any doubts that China’s Yuan is a huge screaming buy should have been dispelled when news came out that it had displaced Germany as the world’s largest exporter.
The Middle Kingdom shipped $1.2 trillion in goods in 2009, compared to only $1.1 trillion for The Fatherland. The US has not held the top spot since 2003. China’s surging exports of electrical machinery, power generation equipment, clothes, and steel were a major contributor. German exports were mired down by lackluster economic recovery in the EC, which has also been a major factor behind the weak euro. Sales of luxury Mercedes and BMW cars, machinery, and chemicals have plummeted.
Eight back-to-back interest rate rises for the Yuan, and a constant snugging of bank reserve requirements by the People’s Bank of China, have stiffened the backbone of the Middle Kingdom’s currency even further. That is the price of allowing the Federal Reserve to set China’s monetary policy via a fixed Yuan exchange rate. It is certain that Obama’s stimulus program is reviving China’s economy more than our own.
The last really big currency realignment was a series of devaluations that took the Yuan down from a high of 1.50 to the dollar in 1980. By the mid-nineties, it had depreciated by 84%. The goal was to make exports more competitive. The Chinese succeeded beyond their wildest dreams.
There is absolutely no way that the fixed rate regime can continue, and there are only two possible outcomes. An artificially low Yuan has to eventually cause the country’s inflation rate to explode. Or a future global economic recovery causes Chinese exports to balloon to politically intolerable levels. Either case forces a revaluation.
Of course timing is everything. It’s tough to know how many sticks it takes to break a camel’s back. Talk to senior officials at the People’s Bank of China, and they’ll tell you they still need a weak currency to develop their impoverished economy. Per capita income is still at only $6,000, less than a tenth of that of the US. But that is up a lot from a mere $100 in 1978.
Talk to senior US Treasury officials, and they’ll tell you they are amazed that the Chinese peg has lasted this long. How many exports will it take to break it? $1.5 trillion, $2 trillion, $2.5 trillion? It’s anyone’s guess.
One thing is certain. A free floating Yuan would be at least 50% higher than it is today, and possibly 100%. In fact, the desire to prevent foreign hedge funds from making a killing in the market is a not a small element in Beijing’s thinking.
The Chinese Central bank governor, Zhou Xiaochuan, says he won’t entertain a revaluation for the foreseeable future. The Americans say they need it tomorrow. To me that means about six months. Buy the Yuan ETF, the (CYB). Just think of it as an ETF with an attached lottery ticket. If the Chinese continue to stonewall, you will get the token 3%-4% annual revaluation they are thought to tolerate. Double that with margin, and your yield rises to 6%-10%, not bad in this low yielding world. Since the chance of the Chinese devaluing is nil, that beats the hell out of the zero interest rates you now get with T-bills.
If they cave, then you could be in for a home run.
Tuesday, October 11, 2011
Morningstar Investment Research to Host Sixth Annual Stocks Forum
for Investors October 13 - 14, 2011 Chicago
Morningstar Inc, NASDAQ: MORN, a leading provider of independent investment research, will hold its sixth annual Stocks Forum at its headquarters in Chicago Oct. 13-14, 2011. The event will feature discussions with Morningstar equities strategists and analysts and hands-on workshops designed to dissect the current market environment and explore the complex issues facing investors today.
“Our stocks forum has always been a great opportunity for investors to tap into the expertise of our analysts, who uniquely focus on the long-term value of a business rather than the short-term fluctuation of a stock’s price,” said Catherine Odelbo, president of equity and credit research for Morningstar. “This year’s forum is designed specifically for individual investors, and we hope they will find our insights and recommendations even more relevant to their investment goals, especially in light of the market’s volatility.”
Oct. 13, 2011: Pre-Forum Workshops
At the pre-forum event on Oct. 13, investors can choose from three different three-hour training sessions, covering dividend investing, 9 a.m.-noon; option investing, 9 a.m.-noon; and stock valuation, 1-4 p.m. The workshops will be led by Morningstar experts.
Oct. 14, 2011: Stocks Forum
The Stocks Forum kicks off at 9 a.m. on Friday, Oct. 14 with a panel discussion about latest research on companies’ sustainable competitive advantages and the Morningstar Economic Moat Rating™, moderated by Paul Larson, equities strategist and editor of Morningstar StockInvestor. Later in the day, Larson will also discuss his current stock picks, many of which have a strong record for beating the market.
Morningstar experts will lead several strategy sessions:
• Michael Tian, senior equity analyst and editor of the Morningstar Opportunistic Investor newsletter, will share unconventional ideas for investing in smaller-capitalization companies.
• Robert Johnson, director of economic analysis, will cover key economic indicators he is monitoring to determine the direction of the economy and the possibility of another recession.
• Elizabeth Collins, associate director of equity research, will moderate a panel on the long-term consequences of increasing commodity prices and the outlook for gold, copper, aluminum, and other commodities with Morningstar’s basic materials specialists.
• Josh Peters, equity-income strategist and editor of the Morningstar DividendInvestor newsletter, will discuss investing for income, income growth, long-term capital appreciation, and his top stock picks in a low-interest-rate environment. Peters will also moderate a panel on the search for income among stocks, bonds, and real estate.
• Phil Guziec, derivatives strategist, and Erik Kobayashi-Solomon, senior options analyst, co-editors of the Morningstar OptionInvestor newsletter, will introduce the three main uses for options—protection, income, and speculation—and strategies to implement each one.
Throughout the Stocks Forum, attendees can speak one-on-one with members of Morningstar’s team of 80 equity analysts in the United States and participate in roundtable discussions during breakfast, lunch, and breaks on Oct. 14. Click here to view the complete agenda and to register.
Morningstar is also offering a separate equities conference for institutional investors, Management Behind the Moat, Nov. 9-10 in Chicago. Click here for more information and to register.
About Morningstar Investment Research
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 400,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 5 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment management subsidiaries and has more than $180 billion in assets under advisement and management as of June 30, 2011. The company has operations in 26 countries.
Monday, October 10, 2011
First, I don't have a buy or sell stock pick this week as I don't see any low-risk high-reward trades currently. Instead I have a short article from Bob Prechter below which is the most important factor in getting the USA growing again. I think the market is having a dead cat bounce here and will turn lower at higher resistance price levels. Then again it could just tank again and continue downward at anytime. If it does, I recommend selling into the downside breakout. The worst is far from over. The stock charts all look terrible, but there's always some bottom pickers willing to buy and bid them up. The volatility is a traders market so be careful.
What The USA Needs is More Jobs -- Steve Jobs
By Bob Prechter of Elliott Wave International
Steve Jobs was special, and his legacy will endure for generations. Many people have written about Jobs since he died on October 5. As usual, EWI was ahead of the curve. Bob Prechter wrote briefly about Jobs in his Sept. 16 Elliott Wave Theorist, lauding Jobs' accomplishments as he stepped down as Apple's CEO in August 2011 but also noting how leaders' legacies are shaped by the waves of social mood of their times:
The President wants to create jobs. He plans to do it by spending another half trillion dollars. The thinking here is fallacious. You can't create jobs with government money, because it's all extorted from people who work, thus destroying jobs. The way to have more jobs is to remove the impediments to their creation.
I am surprised by the number of analysts who are telling clients to hold their shares of Apple Corp., because, according to one TV guest, "Steve Jobs is in the company's DNA," so it will continue to be as brilliant without him as it was with him. Objectively speaking, this is unlikely to be true. Apple's future is not likely to be as good as its past. But Steve Jobs' legacy might be forever rosy. A reader sent this socionomic assessment: "Steve Jobs' health issues are horribly unfortunate. But he is bowing out at the peak. No doubt this is one reason he will be remembered as one of the best CEOs of all time. If he stayed in his position during the bear market, the historical record might be less positive. Sad as the reason may be, the timing of his exit [from Apple in August] will be good for his legacy."
If you want more jobs, encourage more Jobs. Too bad the government hasn't a clue about how to make more people like him.
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Thursday, October 06, 2011
Tuesday, October 04, 2011
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The December Dollar was higher overnight as it extends the rally off August's low. Stochastics and the RSI are overbought, diverging but are turning bullish signaling that sideways to higher prices are possible near-term. If December extends the rally off August's low, the 87% retracement level of this year's decline crossing at 81.35 is the next upside target. Closes below the 20-day moving average crossing at 78.10 are needed to confirm that a short-term top has been posted. First resistance is the overnight high crossing at 80.43. Second resistance is the 87% retracement level of this year's decline crossing at 81.35. First support is the 10-day moving average crossing at 78.96. Second support is the 20-day moving average crossing at 78.10.
The December Euro was lower overnight as it extends the decline off August's high. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near-term. If December extends the decline off August's high, the 75% retracement level of the 2010-2011-rally crossing at 128.78 is the next downside target. Closes above the 20-day moving average crossing at 136.13 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at 134.63. Second resistance is the 20-day moving average crossing at 136.13. First support is the overnight low crossing at 131.42. Second support is the 75% retracement level of the 2010-2011-rally crossing at 128.78.
The December British Pound was lower overnight and poised to renew the decline off August's high. Stochastics and the RSI are turning bearish signaling that sideways to lower prices are possible near-term. If December renews the decline off August's high, the 75% retracement level of the 2010-2011-rally crossing at 1.5243 is the next downside target. Closes above the 20-day moving average crossing at 1.5657 are needed to confirm that a short-term low has been posted. First resistance is the 20-day moving average crossing at 1.5657. Second resistance is the reaction high crossing at 1.5852. First support is this month's low crossing at 1.5316. Second support is the 75% retracement level of the 010-2011-rally crossing at 1.5243.
The December Swiss Franc was lower overnight as it extends Monday's decline below the 62% retracement level of the 2010-2011-rally crossing at .10916. Stochastics and the RSI are bearish signaling that additional weakness is possible near-term. If December renews the decline off August's high, the 75% retracement level of the 2010-2011-rally crossing at .10222 is the next downside target. Closes above the 20-day moving average crossing at .11248 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at .11068. Second resistance is the 20-day moving average crossing at .11248. First support is the reaction low crossing at .10821. Second support is the 75% retracement level of the 2010-2011-rally crossing at .10222.
The December Canadian Dollar was lower overnight as it extends the decline off July's high. Stochastics and the RSI are oversold but are neutral to bearish signaling that sideways to lower prices are possible near-term. If December extends the decline off July's high, the August 2010 low crossing at 93.00 is the next downside target. Closes above the 20-day moving average crossing at 98.76 are needed to confirm that a short-term low has been posted. First resistance is the 10-day moving average crossing at 96.62. Second resistance is the 20-day moving average crossing at 98.76. First support is the 87% retracement level of the 2010-2011-rally crossing at 94.61. Second support is the August 2010 low crossing at 93.00.
The December Japanese Yen was slightly lower overnight as it extends the trading range of the past two months. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near-term. If December extends this year's rally, August's high crossing at .13180 is the next upside target. If December renews the decline off August's high, the 25% retracement level of the 2010-2011-rally crossing at .12657 is the next downside target. First resistance is the reaction high crossing at .13158. Second resistance is August's high crossing at .13180. First support is the reaction low crossing at .12860. Second support is 25% retracement level of the 2010-2011-rally crossing at .12657.
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Monday, October 03, 2011
SP500 Major Support Levels
First I don't have a new buy-long or sell-short stock pick this week as I don't see any low-risk high-reward trades at current time. If 1101.54 gives way on the SP500, I suggest selling short into the break, and look for major support at 1085.21 to 1076.33. If things really get bloody below 1076.33, then start looking for major support at 945.86 to 936.37.
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