SPX’s Running Correction, Gold’s Setup, Oil Explodes!

February 14, 2012 by  
Filed under Investment

The financial markets continue to climb the wall of worry on the back of more Fed Quantitative Easing. Those trying to pick a top in this choppy bull market may prove to be correct for a couple hours but over time the shorts continue to get clobbered.

Quantitative easing was enough to turn gold back up and gave oil just enough of a nudge to breakout of its cup and handle pattern explained later.

The past few weeks the number of emails I receive on a daily basis about what individuals should do about short positions they took on their own has growing quickly. Usually when my inbox starts to fill up with traders holding heavy losses trying to pick a top I know something big is about to happen and its not going to be in the favor of the herd (everyone shorting). In the past couple week there have been some great entry points for the broad market whether its to buy the SP500, Dow, NASDAQ or Russell 2K. I focus on trading with the trend and entering on extreme sentiment readings as shown in the chart below.

Extreme Trend Trading Analysis

Below are my main market sentiment indicators for helping to time short term tops and bottoms. That being said I don’t pick short term tops in hopes to profit on the down side. Rather I wait for a extreme sentiment bottom to be put in place, then enter long with the up trend (Buy Low).

Once there is a 1-2% surge in price and sentiment indicators are showing a short term top I like to pull a little money off the table to lock in some profits while still holding a core position (Sell High). This is exactly what I/subscribers have done over the last couple weeks. This is a simple yet highly effective strategy and works just as well in a down trend except I focus on shorting extreme sentiment bounces. Subscribers know what these indicators are as I cover them each week in my daily pre-market trading videos as we prepare for the day ahead.

SPX Running Correction

Since early September the equities market has been on fire. In late September the market was extremely toppy looking and trading at key resistance levels from prior highs convincing a lot of traders to take a short position. But instead of a correction the market surged and has since continued to grind its way up week after week.

This rising choppy price action can be seen two ways: 1. As a rising wedge with a blow off top (Bearish) 2. Or as a Running Consolidation (Bullish)

The running consolidation happens when buyers are abundant picking up more shares on every little dip. Overall looking at the intraday price action you will see market shakeouts as it tries to buck traders out before it continues higher. This choppy looking market action if not read correctly looks extremely bearish to the novice trader and the fact the market is so overbought it easily convinces them to take short positions. This choppy action is just enough to wash the market of weak positions before starting another run up.

All that said, both a blow off rising wedge and a running correction are very bullish patterns for a period of time. Again I cannot state it enough, trade with the trend and the key moving averages.

Gold Shines On The Daily Chart

The gold story is straight forward really… Trend is up, quantitative easing is back in action and that is helping to list gold and silver prices. Key moving averages have turned back up and gold closed at a new high which shows strength.

Golden Rocket

With another round of quantitative easing just starting and gold making another new high last week there is a very good chance gold stocks will rocket higher in the coming 8 months. I have been following Millrock Resources Inc. because of the team involved with this company. A breakout to the upside here could post some exciting gains if you take a look at the chart and see where the majority of volume has traded over the years along with the bullish chart patterns (Cup & Handle/Rising Wedge) with strong confirming volume. From 84 cents to the $3.50 area there should not be many sellers other than traders slowing taking profits on the way up.

Crude Oil Breaks Out Of Cup

Crude oil has been dormant the past few weeks even though the US Dollar has plummeted. But last week’s news on more QE was enough to send oil higher. The surge took oil prices straight to the 2010 highs as expected and blew past my first target of $86.00 per barrel. I figure it will consolidate here for a while until we see if the dollar bottomed last week or is just testing the breakdown level.

Weekend Trading Conclusion:

In short, the market has played out exactly as we planned and all four of our positions are deep in the money. As we all know the market goes in waves in both price and for trade setups. The past couple weeks were great for getting into trades and now the market is running in our direction. It will take a few days for the market to stabilize (pullback or pause) before we could get anther round of trade setups. Keep position sizes small as the market remains overbought and a sharp correction could happen at any time. Until then, keep trading with the trend.

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Here’s the Place for Natgas

February 13, 2012 by  
Filed under Investment

Natural gas is a broken global market.

For oil, there’s enough import-export capacity worldwide that global prices tend to align closely. In natgas, global markets are fragmented. Leading to disparate pricing in different regions. Just look at the comparison below, from PFC Energy.

One of the implications being: if you’re going to produce natural gas (or ship it as LNG), find the regions with the top prices.

Increasingly, it’s looking like this will be Asia. And specifically, southeast Asia.

By way of example, Vietnamese Deputy Minister of Industry and Trade Hoang Quoc Vuong said last Thursday that Vietnam will likely need to import over 800 billion cubic feet of gas annually by 2025 in order to meet demand.

The announcement came as part of the release of a World Bank report on Vietnamese gas sector development. In the work, the Bank estimates that Vietnam’s gas use will triple over the next 15 years.

The report also recommends that Vietnam move toward liberalized, competitive gas pricing in order to spur development of domestic gas resources. Exactly the kind of environment that will create opportunities for gas producers.

At the same time as gas demand is ramping up in nations like Vietnam and Thailand, the Asian super-powers are also hungry for supply. PetroChina said today that northern China (including Beijing) could face gas shortages of up to 300 million cubic feet per day this winter.

This is not a huge amount, relatively speaking. But it does underscore the point that Asian gas use is only growing, and supply (as well as transportation infrastructure) has lagged.

All the signs of a good gas market. I’m going back at the beginning of December to continue looking for projects that could capitalize.

Here is to the wide world of gas.

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The Coal Rush Cometh

February 12, 2012 by  
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I’ve been talking a lot about coal lately.

Specifically, how India’s need for thermal coal imports is going to tighten this market, both in terms of prices, and bids for coal deposits within shipping distance of Asia.

India simply doesn’t have enough coal. As of yesterday, one-third of the nation’s coal-fired power plants were running at “critical” levels of coal stocks (meaning less than seven days of supply). And 10% are at “super-critical”, with less than four days of stock.

I’ve been on this theme for about six months. And finally some of the signs of India’s “dash for coal” are starting to appear.

First, buy-outs of coal deposits. Last week, Canadian-listed coal developer CIC Energy received a $400 million takeover offer from a “multi-billion dollar Indian conglomerate”. CIC is moving forward the Mmambula coal field in southeastern Botswana (thanks for the heads-up, Saee).

India is even getting active in the junior side of the coal business. This week India’s Bhushan Steel announced its intent to buy a stake in Bowen Energy, an Australian coal explorer and developer with projects in the Bowen Basin.

Then there’s the signals from the coal market itself. This week, the chairman of the Indonesian Coal Mining Association told attendees at the Coaltrans Upgrading Coal Forum in Jakarta that India will pass Japan as Indonesia’s biggest coal export customer by 2011.

“In the past, India only bought high-quality coal, but now they started buying a lot of low-rank coal also because of an increase in domestic consumption,” chairman Bob Kamandanu said. He predicted India’s coal imports from Indonesia will rise to 70 million tonnes, up from 40 million tonnes this year.

In addition, Bloomberg reported this week that traders handling Richards Bay, the biggest export port for South African coal, believe rising demand from India could push coal prices at this locale to a two-year high.

The piece also quoted T.K. Chatterjee, procurement manager at Indian power major NTPC, as saying, “India will be importing in a big way… This will lead to an increase in prices.”

Signs, signs, everywhere signs.

Here’s to fields of coal.

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Two International Natgas Opportunities

February 10, 2012 by  
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The European Union is taking a serious look at natural gas.

Last week, the EU ratified a “gas solidarity” bill for Europe. The measure is aimed at ensuring steady and adequate natural gas supplies for all member nations.

For the EU, the biggest concern is Russia. Gazprom has showed its willingness over the last few years to use gas as a political lever, cutting off supplies in order to put pressure on Russia’s neighbors. Remember January 2006, when Gazprom squeezed the Ukraine, with knock-on reductions in gas supply for several other EU nations.

No one in Europe wants to see this happen again. So last week’s bill is calling for a number of important counter-measures.

Under the legislation, EU nations will have to create a plan to deal with a 30 day disruption of normal gas supplies.

This could be accomplished in a couple of ways. Firstly, securing alternative supplies. A good incentive for EU nations to support domestic gas drilling. After all, no supply is more reliable than gas flowing within your own borders.

The other way of dealing with supply disruptions would be building gas storage. By creating underground storage facilities, EU nations could build up strategic reserves as a buffer against any drop in imports.

Both drilling and storage could provide some interesting investment opportunities.

A third way of profiting could be from inter-EU gas trade. Under last week’s bill, EU authorities are proposing to legalize the trade of Gazprom-imported gas between EU nations. Something Gazprom has always opposed.

If trading of such gas across Europe becomes widespread it will open up arbitrage opportunities for nimble traders who know these markets. Such trading has been a profitable enterprise for some investors in the U.S., spurred by the development of several new pipelines over the last five years.

The new bill is still early-stage, but it’s an interesting start. We’ll keep watching to see what concrete measures governments come up with to support the gas industry.

Here’s to strategic supply.

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What Do Katy Perry and Eminem Have in Common?

February 9, 2012 by  
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Answer: both were quoted in the keynote speech last week by U.S. Commodity Futures Trading Commission (CFTC) commissioner Scott O’Malia, at the 13th Annual Energy and Commodities Conference in Houston.

Referencing pop culture in a speech on derivatives is a little unorthodox. But what O’Malia was describing to conference attendees was even more so.

The commissioner was discussing the CFTC’s implementation of the Dodd-Frank Act. Otherwise known as the financial reform rules in the U.S.

A major thrust of Dodd-Frank has been the regulation of derivatives. Options, futures, swaps and other such instruments that are seen as being a large and potentially risky part of the financial infrastructure.

And the U.S. government and financial institutions have been working frantically since the financial crash to implement new rules to make derivatives trade safer. As O’Malia put it, “I’ve given up rolling up my sleeves and have just about torn them off.”

But much of this work is now coming to fruition. There have been a whirlwind series of meetings, speeches and seminars on proposed derivatives rules over the last several weeks in the U.S. The market is bracing for big changes.

And those changes are arriving. Today CME Group (owners of a good chunk of American trading platforms, including NYMEX and COMEX), announced that it has officially begun clearing of over-the-counter interest rate swaps.

Clearing of swaps is a priority item under the new rules. Basically this means when these derivatives are traded between two parties, the trade must be executed through a central, independent agent (much like a stock exchange does). Buyers and sellers are no longer allowed to do business directly with each other.

There are several reasons lawmakers pushed for greater clearing of derivatives. It standardizes the market. And provides some degree of insurance if trades go bad.

But one of the main stated reasons for the move is price discovery. By having one (or perhaps a few) central exchanges looking at all derivatives trades, government and regulatory bodies will be able to gather data on going prices, volumes and other metrics. In the past, such information was very hard to gather.

The result being, derivatives markets are going to get a lot more transparent.

Ultimately, this is a good thing. But the transition may be rocky. As I’ve discussed previously, price discovery can provide some unpleasant surprises.

Up until this point, there has been little data on the market value of many derivatives. Meaning that owners of such instruments probably had some leeway in reporting the value of their derivatives holdings.

That leeway is now disappearing. Clearing of derivatives will provide hard data on prices. It’s likely that holders will be forced to use such pricing for reporting purposes.

What do you want to bet that someone somewhere has been keeping derivatives on the books at inflated prices in order to beef up their financials? For any such groups, clearing and price discovery could lead to some significant write-downs. The kind that lead to the last crash, after the introduction of mark-to-market accounting rules.

This is a critical development. We’ll be keeping an eye out for any warning signs over the coming months.

Here’s to clearing things up.

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Never Say Never

February 8, 2012 by  
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In reviewing the charts from the Chart Room over the weekend I came to the conclusion that in terms of timing the markets you don’t want to think in terms of price right now, but in terms of time, where again, we are not looking for a blow-off top in the present intermediate move until sometime in the first quarter next year, with early February the favored target from both historical and cyclical perspectives. How did I come to this conclusion? Answer: As you will see in the charts below, several breakouts and trend blow-offs are in the process of tracing out, meaning more time is needed for this to occur no matter how overbought technical conditions in the market are at this time. And while it’s true that everything from stocks to commodities are intermediate degree overbought, what this means is conditions will become even more overbought, and as a result, it’s possible hyperinflationary conditions in the US could at a minimum be tested.

So unfortunately you can never say never when it comes to hyperinflation with a corrupt and self-serving oligarch in charge of the money supply, where monetization practices are not included in conventional money supply measures, leaving the only way we will discover the condition our condition is in is by exploding prices. Of course when this happens people will tune in, which is happening in the bond market now, but will likely not be understood by meaningful percentages of the population until things that directly affect them, like food prices (watch Glenn Beck here), explode higher, which according to John Williams of Shadowstats.com should be anytime time now, ramping up aggressively into next year. So apparently it’s time to stock up on rice and cans of tuna believe it or not, although it’s our contention that if US Treasuries fall out of bed after a possible relief rally through light trading at Christmas, that while equities could see magnificent price explosions into the first quarter, that running into summer a similar outcome to that witnessed in the year 2000 will be witnessed, marking the popping of what we will dub the Fed’s Quantitative Easing Bubble (QEB).

And like all others before it this bubble will indeed be popped at some point, however again, timing is the question. If you were to simply look at stock market sentiment, which is at bearish extremes not seen for some 5-years, one could easily conclude such a popping should come sooner than later, meaning this year as opposed to next. Add on top of this the increasing fiscal uncertainty in Europe (and soon the US with it’s popping bond bubble), continued consumer deleveraging, and any other problem of the day you wish to focus on, and a strong case can be made for an immediate popping of the Fed’s QEB anytime now. Of course the thing one must remember is this is a suicide mission for these people, which includes the larger bureaucracy because their jobs depend on the oligarchs holding things together, so while the path may be volatile (like in 2000), don’t be surprised if Da Boyz continue to jam things higher via an ever-expanding QEB until the bond market literally bursts, and stocks fall in unison with bonds in what would undoubtedly prove to be a sizable rout running into summer a la the 1940 model.

That’s what I see happening anyway, where monetization practices or not, eventually the combination of rapidly accelerating deficits (due to rising interest rates) and selling in the bond market officially pop that bubble, making all other considerations save deleveraging moot, at least for a brief moment in time. The question then would be whether we face true hyperinflation or a hyperinflationary depression like Japan’s afterwards, or worse, because there is no plan B, possibly decades of feudal darkness once the economy’s handlers lose control. And they will lose control at some point – they always do – it’s Murphy’s Law at work. That’s what the divergence in the chart below is telling us, because through the ages people’s reactions to bubble economics has not changed. The only thing that changes is the size of the bubbles, with the present bubble in bonds the biggest ever. This is of course why it will be defended at any cost, and why, albeit in more violent fashion, this divergence can get even more profound before something more permanent grips the macro. (See Figure 1)

Source: The Chart Store

When looking at the charts below that’s the message we are getting, that the divergence above will grow more profound, believe it or not. How much more profound? Answer: About 200 NASDAQ points if the present bubble to is equal that of the one witnessed in 2007. And again, such a move, and more, is supported in the charts below. Let’s take a look.

First up we have the NASDAQ / Dow Ratio plot from the Chart Room, and as you can see below it’s right on resistance before it breaks back up into bubble making territory. This of course is not suppose to happen within the same generation, that being another bubble in the NASDAQ the likes of which we witnessed in the year 2000, however at the same time, we still might get a taste between now and March next year if the dollar ($) starts falling again, which in my eyes would not be surprising record bearish sentiment amongst traders or not. (See Figure 2)

Why would the $ fall next year, and as a result facilitate the building of even more profound bubbles than are being witnessed today? Answer: In one word the answer is history. To add the context don’t forget just how corrupt and culpable Washington politicians are, and that despite rhetoric run in the media for appearance purposes, they will have the Fed debase the currency by any means, as it’s doing with their present monetization practices evidenced in a continued generous POMO schedule. So again, while conventional money supply measures are not reflecting this largesse correctly, as James Turk points out all the numbers don’t lie, where hyperinflation of the $ is in danger of breaking out increasingly profound hyperinflationary conditions. And we will undoubtedly get confirmation of such intentions from the Fed today at its last meeting of the year. What’s more, if both the Senate and Congress vote in an extension of the Bush tax cuts this week, a serial bailout program for the States cannot be rule out next year in my opinion, Tea Partiers, Ron Paul, you name it, it won’t matter. Just look at the Europeans for the example, where they talk a good game of austerity, but when the chips are down, magically, a bailout always shows up. So, don’t go taking talk to the contrary too seriously, no matter who it comes from, and until cutbacks actually become a reality. Because partisan politics is all for show in a one party Washington, where change won’t come until it’s too late, meaning rising deficits and interest rates cause the US debt colossus to implode onto itself. To think this would come voluntarily is to have ignored history, again, in answering the above question, since Nixon closed the gold window. What’s more, one would also need to ignore the following charts, which could turn out to be quite the mistake if one is not in position for at least a taste of hyperinflation – dead ahead. (See Figure 3)

As you can see above, the S&P 500 (SPX) / CBOE Volatility Index (VIX) is possibly set to break higher, where all we would need to see for an indication such a move was on is a breakout of RSI past sign resistance, accompanied by the MACD clearing Fibonacci related resistance. Then, if this measure of sentiment was able to clear indicated Fibonacci resistance at approximately 90, a double top might be in the cards, although nominal highs on the SPX would likely fall short of the 2007 double top high. Of course I could always be wrong about that if the $ is falling hard enough, where perhaps this becomes a reality too when Washington announces it will fund municipal deficits as well in order to avoid the muni-bond disaster many are expecting. If this were to occur, then stocks could possibly go off the scale, as is the case with the Fibonacci resonance related projection for the NASDAQ / VXN Ratio shown below, projecting all the way up to 250. (See Figure 4)

And if you are interested in finding out more about how our advisory service would have kept you on the right side of the equity and precious metals markets these past years, please take some time to review a publicly available and extensive archive located here, where you will find our track record speaks for itself.

Naturally if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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Fiscal Discipline and Unintended Consequences

February 7, 2012 by  
Filed under Investment

It’s no secret Ron Paul is expected to chair the Monetary Policy Subcommittee starting next year, and that he intends to properly audit the Fed and US gold reserves as initial steps in attempting to return America to some degree of fiscal discipline. Because there can be little doubt an expanding bureaucracy has hit the limit in terms of what the system can take, which is why you will never see the Fed voluntarily abandon QE2. And this is especially true because of the deflation (of everything from currency to population) peak oil guarantees, not to mention other unintended consequences increasing fiscal restraint would bring. The bottom line here is the bureaucracy will continue to monetize the debt on an increasing basis until the system implodes on itself, which will be the result of uncontrollable rising interest rates and gold prices, which according to Mark Lundeen should be considerably higher.

Impossible? It could be argued it’s already happening, where this week for example, despite a generous POMO schedule this week bonds are falling anyway due to the reporting of uncontrollable price increases and increasing sovereign credit concerns that will surely not disappear anytime soon. So please, don’t be confused by all the propaganda, no matter what the bureaucracy leaders tell you, money printing and monetization practices will remain relentless, although we may get a taste of austerity not many will like as we move into next summer as Mr. Paul does his damdest to fix the world, which will of course prove dangerous to our fiat currency economies at the time. Crashing stock and bond markets in North America will certainly make ‘austerity’ a four letter word as process unfolds, however there is no guarantee another bloated fiat currency system would emerge on the other side of an unwinding, making ‘debt’ an actual four letter word people (creditors) will undoubtedly be paying closer attention to under such circumstances.

In the meantime however, prices have not been falling to support the bureaucracy’s phony inflation reports, so with the retail trade ‘all in’ (to stocks) as reflected in US index open interest put / call ratios, explained here last week, it’s time for a short-term correction. At least that’s what it better be, or the equity complex will be in real trouble a bit early from a cyclical perspective, where we are anticipating a terminal high in stocks during the first quarter of next year, as per the count and patterning presented in the charts below. First we have the long-term Super-Cycle Grid that shows although more room exists for gains, we are entering a cyclical (time-line) turning point.

The second chart zooms in on the lower degree waves to look for clues in the most probable count, etc., displayed below, which in my view would confirm the rising and high probability of an important top being put in place sometime in the first quarter of next year, or shortly afterwards. What we have unfolding here is a typical zigzag, which is a five-wave sequence separated by a corrective three-wave sequence, followed by another five-wave sequence, which you can see has yet to unfold. I have studied the count here for some time and see no other alternative; especially given the big picture where we are expecting a test of the 2009 lows eventually (the larger degree a – b – c sequence in red), so none will be provided.

And as you may know, I also expect the same patterning and timing from gold (and silver) running into next year based on historical precedent (the last big top was in February), where although the cycle might run longer this time because of the higher degree (Grand Super-Cycle?) of the present move, still, some degree of top can be expected at this time, and I can tell you why. Why then? Because our buddy, Ron Paul, will likely be successful in getting enough people who matter pushed over into the Fed audit / austerity camp by then, which will be bad news for the aggregate bubble economy. And again, even if he is ultimately not successful in this regard, he will be making enough noise when he is first appointed chair to get people taking him seriously, which at a minimum will push prudent traders into defensive postures, which means lightening up on equities, precious metals, and anything else associated with the inflation trade.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. We are not registered brokers or advisors. Certain statements included herein may constitute “forward-looking statements” with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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Gold & the Overall Strength of the Market

February 3, 2012 by  
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The past week has been interesting to say the least. Gold is trying to find support while the SP500 grinds its way higher. Let’s jump into the charts and analysis to get better feel for what I feel is happening here. Gold 4 Hour Chart

As you can see from the chart below gold has formed a possible double top. The fact that it made a higher high is actually a bearish sign for the intermediate term 1-3 weeks. When we see a higher high getting sold into with big volume it typically means the big money is unloading large positions into the surge of breakout traders and short covering that occurs when a new high is reached. Following the big money is very important to keep an eye on as it can warn us of possible trend changes before it occurs.

The current selling volume is not exactly a healthy sign if you are looking for higher prices in the near term. If this pattern breaks down I would expect $1340 to be reached very quickly.

Keep in mind gold it in a strong up trend still. Shorting is not the best play in my opinion. I prefer to see pullback which washes the market of weak positions then jump on the long side for another bounce/rally.

SP500 Market Internal Strength – 10min, 3 days chart I watch these charts to get a feel for the overall market strength on a short term basis. The top chart shows the SPY etf breaking above a resistance trend line on Friday afternoon. This occurred on light volume meaning it is mostly likely a false breakout and Monday we could see a gap lower at the open or a pop & drop. The two other indicators are reaching an extreme level which normally tells us a pullback is due in the next 24-48 hours of trading. The question is, will us just be a bull market pause or will we get a decent pullback.

The red indicator in the top chart and the red indicator levels on the charts below that help us time the market as to when profits should be taken or to tighten our stops if we have any long positions.

The broad market is still in a very strong uptrend so moving stops up and buying on oversold dips is the way to play it.

Weekend Market Analysis Conclusion: In short, both gold and the stock market are in a bull market (uptrend). Trying to pick a top to short the market is not a good idea. Instead I am looking for an extreme oversold condition to help reduce downside risk before taking a long position.

The overall strength of the market (SP500 and Gold) I think are starting to weaken but in no way am I going to short them. We continue to buy dips until proven wrong because indicators can stay in the extreme overbought levels for a long period of time. Generally the biggest moves happen in the last 10-20% of the trend.

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How You Trade the Big Trends in 2011

February 2, 2012 by  
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I hope everyone had a great holiday and new years!

It’s time to reset our profit counter to zero and start looking for new profitable trades along with managing our current open positions on our small cap stocks which we continue to hold with gains of 66%, 35% and 10%.

Last year was a tough one as the stock market chopped around in a very large range giving off buy and sell signals every week and some times every other day… If you understand how to trade optionsthen these conditions can make you a boat load of money.

Those who follow me or trade with me through my trading newsletter know how conservative I am when looking for low risk setups in both ETFs and stocks. And no doubt agree there were some extended periods of time when we did not have any trades because the volatility on a daily basis was making it the risk higher than what I wanted us to take, thus we waited for setups instead of chasing prices. We still locking in some solid gains with 8 winning trades, but feel we can better this year especially if we get less chop and more of a trending market.

It’s safe to say some people just do not like being in cash, hence the reason so many want stock picks and trades all the time. But to be flat out honest, I love being in cash or at least holding a good chunk in cash waiting for a high probability opportunity to pop up on my charts before committing my hard earned cash. It’s better to be wishing you were in a trade than to have all your money tied up in losing positions just because you wanted to be active… Because I give you only the trades I am making with my own money, I think that is the reason things are slower paced, unlike some other newsletters in this industry which fire off new trades each day or week just to keep those addicted (wanting stocks picks all the time) happy.

Anyways, 2011 should be a great year for trading, investing and education. Last years fast paced market I know either took your money and got you really frustrated, or you made money and was able to use the difficult conditions to fine tune your trading and money management stills like I did. 2011 feels like it’s going to start out similar to 2010 where we get a move up into mid January, but once earning season starts the market sells off on the good news for an 8-10% correction.

The good news is that after last years fast paced market and my constant refining of my strategy and money management rules, we should be able to catch the majority of the trends this year both up and down using stocks, regular ETFs and Inverse ETFs.

As much as I would like to forecast what I think will happen this year, I have decided to take the market one quarter at a time to keep everyone more in tune with what’s happening now and a glance forward up to 2-3 months.

Take a look my SP500 charts for the next 3-8 weeks below.

SP500 Index – Daily Chart On this chart you can see that the overall trend right now is still clearly up. But with this current situation I feel one should be on the sidelines waiting for the market tip its hand telling us its headed higher or lower. If it prices start to fall we will look to short the market in order to profit from the correction as long as the market provides an optimal opportunity.

Currently the market sentiment levels are at extreme highs, which is the same as last January and April’s highs. With extreme sentiment, light volume (lack of buyers) and earning season just about to start I cant help but think a nice correction is about to take place which will cleanse the market before the next big leg higher.

If all goes according to plan we should see an 8-10% correction. A pierce of the November low is what I am looking for as that would trigger a lot of protective stop orders and create panic selling in the market. It is panic selling which creates a market bottom. That being said we may not get that large of a correction which is why we must continue to monitor the market closely as my analysis will change with the market.

Jan 2010 SP500 Correction This time last year the market was in a very similar situation with market sentiment, light volume, and earning season just around the corner…

Its difficult to pick tops because they can stay overbought for an extended period of time, bottoms are a little different simply because fear is more powerful than greed and shows it’s self on the charts once you know what to look for and how to trade it. My point here that you should not jump the gun and start shorting just because you think one is around the corner. I prefer to wait for more of a clear signal that sellers are in control then ride the short term down trend and hope it blows up into the correction I think we are about to see.

During bottoms there are new low washouts, and the same goes for tops, we get several small new highs just before the price rolls over, and that has yet to happen.

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The Bond Liquidation is On

February 1, 2012 by  
Filed under Investment

Big jumps in yields on U.S. Treasury bonds over the past week.

Check out the one-year Treasury. Yields are up 30% since November 8. To their highest level since early August.

The rise in yields has been across the board. The 10-year Treasury is up 15%. The 30-year has jumped 8.5%, to its highest level since May.

Here’s the really interesting thing. At the same time as regular Treasuries yields have been rising, yields on inflation-protected securities have also gone up.

Look at the 10-year inflation-protected. Up nearly 100% since November 4.

Inflation-protected yields have also had an across-the-board rise. The 5-year is up 90%. The 30-year is up 25%.

What does this mean? Rising yields indicate falling prices. Investors are selling off Treasuries of all types.

Why? It could be the lack of confidence in the American dollar that many analysts have been forecasting since the U.S. began printing money to bail out the financial system and the economy. Perhaps the announcement of “QE2″ two weeks ago was the last straw for some Treasuries buyers, who are now moving money out of dollar-denominated investments.

Or it could be the opposite. Perhaps because of QE2, investors are predicting inflation ahead. Increased money supply is going to drive up prices of homes, stocks, commodities and other goods.

Investors who believe such would favor riskier investments over low-yielding Treasuries (even of the inflation-protected variety). Maybe this week’s all-encompassing bond sell-off is a bet that QE2 is going to work.

(BTW, if you want to follow this story closer, www.statsweeper.com is a great resource. Check out the Treasury yields data series daily. Or simply watch the homepage for alerts on significant changes, created by Statsweeper’s automated data monitoring system.)

Here’s to putting your money in the right place.

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