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Stocks, ETFs, Options, Commodities & Currencies

This is a discussion on Stocks, ETFs, Options, Commodities & Currencies within the Analytics and News forums, part of the Trading Forum category; This past week we received the final 4 th Quarter GDP number which came in at 0.39%. The total 4 ...

          
   
  1. #1
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    Stocks, ETFs, Options, Commodities & Currencies

    This past week we received the final 4th Quarter GDP number which came in at 0.39%. The total 4th Quarter growth was terrible, plain and simple. Based on the performance in the equity markets that we have seen thus far in the 1st Quarter of 2013 investors would expect strong GDP growth. However, the only thing spurring stock market growth is the constant humming of Ben Bernanke’s printing press.
    The real economy and the stock market are no longer strongly correlated. Essentially, they are meaningless. How do you evaluate risk when Treasury linked interest rates are artificially being held down by the Federal Reserve? How do you evaluate earnings growth estimates when most government based statistics are manipulated or “smoothed” to perfection?
    My final argument to anyone who is a true believer that the stock market is representative of the economy is a very simple premise. If the stock market is the economy, how does the stock market evaluate small business earnings growth when most small businesses are not publicly traded? It is a simple question, but I have yet to find a sell side analyst that can work around it with facts.
    To back up this information, here is a chart courtesy of www.zerohedge.com that demonstrates the S&P 500’s price action compared to economic data and overall macro risk.

    The chart above clearly depicts the divergence between the macroeconomic data and the performance of the S&P 500 Index. Yet the sell side continues to scream that stocks are cheap, earnings are going to ramp up later this year on insane S&P 500 earnings growth expectations, and the consumer is going to remain strong even though payroll taxes have increased and the “wealthy” are paying more in taxes.
    Even amid those concerns, no one knows for sure what the impact that Obamacare and the various new taxes associated with it will have on the business community. Again, the only thing driving growth is directly linked to the Federal Reserve’s balance sheet expansion. The chart below is courtesy of the Federal Reserve’s website.
    *
    On August 8, 2007 the Federal Reserve’s total assets were $869 billion dollars. As can clearly be seen today, according to the Federal Reserve the central bank’s total balance sheet has grown to over $3.2 trillion dollars. The increase is on the verge of rising exponentially. With QE, QE2, QE3, Operation Twist, Extended Operation Twist, and now with QE 4 in Perpetuity this trend is certainly unlikely to shift.
    At this point in time the Federal Reserve is printing roughly $85 billion dollars each month to purchase Treasury securities with a focus on the long end of the maturity curve. As primary dealers of Treasury securities process these flows the money eventually finds its way into riskier assets that offer higher rates of returns through balance sheet machinations at large money center banks.
    It has proven that the flow of the Federal Reserve’s printed monies are more important than the total money stock for a variety of reasons and inflation according to the government’s data is under control ex food and energy.
    However, how are people supposed to survive without food and energy in today’s world? The last time I went to fill up my gas tank or to purchase food prices have gone up significantly. According to the 1990 version of consumer price reporting, real consumer inflation is running around 6% currently and shadowstats.com has the following comparison.

    Unfortunately the 1980 based inflation numbers are even uglier, which based on Shadowstats’ data chart would place consumer inflation at nearly 10%. The calculations being used by Shadowstats.com are based on the government’s OLD ways of calculating inflation. The calculations were adjusted over time and today the data is completely manipulated by not including items that typically experience the largest levels of inflation.
    Normally I talk about price action, probability based option trading, and technical information. However, before investors consider buying stocks near the all-time NOMINAL (non-inflation adjusted) highs, why not simply consider the backdrop of the total economic situation.
    Central banks around the world are printing money at an alarming rate and their balance sheets are growing to levels not seen in human history. Interest rates are being manipulated to levels that are historically at record lows or near record lows based on real inflation data.
    Macroeconomic indicators are issuing a cautionary tone with significant divergences showing up in many areas. Earnings expectations for the S&P 500 in the 3rd and 4th Quarter of 2013 are extreme and borderline ridiculous.
    So before jumping headlong into equities based on some sell side analysts recommendation or even worse, a financial advisor who is more interested in his/her commission than they are about producing gains consider the following comparisons.
    *
    S&P 500 Index (SPX) Price Chart – 1 Year Price History

    Gold Futures Spot Price Chart – 1 Year Price History
    *
    Clearly paper gold represented by gold futures is no substitute for physical ownership, but when one considers the fundamental backdrop for gold versus the S&P 500 Index, it should be clear which asset is offering the most value at current price levels. It does not require any inserted trendlines or oscillators, it should be clear which asset is expensive and which asset is cheap based on the real long-term economic fundamentals.
    I will give you a hint regarding which asset is offering the most value. It can’t be printed, it has represented the store of value since the advent of modern civilization, and it is senior to all paper currencies.

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    Why 1591-1620 ranges look likely for SP 500

    Our wave count has continued to look for higher levels on the SP 500 for some time now.

    We are in a Major wave 3 of Primary wave 3, what they call “3 of 3

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    Mar 26th- Market and Precious Metals Quarter 2 Rotation?

    SP 500- The market continues to consolidate in a minor wave 4 corrective pattern it seems, with 1541 the lows and 23% the retracement of the most recent minor wave 3 leg. Its also the end of the quarter and Wall Street will make sure they get paid and hold this tape up into the close this week I’m sure.
    We are looking for 1591-1620 now as the next likely topping range for a wave 5 pattern completing Major 3 of Primary 3. Once that completes, then a MAJOR 4 pattern will begin, likely correcting all of Major wave 3’s pattern to the tune of 23-38% of the duration of Major 3 (1343-the highs)
    Either way, we expect the participants to rotate out of the winners of this 1st quarter and into the laggards like Coal, Steel, Natty Gas, Shipping, Gold Stocks etc. We have already seen early stages of frantic buying off the bottom in the Natty Gas sector, and Shipping…. we expect to see a pick up in Gold stock buying but selective stocks will be in favor. Since it’s the end of the quarter, your seeing some likely end of quarter Gold stock dumping and Coal stock dumping to remove from said portfolios so as to look pretty for their investors. Insider buying in the Gold Stock sector is running 7 to 1 over sellers, and the last time we saw this was the 2008 Gold troughs…. so do what you will with that info.
    GOLD- Again, 1617 is the wall and we expect Gold should break over it towards 1650 in April



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    The Long and Winding Gold- (Bull Cycle about to Begin)

    David Banister – www.TheMarketTrendForecast.com
    The dramatic 2-3 day take down in Gold Spot pricing action smells and looks** like capitulation to us at The Market Trend Forecast. We have been calling this entire 19-20 month consolidation period as a Primary wave 4 correction pattern, though complicated for sure.* It has had multiple false rallies and buy and sell signals the entire time. With that said, the pattern is set up for final 5th wave decline which we are seeing now at the beginning of April.
    Traditionally, Gold tends to meander or be weak in April anyways on a seasonal basis. This sets Gold up to rally in May into July with another soft patch, followed by a fall rally.* However, our technical analysis is predicated on our Elliott Wave analysis, which says this entire 20 month correction is a “Double Three” correction pattern. Essentially its two ABC patterns with an “X” Wave rally in the middle to really confuse everyone.
    The X wave took Gold to 1800 last fall before dumping all the Bulls off and eventually working its way down to the 1540’s levels we see today.* This last leg down is a 5 wave decline and you know you’re at the bottom of wave 5 when everyone throws in the towel, the Gold stocks trade at multi year lows and relative valuation extremes.* We also have insiders buying 7 to 1 over sellers according to Ink Research in the Gold stock sector. Stocks are valued at $923 per ounce equivalent even though Gold is trading north of $1,500 per ounce still.
    We say bring it on and are actively accumulating selected Gold stocks with production profiles and growth metrics that are attractive.
    See the Gold Elliott Wave analysis chart we sent to our paying subscribers a few days ago to forewarn of one more leg down.* The next rally should be a doozy and have very few people on board. We would simply caution that a drop below $1523 spot pricing could lead to a blast down to the 1440-1460 areas, but its unlikely in our current views.


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    Friday’s Precious Metals Melt-Down…. How to Manage It!

    “WOW” Friday’s Precious Metals Meltdown is an understatement…. I love seeing all this fear in the market and panic selling volume jump through the roof. This is or is the “start” of the washout bottom in metals I have been talking about for a few months. Critical support levels have been broken on gold, silver and miner stocks today. This is running the stops juicing up the sell side volume.
    This size of a move WILL trigger a wave of margin calls come the end of the session and it could start another strong wave of selling into the closing bell. While I like this prices for both gold and silver, I know this could be just the start of more selling. I sound like a broken record but I am not trying to catch a falling knife unless it looks like a perfect setup. I still feel we could get another 1-3 days of selling or chop down here before things go higher so I will just watch the gold and bugs get stepped on again.
    Remember this chart I posted a while back… it’s not coming true:

    WATCH VIDEO ABOUT TODAY’S SILVER & GOLD SELLOFF:

    Last day of the week is the most important for long term trends and investors. Today is going to be wild and may trigger a massive wave of selling which could be really good for those who know how to take advantage of it with me at: http://www.TheGoldAndOilGuy.com
    Chris Vermeulen

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    Where is the Larger Bubble: the S&P 500 Index or U.S. Treasuries?

    Today we have a plethora of companies reporting earnings and are moving through the 1st Quarter earnings season at a rapid pace. Thus far, earnings have been far from exciting and have made the previous 2013 forward earnings estimates laughable.
    The only way we get to the proposed valuations is through multiple expansion which is simply going to require the Federal Reserve to continue to pump $85 billion into Treasury’s and MBS securities each month. I am confident they will comply.
    There are a few analysts out there who are discussing the potential bubble forming in equities and other risk assets as Bernanke’s plan is working to the extent that asset prices are rising. However, even fewer analysts are pointing out that both retail and institutional money is constantly chasing yield at this point.
    Simply take a look at the 2013 price action in high yield dividend paying stocks, high yield bonds, preferred stocks, and master limited partnerships. It is safe to say that a bubble has formed not just in equities, but in various fixed investments as well. Consider the following chart of the S&P 500 Index (SPX) shown as the dotted trendline and Johnson & Johnson (JNJ) shown as the solid black line.

    Obviously from looking at the chart above, JNJ has outperformed the S&P 500 Index year to date. Has JNJ suddenly become a growth giant? Is it all about earnings growth and/or forward earnings potential or anticipated growth?
    Or is the rally in JNJ really about the fact that Johnson & Johnson has a long history of paying strong, rising dividends. I am sure there are plenty of sell side analysts who will tell you that JNJ is going to $100 / share in the future for a variety of macro or quantitative reasons.
    The sell-side analysts will tell you the economy is strengthening or that large cap multinational companies are seeing strengthening fundamentals and earnings growth. They are called the sell-side for a reason; they want to sell you stock.
    Furthermore, my favorite recent discussion is about future earnings projections and the new strength that we are going to see in earnings. The following chart was posted at www.zerohedge.com and originally came from Standard & Poors. The chart below illustrates the trailing 12 month operating earnings per share of S&P 500 companies.

    Based on the above data, how is the stock market fundamentally sound when earnings are collapsing? I guess the Federal Reserve is going to print profits for the S&P 500 companies. Actually earnings are irrelevant when central banks all over the world including the Federal Reserve are juicing the markets with a sea of liquidity and where multiple expansion trumps real earnings or value.
    Furthermore, these same central banks are openly purchasing equities and allocating sizable portions of their balance sheets to stocks. Several central banks around the world have more than 10% of their reserves allocated to stocks at this point in time. The world is long risk and money is still flowing into bonds at the same time. Simply look at the recent price action in Treasury’s for the past few weeks or note the strength in municipal bonds in aggregate since mid-March.
    This brings me to my final point. For the past several years, bonds and stocks in the United States have rallied together. U.S. treasuries and domestic equities have been trending higher for more than three years as shown below. The S&P 500 is shown as the dotted line and the 30 Year Treasury Bond Price Index is the black solid line.

    It is without question that both the S&P 500 Index and the 30 Year Treasury Bond have been trending higher for the past 3 years overall. Both underlying assets have produced strong gains during the same period of time. Now this brings me to my final question for readers to ponder. If both the S&P 500 Index and the 30 Year Treasury Bond can rally together, what happens if they selloff together?
    The answer to that question is the real problem. Many sell-side analysts and economists ignore the bubble that the Federal Reserve has created in equity valuations. The bubble continues to be fueled by the monstrous liquidity injections that they have conducted beginning with the original quantitative easing. However, what is even less acknowledged by the sell-side is the massive artificial bullish valuations that have been created in the bond market.
    Long dated treasuries are being purchased by the Federal Reserve to artificially hold down interest rates. This ongoing practice is causing a separate bubble to form in fixed income investments. So now we have a bubble in equities and long-dated treasuries forming and the sell-side continues to trumpet that higher prices are likely. Ultimately the sell-side may be right in short to intermediate time frame, but the end game has a finality that few want to consider.
    When these bubbles finally pop as all excessively valued assets do, the result is going to devastate financial markets. It may be in 6 months or it may be in 10 years, but history will not be thwarted. The central banks can try to outsmart history, but they will ultimately fail.
    This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.


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    Gold Traders and Investors Get Ready To Rumble!

    On April 12th I wrote a blog post titled Precious Metals Melt-Down, and How To Manage It. I talked about how gold, silver and gold mining stocks have been flying under the media radar for over a year and that they were not catching the attention of traders, investors and the public anymore. I also said it would take some sharp price action (breakdown or rally) for it to be front and center again on TV, Radio and Newspapers.
    But since gold has plummeted 17.5% dropping from $1600 down to $1320 per ounce with silver and gold stocks falling also they are now headline news once again. This move has caused some serious damage to the charts when looking at it from a technical analysis point of view. Below are some basic analysis points that show a new swing trading entry point.
    The Technical Traders Chart Analysis:
    Broken Support – Once a support level has been broken it becomes resistance. Gold is trading under a major resistance level.
    Momentum Bursts - Since the April 15th low, gold has been setting up for another short selling entry point. Remember the market tends to move in bursts of three, seven or ten days then price reverses direction or pauses. It has now been 10 days.
    Moving Average Resistance – Gold has worked its way up to the 20 day moving average which can act as resistance.
    Bearish Inside Bars – This type of chart pattern points to lower prices. When there is a big down day followed by 3, 7 or 10 up days inside the price action of the down bar we can typically expect another sharp drop which tests the recent lows as shown with the arrow on the chart.



    Gold Short Selling Conclusion:
    In short, gold is setting up for a low risk entry point that should allow us to profit from lower gold prices. Using an inverse ETF like DZZ or even the gold mining stock inverse ETF DUST could be played. These funds go up in value as the price of gold falls.

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    Stock Preparing for Pullback, Buy Bad News, Sell the Good

    The SP500 remains in a strong uptrend, but the index has posted a sizable gains for 2013 thus far so it’s only logical that a pullback within this bull market takes place sooner than later.
    With May now upon us and historically prices fall more times than not I feel a 3-4 weeks correction is on the verge of starting. This Friday we just had very strong economic numbers confirming the economy is recovering. This news has sent stocks sharply higher as shorts cover their positions and investors who are not yet long get into position to profit from higher prices. But the herd psychology and their trades are typically incorrect as they invest based on fear and greed. The old saying is buy on negative news and sell on positive news will typically get you on the correct side of the market more times than not if used with price, volume and cycles.

    The Technical Traders – SP500 Index Weekly Chart

    If we look at the price of the SP500 we need it to breakdown below the recent pivot low before I become bearish.
    Volume which is not shown on this chart is below average as price moves higher and this is a bearish sign also.
    Looking at a basic cycle using the stochastics indicator we can see that the current cycle is starting to turn down. Cycles tend to lead price during an uptrend so we could still have stocks move higher for another week or so but be aware that when price starts to drop its likely a market top. But until then you must respect the uptrend. Stocks can remain overbought and toppy looking for months… so done be gambling and trying to pick a top until we see breakdown start.



    SP500 Stocks Trading Above 200 Moving Average – The Technical Traders View

    Stocks trading above the 200 day moving average is a great indicator for helping spot broad market underlying strength/weakness. It does lag the market but is still very powerful. The chart below shows this info and my thinking of what is likely to unfold sooner than later though price may still rise for several days yet.
    I also use a similar chart for timing swing trades and market tops which are based on stocks trading above the 20 day moving average. This chart is not shown here but is now trading at a level which generally triggers selling/market top.

    [/URL]

    Stock Market and SP500 Trading and Investing Conclusion:In short, I am still bullish on the market as I focus on trading with the trend. I do not pick market tops and I do not pick market bottoms. Knowing that stocks make their biggest moves at the end of their uptrend and at the end of a down trend it’s only common sense that risk is extremely high if you are betting against the current trend.
    The best thing to do is wait for a technical breakdown and reversal which puts the odds more in your favor with much less risk and typically a clear line in the sand to exit the position if you are incorrect.
    The last major stock market top which formed in September of last year had a series of strong news and strong price action persuading the herd to buy stocks.* Instead it was the last impulse wave up just before a strong correction took place. That is much like what we see now with the economic news.
    Join my free newsletter and stay on right side of the market while reducing your trading/investing stress. My simple yet effective analysis walks you through the market each week without bias. Remember Price and Volume is what makes you money trading NOT news or forecasts.

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    How to Trade Gold, Silver & Precious Metal Miners

    How to trade Gold and other precious metals related investments is not that complex. But you must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them. There are times when you should be long, times to be in cash and times to be short (benefit from falling prices).
    Since 2011 when gold and silver started another major bull market correction the best position has been to move to cash or sell/write options against your positions to protect your investment until the next trend resumes.
    If you take a look at the chart below of gold you will notice that in 2008 we had a similar breakdown in price which purged the market of investors who where long gold. And if you compare the last two breakdowns they look very much the same. If price holds true then much higher prices are likely to unfold at the end of 2013.
    The key here is for the price to move and hold above the major resistance line. If it can do that then we are looking at a possible breakout to $2600 – $3500 gold. With that being said gold and silver may just be starting a bear market. Depending what the price of gold does when my resistance level is touched, my outlook may change from bullish to bearish.
    Also with last weeks economic numbers getting better in the USA I do have concerns that gold may be starting a bear market but we will not know for several more months yet.



    How to Trade Gold Daily Technical Chart:

    Major technical damage has been done to the chart of gold. This can be seen as bullish or bearish price action but until price and volume pattern unfolds which puts the odds on the bullish or bearish side I remain neutral.



    How to Trade Silver Daily Technical Chart:

    Silver is in the same position as gold. The question is if this is a shakeout or breakdown…



    How to Trade Gold Mining Stocks Monthly Chart:

    Gold mining
    stocks broke down a couple months ago and continue to sell off. If precious metals continue to move lower then mining stocks will continue their journey down. The chart below made in February and it has in most part played out as expected. While I do not try to pick bottoms (catch falling knives) I do like to watch for them so I am prepared for a new position when the time and chart become bullish.



    How to Trade Gold, Silver and Mining Stocks Conclusion:

    In short, precious metals continue to be in a down trend. While they look to be trying to bottom it is important to remember that the largest moves take place in the last 10% of a trend. So we may be close to a bottom but there could be sharply lower prices yet.
    The time will come when another major buy or short signal forms and when it does we will be getting involved. The exciting part is that it could be just around the corner. If you want to keep current and take advantage of the next major move be sure to join me free newsletter here: http://www.goldandoilguy.com/
    Chris Vermeulen

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    Top 3 Trading Indicators for Profitable & Simple Trading

    Many investors and traders make the same mistakes assuming that one needs a complex trading system to consistently profit from the stock market. On the contrary, some of the top performing strategies are the ones with the least amount of moving parts and are simple. Because their simplicity they can be easily and consistently followed.

    The methodologies we use for timing the market, picking stocks and option trades are very simple because we focus mainly on price, volume and momentum. These three indicators are the key to success. When these are used together you are able time your entries and exits during key turning points, clearly define risk and reward levels while maintaining a clear unbiased state of mind which allows one to trade almost emotionless.
    As my Trading System Mastery coach (Brian McAboy) taught me, if you do not have a detailed trading plan which a five year old could trade, then you do not have a solid strategy and will have unnecessary losses and emotional stress.

    So here are a couple tips to keep things simple and emotionless:





    Our recent trade in Infoblox Inc. (BLOX) with our ActiveTradingPartners Newsletter:
    This stock was flashing several signals (price, volume and momentum) that a bounce or rally was likely going to happen within a few weeks. This is a good example of a swing trade based purely on our main indicators.



    Our Broad Market Outlook:
    Current stock market prices are starting to warn us that a market correction is near. You can read more about this in detail in our last report “Stocks Preparing for a Pullback, Buy Bas News, Sell the Good”.
    We all know the market works with the saying:
    “If the market doesn’t shake you out, it will wait you out”.
    How does this work? Simple really, during down trends and just before a market bottom we tend to see capitulation spikes in selling. These scare the last of the long positions out of the market and suck in the greedy shorts after the move has already been made.
    During an uptrend which is what we are in now the market makes spike highs designed to scare out the shorts and get greedy long traders to buy more. Once again after the move has already been made and likely near the market top.
    If you are the type of trader who always tries to pick tops and bottoms against the current trend then you may like to know this little tip… The largest percent moves typically happen during the last 75% of the trend. What does this mean? It means when you take your position against the trend trying to pick the dead top or bottom you are most likely going to get be caught on the wrong side of the market in a big way.
    Most traders I know based on recent emails have been short the market for 1-3 weeks and many keep emailing me that they are adding more shorts each day because they feel the market is going to top. So me being a contrarian by nature in terms of what the masses are doing, if everyone is still holding on to their shorts we likely have not seen the top just yet. Another 1-2% jump from here should be enough to shake them out though…

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