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With the whipsaw action we've seen in the market over the past few trading days, we're interested in how our knowledgeable readers currently view the stock market. We've created a short survey for you to complete, and once all of the results come in, we'll analyze the data and publish a detailed report with our findings. Participation benefits the entire Bespoke community!
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If all goes well, we plan on conducting this survey on a regular basis (likely monthly), which should really provide some interesting insight into investor sentiment going forward.
SFGate - Oil steady as Fed's Bernanke eases concerns - SFGate
The price of oil was little changed near $93 a barrel on Wednesday as markets digested the Federal Reserve chairman's fairly sanguine view about the risks emanating from the central bank's super-easy monetary policy.
Yesterday the S&P 500 managed to gain back about a third of Monday's decline. As shown in our trading range screen below, the index has pulled back from overbought levels over the last week, but it's still above its 50-day moving average (the black vertical Neutral line). Three sectors remain in overbought territory, but they're all defensive in nature -- Consumer Staples, Utilities and Telecom. When the market's leaders are defensives, most of the time the market is trending downward.
On the downside, Materials and Technology have seen the biggest pullbacks within their trading ranges over the last week. As shown, both sectors are below their 50-days, and the Materials sector is just above oversold territory.
Below we have run our trading range screen on the 30 stocks in the Dow Jones Industrial Average. (A detailed description of how to read the screen is included at the bottom of this post.) There are still quite a few Dow stocks in overbought territory, but there are also five that are now oversold. These five stocks are Alcoa (AA), Bank of America (BAC), Caterpillar (CAT), Intel (INTC), United Health (UNH). Alcoa (AA) has had by far the biggest move lower within its trading range over the last week, and the stock is now down 3.11% year to date.
Quite a few Dow stocks have held up nicely over the last week as well. Stocks like Boeing (BA), Hewlett Packard (HPQ), Coca-Cola (KO), McDonald's (MCD), Merck (MRK), Verizon (VZ) and Wal-Mart (WMT) have all moved higher within their trading ranges, which is pretty impressive given the broad market selloff that we've seen. Hewlett Packard (HPQ) is currently the most overbought stock in the Dow, and it's also the Dow stocks that is up the most in 2013 with a gain of 38.88%.
Remember, you can have Bespoke run this trading range screen on your own portfolio on a regular basis. Simply sign up for a Premium Plus membership today!
We have been witnessing the abnormal situation in the intermarket correlations for quite some time now, i.e. positive correlation between dollar and gold and silver (or virtually no correlation at all) , and negative one between the general stock market and precious metals sector. Such a set-up is not the best from the precious metals perspective, as the overall medium-term outlook is bullish for stocks and bearish for dollar. But last week seems to have brought some important changes to the structure of correlations. Before we analyze them, let’s see what happened on the currency market last week – we’ll focus on the USD Index (charts courtesy by http://stockcharts.com.)
On the very long-term chart we see a move above the declining long-term resistance line which normally would be a big deal. However, in the middle of last year when this happened, it was followed by an invalidation of the breakout and a subsequent decline. We expect to see the same thing here once again. Keep in mind that we have not seen a weekly close above this resistance line and really need to see several before stating that the breakout is truly confirmed.
Let us see how the medium-term perspective looks like.
We include this chart in today’s article so that we could make some points about the head-and-shoulders pattern. We see that it is no longer perfectly symmetrical, but this does not invalidate the pattern. It could still be the case that a double right shoulder is forming. If the index declines below the 79 level, the pattern and the outlook will once again be just as bearish as if the breakdown took place last month.
Finally, let us take a looka at the short-term picture.
In the short-term USD Index chart, we see the index right at its cyclical turning point. The sharp rally this month brought the index to its November high and the last part of this rally severely exacerbated the decline of gold.
With the index at its November 2012 high, at a cyclical turning point, and with RSI levels above 70, a decline here is quite likely very soon if not immediately.
Let us take a look at gold and silver correlations to see how such a decline in the U.S. dollar could translate into precious metals prices.
The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector (namely: gold & silver correlations). We continue to see some return to normalcy between the precious metals and the USD Index. Unfortunately the reason is that precious metals declined as the USD Index rallied. Of course, this must be considered a better scenario than if the metals had declined in price for no apparent reason. The indications are that when the USD Index reverses, the precious metals will do the same. With the USD Index at a cyclical turning point therefore, we could very well see higher prices for precious metals and mining stocks in the coming weeks.
We have mentioned the importance of cyclical turning points in the analysis of the currency markets and we would like to address one of our subscriber’s question regarding that matter, as this technique seems to raise doubts among our readers.
Q: Hi there, I was wondering if sometimes cyclical turning points just don’t happen at all. For example, we’ve been waiting for a cyclical turning point in the USD but it just hasn’t happened. And it now seems to be forming a right shoulder of a head-and-shoulders pattern. Is there a variable or certain rule about cyclical turning points that I don’t know about and would like to understand?
A: Yes, sometimes cyclical turning points just don’t happen – just like any technical tool. Good tools work most of the time and excellent tools can be expected to work 80% of the time or so (and it can be the case that something doesn’t work a few times in a row only to then work 20 times in a row). Expecting anything more than 80% is not really realistic and thus cyclical turning points also have to not happen at times. It still seems that they will work this time, though.
Summing up, the outlook remains bearish for the dollar. The implications from the currency markets appear quite bullish for the precious metals sector in the weeks ahead.
To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you’ll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It’s free and you may unsubscribe at any time.
Thank you for reading. Have a great and profitable week!
Przemyslaw Radomski, CFA
Gold Investment & Trading Website – SunshineProfits.com
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Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
“Inconclusive” Italian Election Result “Could Spark Higher Gold Demand” with Italy “Moving Closer to Populism”
U.S. DOLLAR prices for buying gold rose briefly above $1600 per ounce Tuesday morning before falling back, while silver failed to hold above $29 an ounce and stock markets fell following the inconclusive Italian election result.
Italian markets were especially affected, with stocks and government bonds seeing sell-offs, while on the currency markets the Euro hovered near seven-week lows against the Dollar following yesterday’s 2% drop.
“Risk sentiment turned negative [this morning] on the inconclusive Italian election and fears of sustained instability for the country and Eurozone as a whole,” says a note from Credit Agricole.
“The outcome of the Italian elections is likely to spark increased demand for gold,” adds a note from Commerzbank, “as it could force the sovereign debt crisis back into the foreground.”
Italy’s general election failed to produce a clear winner, with the bloc led by Pierluigi Bersani’s Democratic Party winning the lower house of parliament but failing to win the Italian Senate.
The biggest share of the lower house vote to go to a single party went to the Five Star Movement, a protest movement led by comedian Beppe Grillo, which polled 25.55%. Grillo and Five Star have campaigned against the austerity measures brought in by outgoing technocrat prime minister Mario Monti, whose party only polled around 10% of the vote for each house of parliament.
Bersani’s bloc will have more seats than Five Star, however, as will the bloc led by former prime minister Silvio Berlusconi’s party. Berlusconi is expected to win the region of Lombardy, according to Italian television, which adds that this should give him control over the upper house.
“The political situation across Europe is effectively a race between austerity and reforms on the one hand and the rise of populist movements on the other,” says Alberto Gallo, head of European macro credit research at Royal Bank of Scotland.
“Austerity is painful, and if reforms are not implemented in time, you run the risk of social unrest and populism. It hasn’t happened so far in Greece, it hasn’t happened in Portugal or Spain, but we are very close in Italy.”
The FTSE MIB, Italy’s main stock market, fell 5% from yesterday’s close in Tuesday’s early trading, while investors also sold Italian government bonds, pushing 10-Year yields to a three month high above 4.9%.
“It’s clear that from a foreign investor point of view they’re very concerned about political instability and forming a government that can push through pro-growth policies in Italy and in Europe,” one Milan-based fund manager told newswire Reuters this morning.
Gold exchange traded funds tracked by news agency Bloomberg meantime saw their holdings fall to a five-month low of 2536.3 tonnes yesterday.
“The latest collapse in gold ETF holdings stands in sharp contrast to our [earlier] assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading,” says a note from the commodities research team at Goldman Sachs.
“Instead, ETF holdings are increasingly exhibiting a strong inverse correlation to real [inflation-adjusted interest] rates, a pattern that we now expect will continue going forward.”
Goldman cut its gold price forecasts, with its 12-month forecast falling from $1800 an ounce to $1550 an ounce.
“The decline in prices since last fall and our updated forecast suggests that the turn in the gold price cycle is likely already underway,” the report says.
Over in Washington, Federal Reserve chairman Ben Bernanke is due to testify to the Senate Committee on Banking, Housing and Urban affairs later today. Bernanke will then appear before the House of Representatives Committee on Financial Services tomorrow to complete his twice-a-year monetary policy update to Congress.
“Given the Fed['s]…highly dovish bias, we expect them to continue printing into [the third quarter]” says UBS commodity strategist Julien Garren.
“[That's] when we in commodity strategy, in contrast to our economists, expect global growth to lose momentum. That sets up a major gold rally in Q3.”
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics. Ben can be found on Google+
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
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For the past several weeks, everywhere I looked all I could find was bullish articles. After the fiscal cliff was patched at the last second, prices surged into the 2013 and have since climbed higher all the way into late February.
I warned members of my service that this runaway move to the upside which was characterized by a slow grinding move higher on excessively low volume and low volatility would eventually end violently. I do not have a crystal ball, this is just based on my experience as a trader over the years.
Unfortunately when markets run higher for a long period of time and just keep grinding shorts what typically follows is a violent selloff. I warned members that when the selloff showed up, it was likely that weeks of positive returns would be destroyed in a matter of days.
The price action in the S&P 500 Index since February 20th has erased most of the gains that were created in the entire month of February already and lower prices are possible, if not likely. However, there are opportunities to learn from this recent price action.
There were several warning signs over the past few weeks that were indicating that a risk-off type of environment was around the corner. As a trader, I am constantly monitoring the price action in a variety of futures contracts in equities, currencies, metals, energy, and agriculture to name a few.
Besides looking for trading opportunities, it is important to monitor the price action in commodities even if you only trade equities. In many cases, commodity volatility will occur immediately prior to equity volatility. Ultimately the recent rally was no different.
As an example, metals were showing major weakness overall with both gold and silver selling off violently. However, what caught my eye even further was the dramatic selloff in copper futures which is shown below.
Copper Futures Daily Chart
As can be seen above, copper futures had rallied along with equities since the lows back in November. However, prices peaked in copper at the beginning of February and a move lower from 3.7845 on 02/04 down to recent lows around 3.5195 on 02/25 resulted in roughly a 7% decline in copper prices over a 3 week period.
As stated above, commodity volatility often precedes equity volatility. As can be seen above, copper futures appear to be reversing during the action today and many times commodities will bottom ahead of equities.
I want to be clear in stating that equities will not necessarily mirror the action in commodities or copper specifically, but some major volatility was seen in several commodity contracts besides just metals. Oil futures were also coming under selling pressure as well.
Oil Futures Daily Chart
As can be seen above, oil futures topped right at the end of January and then sold off briefly only to selloff sharply lower a few weeks later. Oil futures gave back roughly 6% – 7% as well which is quite similar to copper’s recent correction. I have simply highlighted some key support / resistance levels on the oil futures chart for future reference and for possible price targets.
In equity terms, since February 20th the S&P 500 futures have sold off from a high of around 1,529 to Monday’s low of 1481.75. Thus far we are seeing a move lower of about 3.10% since 02/20 in the S&P 500 E-Mini futures contract. While I am not calling for perfect correlation with commodities, I do believe that a 5% correction here not only makes sense, but actually would be healthy for equities.
S&P 500 E-Mini Futures Daily Chart
If we assume the S&P 500 E-Mini contracts were to lose 5% from their recent highs, the price that would correspond with that type of move would be around 1,453.
As shown above, while 1,453 does represent a consolidation zone in the S&P 500 which occurred in the beginning of January of 2013, there is a major support level that corresponds with the 1,460 – 1,470 price range.
I am expecting to see the S&P 500 test the 1,460 – 1,470 price range in the futures contract, however the outcome at that support level will be important for future price action. If that level holds, I think we likely reverse and move higher and we could even take out recent highs potentially. In contrast, if we see a major breakdown below 1,460 I believe things could get interesting quickly for the bears.
I am watching the price action today closely as I am interested in what kind of retracement we will get based on yesterday’s large bullish engulfing candlestick on the daily chart of the S&P 500 futures.
Ultimately if the retracement remains below the .500 Fibonacci Retracement area into the bell we could see some stronger selling pressure setting in later this week. The Fibonacci retracement of the 02/25 candlestick can be seen below.
S&P 500 E-Mini Futures Hourly Chart
So far today we have not been able to crack the 0.382 Fibonacci retracement area. This is generally considered a relatively weak retracement and can precede a strong reversal which in this case would be to the downside in coming days.
It is always possible to see strength on Wednesday and a move up to the .500 retracement level. As long as price stays under the .500 Fibonacci retracement level, I think the bears will remain in control in the short-term. However, should we see the highs from 02/25 taken out in the near term the bulls will be in complete control again.
Right now I think it is early to be getting long unless a trader is looking to scale in on the way down. I think the more logical price level to watch carefully is down around 1,460 – 1,470 on the S&P 500. If that level is tested, the resulting price action will be critical in shaping the intermediate and long-term price action in the broad equity indexes.
If you have to trade, keep position sizes small and define your risk. Risk is elevated at this time.
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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 TradersVideoPlaybook.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.
By Jeff Pierce
After last weeks plunge in gold prices I expect a little more upside near the $1639 level before this starts it’s final leg down to the $1400 level. And when you check out the monthly chart below a drop of $200 is nothing.. (nooothing) when you compare the move it has had for all of 2000. I personally would like to see it drop even further as the more fear that happens when this drop the better.
When the monthly RSI gets to 40 start to watch for signs of support on the chart…and buy into that fear. I warn you it will be difficult as everyone will be declaring the gold bull market over. My analysis suggests that anybody buying now will be underwater very soon, but a great long term buying opportunity in gold could be a few months away.
Trading bias – I would either be short or neutral looking to add to shorts in the coming days to weeks. I would not be long gold right now as there is too much risk to the downside.
Stocks rebounded Tuesday from the big selloff Monday but volume was unconvincing and aside from the safety sectors (utilities, healthcare, consumer staples) most of the strength came from very broken stocks, indicating a relief of oversold conditions more than anything. The main driver of the day was the housing sector as new home sales surpassed expectations.
New home sales jumped in January to a seasonally adjusted annual rate of 437,000, the highest since July 2008, according to the Commerce Department.
Ben Bernanke was on Capital Hill defending the Fed's actions but really said nothing we have not heard before. In a very choppy day the S&P 500 added 0.61% and the NASDAQ 0.43%.
Looking at the longer term charts for the major indexes we see both the S&P 500 and NASDAQ breaking down out of their ascending channels. Aside from a quick headfake in December due to news flow around the fiscal cliff these breakdowns have usually lead to quite substantial corrections both in duration and magnitude.
Major commodities that indicate economic strength continue to be no shows today despite the bounce in equities - see oil and copper. While they bounced today, in light of the recent selloff, the gains were modest and volume light.
The good housing data helped the sector as did a good earnings report from Home Depot (HD) although the latter may have been helped quite a bit by the rebuilding needed after Superstorm Sandy.
The nation's leading do-it-yourself home improvement retailer said sales rose 14% in the fourth quarter to $18.2 billion. That helped Home Depot report net earnings of $1 billion, or 68 cents per share, for the quarter. On top of that, Home Depot's board raised its dividend payment 34% to 39 cents per share, and announced plans to buy back $17 billion of its own stock. Same store sales growth was 7%.
BespokeInvest blog has an interesting post up from last evening showing which sectors have been hit by this selloff the hardest - as we've been stating it is in the pro cyclical growth areas which are not the ones you want to see leading a market down. Everything to the left of "all" would be considered offensive sectors and everything to the right of it would be the defensive sectors.
Original post: STTG Market Recap Feb 26, 2013
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