Monday, January 31, 2011

Silver Futures CoT 2

After rocketing 76% higher in just 5 months, silver continues to enthrall investors and speculators. In the decade I've been gaming its bull through actively trading silver stocks, I've never seen this metal so popular. As more traders discover silver and start following and trading it, I've heard a lot of questions on a recent development in the silver-futures market. Its open interest recently declined sharply.

Specializing in stock trading myself, I don't delve into the futures world very often. I haven't written about silver futures since 2005. Mostly this is because years of research, study, and trading experience have shown me that silver futures usually aren't particularly relevant to silver price action. Silver's primary driver is actually the price of gold, so if you want to trade the silver complex successfully watching gold is the key.

Not only does silver-futures action fail to help me profitably trade silver stocks, it has long been ground zero for conspiracy theorists. While not as prevalent today, back in the early 2000s some newsletter writers made a cottage industry out of promoting endless silver conspiracy theories. I witnessed countless traders get bogged down in and derailed by this contradictory and ever-changing mythology. The end result was often deep paranoia that crowded out rationality, crippling their ability to profitably trade silver.

The modus operandi of the most-prolific silver conspiracy theorists was similar. They spent endless hours analyzing and attempting to draw conclusions from an arcane government report. Since this report is so technical and difficult for laymen to understand, they acted like high priests ferreting out its secrets. Their assertions started with facts from the report, but ended with opinions. Their followers eagerly hung on every word, trying to expose the vast conspiracy that prevented them from getting rich in silver overnight. (more)

Bank Bailouts Explained

Trump: Mideast Explosion Could Destroy OPEC, Lower Oil Prices

Donald Trump is mad as hell — and he’s letting everybody know it.
In a wide-ranging exclusive interview with Newsmax.TV on Friday, the billionaire real estate mogul and reality TV star lashes out at China, OPEC, Obama’s Middle East dealings, the president’s State of the Union address and more.

Trump takes aim at America’s “horrible” trade agreements, declares that the Middle East is going to explode, warns about “catastrophic” oil prices, and charges that Obama’s Afghanistan policy is “dangerous and stupid.”
He also complains that the United States is a “laughing stock” throughout the world — and confirms that he is seriously considering running for president in 2012.

Asked directly about a possible run, Trump tells Newsmax: “I’m thinking about it. I’m looking at what’s happening with this country and frankly, it’s very sad. I see what’s happening left and right, how we’re being abused by other nations, and I don’t like it. I don’t like what’s happening with jobs. I am seriously thinking about it.” (more)

5 Reasons Ford (F) is Better Than You Think After Earnings

Ford Motor Co. (NYSE: F) shares drove off a cliff on Friday, splashing mud on the broader market on their way down as the automaker reported a 79% drop in fourth quarter profits in its latest earnings report. Ford shares closed down $2.54 (a brutal 13.5% slide) as a result. But one bad date shouldn’t sour a good long-term relationship with investors — and there’s a lot to love about Ford stock long term.

First, let’s talk about Friday’s sell-off. The company’s 2010 Q4 net income fell to $190 million (5 cents a share), down from $886 million (25 cents a share) in the same quarter of 2009. Wall Street had been head over heels for the stock, which has shot up about 60% in the past year, was expecting a racy 48 cents a share. The Ford earnings miss was ugly, and so was the decline for F stock. It was Ford’s first earnings miss in two years, but it missed by a mile. (more)

Fall of Saudi Arabia to End Dollar Reserve System?

here is a social media revolution in Saudi Arabia ... Ten million Saudis are online, 3 million belong to Facebook, and Twitter feeds are up more than 400 percent. Recently, many tweets and posts have been focused on the uprising in Tunisia. In fact, Saudi's social media activists spread videos and news updates at the peak of the street protests — and the interest has stayed high ever since. And, now, Saudi bloggers have added the unrest in Cairo to the topics receiving much attention. Will the Saudi government clamp down on this free-wheeling speech after Tunisia's social media movement helped to bring down a government? It's one of the big questions ahead for Saudi Arabia. How this authoritarian regime will live with the freedom and chaos that the Internet represents. ... The Internet poses a challenge for this conservative, mostly religious society. – National Public Radio

Dominant Social Theme: The Jasmine revolution spread unexpectedly.

Free-Market Analysis: The civil unrest in Egypt is growing fiercer. Electronic communications have been shut down throughout Egypt and massive demonstrations have been planned for today. A changing of the guard in Egypt would be a massive political shift indeed, but what if the disturbances don't stop there? What if they ultimately spread to Saudi Arabia and end up bringing down the dollar reserve system?

We suggest this possibility because we believe there are larger forces at work in the Middle East. Could it be that the power elite itself is inciting these disturbances? Is the idea, eventually, to crash the dollar and set up a global currency in its place?

The dollar reserve system is propped up by Saudi Arabia's willingness to restrict the purchase of oil to dollars, a system that has been in place since US President Richard Nixon abrogated what remained of the gold standard in 1971. But the PE is notoriously unsentimental. The Saudi elite has grown enormously wealthy from its relationship with the US and now, perhaps, for the good of a new world order, it is time for them to go. (more)

History Suggests Time Is Right to Buy Dow Stocks

Are you too late to the rally?

One of the fastest bull markets in history pushed the Dow Jones industrial average to a close near 12,000 last week, the highest point for the index of 30 blue chip stocks in two and a half years. The broader Standard and Poor's 500 index, the benchmark for most mutual funds, flirted with similar highs. An investor who bought an S&P 500 index fund at its March 2009 low has doubled his money since then, assuming dividends were reinvested.

But lost in the attention focused on Dow 12,000 is the fact that it has lagged every other U.S. market index over the past 12 months. Large companies have only recently started to take the lead. That suggests that the bull market could push ahead despite the Dow's 1.4 percent drop on Friday when concerns about political turmoil in Egypt and a couple of disappointing earnings reports gave investors reason to sell.

Markets tend to move in cycles. Riskier smaller companies often fall hardest during a recession and perform the best coming out of one. Larger companies, which often hold more of their value during downturns, tend to perform better after a recovery turns into an economic expansion. After the tech bubble popped, for instance, small companies performed better than the Dow index every year from 2003 to 2006. Dow stocks performed better from 2006 to the start of the financial crisis in 2008. (more)

Technically Precious with Merv

Riots on Thursday, gold moves lower. Riots on Friday, gold moves higher. Is there rhyme and
reason here? Thursday the students rioted. Friday the Muslim Brotherhood joined in the riots.
Yes, there was a difference. Now it’s a wait and see what the outcome will be to better guess
what next for gold.
For a very strict application of my point and figure criteria the long term P&F chart has now
broken on the down side for a bear market signal. However, we do still have a support at the
$1320 level so a move to the $1305 level would be required to break this final support.
Although the P&F criteria does give that bear signal I would be inclined to wait for the final
support break before pulling my hair out and going screaming, bear, bear. The price is close
enough so that it would only take another day or two to break the support, if it is so inclined.
We might as well wait for the break.
Going to our normal indicators we get somewhat of a similar message. Going towards the
bear but not quite there yet. Gold closed below its long term moving average line on Thursday
but bounced above the line on Friday. The moving average itself is still in an upward slope.
The long term momentum indicator remains in its positive zone but has been showing a
weakening trend for some time. It remains below its negative trigger line. The volume
indicator has been in a basic lateral path for some time now. Its trigger line has caught up with
the indicator and now the indicator is oscillating above and below the trigger line as the lateral
indicator trend continues. The trigger does remain slightly in a positive slope. With all that, the
long term rating has now started to decrease and is at a + NEUTRAL level, one step below the
bullish level.
Well, if the long term is starting to diminish in its rating then the intermediate term should be
ahead of it. That is what we have. Gold closed below its intermediate term moving average
line and the line slope remains negative. The momentum indicator is still in its negative zone
although it has turned to the up side and is just below its neutral line. The indicator remains
below its negative sloping trigger line. As for the volume indicator, that remains just a hair
below its negative sloping trigger line. After four months of a topping process one can now say
that the topping has ended and we are in a downward trend. The intermediate term rating is
BEARISH. This is confirmed with the short term moving average line well below the
intermediate term line.
We were having a down week until Friday, when something excited gold. Now, it could be the
activities in the Middle East or it could be short covering by banks or institutions. Who Knows? (more)

Asia's Great Democratic Hope Has Lost $200 Billion In Just Three Weeks

Indian markets have been bleeding money ever since November's Diwali festivals -- ironically the time when Indian's welcome the goddess of wealth into their homes.

Markets are down $200 billion or 11 percent year-to-date and $240 billion since November 8, according to The Economic Times.

Foreign investors alone have pulled $849 million out of Indian markets so far this month.

Indian billionaire Mukesh Ambani's Reliance Industries took the biggest hit Friday, dropping 2.2%. HDFC Bank Ltd. which trades on the NYSE was the one of the few companies to stay in the green, gaining 0.30% on the Sensex.

To curb inflation the central bank announced another 0.25% rate hike on January 25, the seventh since March 2010.

Goldman Sachs' Jim O'Neill predicts the carnage will continue through the first quarter, with a slight uptick by year-end.

Multiple Indicators Point to a Correction

Friday could be one of those landmark days that mark the end of this recent rally, and it’s sad that it took the protests in Egypt to be the catalyst for a sell-off. If we follow through and all three of the major indexes fall below the middle keltner channel, it will be a major bearish sign, especially given the size of the candlestick on the daily Nasdaq chart. Unless you were quick enough to get short intraday on Friday, I think it’s prudent to wait for continued weakness to initial short positions.

If you want to go long here be very selective about your stock picking and only buy the strongest charts. A few that showed up on my scans that look the best and have been big earnings winner this week are COHR, TNAV, and HP.

Market video at the end of this post.

When you look at an extended view of the Nasdaq, Friday’s sell-off doesn’t appear to be that bad. We’re still above the 50ema and well above the 200ema, where long term investors traditionally bail. (more)

US Economic Calendar for the Week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Jan 318:30 AMPersonal IncomeDec-0.8%0.5%0.3%-
Jan 318:30 AMPersonal SpendingDec-0.7%0.6%0.4%-
Jan 318:30 AMPCE Prices - CoreDec-0.1%0.1%0.1%-
Jan 319:45 AMChicago PMIJan-
Feb 110:00 AMConstruction SpendingDec--0.5%-0.5%0.4%-
Feb 110:00 AMISM IndexJan-57.558.258.557.0
Feb 13:00 PMAuto SalesFeb-NANA3.90M-
Feb 13:00 PMTruck SalesFeb-NANA5.56M-
Feb 27:00 AMMBA Mortgage Purchase Index01/28-NANA-12.9%-
Feb 27:30 AMChallenger Job CutsJan-NANA-29.0%-
Feb 28:15 AMADP Employment ChangeJan-150K150K297K-
Feb 210:30 AMCrude Inventories01/29-NANA4.84M-
Feb 38:30 AMProductivity-PrelQ4-2.0%2.2%2.3%-
Feb 38:30 AMUnit Labor CostsQ4-0.0%0.0%-0.1%-
Feb 38:30 AMInitial Claims01/29-410K425K454K-
Feb 38:30 AMContinuing Claims01/29-3900K3925K3991K-
Feb 310:00 AMFactory OrdersDec--0.5%-0.7%0.7%-
Feb 310:00 AMISM ServicesJan-57.557.057.1-
Feb 48:30 AMNonfarm PayrollsJan-125K150K103k-
Feb 48:30 AMNonfarm Private PayrollsJan-140K163K113k-
Feb 48:30 AMUnemployment RateJan-9.6%9.6%9.4%-
Feb 48:30 AMAverage WorkweekJan-34.334.334.3-
Feb 48:30 AMHourly EarningsJan-0.1%0.2%0.1%-