Monday, June 27, 2011

Weekly Risk Technical Analysis And John Noyce Podcast

In the last week of trading, the only variable that mattered was the EURUSD, much more so than at any time in 2011, as the correlation between the FX pair and the SPX hit a near all time high. Which is why it is not surprising that China is now the de facto saviour not so much of Europe (as discussed earlier), but of America's wealthiest, as the only Central Planner mandate continues to be to keep the Russell artificially high for as long as possible while the oligarchy converts paper wealth into hard assets (yes, Comex physical silver just dropped to a new all time low on Friday). And with technicals mattering far more in FX than in stocks, we once again present John Noyce's weekly technical compendium and podcast, as all the major risk indices continue to be at key inflection points. This is particularly true of the GBPUSD, commodities (CRB), the Shanghai Composite (which just closed below the October 2008 primary updtrend, slide 13), Spanish 10 Years, also Irish and Portuguese bonds, the AUDUSD, but most importantly the EURUSD, which is at 2 standard deviations above fair value which is at about 1.15. Should it revert to that level, the S&P would find itself at about 900 if not lower.

Complete Noyce podcast:

John Noyce 6.24 podcast by user5452365

And presentation:

Noyce 6.24 Presentation

As The IEA-OPEC Nash Equilibrium Collapses, Is A 1973-Style OPEC Embargo Next?

Last week's dramatic decision by the US administration to strongarm the IEA into releasing strategic petroleum reserves (of which the US would account for 30 million barrels, or half of the total), is nothing but yet another example of the hobbled and incredibly short-sighted thinking that permeates every corner of the Obama administration. Because as the WSJ reports, "the move by the U.S. and its allies to release strategic reserves of oil could provide a much-needed shot in the arm for the U.S. economy, but risks inflicting lasting damage on the already tense relationship between oil producers and consumers." The move comes on the heels of the dramatic collapse in OPEC talks in Vienna two weeks ago when Saudi Arabia was effectively kicked out of the cartel, further confirmed by reports that the IEA consulted with Saudi (and China and India) in advance of its decision (more later). Additionally, "OPEC and the European Union are due to hold an energy summit in Vienna Monday that will be the first official meeting of producers and consumers since the IEA's move, and will provide a platform for OPEC members to express their disquiet over the stocks' release. However, OPEC's biggest player, Saudi Arabia, won't be present." Make that former player, in an organization now headed by the previously #2 producer, Iran (which just happens is not all that pro-US). The biggest threat, however, is that in direct retaliation against the IEA's cartel-like decision, which comes at the expense of the remaining OPEC countries, is that as Zero Hedge suspected, the next step will be a more than proportionate cut in crude production by OPEC: "Some analysts speculated that OPEC could respond to the IEA release by cutting output to offset the increased supply." What happens next is complete Nash equilibrium collapse, with a high possibility of a 1973-type OPEC oil embargoannouncement in the immediate future.

"Going ahead with an increase would cut into revenue, said Christof Ruehl, chief economist of BP PLC. But cutting production to offset the release, he said, "would be seen as hostile by IEA members" and "could lead to a war of attrition, at least as expensive," in which OPEC cuts production and the IEA keeps releasing stocks to make up for the shortage." The winner of all this, is of course, China, which will gladly benefit from ongoing blue light specials courtesy of the US Strtategic Petroleum Reserve to build up its own reserve holdings, as the rest of the world squabbles over a US-dominated status quo whose time has now officially passed. And just as therare earth metal price spike in recent weeks demonstrates what happens when China is the marginal anything in any supply chain, one can be certain that the price of Crude will be far, far higher several years from now.

And speaking of Iran, its oil ministry SHANA wasted no time in firing the retaliating round against the IEA's decision, accusing the US of acting unilaterally and purely for the benefit of Obama's reelection campaign, warning that the drop in oil prices won't persist:

Iranian governor for OPEC Mohammad Ali Khtatibi says International Energy Agency (IEA) decision to draw oil from its emergency reserves implies intervention in the ordinary function of the oil market.

Speaking to Shana, Mr. Khatibi said that the trend of falling oil prices would not be sustainable.

‘Following the failure to bring down the prices at 159th ministerial meeting of OPEC in June 8, the United States of America and Europe are using all the means to push oil prices lower, Iranian governor for OPEC said.

Khatibi noted that IEA’s initiative to release oil from strategic petroleum reserves would followed by artificial falling of oil prices but those countries believing in open markets showed they are not genuine in their believes.

According to Khatibi recent days’ developments in oil market is not the result of issues relating to supply and demand or market needs but political pressures by the United States drives the initiative.

The United States government plans to influence the results of the upcoming presidential elections of the country by putting pressure on oil prices’ top Iranian oil official said.

Khatibi pointed out that developed countries initiative to draw oil from strategic petroleum reserves is risky because they cannot continue the move in the long term.

He added: these reserves are being held for emergency situations so the consuming countries of the International Energy Agency will have no other choice except to replenish the reserves for further use.

Indeed, if Obama's reelection campaign is such an emergency that it requires tapping the SPR, what will happen when there is a real emergency: such as a repeat of the 1973 OPEC embargo, which set the stage for Volcker's last minute and very painful intervention to prevent the US economy from tailspinning into an inflationary supernova?

And just to make sure things get even more polarized, Dow Jones reports that the "International Energy Agency consulted Saudi Arabia, China and India before it authorized the release of some of its emergency reserves, the agency's executive director said Sunday."

"They understand, and they appreciate the action," Nobuo Tanaka said on the sidelines of the second Global Think Tank Summit in Beijing.

The release of some of IEA's strategic stockpiles is meant only to fill the gap in supply until higher crude volumes from Saudi Arabia reach the global market, he added.

Oddly enough, the leadership at the IEA is just as clueless as that of the US:

Separately, Tanaka said he asked China once again to join the IEA on Saturday. Although there hasn't been any official response, Tanaka said he was encouraged by China's recent statement publicly welcoming the IEA's strategic stockpiles release.

Of course they welcome it you idiot, because they will be buying everything your member countries have to sell, and thanks to your stupidity, at a welcome discount. And why the hell would China want to join the IEA when it gets all the benefits of participation, without any of the obligations of being a member (i.e., adhering to your retarded politically-motivated agenda).

Good luck buying it back at the same price when OPEC fires its own warning shot and announces it is reducing crude output for all remaining OPEC countries (ex. Saudi) by 10-15%. And yes, Goldman will promptly move it Brent sell recommendation to a buy, within hours of said announcement.

Technically Precious with Merv

The week started encouragingly but along came Thursday and Friday and that was it. The two day decline was with increasing volume action, which is significant. Expect a recovery soon but not a full recovery. Too much damage done by the past couple of days.


Last week I briefly mentioned volume action relative to the potential head and shoulder pattern. I’ll mention, again briefly, some additional suggestions when viewing the daily volume action.

In general, the actions of speculators go something like this. They get enthusiastic and tend to jump on the buy side when prices are rising. They lose enthusiasm and tend to stop buying (but NOT necessarily start selling) when prices are declining. So, it is NORMAL for volume to increase during a market advance and decrease during a market decline. Such normal action does not necessarily verify a bull or bear trend. Keeping these normal actions in mind there are three events when volume action may be significant:

  • INCREASING volume on a market down move (BEARISH).
  • INCREASING volume, far more than the normal increase, on market up moves (BULLISH). Caution, each security has its own level of “normal” upside volume.
  • DECREASING volume during market advances, especially during the early stage (BEARISH).

There is one additional volume action to watch out for, increasing upside volume AFTER a significant market advance has taken place. This very often predicts a market top ahead, although the length of the subsequent reaction varies from a brief down turn to a trend reversal.

There are a lot of different views about volume action and the above suggestions are just a few of these views (mostly my own).



Despite the sharp gold decline over the past couple of days the long term indicators have not basically changed. There are some negative hints in the momentum indicators, otherwise all is well. Gold remains above its positive long term moving average line. The long term momentum indicator remains in its positive zone but has moved below its now negatively sloping trigger line. In addition, the momentum indicator is now below its level of early May when the price of gold was some $30 lower than it is today. The volume indicator had continued to move higher into new high territory early in the week although it has retreated somewhat by week end. The indicator remains above its positive sloping trigger line. The long term rating remains BULLISH.


The potential head and shoulder pattern mentioned and shown last week can be considered an intermediate term pattern as it has taken a few months to develop. The gold price has now dropped below its neckline and both the intermediate and short term momentum indicators have broken below their support levels. We now can say we have a valid head and shoulder pattern (rather than a potential one) with a projection to around the $1400 level.

Gold has now closed below its intermediate term moving average line. The line itself has turned to the horizontal but not quite yet to the down side. As for the intermediate term momentum indicator, it remains in its positive zone but below its negative trigger line and as mentioned above, below its previous support level. The volume indicator is still positive but getting very close to breaking below its trigger line. Despite the sharp move downward gold has not quite gone to the full bear status. On the intermediate term the rating has dropped to the – NEUTRAL level, one level above a full bear. The short term moving average line remains above the intermediate term line for confirmation that a full bear is not yet confirmed.


One can see many things in the short term gold chart. Let’s just zero in on a few items.

As mentioned earlier, the potential head and shoulder pattern is now a confirmed head and shoulder with a neckline break as well as a momentum support level break. In addition, as the price of gold was making a new rally high on Wednesday the momentum indicator was holding back and was not able to break above its previous high from early June. Interesting, how did the indicator know of a looming oil plunge taking gold with it the next day?

Looking at the Stochastic Oscillator it entered its overbought zone on Tuesday and as the metal was making a new high on Wednesday the OS was only able to move sideways, a prelude to a reversal. Hmmmm!

So, where are we as far as the short term is concerned? Gold has now moved below its short term moving average line and the line has turned downward. The short term momentum is in its negative zone below its negative sloping trigger line. The daily volume activity has picked up steam on Thursday and Friday, both down days in the price and a bearish sign. Overall the short term rating is BEARISH. The very short term moving average line is now below the short term line for confirmation of this bear.

As for the immediate direction of least resistance, I’ll go with the down side although we could see a bounce after such a plunge of the past couple of days.



Just as I got to this portion of the commentary we had a power outage that lasted for several hours and put my schedule totally out of order. I had lived in California (throughout the 1960’s and early 1970’s) for some 13 years and never experienced a power outage. On moving to Quebec in 1973 the first thing I experienced was a power outage. I have since found out that power outages in this Province (I don’t know about the rest of Canada) is not an unusual event. Over the years I have experienced more than one outage that lasted for many, many days, including our famous “Ice Storm Outage”.

Because of this delay I am cutting my commentary at this point and hope to have a complete one next week.

Well, that’s it for this week. Comments are always welcome and should be addressed to

By Merv Burak, CMT

Use Gold to Foil the Crisis Summer GLD ETF and VIX ‘Fear Gauge’ profit as market sinks

This summer is shaping up to be a time of “negative catalysts” only – the federal debt ceiling crisis, the ongoing drama in Greece and with European banks in general, a softening economy with falling home prices and rising unemployment. Good stuff, eh? Yes, if you play it right.

There are almost too many ways to play a choppy summer and timing the ups, downs and insanity of politicians is impossible. So play the market itself.

Say what? You mean, play the S&P or NASDAQ indices?

No — that’s a sucker’s game.

You mean, play the banks and the home builders, the industries in the thick of this summer’s news and trading action?

No — those are long-term short positions, not something to trade at this time.

I mean play uncertainty — both in the real world and the market. Real world uncertainty means gold; market uncertainty means the CBOE Volatility Index (CBOE: VIX).

First, gold. The SPDR Gold Trust (NYSE: GLD) is the exchange-traded fund for gold and like the precious metal it has been stuck in neutral for quite a while.

Do you agree with me that — 1) Greece will eventually default in some fashion and — 2) politicians here will kick the can down the road on real measures to fix structural deficits and the rising debt? If you agree, the long-term play is gold, and you can play it three ways:

  • Play the metal straight up and buy GLD.
  • Play the metal straight up with some risk; buy the GLD Jan 2013 LEAP options at the $165 strike price. That means you see a 10% gain the commodity and are willing to invest in the option premium for the next 18 months.
  • Buy GLD and sell covered calls against it. You can choose from the options that expire Weekly, as they are called, and the regular monthly expiration options. Use the proceeds to average down your position.
  • Second, the VIX. This measure of market uncertainty, called the Fear Gauge, is the friend of the trader who wants to make money but is uncertain of market direction. So she trades uncertainty. Sounds like the “Whose on First” routine but this is a real trade. The VIX has been near its historic lows and the summer should prove to be volatile in the real world and in the markets.

    You can trade the VIX four ways:

    • Play the VIX straight up by buying calls. If you go this route, the VIX is now between 20 and 21 so look for something no later than September and no more than one strike price above the current price.
    • Buy the ETF for the VIX, the VXX, known formally as the iPath S&P 500 VIX Short-Term Futures (NYSE: VXX). This is roughly around 25 and is a solid long term play on volatility.
    • Buy the calls on the VXX. The premiums on the VIX calls are typically lower due to the liquidity in the index. That’s a good thing when you are buying them but not necessarily when you are selling them. That’s why some traders buy calls on the VXX. Look to buy them close in — August or September — and a bit out of the money, the $26 or $27 strike.
    • Buy the ETF and write calls against it. As with gold, there are Weekly and monthly calls and you can use the proceeds to average down your position.

    Have a good summer and be careful.

Gerald Celente : Gold to go over $2000 an ounce

Gerald Celente : Greece is a tiny player in this game and they can't solve that problem wait until you see Spain go and then Italy . The IMF are the loan sharks of the last resort , they either rape people or rape countries . To me America's public enemy number one is Ossama Ben Bernanke says Gerald Celente, the politicians are the front men for the crime gang they get paid they call it campaign contributions , Gerald Celente does not give any financial advice but he invests most of his money in Gold and in the Swiss francs cause the Swiss are the money cockroaches of the world , when the world economy goes into crisis money will search for a safe heaven and Switzerland seems very well placed for that . trends masters Gerald Celente also calls for direct democracy at the Swiss model , if you can bank online you can vote online he says . America is murder Inc.

For Many in Britain, Being a Homeowner Is a Fading Dream

LONDON — For a large number of young adults in Britain, homeownership has become increasingly difficult to achieve, viewed as a distant goal attainable only later in life, if at all.

That is a significant shift for a country where owning a home remains deeply rooted in the culture. Owners occupy a higher percentage of homes in Britain than in the United States, France or Germany.

But as the pain of government-imposed austerity sinks in, disposable income has shrunk and loan requirements have toughened, forcing more and more Britons into renting rather than buying.

The average age of first-time buyers is now 31, up from 28 five years ago, and the number of people renting has increased sharply, signs that the boom in homeownership that began under Margaret Thatcher’s government 30 years ago is starting to reverse.

Some economists are concerned that as more people are forced to wait to buy a home, the country’s wealth gap could widen, endangering the retirement prospects for a swelling group of young adults they call “generation rent.”

Charlotte Ashton, 30, has lived in rented accommodations ever since she left her parent’s home to attend university. She said she was happy sharing a five-bedroom house in the Shepherds Bush area of London with four other women but was saving for a down payment to buy her own home.

“I do believe in the fundamentals of owning bricks and mortar as security for the future, more than leaving my money in the banks at a low interest rate,” said Ms. Ashton, who works in public relations. “Unless you have a very well paid job and are willing to save every penny, it’s unfeasible to buy without the help of the bank of Mum and Dad.”

About four years ago, a first-time buyer had to raise an average down payment equal to 41 percent of annual income to buy a property, according to the Council of Mortgage Lenders. Now it is more than 87 percent of income, or about £26,500 ($42,800). And while banks were willing to make mortgage loans for more than the value of the house before the credit crisis, buyers now find they must put up at least 10 percent, and often substantially more. (The average deposit for first-time buyers is 23 percent, according to the price comparison Web site Moneysupermarket).

A study by Halifax, a British mortgage lender, showed last month that while 77 percent of 20 to 45 year-olds who were currently renting would like to buy a home, more than two-thirds believed they had no prospect of doing so. Only 5 percent said they were managing to save toward a deposit.

Those who do save, like Ms. Ashton, who has set aside the equivalent of about $50,000, are unlikely to be able to afford a home in the same area they rent in. “I would have to look further out of London or for a smaller property,” she said. So for now, like many, she is staying put.

One reason homeownership remains attractive in Britain is because property values dropped less drastically than in the United States, in part because of a shortage in housing. Prices in some large cities, including London, have even increased recently. People still perceive a home to be a better and safer investment than a pension fund, said Andrew Hull, research fellow at the Institute for Public Policy Research. “Homeownership is also culturally entrenched,” he said. “Owning a home is the main way of showing you made it.”

The big shift toward homeownership came in the 1980s with Mrs. Thatcher’s right-to-buy policy, which allowed many in rented government housing to buy their homes. About two million homes were sold, earning the government tens of billions of pounds.

At the same time, the rental market became increasingly unattractive. Unlike Germany and other Continental European countries, Britain’s private rental market is highly fragmented, with many landlords, and laws that generally favor the property owner. Most leases are for six months only, with landlords rarely agreeing to commit to longer terms; this makes renting highly insecure.

But the aftermath of the banking crisis and the recession made buying more difficult. Over the last 10 years the number of people who owned homes here dropped to 67 percent from 70 percent. Meanwhile, the number of people in private rented housing rose to 16 percent from 10 percent over the same period, according to the Office for National Statistics.

“A growing number of young would-be buyers are preparing for lifelong renting — by necessity rather than choice,” said Jonathan Moore, director of, a property Web site.

Katherine Fyfe is one of them. Ms. Fyfe, a 42-year-old clinical systems teacher for the National Health Service in Devon, is eager to buy her own place, but her £15,000 in savings is not enough. “I’ve been clawing money together since my divorce in 2008, but it’s not been easy as the cost of rent has bitten into most of my pay,” she said. She pays £380 a month for a room in a house in Exeter that she shares with two others.

Rising demand has pushed up rents by an average of 4.4 percent over the last year, according to LSL Property Services. In London rents increased 7.8 percent.

Being unable to buy a home is just the latest blow for a British populace already battered by severe austerity and contraction. To reduce debt, the government is cutting pensions, welfare spending and public services, and has said it will eliminate 310,000 public-sector jobs by 2015.

Amid this economic hardship, some analysts warn that a wider shift toward renting could have adverse effects on society as a whole.

“It could open up a widening of the wealth gap that already exists between homeowners and non homeowners, and people in ‘generation rent’ risk insufficient finances at retirement,” Alison Blackwell, a research director at the National Center for Social Research and author of the Halifax report, said.

It could also have implications for the cohesion of neighborhoods, she said. Renters tend to be less involved in local communities because they are forced to move more often. And the economy as a whole may suffer because renters tend to curb spending to save for a deposit.

For some, including Ms. Ashton, the prospect of buying in Britain seems so daunting that she even considered buying a property elsewhere. “I don’t rule out buying abroad,” she said. “There are many more appealing markets than Britain. Florida, for example.”

Mervyn King's Interest Rate Spread Bet

The Bank of England won't raise rates until it knows it won't make a difference…

THE BANK OF ENGLAND is getting more dovish. It seems less inclined than ever to raise interest rates – despite inflation currently running at over twice the target rate.

This is bad news for anyone hoping to get a better return from their savings account. Even worse, the Bank will only start raising its main policy rate – the Bank Rate – when it is confident the rise won't be passed on.

That's what two members of the Bank's Monetary Policy Committee implied last week, when they talked about unprecedentedly high spreads between Bank Rate and the interest rates borrowers actually pay.

To see what they mean, take a look at what's happened in the UK mortgage market since the global financial crisis started:

As the Bank Rate fell in 2008 and 2009, mortgage rates didn't fall anything like as far. The result was that spreads above Bank Rate shot up – and they've barely come down since.

MPC member Martin Weale – in a hawkishly-titled speech called 'Why the Bank Rate should increase now' – explained last week that these high spreads are a key reason the Bank has kept its rate at an all-time low of 0.5%:

"The gap between bank lending rates and the Bank Rate is already much higher than it was before the crisis and our setting of Bank Rate takes that into account. If banks were, at present, lending at only small margins above Bank Rate we would need the latter to be higher than it actually is." – Martin Weale, June 13 2011.

Two days later, Bank governor Mervyn King made a similar case in his Mansion House speech:

"Spreads between Bank Rate and the interest rates charged to many borrowers remain at unprecedentedly high levels...when conditions in the banking sector return to something closer to normal, those spreads will contract and the rate at which that takes place will have an important influence on the speed at which Bank Rate will rise." – Mervyn King, June 15 2011.

The language is eerily similar, suggesting King and Weale are singing from a common Bank of England hymn sheet. The overall impression these comments give is of an MPC whose first priority is to avoid any effective monetary tightening, by only raising Bank Rate once lower spreads ensure the actual cost of credit remains unaltered.

This is understandable. The economy remains weak, and government spending cuts, however necessary, will most immediately be felt as lower demand for goods and services. The MPC clearly feels it must balance the government's tighter fiscal policy with a looser monetary one. As Weale said in his speech, "no one is proposing that monetary policy should be set to anything except a very expansionary stance".

It's also understandable on a human level. Mervyn King will hardly want to go down in history as the man who crushed the economy. At least this way he can say he did everything he could...

There are early signs that spreads are falling, as the ultra-low Bank Rate slowly works its way through the system. Falling spreads, however, do not automatically mean that a hike is around the corner.

A major reason spreads are coming down, to the small extent that they are, is because more and more mortgage holders are coming off fixed deals that have higher, pre-crisis interest rates.

Back in 2007, more than half of all UK mortgages were fixed rate deals. That figure has fallen to less than a third. This means a greater proportion of mortgage holders are directly exposed to a rise in Bank Rate. Combine that with a central bank worried about hurting the economy, and we have a recipe for inaction.

This doesn't bode well for savers, who have seen deposit rates fall along with the Bank Rate:

Yes, a positive spread has opened up. Banks are, after all, scrambling to recapitalize, so they need to offer some sort of carrot. But with annual consumer price inflation running at 4.5% in May, savers are still nursing losses in real terms.

The minutes from the MPC's Junes meeting, published this week, show that the number of members voting to raise Bank Rate has gone from 3 out of 9 down to 2 out of 9, long-time hawk Andrew Sentance having left. And those who voted for a hike – Weale and Spencer Dale – only wanted a quarter of a percentage point.

The MPC has an entrenched inflationary bias. It has shown itself prepared to tolerate persistent above-target inflation rather than risk hurting growth. And even when it does eventually raise Bank Rate, it won't necessarily follow that the rise will be passed on.

So Sterling savers will have a very long wait before they actually start seeing positive real returns on their money – which is probably why more and more of them are buying gold...

By Ben Traynor

US Economic Calendar For The Week

8:30 amPersonal incomesMay 0.3%0.4%
8:30 amConsumer spendingMay 0.1%0.4%
8:30 amCore PCE price indexMay 0.2%0.2%
9 amCase-Shiller home pricesApril ---0.8%
10 amConsumer confidenceJune 60.5%60.8
10 amPending home salesMay ---11.6%
8:30 amJobless claims6/25425,000429,000
9:45 amChicago PMIJune 55.0%56.6%
9:55 amConsumer sentimentJune 72.071.8
10 amISMJune52.0%53.5%
10 amConstruction spendingMay -0.1%0.4%
TBAMotor vehicle salesJune 12.2 mln11.8 mln