Tuesday, November 15, 2011

The $1.4 Quadrillion Dollar Derivative Bubble Better Scare You!!

Yep, America is in debt up to it's ears, but what we need is MORE CREDIT : ) They say the crisis was caused by making mortgages TOO EASY to get, so we have to do the bailout or mortgages will be TOO HARD to get! I have a theory on the origin of the word "mortgage". mort = (death) + gage = (to measure), i.e. measured so you PAY until you DIE : ) "The United States has essentially a one-party system and the ruling party is the business party" (Chomsky). i.e. the Corporation. Ralph Nader said: "Prepare to be disappointed". We are now One Corporate Obama-Nation under God! The real problem is that 98% of Americans are completely vested in mindless entertsinment, and haven't seen a book in years. They get all their "facts" from cable news, and find it much more comfortable to remain ignorant to our predicament. Life is much less complicated when one dismisses the piece-by-piece destruction of our country as "conspiracy theory".

Buffett Is Buying IBM Stock — Should You?

Warren Buffett grabbed headlines last week on news that his Berkshire Hathaway (NYSE:BRK.A, BRK.B) went on a $24 billion shopping spree last quarter. Details at the time were sparse on specific companies, but Buffett disclosed Monday that one of his big targets has been IBM (NYSE:IBM).

The recent Buffett stock buys that have gotten the most attention are huge and public buy-ins to Bank of America (NYSE:BAC) and acquisition target Lubrizol. Bufett’s $5 billion investment in preferred shares of BofA made a splash in August amid the volatility of the broader market, and the $8.7 billion Lubrizol deal became notorious thanks to impropriety by Buffett protégé David Sokol.

But IBM is just as big of a development for Buffett and Berkshire Hathaway as these two other deals. In fact, it’s even larger — with reports Monday disclosing that Warren Buffett and Berkshire have now amassed $10.7 billion worth of IBM shares.

Buffett told CNBC that his firm has been buying IBM since March and now holds about 64 million shares, or about 5.5% of the company. He said he does not intend to buy more, but his current stake speaks volumes about what he thinks of IBM.

IBM is not your typical Buffett buy. The Oracle of Omaha has a preference for banks and consumer stocks. Coca-Cola (NYSE:KO) remains Buffett’s top holding, at about one quarter of Berkshire’s portfolio, while the second-largest stake is in Wells Fargo (NYSE:WFC) at around 2% of Berkshire Hathaway’s holdings.

But recently, the SEC filings of Berkshire have indicated moves into “commercial, industrial and other” companies, according to a regulatory papers. IBM is exemplary of this trend.

Of course, Buffett isn’t the only one who has been finding IBM attractive. Shares are up 29% year-to-date despite a choppy market, and have doubled since Jan. 1, 2009. The stock is currently butting up against an all-time high.

IBM stock has performed well in part because of its ability to adapt to the ever-changing tech landscape — despite being 100 years old! The technology company maintains an innovative culture, great management and strategic focus. For example, back in 2005, IBM sold off its PC division to Lenovo, which allowed the company more flexibility to focus on better growth areas. It has a disciplined acquisition approach — much different than other entrenched stocks like Hewlett-Packard (NYSE:HPQ), which spends money like it’s going out of style, running down boneheaded buyouts like the 2009 Palm deal.

It’s not just this philosophical approach that turns investors on to IBM stock, either. Earnings per share have risen steadily since 2007 despite a severe economic downturn. From EPS of $7.18 in fiscal 2007 to projected fiscal 2011 earnings of $13.40, IBM has managed to almost double its earnings in just four years despite a horrible environment.

No wonder Buffett is big on IBM stock right now and has thrown Berkshire into this tech giant. Investors might be wise to follow suit, even though IBM already is around historic highs.

Gold Producers Lead while Developers and Explorers Lag

Back in August we wrote a piece titled: The Catalyst for Consolidation in the Gold Sector. We noticed that the large cap producers had begun to outperform the rest of the sector which consists of small producers, developers and explorers. Risk aversion, the Euro debt crisis and a struggling stock market has contributed to the continued underperformance of the riskier plays in a risky sector. The chart below shows GDX (large producers), GDXJ (developers, explorers) and the ratio between the two.

As you can see, GDX was able to maintain its support while GDXJ broke support and made a new 52-week low. As a result, the ratio surged in favor of GDX. Traders and investors need to remember that gold stocks are a risky bunch and that the non-producers are extremely risky. Yes, the sector is in a bull market but that by itself is not enough to drive the speculative plays higher. Until we reach the bubble phase, the non producers will rise on their own merits and not because “it’s a bull market.” Though we are likely at least two to three years from the birth of a bubble, does it mean the non-producers will continue to underperform in the meantime? Hardly. Remember, the large caps (GDX) have been in a consolidation for a year and that has a negative effect on the speculative plays. The longer a consolidation lasts, the more weak hands jump ship. At the start of the consolidation, the non-producers held up better. Ultimately they are going to underperform in a weak market and outperform in a strong market. The good news is the large caps are close to a major breakout which is not only a catalyst for the large stocks but a catalyst for everything else in the sector. Get your FREE Bullion Weekly Report sponsored by NYSE A breakout in GDX, as we presume in the above chart, would certainly have a positive impact on junior developers and junior exploration plays which have underperformed badly in the last few months. After all, this is happened before. GDXJ performed better in Q3 and Q4 of 2010 when GDX broke out of an eight month consolidation. GDX also made a huge breakout in the second half of 2005 and junior stocks surged over the next 18 months. This time, GDX is close to a very significant breakout as it could pull away from a one-year base as well as the 2008 highs and on some charts, the 1980 highs. Although the non-producers have lagged, they would ultimately find a huge bid in the immediate aftermath of a breakout in GDX. Traders and investors need to know when to play it safe and when to take risks. Heading into this potential breakout, it is wise to stick with producers who are finding a bid. However, when the breakout appears imminent, it would be wise to set your sights a bit lower on the food chain and find the developers and explorers ready for a major rise.

Marc Faber on Global Stocks, Europe Crisis, Fed

Marc Faber, publisher of the Gloom, Boom and Doom Report,” talks about the outlook for global stock markets. Faber also discusses Europe’s sovereign debt crisis, the U.S. economy and Federal Reserve monetary policy. He speaks from Ho Chi Minh City, Vietnam, with Susan Li on Bloomberg Television’s “First Up.”(Source: Bloomberg)

One Huge Reason The Stock Market Isn't Cheap

This is one way of measuring the S&P 500 we haven't thought of before.

From Naufal Sanaullah's latest market overview, this chart from TheChartStore.com shows (obviously) how many hours you have to work to buy the S&P. While obviously this measure has improved compared to recent peaks, it's still WELL above historical standards. Some combination of a falling market or more robust wages is needed to get the number back into line.

chart of the day, moneygame, hours worked to buy s&p 500, nov. 14 2011

Accumulative Swing Index And The McClellan Oscillator

The accumulation swing index (ASI) is a variation of Welles Wilder's swing index. It plots a running total of the swing index value of each bar. The swing index is a value from 0 to 100 for an up bar and 0 to -100 for a down bar. The swing index is calculated by using the current bar's open, high, low and close, as well as the previous bar's open and close. The swing index is a popular tool in the futures market.

The accumulative swing index is used to gain a better long-term picture than using the plain swing index, which uses data from only two bars. If the long-term trend is up, the accumulative swing index is a positive value. Conversely, if the long-term trend is down, the accumulative swing index is a negative value. If the long-term trend is sideways (non-trending), the accumulative swing index fluctuates between positive and negative values. This indicator is used to analyze futures but can be applied to stocks as well.

ASI will give the technician numerical price swings that are value quantified, and it will show short-term trend turnarounds. Metastock explains it best:

"A breakout is indicated when the accumulative swing index exceeds its value on the day when a previous significant high swing point was made. A downside breakout is indicated when the value of the accumulative swing index drops below its value on a day when a previous significant low swing point was made." You can confirm trendline breakouts by comparing trendlines on the ASI to trendlines on the price chart. A false breakout is indicated when a trendline drawn on the price chart is penetrated, but a similar trendline drawn on the accumulative swing index is not. (To learn more about trendlines, see The Utility Of Trendlines)

Chart Created with Tradestation

This 2002 chart of Apple (Nasdaq:AAPL - News) shows a couple of trendlines which confirm the short-term trend witnessed in May, and the horizontal pattern that has developed over the summer and early fall. The ASI in this chart, indicates no buy signal, yet, each and every day, the sellers of this stock find buyers.

This indicator can be used on occasion to confirm a belief in a trend swing.

McClellan Oscillator
The McClellan Oscillator, developed by Sherman and Marian McClellan, in the late 1960s, calculates the difference between two exponential moving averages by using the advances and declines from the same day period.

Now, this may be the most important part to understand: the two moving averages are always 19 and 39 period exponential moving averages (EMAs), and represent 10 and 5% trend values, respectively. Professional charting software programs, like Tradestation and others, use 19 and 39-day EMAs as the default periods, but many chartists will experiment with other periods in an attempt to fine tune their studies. If you do use the 19/39 model, the McClellan is a good short-term indicator, anticipating positive and negative changes in the advance/decline stats for better market timing. (To learn how to calculate a metric that improves on simple variance, see Exploring The Exponentially Weighted Moving Average)

The McClellan Oscillator uses averages and differences based on this data to gauge market breadth. To plot the McClellan Oscillator accurately, the chart must contain both the advancing issues and the declining issues, and the inputs must specify the correct data number for each. Because the McClellan Oscillator uses exponential averages, the numeric value of the McClellan Oscillator will depend on the data available in the chart. If a stock market index is rallying but more issues are declining than advancing, then the rally is narrow and much of the stock market is not participating. (To acquaint yourself with two lesser-known time periods, see Discovering The Absolute Breadth Index And The Ulcer Index.)

Similar to the moving average convergence divergence, the McClellan Oscillator is a momentum indicator. When the short-term average moves above the long-term average, a positive value is recorded. As with most oscillators, the McClellan Oscillator shows an overbought issue when the indicator measures in the positive 70 to 100 range, and it shows an oversold issue in the negative 70 to 100 range. Buy signals are indicated when the oscillator advances from oversold levels to positive levels, and, conversely, sell signals are indicated by declines from overbought to negative territory. A rising trendline of troughs and peaks would be a positive sign to the trader while falling tops and bottoms would bring out the sellers. (For related reading, see Simple Moving Averages Make Trends Stand Out)

Chart Created with Tradestation

In the 2002 chart of Exxon Mobil (NYSE:XOM - News), you can see at the bottom that the plot is 81.19, indicating a sell signal for the issue.

These indicators serve as confirmation indicators to those of us who need to double check our findings on a regular basis.

Remember, it's your money - invest it wisely.

How to Trade Oil ETFs when $100p/b is Reached

Crude oil was THE commodity to trade back in 2007-2008 when prices rocketed above $145 per barrel then dropped like a rock all the way back down to $35 per barrel leaving many investors and traders either greatly rewarded or dead broke.

Since then the focus of the world has moved to gold and silver as currencies spiral out of control with more and more reasons why individuals and entire countries should focus on owning physical metals rather than eroding currencies.

Just because a commodity is not under the direct spot light does not mean you can’t trade it or make money from it. With that said here is my analysis on how to trade oil if $100 per barrel is reached in the coming trading days.

Let’s take a look at the charts…

Long Term Weekly Oil Futures Chart

Here you can see how oil is trading round the $100 level. When the price is trading below it then $100 will act as resistance and when oil is above then it becomes support.

How To Trade Oil ETF

Intermediate Term Daily Oil Trading Chart:

This is more of a close up look at oil and the $100 price point. Notice how oil has moved higher for an entire month without any real pullbacks and that it has a clean support trend line underneath. If oil sees some big sellers step in here at the $100 – $104 level then I expect the green support trend line to be broken. If that takes place oil could quickly and easily drop back down to the $90-$92 area.

How To Trade Crude Oil

How to Trade Oil Using an Oil ETF

This chart shows a long (bullish) oil ETF along with its price by volume levels. I like to review the price by volume analysis from time to time when nearing a major support or resistance level on a chart. For those who have difficulty finding support and resistance levels then this indicator/volume analysis tool will take most of your guess work out of the equation.

To make a long story short, the longer the volume bars on the left side of the chart are then the more people either bought or sold crude oil at that price. Keep in mind that it does not matter if they bought or sold here… the key to remember is that there are a lot of new positions here and that is where people exit their positions at breakeven because they held such a large draw down over the past few months and just want their money back.

Most traders and investors who trade off pure emotions (fear/greed) would have held a losing position through the August – October selloff and are now going to be more than happy to exit the trade at breakeven and move on to the next emotional roller coaster. It’s this type of trading which allows the non-emotional traders who thrive off of price action and mass psychology to catch price swings in the oil market.

The chart below clearly shows that oil is entering into resistance level and a pullback is becoming more likely each day. Those looking for an etf how to trade oil should look at buying SCO ETF. This oil ETF goes up in value when oil loses value.

How To Trade Oil ETFs

How to Trade Oil and Oil ETFs Conclusion:

In short, oil is becoming overbought meaning it has moved up to far too fast and should have some profit taking shortly. The fact the oil is reaching a century number ($100) I feel there will be a couple days of selling starting soon. Traders looking to play this support trendline breakdown should look at trading SCO oil etf.

2 Signals Say Buy This Retailer Technical trading target for V.F. Corp. has been raised

V.F. Corp. (NYSE:VFC) — This global apparel company designs and manufactures a variety of apparel and footwear for all ages. It is transforming the denim and daypack area with lifestyle apparel brands, according to Standard & Poor’s. Along with new store growth in Asia, its Vans and North Face brands are viewed as growth drivers.

On Oct. 7, with the stock at $129, the Trade of the Day said, “Technically VFC is in a powerful bull channel. Note the recent stochastic buy. The target for VFC is $145.”

Since then, VFC reported strong Q3 earnings, its eighth consecutive earnings surprise, and management raised its guidance for the year.

Note that the stochastic is turning up and that two buy signals from our proprietary indicator, the Collins-Bollinger Reversal (CBR), were recently triggered. The technical trading target is raised to $150.

Trade of the Day – V.F. Corp (NYSE:VFC)

A Historic Day for Natural Gas Investors‏: CHK, COG, SD

To natural gas investors, 11/11/11 will, in hindsight, be remembered as a historic date. Today marks the first time since November of 2002 that the 12 month forward natural gas price has moved to $4.00/Mmbtu, as can be seen on the following chart:

image002 2

We believe that this is an extremely significant event as the typical U.S. E&P hedges more than 50% of their coming year’s production in advance, often telling investors that they are “trying to be conservative” and reduce risk.

The reality is that they are utilizing the forward curve to improve earnings and cash flows. The hedging programs in place at natural gas E&Ps have contributed as much as 50% of their operating cash flows over the past five years, making gas E&Ps equal parts hedge funds and natural gas producers.

The current five year average contango between the 12 month forward natural gas price and the spot price is 21.93% (ie, on average over the past five years, the 12 month natural gas futures contract has been priced 21.93% above the spot price).

Prior to 2005, the 12 month forward futures price was, on average, equal to the spot price, as the following chart, depicting the % contango between the 12 month natural gas futures price and the spot price going back to 1991 shows (the pink line is the five year average):

natural gas 21.9 2

We believe that the natural gas forward curve will continue to flatten, as the forward curve represents investor sentiment toward long-term gas prices and sentiment has finally become fairly bearish (although not yet as bearish as reality).

This will make life very difficult for natural gas E&Ps as we move through 2012 and they work their way through the majority of their remaining hedge books put in place when 12-month forward gas prices were 20%+ above spot prices.

As you can see on the above chart, the current contango between the 12-month natural gas forward price and the spot price is 11.73% and falling…

Investment Conclusions

While it is tempting to run out and short a basket of U.S. E&Ps, there are a few complications that must be addressed.

The first is that with the current 27.2:1 ratio of spot oil to spot natural gas prices, even a relatively small amount of liquids production can substantially change the economics of a “gas producer.”

For example, Chesapeake Energy (CHK) produces 83% of their BOEs from dry gas, yet generates 52% of their revenue from dry gas at current spot prices.

Cabot Oil and Gas (COG) generates 95% of their BOEs from dry gas, but only 81% of their revenues at current spot pricing.

This substantially narrows the number of “gas” E&Ps. In addition, some E&Ps (Sandridge, in particular) have taken to creating Royalty Trust/MLP vehicles –- carving out gassy assets and selling them to retail investors at absurd valuations, raising substantial amounts of cash.

This game will continue into 2012.

Lastly, some E&Ps are rapidly switching their production from gas to oil.

Chesapeake, for example, has decreased the percentage of their production that comes from dry gas from 90% in Q3 2010 to 83% in the most recent quarter.

The following table lists the major U.S. E&P’s, sorted by the percentage of their production (in BOEs) that currently comes from natural gas (from least to most). It also shows their production mix a year ago (Q3 2010) to allow for comparison, as well as the percentage of revenues based on current production that would come from natural gas using $3.50 natural gas price realizations and $94 WTI crude realizations.

gascompanieschart1 2

- Nathan Weiss

Congress Members Trading stocks on inside information? - CBS 60 mins

CBS 60 mins - Congress: Trading stock on inside information? 60 minutes just blew the lid off the legal insider trading that goes on among congressmen and senators. What a way to influence whether a bill passes or fails. Steve Kroft reports that members of Congress can legally trade stock based on non-public information from Capitol Hill. Pelosi made a quick $100,000 on insider trading, she should be in jail This is one of 7 insider IPO's she took part in, watch her scramble when she is asked about it, she knows she is doing something wrong and she is clearly rattled. Note: I know this is MSM but it's fun to watch Pelosi squrm when questioned on her insider trading. Quote: "I say it's not true" and thats it! I just wonder why MSM is running this story, maybe to scare the pukes on the hill by exposing them to the flouride heads who vote these parasites into office

Here’s Why Goldman Sachs is Staying Long Gold

On Monday, banking giant Goldman Sachs announced it is staying long gold. Due to low real interest rates, slower US economic growth, and rising debt, the bank has also raised its gold forecast for 2012.

The report by Goldman states, “We expect gold prices to continue to climb in 2011 given the current low level of US real interest rates. Further, with our US economics team now forecasting slower US economic growth in 2011 and 2012, we expect US real interest rates to remain lower for longer, supporting higher gold prices through 2012.” The bank also said that the ongoing debt crisis in the euro zone is “skewing the balance of risks to higher gold prices.” Ben Bernanke has already pledged to keep interest rates at all-time lows for at least mid-2013. Furthermore, the Federal Reserve recently slashed its economic growth projections for 2012. Fed officials now expect the US economy to grow by 2.5%-2.9% next year, down from previous projections of 3.3%-3.7% made in June.

What strategy is the bank employing to take advantage of the current economic situation? Goldman says, “With expiration approaching, we are rolling our outstanding long Dec-11 COMEX gold trade recommendation, entered on October 11, 2010 with an initial value of $1,364.2/toz and a current gain of $423.9/toz, into a long Dec-12 COMEX gold future position with a reference price of $1,800.5/toz.” Translation, Goldman was bullish on gold for 2011, and continues to be bullish on gold for 2012.

The report also gives a short-term price forecast. For gold, the bank increased its three-month forecast by 7.0% to $1,760 a troy ounce from $1,645/oz, its six-month forecast by 5.8% to $1,830/oz from $1,730/oz, and its 12-month forecast by 3.8% to $1,930/oz from $1,860/oz. Credit Suisse has also said that gold may climb over $1,800 in the coming days due to negative real interest rates as the key driver. However, with the Fed’s low interest rate pledge, negative real interest rates are likely to remain for a number of years. Given this, many expect gold prices to climb above $2,000 per ounce. Dr. Walter de Wet, the Head of Commodity Research at Standard Bank in London, expects gold to hit $2,200 at the end of the first quarter next year. He believes more quantitative easing is on the way for Europe and the US, and does not see the Fed stopping its expanding balance sheet for another three or four years. Standard Bank predicts that $500 billion of QE3 will add $200 to the gold price early next year.

In the middle of Goldman’s report is a very telling sentence that aligns the interests of Goldman Sachs and Standard Bank. Goldman says, “Given our US economists’ cautious economic outlook and the significant downside risks associated with the European turmoil, additional Fed easing might well be needed.” While the fundamental reasons for precious metals remain strong, Goldman going long on gold may also be a bet on QE3.