Monday, April 30, 2012

This Trade could Turn $2,000 into $8,000 by September

The financial sector has led the way in 2012 with gains of nearly 20%, double the S&P 500's performance.  The boys in Banking know how to make easy money with no end in sight.  With interest rates all but guaranteed to remain at record lows, basically free money, the cash machine will be busy spitting out money for these institutions.
My favorite way to trade financials is through the Financial Select Sector SPDR [2] (NYSE: XLF [3]) ETF. Half of XLF's top ten holdings are bank stocks, including Bank of America, Wells Fargo and JP Morgan Chase.  These three banks, which make up more than 20% of XLF's valuation, reported upbeat earnings [4] last week.
XLF is up 35% in a few short months from the $11.50 base formed in December.  The question now is how to profit [5] from this sector's strength while limiting risk on any pullback.

And there's plenty of upside potential. Just a halfway retrenchment from the 2009 lows to the 2007 highs targets an objective at $22, a 40% gain if you bought shares [6] at current prices.

An aggressive investor could buy shares and place an exit order on any brake below the established trend line at $15.  All too often, however, a short-term fluctuation forces out positions before then moving in the desired direction.  (more)

Getting Technical: Weekend Update

The S&P 500 broke a resistance, on strong momentum but on 2% above-average volume only.

The lack of volume coupled with the divergence between the two momentum indicators (ROC still trending down while RSI is trending up) make it hard to believe that the index would have enough power to break the resistance of a sideways trading range dating back to Feb. 13, 2012.

Getting Out, Part One: Americans Renouncing Citizenship

Capital, like information, wants to be free. The idea that it should be limited to one country has always struck rich people as silly, which is why Swiss bank accounts, offshore trusts and Caribbean beachfront condos have been perennial big-sellers.

But lately, the legitimate reasons for investing overseas have been joined by a couple of new ones: disgust with a ridiculously intrusive US tax system and worry that the country is becoming something different and less predictable.

As the Wall Street Journal’s William McGurn reports below, a small but growing number of Americans aren’t just moving money offshore, but are renouncing citizenship altogether: (more)

The Silver Megathrust

From Silver Seek / By Stephan Bogner / April 27, 2012
History does not repeat itself, but it sure does rhyme.“ (Mark Twain)
Between 1970 and 1979, the silver price was increasing steadily from $1.50 to $6, before taking off in September 1979 from $10 to $50 within 5 months. During that bull cycle, demand for silver did not increase but actually declined (sharply in 1979). It was as late as 1983 when demand increased confidently from 12,000 to 27,000 tons per year until 2000 – yet the silver price was in a 20 year bear market during that time. In 2003, when silver started its new bull market, the demand actually dropped to 23,000 tons until 2005 – during which 2 years silver almost doubled from $4.50 to $8. Since 2005, demand is rising stronger than ever, having reached 33,000 tons in 2010, whereas the silver price is rising strongly as well.
The initial comparisons indicate one important phenomenon in the silver market, namely that (industrial) silver demand is “price inelastic”: that is, changes in price have a relatively small effect on the quantity demanded. The demand for other commodities is known to be “price elastic”: that is, changes in price have a relatively large effect on the quantity demanded (if tomato prices blow up, go bananas). This basically translates into: no matter if the silver price crashes or explodes, demand – unimpressed – will keep its own dynamic pace, because demand does not respond to price changes. Firstly, silver is the most broadly used metal, because of its unique characteristics, such as highest thermal and electrical conductivity of all metals. In most of its few thousand application fields, silver is considered a non-substitutable product. In contrast for example, when the platinum price increases too strongly, automotive demand traditionally substitutes for cheaper palladium thus potentially driving down the platinum price. Secondly, silver typically makes up only a relatively small component in the total of the product and the total of its costs. Both these demand characteristics/inelasticities (not substitutable and small cost component) are crucial to understand the silver price, because they remind that no matter if price explodes or crashes, (industrial) demand virtually does not care, but keeps on consuming as per its own factors/fundamentals. Notwithstanding, an increased demand principally has a positive effect on the price, of course (GFMS expects fabrication demand in 2012 to rise by approx. 3-5% to around 29,000 tons silver, whereas fabrication demand accounts for more than 80% of total demand; fabrication demand includes industrial applications, photography, jewelry, coins and silverware).

An Update on a Classic "Boom and Bust" Sector

There's a classic low-risk, high-reward trading setup in one of the market [2]'s biggest "boom and bust" sectors.

The latest bust was bad. Prices fell nearly 50%. But the big-picture trend is in your favor. And the gains could be extraordinary.

Let me explain...

Since 2001, global food prices have surged over 130%. Take a look...

This chart shows two decades worth of the Food and Agriculture Organization's (FAO) "Food Price Index." This index [3] measures the change in international prices of food commodities, like meat, dairy, and grains.  (more)

US Weekly Economic Calendar

time (et) report period Actual forecast previous
MONDAY, April 30
8:30 am Personal income March   0.3% 0.2%
8:30 am Consumer spending March   0.4% 0.8%
8:30 am Core PCE price index March   0.2% 0.1%
9:45 am Chicago PMI April   60.8% 62.2%
10 am ISM April   53.0% 53.4%
10 am Construction spending March
0.5% -1.1%
TBA Motor vehicle sales April   14.4 mln 14.4 mln
8:15 am ADP employment April   -- 209,000
10 am Factory orders March   -1.5% 1.3%
8:30 am Weekly jobless claims 4-28   379,000 388,000
8:30 am Productivity 1Q   -0.9% 0.9%
8:30 am Unit labor costs 1Q   3.0% 2.8%
10 am ISM nonmanufacturing April   55.5% 56.0%
8:30 am Nonfarm payrolls April
165,000 120,000
8:30 am Unemployment rate April
8.2% 8.2%
8:30 am Average hourly earnings April   0.2% 0.2%