Tuesday, November 6, 2012

Jack Welch: Energy-Rich America Will Be Bigger Than the Internet

When it comes to business, it is hard to find anyone as legendary as Jack Welch. During his 20 years at the helm of General Electric, the company’s value rose 4,000%.
While talking over the economic concerns of the fiscal cliff and the elections with CNBC’s Squawkbox, the conversation turned to the importance of willfully developing an energy-rich America:
“…We have a chance in this country, to make this the American century. I mean, this gas thing is huge. the gas and oil that we have found is in the first inning. It’s like the internet in 1990. We’re in the first inning of a great American century — unless we get whacked.
Now, if you go to New York state, you get a small example of what can happen with the Marcellus fields. Pennsylvania is drilling. West Virginia is drilling. New York state is having another study, another study. If we get shut down on this thing that will change the shape of the chemical industry. All the products that are derived from the chemical industry and give us low energy cost that makes us the most competitive country in the world.”
Unfortunately, Mr. Welch doesn’t see the capacity to fufill the promise in the current administration.

Is A 15%-Plus Devaluation Coming For Spain And Greece?

Countries that have the luxury of their own exchange rate are able to eliminate any loss in competitiveness through an exchange rate depreciation, but (as is broadly recognized by now) UBS reminds that in a single currency area the only route available is an adjustment in relative wages.

In order to restore competitiveness, the periphery will have to endure a period of below-average inflation equal to the disequilibrium that an exchange rate adjustment would have delivered. While the fantasy of an orderly Greek exit is gradually being dispelled - as the market recognizes the almost instantaneous bank runs that would be exaggerated from current deposit withdrawals in Spain, Portugal, and Ireland - the euro's survival with any status quo is simply impossible - begging the question of 'so how do they get to the other side?'

The answer, instead of instantaneous devaluation (exit) - akin to tearing the (admittedly big) band-aid off, the devaluation will be undertaken over time to restore competitiveness, the periphery will have to endure a period of below-average inflation equal to the disequilibrium that an exchange rate adjustment would have delivered. This equilibrium 'devaluation' is impossible to know with certainty, but UBS estimates it is over 20% for Greece and 15% for Spain. (more)

Chart of the Day - Bunge (BG)

The "Chart of the Day" is Bunge (BG), which showed up on Friday's Barchart "52-Week High" list. Bunge on Friday edged to a new 15-month high of $72.15 and closed +0.56%. TrendSpotter has been long since Sep 12 at $65.90. In recent news on the stock, Citigroup on Oct 26 reiterated Bunge as a top pick and raised its target to $105 from $96 after the company reported Q3 earnings. Bunge on Oct 25 reported Q3 adjusted EPS of $2.08, below the consensus of $2.17. Bunge, with a market cap of $10 billion, is an integrated global agribusiness and food company spanning the farm-to-consumer food chain.


Higher Food Prices Coming in 2013

I love looking at long-term charts because you can look at the trend that’s in place and see what is very likely coming in the future.
So what do I see for 2013? I see higher food prices. In other words, “food inflation” is on the rise.
How do I know? Let’s take a look at the weekly, three-year chart below of the Agriculture ETF (JJA).

The Next Round of Food Price Increases Starts Now

Let’s see what this chart tells us. First of all, the major lows and major highs continue upward. The price of JJA is also trading above major moving averages, which is bullish and shows that the uptrend is likely to continue.
In July, the moving average convergence divergence (MACD) came back up above its zero line and that’s also bullish for food prices. And now it looks to be curling up and getting ready to head higher once again.

Medivation, Inc. (NASDAQ: MDVN)

A Head and Shoulders (H&S) pattern is a reversal pattern that forms after an uptrend. A textbook H&S pattern starts to form when a stock rallies to a point and then pulls back to a particular level (left shoulder). Next, the stock will rally again, but this time to a higher peak (head) than the previous one. After forming the head, the stock will pull back to the same support that the first shoulder did. Finally, the stock rallies a 3rd time, but not as high as the head (right shoulder). The level that has been created by all 3 of the pullbacks is simply a support level referred to as the "neckline". The formation of an H&S pattern warns of a potential reversal of the uptrend into a possible downtrend.

Medivation, Inc., a biopharmaceutical company, focuses on developing novel small molecule drugs for the treatment of serious diseases in the United States and Europe. The companys lead development candidate includes MDV3100, a molecule, which is in Phase-III development for the treatment of castration-resistant prostate cancer. Medivation, Inc. has collaboration with Astellas for the development, manufacture, and commercialization of MDV3100 for the treatment of prostate cancer. The company was founded in 2003 and is headquartered in San Francisco, California.

To review the H&S pattern that has formed on Medivation's stock, please take a look at the 1-year chart of MDVN (MEdivation, Inc.) below with my added notations:

1-year chart of MDVN (MEdivation, Inc.)

MDVN has been trending higher for the whole year. Over the last (2) months though, the stock has created a key price level at $50 (red), which would also be the "neckline" support for the H&S pattern. Above the neckline you will notice the H&S pattern itself (blue). Confirmation of the H&S would occur if MDVN broke its $50 "neckline" support. If that happens, the stock should be moving lower from there.

Keep in mind that simple is usually better. Had I never pointed out this H&S pattern, one would still think this stock is moving lower simply if it broke below the $50 support level. In short, whether you noticed the pattern or not, the trade would still be the same: On the break below the key $50 level.

The Election Cycle – What to Expect in Stocks & Bond Prices

It is that time in the presidential cycle that gets everyone emotional and concerned with the future outlook of the United States. While everyone has their opinion on whom they think is best for America, I promised myself a long time ago to keep my thoughts to myself for two key reasons. ONE: only 50% of Americans will agree with me J, and TWO: I am Canadian so I do not experience what Americans go through on a daily basis.
My thinking is if Obama wins then we will see Quantitative Easing continue. And with the recent positive economic numbers on Friday it should give some confidence to investors that things are SLOWLY stabilizing (Bullish for Stocks). But, if Romney wins then we could see Quantitative Easing be cut or eliminated which is obviously bad for equities.
So, let’s just jump into the charts of what I feel will unfold in the next few days and months.
Using the season chart of the four year election cycle we can see what the Dow Jones Index has done in past election periods. Obviously every market environment is drastically different in each situation but overall we see stronger stock price. This is naturally a very emotional time for investors but once the election is finished most individuals become more confident simply because there is a leader that has four years to make things better and there is nothing they can do about it now and the campaigning and debating is over.
Dow Stocks Election Cycle Trading

DIA – Dow Jones Industrial Average – Daily Chart:

Looking at the chart of Dow DIA Index fund you can see a 5-6 month cycle in the market which has a positive skew. Just so you understand what a positive skew is I will explain.
Positive Skew is when the market is trending up making a series of higher highs and higher lows. Because there are naturally more buyers during a bull market each cycle upswing lasts longer then when the cycle down downswing. So you get longer rallies which sends your secondary indicators (stochastics, volatility, put/call ratios, advance decline line etc…)  in the overbought levels for extended periods of time. Those trying to pick a top continually get their head handed to them. The focus must be on buying the pullbacks. Keep in mind volatility is higher which meaning risk per trade is higher. Overall in the long run you stand a much higher chance of making money trading with the trend than trying counter trend trades (picking a top).
So as you can see below it looks like the stock market will be trying to put in the bottom over the next week or two which falls in line with our election cycle. It is very important to know that during intermediate cycle lows is where some of the biggest drops take place. These sharp drops are what is needed to cleanse the market one last time to shake as many traders with tight stops out of the market before it reverses and starts the next rally. I would like to see a 1-3 day market sell off as that would be the signature bottoming pattern I like to buy.
DIA Exchange Traded Fund Trading

Bond Prices – Moving Against the Norm…

Bond investors are some of the most conservative people in the market. They do not like to take risks so they dump their money into bonds to make a tiny profit in exchange for low risk (volatility). The nature of these investors put more money into bonds as we enter the election because they are nervous about not knowing who will be in control of the country.
After the election finished some money flows out of bonds and into stocks because there is now a president and direction for the country. Generally come the new year investors move to bonds as the safe haven as they try to figure out what their game plan is for new year.
So looking forward to this week and the next 2 months I would not be surprised to see bond prices rise or trade sideways while stocks move higher. This analysis is based on Obama winning. If Romney wins then I feel bonds will rally much more and stocks could sell off.
Bond Sentiment Election Cycle Trading

TLT Bond Exchange Traded Fund – Daily Chart:

Here is a chart of 20+ year bonds showing a possible reversal to the upside that could trigger as soon as next week. This chart is forward looking 1 – 2 weeks. Overall the trend remains down but if Romney wins I feel bonds breakout above the red resistance levels and trigger a new uptrend.  You can follow my stock charts and ETF charts live every day here: http://stockcharts.com/public/1992897
Bond TLT Exchange Traded Fund Trading

Election Year Trading Cycle Conclusion:

Next week is going to be very interesting to watch unfold. I generally do not like to trade or invest before news of this magnitude so trade smaller sizes if you do as price action could be wild.

Energy and Natural Resources Market Radar (November 5, 2012)

Energy and Natural Resources Market Radar (November 5, 2012)
Seasonal China Iron Ore Imports - U.S\. Global Investors
  • The Global Resources Fund outperformed its benchmark in October with a loss of 0.89 percent versus the Morgan Stanley Commodity-Related Index which declined 0.99 percent.  Year-to-date through October, the Global Resources is up 6.84 percent and is ahead of its benchmark by 612 basis points.
  • Iron ore has hit three-month highs and is expected to rise for a fourth consecutive week as Chinese steel mills increase their stockpiles on hopes of a modest steel demand revival according to Reuters news.
  • China’s official Purchasing Managers Index (PMI) rose to 50.2 in October from 49.8 in September, according to the National Bureau of Statistics and China Federation of Logistics and Purchasing. The HSBC PMI for October also rose, to 49.5 from 47.9.  (more)

Where Is Support For Gold?

Gold’s sell-off on high volume on Friday was discouraging for gold bulls (me!).  Especially because we got stopped out of some positions in Global Resource Hunter.  On the bright side, we’re grabbing gains with both hands in Red-Hot Global Resources today, and grabbing gains always makes you feel better.  But now like many gold bulls, I’m asking myself how low gold could go. How long do I wait before I buy again.
Let me show you a chart. First, let me tell you …
  • There are many ways to draw a chart of gold at this point
  • The old saying “every sunken ship has a chart” has never been more true than it is now.
  • Fear and panic over US election uncertainty may be trumping generally bullish fundamentals in the emerging markets.
That said, here’s a chart …
gold chart 110512
This is a variation of a chart that Walter Murphy posted on Stockscharts.com.  I have some indicators I watch that he doesn’t think are as important, and visa versa.  Mainly, I find Fibonacci retracement levels useful,  as well as the 200-day and 50-day moving averages.
Anyway, you can see the high volume sell-off. Right below that is the 200-day moving average, which lines up with the 50% retracement of gold’s big move since June.
Below that is the 61.8% retracement at 1,631.  And that lines up with a level of strong price support that starts around 1,645 (that pink rectangle I added to the chart).
Gold is not oversold yet.  It could become oversold very soon. The last time gold was oversold this year was a very good time to buy the metal. Good luck and good trades.

Chart of The Week - Gold (Nov 5)

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It was not until the United States Non Farm Payroll Report on Friday that traders had a clear idea concerning the technicals in the Gold Futures. Prior to the report, futures prices saw higher lows each day throughout the week and even traded up and outside of the range before failing miserably all day Friday.

To begin the week, Gold saw a lift after better than expected news from China was reported and was coupled with additional easing measures applied by the Bank of Japan. The light buying continued despite concerns in Europe over Spain and once again Greece.

Once the labor data was released in the United States that showed a better than expected number, there was a strong rally in the US Dollar which ultimately led to the demise of Gold and most other Dollar-based vehicles. The word is that traders saw a better than expected jobs number as a reason for the FED to scale back on their commitment to Quantitative Easing. Additionally, traders are awaiting important news this week from not only the United States but also from Europe and a G20 Summit now in session.

This week traders will try to position themselves ahead of the United States Presidential Election, which at this point is anyone's guess. In Europe, all eyes will be on Greece where their Parliament votes on new austerity measures imposed by the Troika and will once again answer any questions surrounding Greece's staying power in the Eurozone. Lastly, member of the G20 are in Mexico today discussing all of the aforementioned topics and more. The last few meetings have produced very little new news, but any major announcements from this meeting could always impact global markets.
From a technical perspective, the Gold Futures dropped to a critical support level that I had mentioned in past reports. You can see on the chart that the support level last week was $1700 an ounce. I did think that Gold Futures would hold that support to close the week. But I also mentioned the fact that if that price was breached, the next support would look to fill a gap on the chart from back in late September. And that is exactly what the market did on Friday and into today's trade. I believe that with little news on the data front to start the week, that traders will likely look to scale into the Gold at this support level. Once the final decision is made in Greece and the United States has chosen a President for the next four years, it will be decided if Gold holds support, or if it targets the next support near $1650.

Gold's reaction to the strong rally in the US Dollar on Friday reaffirmed their inverse relationship to one another. Furthermore, it also indicated the fact that many markets are still heavily reliant on the US FED to continue their Easing campaign. While the fundamental picture in Gold continues to walk a tightrope, the technical picture is a bit more stable. Traders should continue to watch the direction of the US Dollar, and also keep technical support levels in Gold in their sights. Since drifting from the highs of $1800, the market has given a clearly defined range (diagonal lines in blue) to follow. We begin the week at the bottom end of the range and thus far seems to be holding up, which deserves traders attention, whether they are bullish or bearish.