Saturday, May 14, 2011

The U.S. Government's Plan to Trash the American Dollar

Speaking at the Casey Research Summit: The Next Few Years, which just took place in Boca Raton, Fl, Jim Rickards told attendees: “If the consumer is flattish, investments are petering out, and government spending has hit the wall, what’s left? Well, what’s left are net exports and how do you drive net exports? You trash your currency. It’s as simple as that. You basically try to devalue the dollar and that’s what’s behind QE, QE2, and that’s what’s behind low interest rates. Basically, [the U.S. Government] is doing everything possible to trash the dollar relative to other currencies to drive exports so that Boeing can sell more jets, IBM can sell more services, and that’s sort of the classic remedy. The only problem with this remedy is it’s never worked.” We’ve got the highlights of his speech in the video below.

How To Use Volume To Improve Your Trading

Volume is a measure of how much of a given financial asset has been traded in a given period of time. It is a very powerful tool, but it's often overlooked because it is such a simple indicator. Volume information can be found just about anywhere, but few traders or investors know how to use it to increase their profits and minimize risk.

For every buyer there needs to be someone who sold them the shares they bought, just as there must be a buyer in order for a seller to get rid of his or her shares. This battle between buyers and sellers for the best price on all different timeframes creates movement while longer term technical and fundamental factors play out. Using volume to analyze stocks (or any financial asset) can bolster profits and also reduce risk.

Basic Guidelines for Using Volume
When analyzing volume, there are guidelines we can use to determine the strength or weakness of a move. As traders, we are more inclined to join strong moves and take no part in moves that show weakness - or we may even watch for an entry in the opposite direction of a weak move. These guidelines do not hold true in all situations, but they are a good general aid in trading decisions.

Volume and Market Interest
A rising market should see rising volume. Buyers require increasing numbers and increasing enthusiasm in order to keep pushing prices higher. Increasing price and decreasing volume show lack of interest and this is a warning of a potential reversal. This can be hard to wrap your mind around, but the simple fact is that a price drop (or rise) on little volume is not a strong signal. A price drop (or rise) on large volume is a stronger signal that something in the stock has fundamentally changed.

A GLD daily chart showing rising price and rising volume.

Figure 1: A GLD daily chart showing rising price and rising volume.


Exhaustion Moves and Volume
In a rising or falling market we can see exhaustion moves. These are generally sharp moves in price combined with a sharp increase in volume, which signal the potential end of a trend. Participants who waited and are afraid of missing more of the move pile in at market tops, exhausting the number of buyers. At a market bottom, falling prices eventually force out large numbers of traders, resulting in volatility and increased volume. We will see a decrease in volume after the spike in these situations, but how volume continues to play out over the next days, weeks and months can be analyzed by using the other volume guidelines.

A GLD daily chart showing a volume spike indicating a change of direction.
Figure 2: A GLD daily chart showing a volume spike indicating a change of direction.


Bullish Signs
Volume can be very useful in identifying bullish signs. For example, imagine volume increases on a price decline and then price moves higher, followed by a move back lower. If price on the move back lower stays higher than the previous low, and volume is diminished on second decline, then this is usually interpreted as a bullish sign.

A SPY daily chart showing a lack of selling interest on the second decline.
Figure 3: A SPY daily chart showing a lack of selling interest on the second decline.

Volume and Price Reversals
After a long price move higher or lower, if price begins to range with little price movement and heavy volume, often it indicates a reversal.

Volume and Breakouts Vs. False Breakouts
On the initial breakout from a range or other chart pattern, a rise in volume indicates strength in the move. Little change in volume or declining volume on a breakout indicates lack of interest and a higher probability for a false breakout.

A QQQQ daily chart showing increasing volume on breakout.

Figure 4: A QQQQ daily chart showing increasing volume on breakout.


Volume History
Volume should be looked at as relative to recent history. Comparing today to volume 50 years ago provides irrelevant data. The more recent the data sets, the more relevant they are likely to be.

Volume Indicators
Volume indicators are mathematical formulas that are visually represented in most commonly used charting platforms. Each indicator uses a slightly different formula and, therefore, a trader should find the indicator that works best for their particular market approach. Indicators are not required, but they can aid in the trading decision process. There are many volume indicators; the following will provide a sampling of how several can be used.

On Balance Volume (OBV)
OBV is a simple but effective indicator. Starting from an arbitrary number, volume is added when the market finishes higher, or volume is subtracted when the market finishes lower. This provides a running total and shows which stocks are being accumulated. It can also show divergences, such as when a price rises but volume is increasing at a slower rate or even beginning to fall. Figure 5 shows that OBV is increasing and confirming the price rise in Apple Inc's (AAPL) share price.

An APPL daily chart showing how OBV confirms the price move.

Figure 5: An APPL daily chart showing how OBV confirms the price move.


Chaikin Money Flow
Rising prices should be accompanied by rising volume, so this formula focuses on expanding volume when prices finish in their upper or lower portion of their daily range and then provides value for the corresponding strength. When closes are in the upper portion of the range and volume is expanding, the values will be high; when closes are in the lower portion of the range, values will be negative.

Chaikin money flow can be used as a short term indicator because it oscillates, but it is more commonly used for seeing divergence. Figure 6 shows how volume was not confirming the continual lower lows (price) in AAPL stock. Chaikin money flow showed a divergence that resulted in a move back higher in the stock.

An AAPL 10 minute chart showing divergence that indicates a potential reversal.

Figure 6: An AAPL 10 minute chart showing divergence that indicates a potential reversal.


Klinger Volume Oscillator
Fluctuation above and below the zero line can be used to aid other trading signals. The Klinger volume oscillator sums the accumulation (buying) and distribution (selling) volumes for a given time period. In Figure 7 we see a quite negative number - this is in the midst of an overall uptrend - followed by a rise above the trigger or zero line. The volume indicator stayed positive throughout the price trend. A drop below the trigger level in January 2011 signalled the short term reversal. Price stabilized, however, and that is why indicators should generally not be used in isolation. Most indicators give more accurate readings when they are used in association with other signals.

An APPL daily chart showing how Klinger confirms the uptrend.

Figure 7: An APPL daily chart showing how Klinger confirms the uptrend.


The Bottom Line
Volume is an extremely useful tool and, as you can see, there are many ways to use it. There are basic guidelines that can be used to assess market strength or weakness, as well as to check if volume is confirming a price move or signalling a reversal. Indicators can be used to help in the decision process. In short, volume is a not a precise entry and exit tool, however, with the help of indicators, entry and exit signals can be created by looking at price action, volume and a volume indicator.

Speculative Long EUR Positions Tumble By 38%, Bullish Bets In Dollar And Yen Rise

It was to be expected: as of the just released CFTC Commitment of Traders data, the net exposure of non-commercial EUR longs, arguably a bubble far bigger than gold and silver combined in terms of volume and participation, tumbled from 99,516 to 61,447 long contracts, or a nearly 40% drop in net short positions in one week after everyone long the EUR experiened one of the biggest one week tumbles in the European currency in history. And this is happening even without the CFTC hiking margins. Notably, Yen shorts have now abdicated, and following its drop into steep negative speculative territory, when it hit -52,983 contracts on April 19, it has now moved into the green, adding 32k contracts to a total of 13,054. Lastly, and not at all surprisingly, the gradual contraction in bearish dollar bets continues to abate, and at a just barely negative net position of -4,563, the USD is now back to February 2011 levels. It appears that the great unwind of the USD short trade is almost over, and from this point on it will be just the retails, the momos and the robots.

Robin Griffiths - Silver Could Eclipse $450, Gold $12,000

With gold over $1,500 and silver around the $35 level, today King World News interviewed one of the top strategists in the world, Robin Griffiths of Cazenove. Cazenove is one of the oldest financial firms on the planet and is widely believed to be the appointed stockbroker to Her Majesty The Queen. When asked if this time around silver will eclipse the 38 fold up-move which took place in the 70’s Griffiths replied, “Yes, I think getting to $50 was a slam dunk certainty, you test the old all-time high. We now have a consolidation for let’s call it two months and I think then we are going to go on up because the paper monies are still being printed.”

Griffiths continues:

“I’ve got it (silver) as a ten bagger from current levels. You don’t want to be wobbled out here because of a few champagne bubbles. You want to be able to stay with and add to your long-term holdings. Bulls (bull markets) are very successful at wobbling people out at the wrong time.”

When asked if his $350 target was a realistic price level for silver Griffiths stated, “That is absolutely not unrealistic. If you adjust the old all-time high for inflation...that gives you $450 for silver. Then you add in the fact that they are printing money, you can take it higher than that without any difficulty at all.”

When asked about gold specifically Griffiths remarked, “The run-up to the peak in markets like gold is between now and 2015. I think it will all be over by 2015, a lot of it depends on how aggressively paper monies get printed from here on in. I think $3,000 is an absolute minimum target. I can believe in targets certainly above $5,000 and it’s theoretically possible to go to $12,000, that’s dollars an ounce for gold.

If Mr. Bernanke stays on his current agenda I think those higher numbers will be what you will see. We’re looking at the trashing of the dollar. As Marx pointed out, it’s the most assured way of destroying your economy.

There’s a book called ‘The Road to Serfdom’ by Hayek, pointing out that when a country is in debt, getting deeper into debt as Lord Keynes said, ‘Doesn’t work.’ All it does it make the problem worse and it takes longer to solve.

We’re moving away from the dollar being the main reserve currency on the planet...We’re going to move into an era where world trade is done in mixes of renmenbi, rupees and baskets, and the baskets of currencies will need to be weighted by something can’t be printed like gold.”

The KWN Robin Griffiths audio segment will be out shortly, you can listen to the interview by CLICKING HERE.

Market Near Tipping Point Charts and trader fear show big move is brewing

There’s been tremendous fear all week from traders and investors as they dumped their long positions in stocks and commodities. On Wednesday and Thursday alone we experienced extreme overbought and oversold conditions, and that generally means a big move is brewing.

Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I prepare for a trading setup which should form within a couple of trading sessions.

Fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for one to three more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.

Panic selling, coupled with oversold NYSE market conditions and fearful options trading investors make for an extreme reading in stock prices. Here’s a look at my SPDR S&P 500 ETF (NYSE: SPY) chart:

GLD 10 Minute Chart of My Market Sentiment Readings

Sentiment readings often carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions, etc. Check out this chart of the SPDR Gold ETF(NYSE: GLD):

Market Trading Update

I feel the market is at a major tipping point along with the U.S. Dollar. It is just a matter of time before we get another low-risk setup and take a position for the next move in either direction.

Dollar Climbs to Six-Week High as Risk Appetite Dims Read more: Dollar Climbs to Six-Week High as Risk Appetite Dims

The U.S. dollar scaled six-week peaks against the euro Friday as concerns about the global economy spurred a return to the greenback's safety.

The flight away from risky trades in commodities, stocks, and high-yielding currencies could well be a major driver for the dollar in the week ahead as global economies struggle to get back on track.

The dollar sold off sharply this year and traders believe the currency's rally may have further to go.

"It's not just the dollar coming back but everybody is getting a haircut this morning," said David Watt, senior currency strategist, at RBC Capital Markets in Toronto.

"Oil prices are down, equities off, and risk off. With the dollar being beaten so badly, a bounce makes sense."

He also cited nervousness about the global economic recovery, adding that while Europe has positive economic numbers with its strong gross domestic product data, it doesn't drive global growth.

One of the biggest losers on Friday was the euro, which fell across the board on track for its worst two-week performance in one year. European Central Bank President Jean-Claude Trichet did most of the damage to the euro when he said inflation was at a peak in an interview with Spanish TV, suggesting uncertainty about the pace of future rate hikes in the euro zone.

Investors also refocused on euro zone debt issues ahead of meetings by finance officials in Brussels.

A meeting of Eurogroup finance ministers, followed by an Ecofin meeting of EU finance ministers Monday, could provide further direction to the single currency and the euro is likely to remain pressured until at least after investors digest any outcome.

In early afternoon trading, the euro was 0.9 percent lower on the day at $1.4112, after hitting a session low at $1.40650 on trading platform EBS.

Over the last two weeks, the euro has declined 7.3 percent, its weakest showing since mid-May last year.

The euro, however, hit a session peak at $1.43 after strong first-quarter GDP data from the euro zone's biggest economies, Germany and France, prompted demand from Asian sovereign names, European real money accounts and leveraged funds.

That bolstered expectations a healthy euro zone economy will keep interest rates higher than their U.S. equivalents. By contrast a report showed U.S. consumer prices rose as expected in April, giving little sign of a broader pick-up in inflation that would trouble the Federal Reserve.

In other currencies, weakness in commodities triggered a decline in commodity-lined currencies. The Australian dollar fell 0.9 percent to US$1.0578, while the New Zealand currency sank 1.1 percent to US$0.7866 .

5 Stocks At 52-Week Lows: GHL, KGC, LOGI, LXK, RMBS

The stock market has new winners - and losers - every day. In some cases, losing companies are suffering from company-specific events, and these are being factored into the stocks' prices by the market. But this is not always the case; sometimes losing stocks are just being brought down by peers that are experiencing problems or feeling the pain of a poor economic outlook. As a result, some losing stocks are ripe for appreciation

If you look at stocks that have hit 52-week lows, deciding which ones have potential requires an investigation of the economy, the company's industry and any company-specific issues. That said, any stock that hits a fresh 52-week low or one that is below 50% of its 52-week high is worth an initial look. Here we check out five stocks that are hitting rock bottom.

TUTORIAL: Stocks Basics Tutorial



Market Cap

52-Week Range

Current Price

Kinross Gold Corporation(NYSE:KGC)Gold16.35B$13.90-$19.90$14.00
Logitech International SA (NASDAQ:LOGI)Computer Peripherals2.51B$12.79-$23.29$12.80

Lexmark International Inc.(Nasdaq:LXK)

Computer Systems2.39B$30.13-$48.07$30.20
Rambus Inc.(Nasdaq:RMBS)Semiconductors2.05B$14.60-$25.50$16.30
Greenhill & Co., Inc.(NYSE:GHL)Investment Broker1.62B$54.66-$84.51$54.80

These stocks are hitting lows in their 52-week trading ranges. In some cases, this can mean big potential for investors, but it's up to you to analyze these companies' financials and decide whether they are ripe for appreciation or just falling knives. A fresh 52-week low is a good signal to screen potential investments, but it should not be the data on which investment decisions are based. (Value investing may seem fool-proof, but it carries more risk than you might know. To learn more, check out Buy High, Sell Much Higher.)

Centrist Think Tank Conducts Study, Finds US Default "Could" Push Country Into Recession

And for today's second most surreal piece of news (the first being that Osama was a fan of RedTube and Adult Friend Finder, whose stock tumbled 25% after its IPO on news that such a loyal customer is now dead), we turn to Reuters which brings us news of a "report" by centrist think tank Third Wave, due out on Monday, which finds that "the United States could plunge back into recession if inaction in Washington forced a debt default, according to a new analysis that arrives as the country reaches the legal limits of its borrowing authority....Some 640,000 U.S. jobs would vanish, the housing market's woes would deepen, stocks would fall and lending activity would tighten if the country were unable to pay its bills, according to a report by the centrist think tank Third Way due out on Monday." And yes, first Dow Jones and now Reuters confirms what we have been warning all this week, namely that "the Treasury Department is expected to hit its $14.3 trillion borrowing limit on Monday, making it unable to access the bond markets again. Lawmakers from both parties say they won't approve a further increase in borrowing authority without steps to keep debt under control." Yet back to the topic at hand: which is that someone actually paid money to discover what will happen to America when it filed for bankruptcy. If this was a paper out of the San Fran Fed we understand, but private industry? If there is one margin hike we approve of it is for the CME to hike the margin to 1000% cash in trivial common sense BS.

And for those who don't have blood shooting out of their eye sockets at this point, here are the details of what the debtors prison circle of hell would look like for the US.

  • Treasury bonds would lose their aura of safety, leading to a half-point increase in their interest rates. That would push up the U.S. government borrowing cost once lending activity resumed, leading to a $10 billion increase in annual budget deficits over the short term.
  • The higher interest rates would ripple through the economy, causing gross domestic product to decrease by 1 percent and employers to shed 640,000 jobs.
  • Banks would curtail lending. Small businesses would have a harder time expanding and credit-card interest rates would rise. Student loans and car loans would become more expensive.
  • The S&P 500 stock index would lose 6.3 percent in value over three months, causing retirement portfolios to shrink, the report said, citing research by financial services firm Janney Montgomery Scott.
  • The U.S. dollar's status as the world's reserve currency could be threatened as investors move cash to Swiss francs, Japanese yen, or Euros. That could boost U.S. exports but raise the cost of consumer goods like gasoline and electronics.
  • Home mortgage rates, which are tied to U.S. Treasury rates, would rise. Homebuyers taking out an average mortgage for a new home, currently $221,900, would pay an extra $24,738 over the life of the loan, dealing another blow to an already struggling housing market.

"Defaulting on our debt is not an abstract idea that might affect a few institutions on Wall Street; it would harm tens of millions of Americans in profound and lasting ways," the report says.

The Economist - 14th May-20th May 2010

Rising food and gas costs push up consumer prices

Consumers paid more for gas and food in April, lifting inflation to its highest level in two and a half years. But inflationary pressures have begun to ease this month, and analysts say some prices could taper off by summer.

The Consumer Price Index increased 0.4 percent in April, the Labor Department said. In the past 12 months, prices have risen 3.2 percent. That's the biggest year-over-year gain since November 2007 through October 2008.

Excluding volatile food and energy, which account for about 20 percent of the CPI, the index increased 0.2 percent in April and has risen 1.3 percent over the past 12 months. That's still below the level the Federal Reserve considers a healthy pace of inflation.

Economists like to study costs outside food and energy -- the so-called "core" prices -- to see long-term trends. Food and energy can rise or fall sharply from month to month.

The cost of new and used cars, clothing and medical care all increased, pushing up the core index. Car prices likely increased because of temporary parts shortages caused by the March 11 earthquake and tsunami in Japan. Most other prices were subdued.

Oil has fallen from $114 a barrel earlier this month to about $100 Friday. Prices of corn and other grains have also declined in recent days

Economists say gas and food prices should fall later this year. High prices are likely slowing the economy this quarter. But growth should increase in the second half of this year, they say.

"With commodity prices now dropping back, it looks like inflation is close to peaking," said Paul Ashworth, chief U.S. economist for Capital Economics. He says year-over-year inflation should climb to 3.5 percent before dropping in the second half of the year.

Cary Leahey, an economist at Decision Economics, said yearly inflation figures should start to decline in the next several months, although core prices should continue to rise. The Federal Reserve won't need to start raising interest rates until next year to keep inflation in check, he said.

The price of gasoline rose 3.3 percent in April. That accounted for half of last month's increase. Gas has risen more than 33 percent in the past year because of demand in fast-growing developing countries and political turmoil in the Middle East. Gasoline is averaging $3.98 a gallon nationwide, up $1.09 from last year.

Food prices increased 0.4 percent last month. That was half the previous month's increase, which was the largest in nearly three years. The price of fresh vegetables fell. Dairy, meat, fish and eggs all rose.

Federal Reserve Chairman Ben Bernanke has said that the impact of higher food and gas prices should be temporary. The central bank has also said it is watching closely for any signs of inflation.

Last October, the core index had risen only 0.6 percent in a year, and the Fed was more concerned about falling prices. That increase was the smallest for 12 months since the core index was created in 1957.

Stocks fall as European financial crisis expands

Since when does the stock market take its cues from the market for silver, oil and pork bellies? When it's really the dollar that's driving the action.

The stock market rally, which began in August, relied on stronger earnings, rising commodity prices and a weak dollar, said Andrew Wilkinson, senior market analyst at Interactive Brokers. But prices for commodities have dropped by 10 percent this month, and swung wildly over the past week. Oil, for example, was nearly $114 a barrel at the end of April. On Tuesday oil settled at $104, fell, rose and fell again, to close at $99.65 on Friday.

Falling commodity prices are widely blamed for driving down stocks. The Standard & Poor's 500 index has lost 1.9 percent so far in May. Other indexes are down more than 1.5 percent for the month.

It's not simply a case of investors selling because they believe declining oil prices are a sign that the economy is losing strength. Rather, since commodities are mainly traded in dollars, it's the dollar's recent rise that is largely responsible for pushing down commodity prices. If the dollar gains strength against other currencies, it takes fewer dollars to buy the same barrel of oil.

"Suddenly, the dollar is no longer the whipping boy," Wilkinson said. "And if the dollar is no longer the whipping boy, you can no longer count on a commodity-driven rebound to push up the stock market."

Worries over Europe pushed the dollar up nearly 1 percent on Friday and erased the week's gains in the stock market.

The Dow Jones industrial average lost 100.17 points, or 0.8 percent, to close at 12,595.75. The S&P 500 fell 10.88, or 0.8 percent, to 1,337.77. The Nasdaq lost 34.57, or 1.2 percent, to 2,828.47. The slide turned the Dow and S&P lower for the week.

Financial stocks fared the worst in the past week, followed by material and energy companies. Both Bank of America Corp. and JPMorgan Chase & Co. dropped 2 percent on Friday.

Companies in the energy sector fell the most in May. Exxon Mobil Corp. lost 8 percent so far this month.

The Dow fell 0.3 percent over the week and 1.7 percent for the month. The Nasdaq was flat for the week and is down 1.6 percent for the month.

The Russell 2000, an index of small companies, ended the week up nearly 0.3 percent, but is down the most so far this month, declining 3.42 percent.

In addition to the dollar's rising value, several other forces have led to the recent rout in commodity prices. A requirement that traders back their bets on silver with more cash spurred a sell-off in metals, which some traders say cascaded into other markets. Reports over the past week showing weaker demand and rising supplies for both crude oil and gas have pushed down energy prices. U.S. oil inventories have climbed to their highest level since May 2009.

Meanwhile, betting on a weak dollar has been a popular move. For much of the last year, traders bought commodities and sold dollars.

The dollar's sudden strength has caused them to reverse those bets. "That's been the big trade," said Dan Greenhaus, chief economic strategist at Miller Tabak. "And it's getting undone."

The downside: eventually a stronger dollar makes U.S. products more expensive to foreign buyers. Exports decline. Companies that sell everything from sneakers to aircraft feel their profits pinched.

Stocks in countries that use the euro fell after the European Union warned that the debt loads of Greece, Ireland and Portugal will be larger than originally thought. Officials said that Greece needs to cut spending further, which led to concerns that the assistance the country has already received won't be enough. The Euro Stoxx 50, an index of large companies in countries that use the euro, fell 0.8 percent.

Fears of a deepening financial crisis overshadowed reports that found that consumers are feeling more confident in the U.S. economy and that inflation remains in check. Consumer prices rose 0.4 percent in April, the Labor Department said. That was in line with economist's expectations.

Most of the increases came in volatile food and energy prices. Stripping those out, prices rose 0.2 percent and stayed below the rate of inflation that the Federal Reserve considers normal.

"Inflation doesn't look like the risk that everyone feared," said Doug Cote, the chief market strategist at ING Investment Management.

The prices that consumers pay have risen 3.2 percent over the last 12 months, the biggest 12-month gain since October 2008. Companies like Kimberly-Clark Corp. and Colgate-Palmolive Co. that sell households products have raised prices because of higher commodity costs that have cut into their profit margins. Costs for raw materials like oil, coffee, and cattle have risen more than 10 percent this year.

More than two stocks fell for every one that rose on the New York Stock Exchange. Trading volume was 3.5 billion shares.