Tuesday, September 27, 2011
Success In Trading: 7 Key Components (by Peter Brandt)
1. Human personality and character traits consistent with assuming risk
2. Proper capitalization
3. A correct perspective of market speculation
4. A comprehensive understanding of risk control protocols and statistical probability theory -using protective stop orders must properly flow out of a correct understanding of probability theory. Using protective stops is not the same thing as sophisticated risk management. Risk management is far more complicated than the vast majority of novice and aspiring traders comprehend
5. A keen understanding of human frailty as the biggest hurdle to profitable market operations - traders need tools for recognizing and managing human emotions
6. The development of a comprehensive trading plan, addressing all possible contingencies. A trading plan must reflect the unique personality of the trader.
7. The patience and discipline to correctly execute the guidelines and rules dictated by the trading plan.
Clues to Spot When a Bottom Is Forming How to tell when an intermediate-term low in stocks may be coming
After an ugly week for the bulls, Friday served as a little consolidation. Exhausted sellers took a back seat and gave stocks a day to rest, which is far from saying that downside risk has evaporated.
In fact, implied volatility in S&P 500 options as measured by the CBOE Volatility Index (VIX) is inching up to 2011 highs and staying comfortably above the crucial support area at 30. When compared to the peak 2008 levels near 100, the current levels aren’t substantial, but they do indicate continued nervousness on the part of investors. A major spike in coming days/weeks could be taken as a contrary signal and may be indicative of a bottom building process. For now, however, it may be too early to focus on that.
The weekly chart of the S&P 500 doesn’t give the bulls much hope either. After the index last week fell out of the bear flag to the downside, the weekly chart gives us some perspective as to what the next potential support zone might look like. The area I am focusing on more as a target rather than a support zone spans from 1,010 up to 1,060, which is the bottoming formation range from 2010.
The stochastics oscillator on the weekly chart has come out of the August oversold levels. What I will be looking for over coming weeks is a divergence between price and stochastics such that price will break below the August lows but stochastics will form a higher low. Should such a formation occur, I would view it as fairly strong medium-term bottoming signal.
The U.S. dollar keeps rallying and serving as headwind for equities. As a potential upside target for the dollar index, note the double-bottoms formed in 2008 and 2011, which in 2008 led to a rally up to the high 80s as the chart below indicates.
If we compare this to the current chart of the dollar index and note the double-bottom and break out of resistance, just like in 2008, we might be able to take at least some clue from this that the dollar has a good amount of room to rally further and equities to remain under pressure for a while longer.
Last but not least, last week’s massive rally in the long end of the U.S. Treasury bond market should not come as a surprise to anyone given the FOMC announcement. Back in early July, I pointed out the narrowing trading range formation (blue lines) and potential breakout, which we can now see has materialized in a big manner.
The takeaway is simple, risk aversion on the part of investors is clear if we look to the bond market. I will also keep a close eye on the long end of the yield curve for clues of weakness in price (uptick in yields), as it could be an early indication of when a medium-term low in equities may be forming.
Jim Rogers Is Bullish On All Commodities, But There's Only One Sector He Would Buy Right Now
Jim Rogers is a long-term bull on commodities based on scarcity in a growing world.
Silver and gold "will both go much higher over the next few years," he tells Economic Times. Oil prices will recover as "known quantities of crude continue to decline." Sugar is going to "at least double or triple before this all is over."
But there's only one sector he would buy right now:
I am thinking about buying agriculture right now. I am not thinking about buying base metals or gold or oil right now, but I am thinking of buying agriculture maybe this afternoon. That's where demand will come first. Probably precious metals second, then the rest of the commodities.
Agriculture is facing some very serious problems whether the world economy slows or not because we have shortages of everything. The inventories are very low. We even have shortages of farmers developing in many countries. The average age of farmers in America is 58, likewise Australia. In Japan, it is 66. You have hundreds of thousands of Indian farmers committing suicide. It has been such a terrible business. Higher suicide rate of any profession in the UK is in agriculture.
So farming has got serious problems facing it. We are going to see much much higher prices over the next decade. So I would buy agriculture soon. The others, I am more watching the world economy and the world markets before I step in.
Poverty pervades the suburbs
Guess where most people in poverty live? Hint: It's not in the inner cities or rural America. It's in the idyllic suburbs.
A record 15.4 million suburban residents lived below the poverty line last year, up 11.5% from the year before, according to a Brookings Institution analysis of Census data released Thursday. That's one-third of the nation's poor.And their ranks are swelling fast, as jobs disappear and incomes decline amid the continued weak economy.
Since 2000, the number of suburban poor has skyrocketed by 53%, battered by the two recessions that wiped out many manufacturing jobs early on, and low-wage construction and retail positions more recently.
America's cities, meanwhile, had 12.7 million people in poverty last year, up about 5% from the year before and 23% since 2000. The remaining 18 million poor folks in the U.S. are roughly split between smaller metro areas and rural communities.
"We think of poverty as a really urban or ultra-rural phenomenon, but it's not," said Elizabeth Kneebone, senior research associate at Brookings. "It's increasingly a suburban issue." (more)
BBC Speechless As Trader Tells Truth: "The Collapse Is Coming...And Goldman Rules The World"
In an interview on BBC News this morning that left the hosts gob-smacked (google it... it is the BBC after all), Alessio Rastani outlines in a mere three-and-a-half-minutes what we all know and most ignore. While the whole interview is worth watching, the money shot for us was "This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late!". While he dreams of recessions, sees Goldman ruling the world, and urges people to prepare, it is hard to disagree with much (or actually anything) of what he says and obviously interventions and machinations means we will have days like this (in Silver for instance), there is only one endgame here and we hope there is less hopeful euphoria (and more preparedness) as we pull back the curtain further and further.
While we do not know who this trader is, one thing we can be 100% certain of is that he will never appear on CNBC.
Forget Gold—What Matters Is Copper
Copper fell from $4.20 to $3.25—close to 25%—in about three weeks. Most of that tumble has happened in the last ten days, and what’s worrisome is that, as I write these words over the weekend, there is every indication that copper will continue its free fall come Monday.
From the numbers that I’m seeing—and from the historical fact that copper tends to fall roughly 40% from peak to trough during an American recession—there is every indication that copper could reach $2.67 in short order. And even bottom out below that—say at $2.20—before stabilizing around the $2.67 level.
But we’ll see. The price of copper is not the point of this discussion. The point of this discussion is what the price of copper means.
What it means for monetary policy.
We all know the old saying: “Copper is the only commodity with a Ph.D. in economics”, or words to the effect.
The ongoing price collapse of copper signals that the markets have collectively decided that there is going to be no resurgence of the global economies—at least not for the next 9 to 18 months. Up until now, the economic data that has been coming out over the last couple of weeks seemed to indicate that there’s going to be a double-dip—but in my mind, this fall in the price of copper confirms this notion that the general economy is going down. (more)
Euro crisis: three perspectives
George Soros, the billionaire hedge fund manager and philanthropist, warned Saturday that failing to resolve the sovereign debt crisis in Europe could lead to a "real meltdown" of the global financial system. His remarks came while on a panel with Olli Rehn, the top economic and monetary official at the European Commission, and Gao Xiqing, the head of China's sovereign wealth fund, who also commented on the debt crisis in Europe.
"The alternative is a breakdown of the global financial system, a real meltdown," he said. The process has been evolving since the collapse of investment bank Lehman Brothers in 2008, Soros added, but "this time it could not be stopped because you don't have the authorities to stop it."
Euro area nations are struggling to contain the threat of a default by Greece, something many investors and economists fear could drag down other European economies and ripple across the world financial system.
The panel discussion took place on the sidelines of the annual meeting of the International Monetary Fund and World Bank, where Greece and the euro debt crisis has been the main topic of conversation. While Soros argued that the treaties governing the European Union will ultimately need to be rewritten, he seemed to suggest that the currency and monetary union will avoid a break up. (more)
John Embry: Why Central Banks Smashed Gold & Silver
from King World News:
John Embry continues: Read More @ KingWorldNews.com
Gold and Silver – 5 Year Trends
Home-buying season the worst in at least 50 years
March through August are typically the peak buying months. But this time, Americans bought fewer new homes in that stretch than in any other six-month period since record-keeping began a half-century ago.
And sales of previously occupied homes didn't fare much better. They nearly matched 2009's total for the peak buying months. And that was the worst since 1997.
Combined, total sales this spring and summer were the weakest on records dating to 1963. The figures underscore how badly the housing market is faring and suggest that a recovery is years away.
Because the economy is barely growing and unemployment exceeds 9 percent, many people see a home purchase as too big a risk. Some worry about losing their jobs. Others can't afford the 20 percent down payment that most lenders now require.
Not even shrunken home prices and the lowest mortgage rates in six decades are convincing would-be buyers.
"The job engine has really sputtered out, and without jobs, Americans really can't purchase homes," said Celia Chen, a housing economist at Moody's Analytics.
Plunging stock prices and renewed recession fears have led many economists to push back expectations for a housing recovery.
Chen expects prices to bottom at the start of 2012. And she doesn't expect sales and prices to make a healthy recovery until 2015 at the earliest. In hard-hit areas such as California and Florida, it could take decades for prices to return to normal, she said.
Pierre Ellis, an analyst at Decision Economics, said that until wages increase and hiring picks up, sales will languish.
The "bad news is the evident absence of optimism that sales will pick up to any degree," Ellis said.
Roughly 168,000 new homes were sold from March through August, the Commerce Department said Monday. That's fewer than the 180,000 for the same period last year -- and last year's sales were boosted by a temporary buyer's tax credit. Over the same period in 2009, roughly 208,000 new homes were sold.
In a healthy six-month buying season, about 400,000 new homes would sell.
Among re-sales, about 2.8 million homes sold from March through August this year. That's roughly as many as in the same periods in 2009 and 2010. In a healthy market, about 3.3 million would be sold in that six-month stretch.
Michael McGrew, who runs McGrew Real Estate in Lawrence, Kan., said many families won't buy until the economy strengthens. Even in Lawrence, which had a low unemployment rate of 6.4 percent in July and is home to the University of Kansas, people are worried, McGrew said.
What would help most would be a relocated company that's ready to hire in the Lawrence area, McGrew says. But hopes for the housing market to turn around soon are dim, he said.
"We're actually seeing more people trading down their home or trading out of our market entirely," McGrew said.
Nationally, prices are still falling. Prices for previously occupied homes have sunk more than 5 percent over the past year to a median of $168,300. New-home prices have fallen even further, by 7.7 percent, to $209,100.
That suggests builders and Realtors are slashing prices to compete with low-priced foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage.
Combined, foreclosures and short sales are selling at an average 20 percent discount. And they're lowering neighboring home values.
Devan MacConnell, 28, an administrator at a nonprofit in southeast Virginia, had been renting for years before buying a short sale this month -- a one-bedroom condo in Virginia Beach overlooking the ocean. She picked it up for $215,000, about $35,000 less than neighboring apartments.
"It was a steal," she said.