Friday, July 27, 2012

Major Sell Signal Triggered

For some time now we have been warning about the danger to portfolios given the deteriorating fundamental, economic and technical backdrop in the markets. Our warnings, for the most part, have been ignored as individuals continue to chase stocks in hopes that "this time will be different", and somehow, stocks will continue to ramp higher even though all three support legs are weakening. Currently, it is the imminent arrival of the next round of Quantitative Easing (QE) that keeps "hope" elevated but further Central Bank intervention is unlikely in the near term leaving the markets at risk of a further correction. The technical and fundamental setup is currently a negatively trending market. It is very likely that, in the current environment, we will retest the May lows, if not ultimately set new lows, in August. Those lows will likely coincide with further weakness in the economy which should be the perfect setup for the Fed to launch a third round of Quantitative Easing. (more)

The System Here And There Is Totally Broken


My Dear Extended Family,

How anyone can put any money in a securities/commodities clearinghouse is beyond me. You risk your financial life to win trading then end up with practically nothing whatsoever.

The system is totally broken. Governments are busted. The securities insurance programs are wildly over extended by the fact that their capitalization cannot guarantee what they are supposed to be guaranteeing

QE invents money out of thin air, and because of that is the only central bank tool and will have to run at full speed to infinity. How the Fed and Treasury utilize QE is totally up to them. They could buy MS or PFG bonds if they wanted to.

Right now in a busted clearinghouse you have no financial relief from anyone because of bankruptcy laws. If you think any industry organization of government regulator is going to give you a cent you are really stupid. You have to assume that if it was not for funds that have to trade commodities, the commodities market volume would be finished. The commodity market of the future has to be guaranteed by the US Treasury and Fed like they guaranteed OTC derivatives, or it will not exist.

You want to see an explosion watch when the clearinghouses in grains implode. Clearinghouse risk exists in shares as well as commodities, so how the hell can you sit back so comfortably, trusting the typical sociopath Wall Streeter to put your money ahead of his/hers?

Those of you with your fancy special tax treatment retirement accounts are sitting ducks dependent on your clearing house broker and/or the will of the government.

Gold is the only asset on the planet without a liability attached to it. Gold is going to and through $3500 without any question in my mind.

9 tries to break $1525 have now failed. The manipulators are put of aces. The proof was a recent email from gold’s father of $1100 calling me a fool three days in a row.

If you own gold in futures or ETFs (they own their gold in paper) take delivery or end up with absolutely nothing whatsoever.


Gold Weekly MACD at Crossroads – For First Time in Four Years!

Owens-Illinois, Inc. (NYSE: OI)

Owens-Illinois, Inc., through its subsidiaries, manufactures and sells glass container products primarily in Europe, North America, South America, and the Asia Pacific. The company produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice, and pharmaceuticals, as well as for soft drinks and other non-alcoholic beverages, including returnable/refillable glass containers. It serves brewers, wine vintners, distillers, and food producers. The company sells its products directly to customers under annual or multi-year supply agreements, as well as through distributors. Owens-Illinois, Inc. was founded in 1903 and is headquartered in Perrysburg, Ohio.

To review Owen's stock, please take a look at the 1-year chart of OI (Owens-Illinois, Inc.) below with my added notations:

OI seems to have topped out at $25 from February through April. Since then, the stock has sold off down into a small Rectangle pattern over the last (2) months. A Rectangle pattern forms when a stock gets stuck bouncing between a horizontal support and resistance. For OI, the Rectangle pattern has formed a clear $20 resistance (navy) and an $18 support (red). You will notice that OI's $18 support goes as far back as December.

The Tale of the Tape: OI has formed a small Rectangle pattern. The possible long positions on OI would be either on a pullback to $18, or on a break above $20. The ideal short opportunity would be on a break below $18, but a short could also be placed on a rally up to $20.

Kyle Bass Vindication Imminent? Largest Japanese Pension Fund Begins To Sell JGBs,

Sayonara internal funding. In what we suspect will become a major issue (and warned of in April), Bloomberg reports that Japan’s public pension fund, the world’s largest, said it has been selling domestic government bonds as the number of people eligible for retirement payments increases. "Payouts are getting bigger than insurance revenue, so we need to sell Japanese government bonds to raise cash." It would appear the Ponzi has reached it's Tipping Point. Japan’s population is aging, and baby boomers born in the wake of World War II are beginning to reach 65 and eligible for pensions. That’s putting GPIF under pressure to sell JGBs so it can cover the increase in payouts. The fund needs to raise about 8.87 trillion yen this fiscal year. GPIF is historically one of the biggest buyers of Japanese debt and held 71.9 trillion yen, or 63 percent of its assets, in domestic bonds as of March.

Norcini – If This Happens It Will Devastate The Gold Shorts / July 26, 2012

Today acclaimed commodity trader Dan Norcini told King World News, “Once you had the 50 day moving average in gold violated to the upside, then you had a much larger wave of short covering which began to occur.” Norcini also said, “The momentum crowd, that was waiting for $1,600 to be breached, then took over and the move has continued to feed on itself.”

Norcini also discussed a key level which “… is where you will really see the shorts panic.” But first, here is what he had to say about the recent action in gold: “The move in gold we have been seeing was precipitated by an article which indicated the Fed was going to move in August, instead of September. Some of the shorts began to cover yesterday, and as they began driving the prices higher they tripped some key technical levels.”

Dan Norcini continues:

“Once you had the 50 day moving average in gold violated to the upside, then you had a much larger wave of short covering which began to occur. You have to keep in mind that the hedge fund community has not only been liquidating longs, but they have also been adding fresh shorts.

The hedge funds had been anticipating gold would break lower, but they’ve been stymied by central bank buying coming out of the Far East. The momentum crowd, that was waiting for $1,600 to be breached, then took over and the move has continued to feed on itself….


How To Position Yourself For A 10 Year Pattern Breakout

As mentioned last Friday just before things took a dive on the weekend, a look at the major market indices did not look promising. If we take an even longer term look and examine the monthly charts we can see that The S&P 500 as well as the Dow Jones have been approaching multi-decade rising channel resistance lines. Further, they also appear to be forming bearish rising wedge patterns.

Monthly Long Term Chart Analysis & Thoughts:

Monthly SPX Index Trading

As many of my longer term subscribers can attest to, I always preach that technical analysis is one part art and one part science: you can never be completely certain on what the outcome of a pattern is going to be. However, we can use historical analysis to make better investments. The great American Novelist Mark Twain probably said it best in that “history does not repeat itself, but it rhymes”. Regarding a rising wedge pattern, we know that roughly two-thirds of the time they will break to the downside. This also means that one-third of the time they break to the upside.

In accomplishing our goal of capital growth we must do a number of things. We must make returns on our investments, we must protect our investments, and we must limit our losses. While all three aspects work in tandem with each other, there are times when focus must be allocated to one specific approach.

Regarding the current technical setup, I’m not so focused on the 67% chance that these wedges will break to the downside, but more so the impact of each outcome on the average Joe’s portfolio and mom and pop businesses. The S&P 500 and the Dow are approaching long term resistance lines that have been in place for decades. If we do break to the downside, which I suspect we will, there could be a very significant sell off with consequences that no one can predict at this point though I mention some things in the chart above. Alternatively, there is significant overhead resistance in the various indices, and I don’t believe an upside break would be too monumental.

That being said, I always like to keep an open outlook and wait for the right opportunity. I’m trying to think of scenarios that would prelude further upside action and I really am not coming up with much. As evidenced by the completion of the recent 5 wave uptrend on the S&P that coincided nicely with the various quantitative easing policies, Ben Bernanke and the fed have had less and less impact. I truly can’t see many fiscal developments that would prompt any significant bullish action.

The only scenario I really think that could pump up equities is a series of positive earnings announcements. A lot of expectations, earnings numbers, guidance, etc… have been revised downwards over the last couple of quarters, so there is the opportunity for some positive surprises that could lead to some bullish price action. In absence of such a scenario, I really can’t think of much else that would prompt a run up.

Look at these charts of positive and negative earnings surprises… and the dates and remember what happened following this negative data….

Positive Earnings Surprise

Earnings Positive Surprises

Earnings Positive Surprises

Negative Earnings Surprise

Earning Negative Surprises

That being said, I am recommending two courses of action. For those steadfast bulls, lock in some profits and/or buy some protection. Missing out on some of the upside is a lot better than losing some of the gains you have fought so hard for over the past couple of years. For the more aggressive traders and investors, start following my updates a little more regularly as I foresee many shorting opportunities coming up in the future. As many of you know, sell-offs are often quick and abrupt, and timing is extremely important when playing the downside.

Further, trading could get very volatile in the near future. Historically, and even more so looking forward as August and September have been very costly for the average investor. Our focus will be in taking the highest probability trades that offer the best risk to reward scenarios. There will be times when we miss trades, and times when they’re not timed perfectly.

Chart of the Day - Edwards Lifesciences (EW)

The "Chart of the Day" is Edwards Lifesciences (EW), which showed up on Wednesday's Barchart "All-Time High" list. Edwards on Wednesday posted a new all-time high of $106.94 and closed +6.50%. TrendSpotter took a profit on a long trade on Monday but then turned long again on Wednesday's close of $105.06. In recent news on the stock, Edwards reported Q2 EPS ex-items of 67 cents, higher than the consensus of 65 cents. Edwards Lifesciences, with a market cap of $11 billion, is a leader in advanced cardiovascular disease treatments, is the number-one heart valve company in the world and the global leader in acute hemodynamic monitoring.