Wednesday, February 15, 2012
Roger Wiegand (Trader Tracks) on “Mystery Trades” of Gold in NY
From the California Resource Investment Conference, Roger Wiegand joins Kitco News’ Daniela Cambone to discuss the recent “mystery trade” in which an anonymous New York entity bought 10,000 gold spreads for August on a trade, to paid out in July, followed by another “mystery trade”. Feb. 13, 2012.
There Should Be No Love for Stocks at These Levels All indices are overbought, and chasing them is not wise
Stocks opened higher on Monday on news thatGreece’s parliament had approved the increased austerity measures demanded by the eurozone in order to secure bailout funds. And with that the markets refocused again on European headlines and rallied. Industrials and banks were strongest yesterday, which from the standpoint of technical analysis is a positive.
At the close, the Dow Jones Industrial Average rose 73 points to 12,874, the S&P 500 gained 9 points at 1,352, and the Nasdaq was up 28 points to 2,931. The NYSE traded 682 million shares and the Nasdaq crossed 419 million. Advancers led decliners by about 3.1-to-1 on both exchanges.
One of the reasons for the recent surge in U.S. stocks was pointed out by Riverfront Investment Group, which gets their data from ISI Group. The good news in theUnited Statesis that for the first time in 35 years, according to Riverfront, manufacturing employment is increasing faster than non-manufacturing employment.
They say that this is likely to continue due to labor costs, energy costs and exchange rates. This trumps any news from a small matter like Greece, and for that reason, they are long-term bullish, viewing any pullback in our market due to an exit by Greece from the European Union as an outstanding buying opportunity.
They go on to say that the U.S. and European banks have already prepared for a default and that “subsequent pain will make Portugal, Italy and Spain more willing to embrace labor reform and deregulation, likeIreland.”
Well, that’s a lot to swallow, but there is no doubt that the banks have been acting better and joining the technology and industrial stocks in the current advance. There is also little doubt that if the violence inGreecebrings down the government, forcing it to exit the European Union, we could see a reaction in our markets that would present an excellent buying opportunity.
Nevertheless, at current levels the financial sector via the Financial Select Sector SPDR (NYSE:XLF[1]), like the indices, is extremely overbought. Perhaps an exit byGreece would result in better values in the financials, and so waiting rather than investing in the group is prudent policy. Currently the group has reached the significant resistance zone at $14.60 to $15.70 where progress should slow.
In Friday’s Daily Market Outlook[2], we quoted one analyst as saying, “Nasdaq is proving that an overbought market can become more overbought.”
I responded that the index’s RSI was at 80-plus. In fact, it was at 80.81 — the highest before that was 80.1 in November 2010, which marked the beginning of a decline. But yesterday’s new high in the Nasdaq is no reason to expect the same from the other indices. Currently all are overbought and chasing them at these levels is probably not wise.
Smart traders will continue to accumulate cash so that they may take advantage of any near-term weakness. A retrenchment of 5% to 8% is likely with downside targets of 12,535 on the Dow, 1,292 on the S&P 500, and 2,834 on the Nasdaq.
Tuesday, February 14, 2012
The Next 121% Rally in Gold Stocks Starts Today
You should consider buying gold stocks right now...
The opportunity is just too good to pass up. The last time these particular conditions came together, gold stocks rallied 121% in 12 months.
Let me explain the opportunity...
Typically, if gold goes up, gold stocks move even higher. And if gold goes down, gold stocks fall even more.
But during 2011, that relationship broke down. Take a look...
The chart shows the price of gold in black and gold stocks in blue. You can see that in 2009 and 2010, gold stocks performed as expected... They tracked the price of gold, but with more volatility.
But as you can see, that relationship fell apart in 2011... Last year, gold moved higher for the 11th straight year, gaining 10%. But gold stocks actually fell 16%.
Part of the reason was that gold stock investors were skeptical of the "good times." They didn't figure gold's price gains were sustainable. The other problem for gold stocks was that they're stocks. In a volatile market [2], when stocks in general are falling, gold stocks will fall, too... even if the gold price is rising.
Because gold stocks fell and gold rose last year, they are seriously cheap today...
We have two simple ways to track "value" in gold stocks. The first comes from legendary resource investor John Doody.
John's track record speaks for itself. From 2001 to 2010, a portfolio of his picks gained 1,360%. The stock market returned just 15% during the same period.
In his Gold Stock Analyst newsletter, John tracks a simple "overvalued/undervalued" metric for gold stocks. As of the latest issue of his letter, John's measure shows gold stocks are 17% undervalued. We saw a similar reading in September. Back then, gold stocks jumped 20% in a few weeks.
Another simple way to size up gold stocks is through the ratio of gold to gold stocks. Take a look...
When the ratio of gold/gold stocks is low, gold stocks are cheap compared to the price of gold.
Right now, gold stocks are bouncing off one of their lowest valuation levels ever. The only time gold stocks have been cheaper based on this ratio was late 2008. Back then, shares [3] of GDX (the big gold-stock fund) jumped 121% in 12 months.
Right now, gold stocks are near-record cheap. And it looks like they're starting to once again keep pace with the price of gold. So far this year, gold is up 11.4% and gold stocks are up 9.8%.
This is just the beginning. I expect there's much more to come.
Two High Probability Trades in ROC System
A high probability trade, to me, is one that is correct at least 70% of the time. The truth is you can make money in trading if you’re right at least 40% of the time if you strictly limit the size of the losses. When a trader is right on 70% of their trades, they can make a lot of money... this week my system signaled two high probability trades.
#-ad_banner-#I use a 26-week rate of change (ROC [2]) strategy to find trades. ROC measures how fast a stock is moving up. I've developed a portfolio for TradingAuthority.com that holds the top three rated ETFs -- the strategy has averaged gains of 15% a year since 2007.
In any strategy, some trades work better than others. Because each trade is strictly defined by rules, I can back test to see exactly how each buy signal has worked in the past.
The first ETF I’m buying, Vanguard REIT ETF (VNQ), has been a winner 65% of the time after one month, 70% of the time after two, and 100% of the time after three months.
The buy signal is triggered when the ROC (shown in the chart below as the black line) crosses above its upper Bollinger Band (shown as the blue dashed lines). Most of the time, an indicator will stay within the Bollinger Bands [3] which means breakouts offer [4] important clues about what the price is doing. An upside breakout when the price is above its moving average [5] is bullish [6], as the back tested results show.
There are other reasons to be bullish on VNQ. The chart shows that the price of VNQ is breaking above resistance that dates back to April of last year. The ETF is at a new 52-week high [7], another sign of strength. Traditional momentum indicators like MACD [8] are also bullish.
The second ETF I’m adding to the portfolio is the SPDR [9] S&P 500 ETF (SPY). In many ways, the chart is similar to VNQ's chart. Stocks have started 2012 very strongly, and the ROC system says that we should expect even more gains over the next three months.
Testing shows that buying SPY when the ROC crosses above the upper Bollinger Band has a winning percentage of 71% in one month, 80% after two months and “only” 83% after 3 months.
Charting The Federal Reserve’s Assets – 1915-2012
Submitted by Thomas Gresham of Gresham’s Law,
Here we present a history of the Fed in charts. As you’ll surely glean from the below — the Fed has degenerated from a by and large passive institution (dealing only in high-quality self-liquidating commercial paper and gold) to an active pursuant of junk, an enabler of wars, a ‘benevolent’ combatant of the depressions of its own creation, a central planner of employment & prices and of course a forgiving friend to inconvenient market follies.
The Fed’s Assets from 1915 to 2012:
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