Weekly Market Commentary: First Sell of Bounce

Compliments of Shaza's research

This is a short post as I am directing you to a fellow blogger. He works hard for his money so show him some love and post some comments. Use the link from the blog list if you like.
Fallond Stock Picks

Weekly Market Commentary: First Sell of Bounce


Here is another link in regards to PM's

http://club.ino.com/trading/2010/02/trend-trading-clearly-explained-for-indexes-precious-metals/


Also sent to me from PK http://contraryinvestor.com/mo.htm in their free stuff area is a chart showing how far the US has fallen.

AlphaTrends Weekly Wrap with Brian Shannon

That's a fact jack

Well, I haven't a clue what will be the ultimate outcome in Greece. None of the options will result in a happy Greek population. I can say that they are only coming to the reality a little sooner that the other EU countries that the cradle to grave nanny state is not sustainable. England, Ireland, Spain, Portugal, Italy and the US are not too far behind and that’s a fact jack!

It’s a simple math equation that there are just not enough earners (children 18-50) to support the retiring boomer's (50-65) worldwide into their 80's and 90's. It is a demographics issue. People are just living a lot longer. God forbid that the Greeks retire at 63 instead of 60 as was proposed. There is no solution when they have been sold a pig in a poke. That's a fact jack!

In the US we didn't save for old age. We lived for today, never considering that we would actually have to pay back our debts, that our homes would continue to go up in value every year and the stock market would continue up forever.  We would live happily every after off our 401k's and the equity of our homes at twice what we paid for them. We are now in a deflationary debt spiral and once in the gravitational pull of a black hole, there is no turning back. That's a fact jack!

China has a dilemma too in that they have expanded their manufacturing base far beyond the needs of the world consumers ability to pay. Now what are they going to do? The Chinese are pretty smart and devious, but the US is dead broke and nothing can change that. There is only one gluttonous consumer base and it is gone. Worse yet they can't pay you back. All the hocus pocus that the Fed will try to whip up cannot change that we are at peak debt. I see civil unrest in the near future for China and that's a fact jack!

This is checkmate in chess terminology. There is only one way out and that is a complete change in the way we approach life. We need to decentralize governments and accept the lower standard of living until we are able rebuild our society. The days of living off  useless FIRE jobs, government entitlements and ridiculous pensions are coming to an end, so get used to it. Canada and AU your time will come, but it is not now. That's a fact Jack!

This is not gloom and doom as I have the belief that change will come whether we like it or not. Change is good and it builds character. I believe we will return to a more modest lifestyle and family will be important again. Don’t worry too much about it as we will muddle through. Do not despair, do not give up and keep looking for a good investment opportunity. It will come to you when you are ready to see it and that's a fact jack! Queen Bee signing out. Have a great weekend and spend some time with your loved ones. If you don't have any do something nice for a stranger who is in need.

We can get back to the markets on Monday. I am taking the weekend off. It is open forum in the comment section and good luck to the US hockey team. Go for the Gold!

Ignore the IMF sales - Soros is right about gold

By Dominic Frisby Feb 24, 2010
George Soros is a man who has outwitted governments before. In 1992 he made more than $1bn by short-selling sterling, as the UK government was eventually forced to withdraw the pound from the European Exchange Rate Mechanism. So when he speaks, investors listen.

Last month, at the World Economic Forum in Davos, Switzerland, he declared that gold is "the ultimate bubble". Fears were quickly sparked that the precious metal would tumble.

Various writers, fund managers and investors worked themselves into a frenzy. Many jumped ship and within a week we were trading down to levels last seen in October, almost $1,050 an ounce.

But one canny investor, it seems, was buying. George Soros...

A fortnight or so after his "ultimate bubble" quote hit the headlines, it emerges that George Soros has actually more than doubled his investment in gold. He now owns some 6.2 million shares in the US-listed gold exchange traded fund, SPDR Gold Trust (NYSE: GLD), worth some $680m. His investment vehicle Soros Fund Management also increased its holding in the Canadian gold miner Yamana(LSE:YAU).

If you are buying something, you want to get it for the cheapest possible price. If you are selling something, you want to get the most money for it. So an old market trick – and I am not for a second saying Soros was doing this – is, if you are buying, to talk a market down, and if you are selling, to talk it up.

You don't walk into a souk and say: "I'll tell you what, that mug is the nicest mug I've ever seen, the future is really bright for mugs, I'd like to pay you too much for it." Rather, you frown a bit, mutter about the shoddy workmanship and grudgingly offer a low price. Nor, if you happen to work in a souk, do you say: "Look at my carpet. It's really horrible, and what's more I've got loads of them, more than I know what to do with. Do you want to buy one?" Rather, you smile and declare that its weave is unrivalled. It's pretty basic stuff.

Why has the IMF announced it's selling its gold?

So you have to wonder why the International Monetary Fund (IMF) has told everyone that it's about to sell 191 tonnes of gold. Don't they recall that Gordon Brown did something similar at the start of this decade? By forewarning the market of his plans to sell half of Britain's gold, he succeeded in securing the worst possible price for our bullion.

The IMF is purportedly raising funds for its operations to help near-bankrupt countries. So it should want to get the highest price possible for its gold. Yet – in announcing the sale beforehand (and I know there are probably all sorts of regulations saying it should) – it is doing precisely the opposite of what a canny player, such as Soros, would do.

Gold Bubble Set To Burst In 2010 for the other side.


http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=3954

THE COAL STORY

I've never done a post on Coal. Thank you Shaza.

Producers seek price rises as strong demand adds fuel to market

CLANCY YEATES submitted by Shaza

February 25, 2010

Australian coal producers have signalled they expect hefty increases in the price of the nation's top export, as contract negotiations with Asian buyers heat up.

Macarthur Coal and Whitehaven Coal yesterday offered bullish views on China-led bounce in demand for the fuel as they handed down half-year results.

Amid reports of BHP Billiton seeking price rises as high as 55 per cent for coking coal, or $US225 ($252) a tonne, Australian producers could receive similar gains from buyers in the key markets of Japan, Korea and, increasingly, China.

Although new investment is expected to cause Australia's coal production to bulge by 30 per cent in the next five years, companies say the extra supply is failing to keep up with surging overseas demand.

The chief executive of Macarthur, Nicole Hollows, said the rebound was driven by a recovery in output from steel mills, pointing to a 22 per cent rise in China over the 12 months to December.

''We expect the rest of the world to continue a gradual recovery … which will increase demand for raw materials,'' Ms Hollows said.

China, which only last year became a net importer of coal, continues to buy large quantities over the fuel, taking 28 per cent of the company's coal in the quarter, she said.

''We are still seeing China as a good market and it is actually absorbing the surplus of any coal availability,'' she said.

Despite its optimism, Macarthur's profits in the six months to December were weighed by lower contract prices caused by the global downturn. Macarthur's profit after tax fell 63 per cent from the corresponding period in 2008, to $39.6 million.

Whitehaven's profits rose sharply to $83.5 million, though this was boosted by the sale of its stake in the Narrabri joint venture for $56.4 million. Excluding the asset sale, Whitehaven's profits rose 35 per cent to $27.1 million.

Macarthur sells coal for pulverised coal injection (PCI) to steel mills, which fetches about $US150 a tonne. Whitehaven produces PCI coal and thermal coal, which sells for about $US90 a tonne.

A commodity strategist at ANZ Bank, Mark Pervan, said coal remained a sellers' market thanks to the strong demand driven by stimulus spending. ''You're going to find whatever the producers say is not going to be far off the mark,'' he said.

Alongside the emergence of China as a big coal buyer, crowded port and rail infrastructure are also pushing coal prices higher.

The managing director of Whitehaven, Tony Haggarty, said: ''The infrastructure bottlenecks have not been cleared. That's putting a brake on the supply side.''

Macarthur said it would pay an interim fully franked dividend of 8c a share; Whitehaven will pay a dividend of 2.8c a share.

I found this link on Jesse's Cafe and might be encouraging for buying miners ahead of the Chinese Government. Could be another fake out too.
IMF gold purchase not feasible for China: CGA
BEIJING, Feb 24 (Commodity Online): ChinaGold Association (CGA) said Tuesday it is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.

Instead the Association said the country would continue to shore up its gold reserves by acquiring gold mines abroad rather than purchases on the international market.
http://www.thefinancialexpress-bd.com/more.php?news_id=93352

Concerns about Bonds Market

I really liked this post from dshort.com which is always on the blog list. QB

Bear Turns to Bull? 

http://dshort.com/

In case you missed it on 2/19 this is a great analysis about Silver on Jesse's Cafe Americain

http://jessescrossroadscafe.blogspot.com/2010/02/gold-and-silver-weekly-charts.html

Going For The Silver

Sean Brodrick

US loads up on gold at the Winter Olympics, but Sean is in Mexico looking for silver and copper!

To listen to Sean click on the link below to be redirected to Howe Street.
http://howestreet.com/audiovideo/index.php?pl=/goldradio/index.php/mediaplayer/1564

U.S. Economy: Confidence Falls to Lowest Since April

These are two headlines that show that we have two classes now in the US. The haves (Banksters and Elites) and the have nots (The shrinking Middle Class and the Poor) QB
By Bob Willis

Feb. 23 (Bloomberg) -- Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.

The Conference Board’s confidence indexslumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today. A separate report showed home prices rose for a seventh month.

Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed. The survey reinforces expectations Federal Reserve Chairman Ben S. Bernanke will repeat the central bank’s pledge to keep interest rates low for “an extended period” in testimony to Congress tomorrow.

“Consumer spending is going to disappoint throughout most of the year,” saidSteven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. The economy “may not be out of the woods.”

Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.

The Standard & Poor’s 500 Index declined 1.2 percent to 1,094.6 at 4:05 p.m. in New York. The 10-year Treasury note rose, pushing down the yield 11 basis points to 3.69 percent.

http://www.bloomberg.com/apps/news?pid=20601087&sid=artrtGVa__ro&pos=1

Wall Street Bonuses Rise 17%, N.Y.’s DiNapoli Says 

By Elizabeth Hester and Henry Goldman

Feb. 23 (Bloomberg) -- Wall Street bonuses rose 17 percent in 2009 from a year earlier as the securities industry rebounded from the financial crisis, New York State Comptroller Thomas DiNapolisaid.

Financial firms disbursed $20.3 billion compared with $18.4 billion in 2008, DiNapoli’s office calculated, basing its estimate on personal income-tax collections. It doesn’t include stock options or other types of deferred pay. The bonus pool was the second-largest ever, DiNapoli said in his yearly report.

Cash and stock bonuses fell about a third from 2007, he said. New York State’sbudget deficit is estimated to be $8.2 billion, 10 percent more than estimated in January, because Wall Street’s cash bonuses are less than forecast, Governor David Paterson said Feb. 3. Personal income tax collections in January were $1 billion below the $7.08 billion the state projected.

“It would be preferable to have predictable growth and profitability,” DiNapoli said in an interview on Bloomberg Television today. “With New York depending on the sector for budget health, we need Wall Street to be profitable.”

The average bonus for the industry was $123,000 last year, the comptroller said. Wall Street has added 3,900 jobs through December and DiNapoli said he expects that trend to continue. He said the increase in tax revenue from higher bonuses won’t solve New York’s budget problems.

http://www.blogger.com/post-create.g?blogID=6138796855686546909

Mugabe's Take on SLV

Reasons for not liking silver:

It's broken its longstanding lower trendline and 150 day ma.

It's trying to regain these at the expense of being short-term overbought, so the recapture might well fail.

It's running up against an area of very siginifcant resistance which also coincides with the neckline of a possible head and shoulders top.

The weekly MACD histogram and MACD lines went negative at the beginning of this year.

Silver to Gold Ratio Feb 19-22. Still a good entry point...ANY TAKERS? From Shaza

A silver supply squeeze might be on its way …

“If you missed the great run up in silver last year that saw prices run up 95%, you are being offered a second bite at the apple.

The latest round of risk reduction by global hedge fund has bashed the white metal, knocking $5 off of the $19.50 high seen in the heady days of November. Geologically, silver is 17 times more common than the yellow metal … but most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps … Rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference for the jewellery, as in Latin America.

That means we are setting up for a classic supply demand squeeze. I think we could run to the old high of $US50 an ounce in the next economic cycle, if another monetary crisis doesn't get us there first. Since silver can trade with double the volatility of gold, this forecast could prove conservative.” (The Mad Hedge Fund Trader in Business Insider, February 17)

Euro Worst to Come as Greece Hammerlocks ECB on Rates

By Liz Capo McCormick and Oliver Biggadike

Feb. 22 (Bloomberg) -- Derivative traders are signaling that the euro’s slump to a nine-month low will continue even if European Union leaders bail out Greece.

Short-term rates for borrowing in euros in the forwards market are the cheapest relative to loans in dollars since September. The 50 percent collapse in that spread this month signals investors are betting the European Central Bank will keep its target interest rate at a record low, sacrificing euro strength to prevent deficit cutting by debt-laden economies in the region from stymieing growth.

“Investors have already started to think about the next likely phase of the present crisis, and it appears that all they are finding are new reasons to sell the euro,” said David Woo, global head of foreign-exchange strategy at Barclays Plc in London. “Aggressive fiscal tightening by Greece, Spain and Portugal are likely to plunge their economies back into recession. All else being equal, this calls for a looser monetary policy.”

The shift underscores a turnabout in the two most-traded currencies. In the last three quarters of 2009, the euro outperformed the dollar relative to 15 major currencies tracked by Bloomberg, with Deutsche Bank AG’s euro index gaining 1 percent and the IntercontinentalExchange Inc.’s Dollar Index down 9 percent.

Since Nov. 25, the dollar is up 8.3 percent and has outdone all but four major currencies as the euro lost ground against them. The euro traded at $1.3613 as of 7:11 a.m. in New York, unchanged from Feb. 19. The currency is down 5 percent against the U.S. currency this year.
Full Story here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aJH85thPQQv0&pos=3

More historical perspective from Going Loco

Following on from P.K.'s post showing the similarities between Dow 1929- 1939 and Nasdaq 2000-2010 I offer this chart from Doug Short's excellent site www.dshort.com.

The chart shows the Dow from the crash of October 1929, the Nikkei from 1989, and the S&P from March 2000, all adjusted for inflation. The hypothesis (with which I agree) is that the correct starting point for the current trading era is the peak of the dotcom boom, not the later nominal high in 2007, and the reasoning behind this is that you need to adjust for inflation to get a clear picture of the relative movements. Doug points out that he does not necessarily think that markets repeat themselves but he thinks it is useful to have a sense of the past, a better understanding of market risk, and a wider range of possibilities based on historic performance. Those of us who follow Bob Hoye are familiar with the use of historic markets to prepare signposts for possible future outcomes, and I hope this chart will be useful.

I'd like to offer a couple of my own observations. First, if we are living through an event similar to the depression then it should not be surprising that the period from 2002 to 2007 looks different to the period from 1931 to 1936. The shape is similar but the depth of the decline in the stock market was much less this time round. On the other hand the scale of the policy response to the crash of 2000 was orders of magnitude greater than that in the 1930s, and it may also have been larger than the Japanese response to their debacle. The starting point seems to have been similar in all three cases - a credit-fuelled boom that pushed asset prices to  excessive heights and left a lot of  debt overhanging the economy.  In our era  the  facilitation of a lot more debt and a ready market for that debt made it possible to get the ball rolling again in 2002, which the policymakers of 1929-1936 found impossible. The idea seems to be that the same trick can now be performed again. See:
http://www.guardian.co.uk/business/2010/feb/19/european-union-prioritises-growth

My other observation is uncomfortable. We are now the same period of time from the start of this event as September 1939 was from October 1929, 9 years 11 months. Time to cross fingers!

Of course history doesn't predict the future, at least not in a way you can use for trading. But Doug's chart will make me watch the stock market indices exceptionally closely for the next 6 months.

I commend the rest of Doug's site; there is a lot of good material there.
I will add Doug's site to the blog list. QB

Doonesbury for some comic relief

NEVER BET THE HOUSE! Shaza

QB, I have been screaming on this site and others that the housing bubble in Australia is not comparable to USA and Europe. Here is a good article in Rebuttal to Keen’s doomsday bet that he lost with Rory Robertson from Macquarie Bank. That  losing bet sees KEEN taking a HIKE...a 240 Kilometer Hike up one of our highest mountains! KEEN also sold his own house, mistiming the markets badly! Shaza

What happens when an Aussie housing bubble bursts

MICHAEL PASCOE

February 22, 2010 - 6:53AM

House prices in south-west Sydney.

Yes, Virginia, Australia does suffer housing bubbles that burst but, no, Dr Keen, they don't do it in the Armageddon fashion you imagine. There is enough pain in the reality though to make punters wary of promised riches.

Steve "Doomsday" Keen seems to be making light of losing his forecasting bet to Macquarie strategist Rory Robertson – much to Robertson's chagrin. But the debunking of Keen's extreme views shouldn't blind anyone to the suffering still to be had from a bubble.

The pain potentially extends well beyond those buying houses. Reserve Bank Governor Glenn Stevens made plain during the RBA birthday talkfest that it is a central bank's duty to lean against a bubble – and he thinks the best way of doing it is to jack up interest rates that inevitably retard the whole economy. And on Friday he left the Parliamentary economics committee in no doubt about which way interest rates are still headed.

The RBA was doing its job by hiking rates four times between May 2002 and December 2003. It still took until mid-2004 for the market to top out with no area feeling it more than what RP Data classifies as Outer South Western Sydney region (see the graph above).

Largely overlooked in the renewed spruiking of the rise and rise of housing prices is the salutary lesson learned the hard way over the past decade in that region. There the bubble didn't burst spectacularly, a la Keen, but property buyers have been damaged, especially property investors.

Made possible by (relatively) low interest rates, sooled on by often-dodgy investment spruikers and fuelled by intemperate lending, the working-to-middle class south-west seized on the early noughties property boom with a vengeance – a "safe as houses" way of getting rich for those indoctrinated by the negative gearing salesmen.

The early period of the bubble – before it's obvious there is one – can be rewarding but for those who bought near the top in the first half of 2004, the reality has been six miserable years and a level of forced sales that at times distorted broader Sydney statistics.

As the accompanying graph from RP Data shows, average south west Sydney house prices went down and stayed down from that 2004 peak, barely regaining those levels now. And RPdata research analyst Cameron Kusher says the outer south western Sydney region continues to see a lower level of price growth than the Sydney average.

Add interest charges, the hefty holding costs inherent in real estate and the even worse opportunity cost of the funds tied up in a dud investment, and that $350,000 median house remains an economic disaster.

Even someone buying in mid-2003, a year before the peak when the median price hit $300,000, is still behind. The boom "winners window" wasn't open for long. It's not just the stock market that can go flat.

Yet it is something of a testimony to Australians' dogged belief in home ownership that it wasn't worse. Among the side issues Keen and his few allies have failed to adequately assess is willingness of Australian property owners to either soldier on servicing their mortgage or take their lumps by selling up before the bank forces them to.

More fundamentally, the core issue for Australian home owners isn't the relative "expensiveness" of a house or the size of the debt, but the ability of the owner to service that debt.

Rory Robertson put it more bluntly when stung by a reported suggestion that there might be a second leg to his bet against Keen's dire forecast of an imminent 40 per cent crash in average Australian housing prices, never mind a depression with 15 to 20 per cent unemployment. Dr Keen is preparing to walk from Canberra to Mt Kosciuszko, but still claims that he will be right – one of these years.

"The fact that the downtrend in house prices underway in 2008 ended within a few short months of the bet being agreed, rather than 10-15 years down the track, and with prices then rising to new highs within a year simply highlights how hopelessly wrong Dr Keen was about the outlook for house prices," writes Robertson.

Looking back, the drop in local house prices from their first quarter 2008 peak was small and short-lived, rather than large and prolonged as anticipated by Dr Keen, mainly because the RBA's big (and predictable) interest-rate cuts alongside Canberra's deposit and funding guarantees quickly stabilised confidence and ensured extraordinarily cheap funding for most existing and would-be homebuyers. Counter-cyclical macroeconomic policy worked.

"For the record, the peak-to-trough fall in the ABS house price index was only 5.5%, so Dr Keen was out by a factor of seven!

"House prices on average now are 10% or so higher than in late 2008 when Dr Keen famously sold his home.

"Betting the house on an economist's forecast typically is not a smart move. Unfortunately, Dr Keen recklessly encouraged everyday Australians to sell their homes at what turned out to be the peak of the global financial crisis and the trough in local house prices."

Robertson says he has no strong view on the outlook for house prices, seeing both positives and negatives, but believes that extremists will continue to be wrong.

"Those with the strongest views that the price of Australian houses "must" fall typically either don't own one, don't really know what they are talking about, or both."

Yet the south-west Sydney story over the past decade shows a crash doesn't have to be spectacular to hurt. What might unnerve some is the speed of the price recovery in parts of the Australian housing market was approaching the stuff of bubbles if maintained.

The RBA is pleased to see a slight cooling in home loans and a quiet tightening of loan to valuation ratios by Australia's banks, a sign perhaps of the banks themselves either taking a hint from the authorities or seeing a potential danger themselves.

As Robertson alludes, extremists of both varieties will be wrong. The RBA thwarted the Doomsday scenario – and it will also do what it must to prevent another asset bubble. We have indeed been warned.

Michael Pascoe is a BusinessDay contributing editor – and he owns a house.

P.K.'s First post (Revised with more comments and charts added)

Here's more from PK and the charts are not necessarily in the order in which his commentary runs. Enjoy QB

There's been discussion here and there about the usefulness and validity of certain ETF's as a substitute for their underlying products. (This has to do solely with straightforward one-to-one products, not 2 or 3 times or inverse ETF's.) After all, if an ETF is sold by the issuers as something that "tracks" its underlying index or commodity, then the performance of one vs. the other should be darn near indistinguishable.

Let's look at the charts to see how some of the most popular ETF's are holding up. In each, the ETF is plotted in green, and its performance relative to the underlying is in orange. If the orange line goes up, the ETF is doing better. If down, it's doing worse. SPY vs. the SP 500 is a good example of what you would expect to see. Barring a few 1/10's of a per cent difference in a very short time frame, the orange line stays flat over time. Unfortunately when you get to commodity-based ETF's things aren't exactly "in line" with what you expect. I'll let the charts of USO (oil), GLD (gold) and SLV (silver) speak for themselves.

Bottom line? Just one more reason we all need to do even more of our own due dilligence, because I'll guarantee that the firms selling these things won't go out of their way to promote any under-performance.

Have you ever come across someone/something that bears a ridiculously uncanny resemblance to someone/something else, with seemingly no relationship at all between the two?  That is the exact experience I had when I matched up this chart of the Dow after the 1929 crash, with the Nasdaq 100 (QQQQ) post 2000 crash.  Keep in mind that the firms that made up the Dow back then were themselves creating the cutting edge technological breakthroughs in manufacturing or whatever that made them the powerhouses of the day. 

The Dow finally made its last secular bear market low in the spring of 1942, just below the 1938 low, literally months after Pearl Harbor and as the Nazis were sweeping across Europe.  (I would love to know just who had the, umm, gumption to be buying at that point.)  If it is true that history doesn't repeat, but it rhymes, keep in mind the Dow didn't get back to its 1929 peak until 1954.

One more thing.  But for the lack of space on the chart, I could have pointed out the way each rallied off the initial lows in 1932/2002, or the failed rallies after the peaks in 1937/2007.  Uncanny, indeed!

Emerging Markets - Key Chart Features Courtesy of Shaza

BY MARTIN GOLDBERG, CMT | FEBRUARY 18, 2010

It seems that most market professionals love the emerging markets! So is their love supported by their technical charts? As you will see in the analysis below, probably not. Below you see a weekly chart of the emerging market ETF (symbol EEM). Many of the professionals who love emerging markets are in this ETF as it trades over 400 million shares per week. Who has the time to actually evaluate what underlies such an ETF? The trading volume in EEM equates to more than $16 billion per week changing hands, so this is a highly liquid trading vehicle.

Below is a weekly chart of the ETF. From the tail end of the bull market which ended in 2008, you can see the importance of $40/share as technical support. $40/share held as support in January and March of 2008 before it gave it up in the fall of 2008 concurrent with the crashing of world markets.

Following the market crash, emerging markets formed a double bottom, with the late fall of ’08 being the first bottom, and March of ’09, the second. The pattern was confirmed in April of ’09 as the $27/share neckline (black horizontal line) was broken in high volume. (This is highlighted by the green vertical volume annotation.)

From April of 2009 the markets continued to rally. As the months progressed, the rate of the rally (momentum) was slowed as indicated by the black trendlines showing the “highs” progressing albeit with a progressively lesser slope. The fall of 2009 was characterized by a narrow range (indicated by $40/share as support and $42.50/share as resistance). Most world markets were behaving similarly at that time. Chart watchers the world over noted similar trading ranges in most world stock markets. In January of 2010, the markets seemed to break into higher ground while most of these same chart watchers screamed, “ah-ha –breakout”. Of course it could have been easily seen that this so called bullish breakout occurred on miniscule weekly volume. It was at that moment that the markets were vulnerable. The emerging markets suffered a correction of about 12% in 3 short weeks.

Presently, the emerging markets are clawing their way back to the $40/share level. But let’s not be naive. I’m not the only one eyeing $40/share as important. It would seem that one outcome that should be considered seriously (and with some capital ready), would be for EEM to produce a false reclaiming of $40/share level, and followed by a resumption of the correction. Two ways this could occur would be:

1. A marginal break of $40/share on relatively high weekly volume.
2. A larger magnitude break of $40/share on relatively low volume.

Is there a basis to believe that the correction has further to go? The magnitude of the correction thus far with the shortness of duration (less than 3 weeks) would seem to indicate that there will be more than only one wave down. In addition, the high volume of the recent selloff, and low volume of the subsequent rally also suggests that there may be more to the correction than what has been seen thus far. 

A perhaps less biased intermediate term view of the emerging markets can be seen in the point-and-figure (PAF) chart, illustrated below. Here we can see emerging markets as a world market leader with regard to timing. While the S&P 500 made a low in March of ’09, the emerging markets made a higher low (indicated by the “3” in the chart). That same “3” (indicating March 1st), was the last time that the emerging market ETF produced a PAF “sell” signal.

That is until about 2 weeks ago, when a more recent “sell” signal was produced in the EEM PAF chart. As a market leader, one has to consider this sell signal in the emerging markets as potentially important.

Here is a shorter term daily candlestick chart of the emerging market ETF. As can be seen, if EEM were to reclaim $40/share level, it would also likely reclaim the much-watched 50-day moving average. So far, the rise over the last 8 trading days has been sharp yet on diminishing volume. Yet continuation of the rally to a point or so above the $40/share would result in many chart watcher “ah-has”. It would produce a row of X’s on the PAF chart, without generating a “buy” signal. Such an event would appear to be a very high risk to reward selling opportunity.

As with any technical analysis, a decisive break to new highs would nullify the conclusions of this analysis.

Finally, a resumption of intense selling without making it to $40/share and the much-watched 50-day moving average would be especially bearish and suggest additional and more intense selling.

Martin Goldberg

Gold Update

I know we have been focusing on gold a lot so we will move away from it after this post from Going Loco. QB

Sorry to bang on about gold. I promise to find something else to follow before long.

My gold chart was posted on 5 February: 

http://queenbee-insidethehive.blogspot.com/2010/02/going-locos-take-on-gold.html 

On 12 February I said: ‘While we are talking tapes is that a Falling Wedge I see on $GOLD, ie: bullish?’ The same day in a later post P.K. said ‘Mugabe may still be right about his longer term caution on gold, but here's another piece of evidence for a shorter term pop. Stockcharts chart school has an example of what's called a "falling wedge", which is almost identical to gold's chart since early Dec. It's worth at least a look since at first glance the pattern hardly looks bullish. Just another example of why some T.A. doubters call this voodoo, but just like with trendlines or fibonacci levels, when enough others see these things and act on it, it becomes a self-fulfilling prophesy. And as Brian S. at Alphatrends says, "only price pays".’

The following chart shows what has happened since then. Here are the questions I ask myself based on the indicators I am following at present. The way I ask myself these questions is designed so that “yes” is relatively bullish, “no” bearish. Remember that I have only being doing this for a few months:-

Is the price above 20DMA (blue, 1091)? Yes 

Is the 20DMA above the 150DMA(1055.26)? Yes 

Are the 20DMA and the 150DMA both moving up? No, 20DMA is flat

Is the RSI under 70? Yes 

Is fast MACD trending up? Yes

Is fast MACD above slow MACD? Yes

Is the price below the long-term mean regression? No

Is the last high higher than the previous high? Yes, 1127.30 above 1124.90

Is the last low higher than the previous low? No, 1044.80 lower than 1075.00

Did the last low stay above the long-term support trend line? No

Did the last low stay above the short-term support trend line? No

Did the last high stay below the long-term resistance trend line? Yes

Did the last high break the short-term resistance trend line? Yes

Is there strong evidence of support not lower than 10% below the current price? No, not really, I wouldn’t describe the support of 1026 in October 2009 as particularly strong, it was just a pause in a strong uptrend.

Is there a discernable bullish pattern on the chart? Yes, the falling wedge of last week is looking more like a downward-sloping channel now, but there is nothing on the chart to suggest a break of the long-term support trendline and there is quite a lot to suggest strong support between 1060 and 1075. The break down to 1044 on 5 February looks more and more like the lowest low of this move.

Is there bearish news? Yes, IMF sales (actually old news if you read the press release) and higher interest rates (sort of) in USA. 

Despite our shared caution about gurus, I should mention that Walayat had an update on gold yesterday, in which he noted that gold had reached and bounced off his recent $1,050 target low (actually 1044) and hit the resistance area of $1,125 He thinks the price will now form a higher bottom at between $1,075 and $1,100 before breaking resistance at $1,125 and an early break of $1,125 would show relative strength in terms of the forecast. He thinks it might be September before a new all-time high. See http://www.marketoracle.co.uk/Article17326.html

All prices are USD of course, people who reference other currencies will do better or worse according to how the USD moves. 

I did wonder whether I should conclude with a recommendation, but I don’t think that would be fair because however strong the caveats someone might follow me and that would be ridiculous because I am so new to all this. I am still in cash ($USD) at Bullionvault.

Friday night double bill

What Did Bernanke Know? One Smart Fella…

Obviously the surprise move by the FED was carefully planned. Putting the announcement right in between the larger than expected PPI number from Thursday and the very cool CPI number from today was a great plan of action.

Surely there could be no other reason as if the news of a hike to the discount rate came earlier in the week, then the PPI number would have scared investors into a major sell off.And, if they waited just one more day, investors would have forgotten all about the CPI number and the potential for a negative reaction would be high.

So, once again, the FED is carefully pushing and pulling the market and you know… it worked!

• January Core CPI Y/Y +1.6% vs +1.8% consensus, prior 1.8%
• January CPI Y/Y +2.6% vs +2.8% consensus, prior revised +2.7%
• January CPI M/M +0.2% vs +0.3% consensus, prior 0.1%
• January Core CPI M/M -0.1% vs +0.1% consensus, prior 0.1%

There’s No Quick and Easy Fix for This Economy

February 19, 2010 · By Adam · Filed Under Trading Videos 

Regardless of what others might say, there is no quick fix for the economy.

To illustrate this point, a friend of mine recently sent me a chart which I would like to share with you. This charts shows that we may be going into a prolonged period of no growth overall in the stock market. The NASDAQ peaked at 5,132.52 on March 10th, 2000. The NASDAQ market is in many ways more important than the DOW, and should be considered more of a leading indicator. If that is truly the case, then we have been in a bear market for the last eight years.

I expect to see a prolonged economic climate that is not conducive for stocks to move higher. However, there will be pockets of opportunity where certain markets and sectors will move higher.

All in all, this is not a rosy picture for either the US or world economy. As I have said many times on this blog, these are trading markets and not markets to hold long-term.

Trading throughout the balance of this decade and into the early part of the next decade is going to be the key to survival and for recovering the profits in your portfolio. We strongly recommend that you approach these markets with some level of expertise and knowledge of technical trading.

The future is going to be the future and we need to take advantage of every moment and prepare ourselves to be the very best we can be in whatever business or endeavor we are pursuing.

Every success in the future,

Adam Hewison
President, INO.com
Co-creator, MarketClub