Thursday, March 10, 2011

Buy Low And Sell High? Our Super Commodity System Do This!

Qui sotto riportiamo gli screenshot relativi ai trades attualmente aperti dal nostro Super Commodity System su alcune valute e sul Cotton, che esemplificano chiaramente come il system esegua i suoi set-up di vendita sui massimi e quelli di acquisto sui minimi. Il system consente di prendere posizione sui mercati con largo anticipo rispetto ai metodi tradizionali e avvantaggia notevolmente l’investitore nella successiva gestione delle posizioni aperte. Super Commodity lavora su regole semplici ed efficaci e con parametri fissi e non ottimizzati. I risultati storici di Super Commodity sono a disposizione ai seguenti link: http://www.box.net/shared/static/xybqf6etyc.xls, http://www.box.net/shared/g6z56itu42. I risultati di alcuni altri nostri trading systems sono a disposizione al seguente link: http://www.box.net/shared/5vajnzc4cp.

Below are screenshots relating to the trades that are currently open to our Super Commodity System on some currencies and Cotton markets, which clearly illustrate how our system completed his sell set-up on the high and the buy set-up on the low. The system allows to take position on the market well in advance of traditional methods and greatly benefit the investor in the subsequent management of the open positions. Super Commodity works with simple and effective rules and with fixed and not optimized parameters. Historical results of Super Commodity are available at the following links: http://www.box.net/shared/static/xybqf6etyc.xls, http://www.box.net/shared/g6z56itu42. Historical results of our some other trading systems are available at the following link: http://www.box.net/shared/5vajnzc4cp.

AD BP EC
DX CT images

Material in this post does not constitute investment advice or a recommendation and do not constitute solicitation to public savings. Operate with any financial instrument is safe, even higher if working on derivatives. Be sure to operate only with capital that you can lose. Past performance of the methods described on this blog do not constitute any guarantee for future earnings. The reader should be held responsible for the risks of their investments and for making use of the information contained in the pages of this blog. Trading Weeks should not be considered in any way responsible for any financial losses suffered by the user of the information contained on this blog.

The Coming Global Commodities Crisis


The last few weeks has seen a startling rise in fuel and food prices. This has been a key contributor to the political and economic instability overseas; it’s also paving the way for an even bigger crisis for the U.S. and the world economy by 2012.

Indeed, the oil price has been on a rip-and-tear largely owing to the Middle East crisis. The fear and uncertainty overhanging North Africa and the Middle East has also benefited the gold price. Our favorite gold proxy for instance, the SPDR Gold Trust ETF (GLD), recently made a new high and is still above its key immediate-term trend line.

The recent fuel price spike was a consequence of the political turmoil in the North African and Middle Eastern region. This in turn was caused by high food prices…which is mainly a consequence of a weak U.S. dollar since commodities are priced in dollars. Ever since the Bernanke’s Fed decided to pursue its second quantitative easing strategy (QE2) beginning last November, the dollar has been weakening while commodities prices have strengthened. This has put tremendous pressure on developing economies, particularly in the Middle East. Thus it could be argued, as some economists have, that the Fed’s QE2 program has been a major contributor to the Middle East revolutions as well as the rising cost of fuel.

The news media is trying to dismiss the high food prices by blaming it on weather related supply shortages. As Steve Forbes recently observed, “Droughts and floods have hurt the food supply, but at best these are only partial explanations and are about as convincing as North Korea’s blaming famines on the weather. Such acts of God were routinely trotted out to excuse food shortages in the old Soviet Union and Ma Zedong’s China.”

The stated reason behind QE2 was to stimulate the U.S. economy and help bring down the unemployment rate. While the Fed’s stimulus program has had a definite impact in terms of improving the financial market and in at least stabilizing the economy, it has done little to improve the structural condition of the economy or to bring down unemployment. What Bernanke & Co. have succeeded in doing with their super aggressive monetary stance is to create something akin to the 2006-2008 commodities bubble. The Fed has succeeded in pushing the oil price to an unsustainably high level and have also made food prices inaccessibly high for hundreds of millions of underprivileged people in the developing worlds.


In his latest Special Edition, entitled “Crisis High,” Samuel J. Kress makes the following pertinent observation: “Since the Great Depression of the ‘30s, the federal government has increasingly intervened in the economy thereby increasing the national debt to astronomical levels with the numerous social entitlement programs. Will the government’s addiction to OPiuM, squanderous spending of Other People’s Money, ever end? Recent QEs defy logic and reason – how can incurring additional debt cure the ills of excessive debt? Is this not equivalent to giving an alcoholic with sclerosis of the liver a case of scotch for the holidays and wishing him a healthy new year?”

By persisting in its loose monetary policy, which should have been slowed down last year when the recovery had achieved a sustainable momentum level, the Fed is also sowing the seeds of the next major financial crisis. The next crisis will likely be global and could rival the credit crisis in terms of its severity. The fact that the 6-year cycle is up until later this year should help stave off this crisis until perhaps 2012, but the path toward another crisis has been paved and the Fed isn’t likely to reverse course at this juncture. If Bernanke is true to his word in continuing QE2 until spring, the Fed will very likely have gone too far in its loose money policy, just as it went too far in its tight money policy heading into the credit crisis. By the time the Fed recognizes its mistake the damage will have been done and the consequences will have to be paid.

History, it seems, always repeats when it comes to the Fed.

Turning our attention to the metals and mining stock market, the fear and uncertainty concerning North Africa and the Middle East has definitely benefited oil but has also been of some benefit to the gold price. Our favorite gold proxy, the SPDR Gold Trust ETF (GLD), recently made a new high and is still above its key immediate-term trend line.

Gold stocks are in a less strong position than the metal itself, however. As we examined in last week’s commentary, many of the larger cap gold stocks have badly lagged the high-flying silver stocks and smaller cap gold shares in recent weeks. High profile examples of this relative weakness include Newmont Mining (NEM), Freeport Copper & Gold (FCX), Kinross Gold (KGC) and Agnico-Eagle Mines (AEM), all of which are closer to new lows for the year-to-date than new highs.


For a gold stock bull market to be considered strong and healthy, it should be joined by all segments of the market: small-cap, mid-cap and large-cap. When the bigger capitalized mining companies are badly lagging the rest of the group it means the market isn’t firing on all cylinders. If the large cap gold stocks don’t soon reverse their declines it will eventually compromise the broader market’s uptrend. For this reason we’ll need to watch our remaining long positions closely for signs of potential weakness in the near term and hold off on making new purchases until these negative internal divergences have been reversed. As of Mar. 9, both the XAU and HUI indices are below their dominant immediate-term moving averages as we await an improvement in the gold stock internals.

Gold & Gold Stock Trading Simplified

With the long-term bull market in gold and mining stocks in full swing, there exist several fantastic opportunities for capturing profits and maximizing gains in the precious metals arena. Yet a common complaint is that small-to-medium sized traders have a hard time knowing when to buy and when to take profits. It doesn’t matter when so many pundits dispense conflicting advice in the financial media. This amounts to “analysis into paralysis” and results in the typical investor being unable to “pull the trigger” on a trade when the right time comes to buy.

Not surprisingly, many traders and investors are looking for a reliable and easy-to-follow system for participating in the precious metals bull market. They want a system that allows them to enter without guesswork and one that gets them out at the appropriate time and without any undue risks. They also want a system that automatically takes profits at precise points along the way while adjusting the stop loss continuously so as to lock in gains and minimize potential losses from whipsaws.

In my latest book, “Gold & Gold Stock Trading Simplified,” I remove the mystique behind gold and gold stock trading and reveal a completely simple and reliable system that allows the small-to-mid-size trader to profit from both up and down moves in the mining stock market. It’s the same system that I use each day in the Gold & Silver Stock Report – the same system which has consistently generated profits for my subscribers and has kept them on the correct side of the gold and mining stock market for years. You won’t find a more straight forward and easy-to-follow system that actually works than the one explained in “Gold & Gold Stock Trading Simplified.”

The technical trading system revealed in “Gold & Gold Stock Trading Simplified” by itself is worth its weight in gold. Additionally, the book reveals several useful indicators that will increase your chances of scoring big profits in the mining stock sector. You’ll learn when to use reliable leading indicators for predicting when the mining stocks are about o break out. After all, nothing beats being on the right side of a market move before the move gets underway.

The methods revealed in “Gold & Gold Stock Trading Simplified” are the product of several year’s worth of writing, research and real time market trading/testing. It also contains the benefit of my 14 years worth of experience as a professional in the precious metals and PM mining share sector. The trading techniques discussed in the book have been carefully calibrated to match today’s fast moving and volatile market environment. You won’t find a more timely and useful book than this for capturing profits in today’s gold and gold stock market.

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The Fed's Credit Report; No Light in the Tunnel


On Monday, the Federal Reserve released its Consumer Credit Report which showed that consumer credit rose at an annual rate of 2.5% in January. That might sound impressive, but things are not what they seem. 

Non-revolving credit increased at a rate of 7% per anum, while revolving credit decreased at an annual rate of 6.5%. So, people are taking out more loans, but keeping their credit cards tucked away in their wallets. But there's more to this story than meets the eye, and it's important, because economists monitor credit expansion closely to see how the economy is doing. You see, when wages stagnate--as they have for the last 30 years---the only way that working people can increase their spending is by borrowing. And since consumer spending is roughly 70% of GDP, if consumers don't borrow, then the economy doesn't grow.

So, what's in the report that's so disturbing?

Well, for one thing, the two main areas of improvement are auto loans and student loans. And, both sectors are built on foundations of sand. After all, the reason that auto sales are booming is that the big car dealers are giving-away-the-farm to people with poor credit. As Autonation's President Michael Maroone said last week on the Nightly Business Report:

"The big driver of the recovery in 2010 was the restoration of credit. The change in 2011 is we`re now seeing an improving environment for sub-prime. So last year prime and near prime were more normal and this year we`re starting to see the sub- prime segment come along and that`s very important for our industry." (The Nightly Business Report)

So, we're back to "Square 1", right? GM is offering "72 months zero percent financing" to people with dodgy credit. And then the dodgy loans are being chopped up, glued together, and sold to as bonds to "yield seeking" institutional investors around the world. That's the way the new financial system works, and that's why the system broke down when investors tried to ditch these crappy bonds in the autumn of '08. It triggered a run on the shadow banking system that led to worst financial crisis in 70 years. Now car dealers are back for a double-dip reviving subprime loans to inflate another bubble.

The uptick in auto sales has nothing to do with "organic demand" for autos. That's baloney. It's about getting anyone who can fog a mirror to sign on the dotted line so the contract can be sold to gullible investors looking for higher yield.

Even so, sales did increase on the month, so, technically speaking, there was a boost in credit. The question is whether subprime auto lending is a sign of recovery or not? The answer is "No".

The other area of nonrevolving credit that improved was student loans, which basically represented all of the increase in non-revolving credit aside from auto sales. Think about that for a minute. In other words, the commercial banks, finance companies, credit unions, savings institutions, nonfinancial business and pools of securitized debts all barely squeaked-by or lost ground in January. That's amazing. Virtually every area of non-revolving credit is still flat on its back a full 30 months after Lehman Bros collapsed except for student loans. And the media tries to spin this as good news?

The credit issued via student loans soared from $317 billion to $342 billion from December to January, a $25 billion windfall in just one month. But, as we pointed out in an interview with Professor Alan Nasser, the student loan business is the biggest swindle of all. Bigger than subprime by many orders of magnitude. Here's an excerpt from the interview:

MW--Is it fair to say that the student loan industry is a scam that targets borrowers who will never be able to repay their debts?

Professor Alan Nasser---It's as fair as fair can be....How many of these students are subprime borrowers? That is, how closely do student loans resemble junk mortgages? The answer hinges on three factors: how these loans are rated, how likely the borrower is to repay, and the default rate on student loans.

The ratings of student loans are supposed to reflect the "health" of those loans, defined as the likelihood that the borrowers will default.....In September 2008, then-Secretary of Education Margaret Spellings announced in a news release that default rates on federal loans were "historically low": only 5.2 percent of recent grads were in trouble. Spellings used the cohort-default rate to arrive at this figure. But the Department's Inspector General Office employed a more realistic method in its 2003 audit, which calculated lifetime risk. It estimated that over their lifetime between 19 and 31 percent of college freshmen and sophomores would default on their loans (depending on the type of loan and when it was taken on). For community college students, the prospects were grimmer still: between 30 and 42 percent were expected to default. And the future was most discouraging for students at for-profits: between 38 and 51 percent were anticipated to default.

You can see that the default rate among student borrowers is expected to be higher than that for subprime home mortgages."

Repeat: A default rate of 51%. This is predatory lending writ large.

So, when we talk about student loans, we're not talking about something that strengthens economic recovery. We're talking about a scam that targets vulnerable young people who want to play by the rules so they can make a positive contribution to society. These kids are getting fleeced by shyster banksters and loan sharks whose only interest is lining their own pockets. Most of these students will be in debt until the day they die. (Students are not afforded any of the consumer protections of other borrowers. They cannot shed their debts through bankruptcy.)

Here's an e mail I just got from a reader that explains what's going on at colleges across the country. (The name and state have been withheld)

"Here in Connecticut Higher Ed... students are allowed to enter college without being ready. They are allowed to fail 4 of 5 courses for 2 semesters without being expelled. Only if the trend continues at the end of the third semester are they expelled. Our colleges do not have the specialists needed to help such students. BUT THE COLLEGES WANT THE TUITION these students bring—from Pell Grants, loans, parents etc. These students are being conned. They will likely have significant debt when they finally are expelled. I am dealing with two such students this semester. They are very good people. But one was born in Haiti migrating here just 4 years ago; the other is military vet, first generation college student. No screening before admission. Both are very slow readers and the fellow from Haiti never had training in how to take notes in class....

Our governor--who has ordered an ersatz reorganization of most of Higher Ed in Washington--- said he wants MORE students coming to college and graduating faster."

signed, Name withheld

X-military and foreign students (in particular) have been targeted by this loan-laundering scam that is costing students and taxpayers billions each year.

So, apart from these dubious "improvements" in non-revolving credit, the Fed's credit report is really pretty grim, much as one would expect when households are still deleveraging from a gigantic financial meltdown that cost them $11.4 trillion in personal wealth and home equity. And, as we noted earlier, revolving credit shrunk by 6.5% in one month alone. So, two and a half years into the so-called recovery, working people are still using their credit cards as little as possible. That's a good indication of the true state of the economy, which is rotten.

Don't believe the "Happy Day's Are Here Again" blabber. The country is still in the throes of a severe multi-year depression. The Fed's Credit Report just provides more proof.

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Corn could hold surprises in Wasde crop report

by Agrimoney.com

Corn estimates could hold the surprises in a flagship US Department of Agriculture report due later on Thursday which is expected, for soybeans at least, to call time on the trend of ever-tightening forecasts for crop supplies.
The USDA could, in its latest monthly Wasde report, give a further squeeze to estimates for domestic corn stocks at the close of 2010-11, already forecast to drop to a 15-year low, by lifting expectations for exports, Tim Hannagan, at broker PFG Best said.
The surprise would come from growing shipments to Mexico, whose own crop suffered heavy losses to frost, and the Middle East, which has been stocking up on grains in an effort to keep food and feed prices low.
"Both regions are new and unexpected import buyers since early February," Mr Hannagan said. Overalll US corn exports have, for four weeks running, topped 1m tonnes.
Other analysts have cited the prospect of a further lift to the 4.95bn-bushel estimate for US corn used in making ethanol, helped by the rising oil prices, and weaker grain futures, which have lifted margins for manufacturers of the biofuel.
Soybean impact
At a world level too, the USDA's estimate for corn stocks at the close of the season could fall further than the 900,000 tonnes, to 121.6m tonnes, that the market is expecting, thanks to a knock-on effect of South American rains.
Forecasts for Wasde estimates for US crops, (change on existing data)
Corn stocks, end 2010-11: 665m bushels, (-20m bushels)
Soybean stocks, end 2010-11: 142m bushels, (+2m bushels)
Wheat stocks, end 2010-11: 810m bushels, (-8m bushels)
Source: Thomson Reuters poll
While helping Argentina's parched crops, they have hampered the earlier-starting soybean harvest in neighbouring Brazil – in turn limiting the opportunities for farmers to plant their follow-on, safrinha corn, which accounts for about 40% of the country's total production of the grain.
Macquarie, which has forecast the USDA making only a tiny downgrade to its world corn stocks estimate, said that its outlook was threatened by the "extreme" delay to Brazil's safrinha corn plantings.
"The final [Brazilian corn] production figure would fall well below our current estimate [of 51.2m tonnes] if the recent heavy rainfall continues," the bank said.
"Under this scenario, Brazil's corn fundamentals could tighten considerably, particularly after the strong export pace seen in 2010."
Wet soybeans
Macquarie cautioned too of overoptimism for world soybean production and stocks, expectations which have been based on better prospects for Brazil's harvest, the world's second largest after America's.
Forecasts for Wasde estimates for world crops, (change on existing)
Corn stocks, end 2010-11: 121.6m tonnes, (-882,000 tonnes)
Soybean stocks, end 2010-11: 59.19m tonnes, (+976,000 tonnes)
Wheat stocks, end 2010-11: 177.6m tonnes, (-201,000 tonnes)
Source: Thomson Reuters poll
Analysts expect the USDA in the Wasde to lift by 1.3m tones, from 68.5m tonnes, its estimate of Brazilian production, but many forecasters have estimate the harvest above 70m tonnes.
"We think the market's expectations for this report are reasonable, but warn that there are increasing risks for soybean losses if the heavy rains continue."
Michael Cordonnier, at Soybean and Corn Advisor, clocked "numerous reports from Mato Grosso of poor quality seed and lower yields as a result of the heavy rains."
He added: "Farmers are reporting that they… are forced to harvest soybeans at very high moisture, some as high as 30%.
"These soybeans must be dried immediately, which is resulting in backlogs at the grain company driers and farmers cannot continue harvesting unless drying facilities are available."
Mr Cordonnier estimates the Brazilian soybean crop at 70.5m tonnes.

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What's Driving the Silver Price Higher?


The Silver Price is hitting new recent highs at $36.55 today in a more vigorous performance than even gold. Many in the developed world precious metal markets are amazed at the performance of silver and see this continuing, whereas others feel it is running away with itself. The "backwardation" in silver [when 'spot' - or immediate delivery prices are higher than for future delivery] has stressed just how much immediate demand there is for silver and clearly a physical shortage of the metal has arisen. There are two apparently conflicting pictures of the role of silver. The industrial side of silver demand, currently thriving and the investment side, which is also thriving and should continue to do so.

Industrial Fundamentals excellent

Overall the fundamental outlook has favored large price rises in the metal. After the use of silver in photography was heavily lessened by the advent of digital photography, many thought that that was the end of silver, but its price continued to rise when gold rose and fall when gold fell. Then came many revolutionary uses for silver in the medical field and the electronic field where demand is growing rapidly. Today, industrial uses account for 44% of worldwide silver consumption.

Still, it continues to be mined as a by-product of base metal mining with little need for solely silver mining alone, until now. Today, we find that the number of silver miners is growing fast as the metal costs only around $4 per ounce to produce. At a current price of $36 this makes it a dream metal to mine. But it will take some time for silver mining to catch up to growing demand, a few years at least. While there are huge supplies of silver still untouched [whereas replacing the gold mined is getting an increasingly more difficult task] we do see the flow of silver supplies growing fast in the future. Eventually this will slow the rise in the price of silver to the pace of gold price rises. And yes, we may see a rapidly growing supply of silver from scrap or re-cycling sources in time, which may slow down demand in addition to rising supplies. But again, this will take some years still after which we will see a change in silver's price patterns.

Meanwhile, demand growth from not only the developed world, but from the emerging world should continue to outweigh such new sources of supply. The last year has been an eye-opener in the silver market as we watched China turn from a net exporter of silver to a net importer. China had gross exports of 1,575 tonnes of silver last year, down 58% from a year earlier. China's gross imports of silver increased 15% to 5,159 tonnes in 2010. In 2005, China was a net exporter of nearly 3,000 tonnes of silver. Last year, in 2010, China was a net importer of more than 3,500 tonnes of silver. Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010. We fully expect this growth of demand from that source to continue in 2011 and possible for the next decade.

Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to "poor man's gold" and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.

Official Selling

For decades we saw 'Official selling' of silver as three governments sold off their stockpiles of silver [that had once been the coinage of the land]. The three countries were India, China and Russia. Today there is a negligible amount of silver sold by these three previously large suppliers. Such a withdrawal of large supply lines has ensured demand outweighs supply. There is little likelihood of these suppliers re-appearing.

Investment demand

  • With that in mind investment demand has come in as a new source of demand. The main vehicle through which silver is bought for investment in the developed world is the Silver Trust (NYSE: SLV) which now holds 10,794.79 tonnes of gold [347,063,746.900] ounces currently.
  • While COMEX is not a physical market for silver [only 5% of the deals done there involve the movement of actual silver], the gradual drain of COMEX silver inventories seen in recent months continues and COMEX silver inventories are at 4 year lows. Total dealer inventory is now 1,311.35 tonnes [42.16 million ounces] and total customer inventory is now at 1,887.40 tonnes [60.68 million ounces], giving a combined total of 3,198.97 tonnes [102.847 million ounces].
  • To an Asian investor with a limited amount of savings, silver is proving a more than credible alternative to gold. The price of silver has, this century, followed that of gold. It falls further and rises higher than the gold price, but goes up when gold does and falls when gold does. We believe it will continue doing so for the foreseeable future.

Silver as a Monetary Asset

Silver has been money since man's history began. History shows that it has always been linked to gold as coinage. Until 1946 even in the U.K., silver was used as coinage. The use of silver as money has now been withdrawn globally. It was from the stockpiles of old coins that the bulk of "Official" silver sales have only just been completed. It may well be that the monetary authorities of the world have no intention of using silver as money in the future. That does not detract from silver being used as an ideal retainer of wealth. Silver and gold will always be universally accepted as 'giving a sense of stability of the money system' [quote from Alan Greenspan this week]. That's why it is being accumulated as an investment now. A look at the darkening future of the current monetary system reinforces the thought that these two metals will protect one's wealth.

We don't believe that central banks will go back into the silver market again, because they will not see silver as they see gold, as the ultimate form of money. It will remain such in an individual's mind as well. After all, silver is also U.S. $5 Silver Certificate universally accepted as a lesser value money. We feel that its price will continue to confirm that. We emphasize that in the cases of both gold and silver, a monetary role for them is not required to maintain the current high prices. [If monetary authorities called the sky green, it won't go green - at the end of the day gold and silver will always act the same way as money]

Silver moving with Gold

The silver price continues to move with the price of gold, not because they have the same demand and supply fundamentals or there is the same quantity of the metal available, but because investors and users perceive that the silver and gold prices reflect the state of the current global monetary system. Such coordinated movements are saying that both metals are not being priced themselves. They are both pricing the monetary system and its prospects, as they have done for millennia. The huge growth of the investment side of the two metals is confirmatory evidence of this.

Ramifications for 2011

The www.SilverForecaster.com is where one can subscribe to the silver newsletter, a sister publication of www.GoldForecaster.com where factors that affect both gold and silver are followed and discussed, whether these are currency or macro, national economic factors or demand and supply related.
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Gold and Stocks on the Verge of Breaking Out!


The past couple weeks we have seen strong distribution selling in the equities market followed by equally large days of buying. These buying and selling frenzies have formed a sideways consolidation. 

Intraday movements have been sizable and more than enough to shake those trying to pick a direction early out of the market a few times. As fewer traders get involved the price range narrows and becomes compressed. Eventually there will be a breakout in a direction on heavy volume and with any luck it will start a new trend.

As much as I love to trade, I have been sitting on the sidelines for a few weeks giving this market some time to sort it’s self out… As we all know there are times when you get really aggressive and other times when it’s best to stand aside.

 It is very important to note that each trader sees the market in a different way and once it is aligned with what you are comfortable with trading, only then should you step in and trade. If not, then it’s best to wait for more favorable price action. It took me years to figure this out but now that I know what I am looking for and on what time frames, trading is less stressful  and I know I don’t  need to be trading all the time, there is always another opportunity just around the corner...


Gold has been trading sideways for almost two weeks now as it tries to break free of the December high. It is much in line with the SP500 chart above. I feel Friday or early next week that the market, dollar, metals and oil make some sizable moves either up or down…

Mid-Week Conclusion:

In short, I don’t think it is wise to jump the gun and take on any large positions until we see what happens on Friday overseas…

If nothing happens which is kind of what I am thinking, we should see the extra fear value come back out of the price of gold, silver and oil (drop in price) and possibly help boost equity prices.

Investing Mantra, Not to Convince, But to be Convinced


The most valuable mantra in investing goes by: “Not to convince, but to be convinced.” A good investor does not take unnecessary chances and then convince himself that everything would be alright. Rather, he would wait until the right opportunity comes by and convinces him that it is the choice to make. In other words, a winning investor always abides in stillness until a high-probability signal dawns on him.

Let the Winner Proves Itself

For example, a momentum investor refrains from buying a fundamentally sound stock until its price has broken out to a new high. The reason is that, whenever the price reaches the higher end of the range, short-term investors would anxiously sell for a quick profit, while the long-term investors would begin accumulating those shares just being sold. The price would finally succeed in breaking into a new high when there are no more sellers to push the price back down, i.e. all stocks are transferred from bears to bulls, which means that there is no more resistance against the price to go up, and this is the safest time when you can put your capital at risk.

If you buy a stock long before the breakout occurs, chances are it may remain going sideways or even plunge down later, because your analysis of the stock may not be correct after all, and you forgo better opportunities by sticking your capital with a loser. It is against human nature to give up a bargain, but it would be risky to buy under an unconfirmed situation. This is especially true if the current market is in a correction mode, which gives us more reason to wait for a properly formed breakout. This is why instead of trying to predict the future, we patiently allow the stock to prove itself, and buy at the proper time as indicated by a change in price and volume.

ASSUME = ASS U and ME

Therefore, instead of assuming what will happen, you should simply wait for the market to confirm what you are assuming. One of my favorite jokes on the English language is that, “The word ‘ASSUME’ spells ‘ASS U and ME.’” Most financial analysts make the mistake of assuming that they know a lot about the market, and make predictions that are wrong for 50% of the time. It is ego play instead of investing, and unfortunately the smarter the individual is, the more prone he is to fall into this trap. This explains why so many bright people, including those really knowledgeable professionals like Julian Robertson and Victor Niederhoffer, were blown up in the financial market simply by not admitting they were wrong when the market told them the truth. 

A great investor does not assume that he can always be right in the market, and instead he knows the only one who is always right is the market itself. As legendary stock operator Jesse Livermore pointed out that the aim of the game is not about being right, but about how much you can make when you are right. Therefore the difference between the stock “expert” and the true winner lies in that, while the “expert” always has to appear confident, pour out myriad of theories of fundamental analysis and make calls on the market, the profitable investor, on the other hand, believes that he could never be smarter than the market, and let only the market, instead of anyone else, to tell him whether he is right or wrong.

The Lure of Omniscience

As Sherlock Holmes said, “It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.” All these troubles begin with the human urge to demonstrate omniscience by predicting events before they occur. It is almost like you would need to have an IQ of 200, the knowledge of a PhD, and some enormous insider information to make you successful in the market. As a result, you can see a lot of amateur investors spending a lot of money on expensive seminars to learn some obviously pointless methods like astrology, simply because it is too alluring to know how to predict the future. They do not realize that investing success is as simple as patience and humbleness. 

The 80/20 Rule in Investing

To cure this, one must understand that the 80/20 rule applies in investing that, for most of the time, you simply do nothing. As Livermore warned, “No man can always have adequate reasons for buying and selling.” In other words, there are times when the correct trade is sitting in cash. Many otherwise profitable investors give back profits by overtrading, and they would surely benefit from the discipline of momentum investing by only buying on strength as proven by a breakout. 

Livermore believed that timing was everything to a speculator, so that it is never about if a stock is going to move, but when. Although it seems quite obvious, many investors simply do not bother, as they would buy the stocks they want anyway, and wait for the move to play out, and hope that everything would be alright. The market may eventually move in the desired direction, but it may also not. It is simply not sensible to be exposed in the market before a confirmation, just to hope that it would turn out fine.

Summary

A good investor does not buy a stock and convinces himself it is correct. Rather, he waits for an opportunity to prove itself to him. The reason is that the market has its own cycles of profitable and barren periods, and the former is way less often than the latter. By not imposing one’s own logic and ego onto the market, he will be able to see the market as it is, and hence keeping the powder dry until the best opportunity presents itself. Unfortunately, conquering one’s own ego is the most difficult task in the world, especially for those who consider themselves more knowledgeable than average. Still, it is only after an investor has acquired this habit to “be convinced but not to convince”, he is able to make money.

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Signs of Impending Doom for Global Economy 2011


End of the American Dream writes: If you are not aware of how rapidly the global economic situation is unraveling you need to snap out of it and start paying attention. The world economy was relatively stable in 2010, but here in 2011 things are deteriorating very quickly. Right now there is major civil unrest in at least a dozen different nations in Africa and the Middle East. The civil war going on in Libya has sent the price of oil skyrocketing and the protests that are scheduled to begin in Saudi Arabia later this month could send oil prices even higher.

Meanwhile, the sovereign debt crisis in Europe just seems to get worse by the day. Several nations in Europe are suddenly finding that it has become extremely expensive to finance more debt. It appears that it will only be a matter of time before more bailouts are needed. Meanwhile, the United States is also covered in a sea of red ink and the economic situation in the largest economy on earth continues to deteriorate rapidly. It is as if the entire world financial system has caught a virus that it just can't shake, and now it looks like another massive wave of financial disaster could be about to strike. Does the global economy have enough strength to weather a major oil crisis in 2011? How much debt can the largest nations in North America and Europe take on before the entire system collapses under the weight? Will 2011 be a repeat of 2008 or are we going to be able to get through the rest of the year okay? Only time will tell.

But it is quickly becoming clear that we are reaching a tipping point. If the price of oil keeps going up, all hopes for any kind of an "economic recovery" will be completely wiped out. But if the globe does experience another economic slowdown, it could potentially turn the simmering sovereign debt crisis into an absolute nightmare. The U.S. and most nations in Europe are having a very difficult time servicing their debts and they desperately need tax revenues to increase. If another major economic downturn causes tax revenues to go down again it could unleash absolute chaos on world financial markets.

The global economy is more interconnected than ever, and so a major crisis in one area of the world can have a cascading effect on the rest of the globe. Just as we saw back in 2008, if financial disaster strikes nobody is going to escape completely unscathed.

So what should we expect for the rest of 2011? Well, the truth is that it doesn't look good. The following are 21 signs of impending doom for the 2011 economy....

#1 The civil war in Libya now looks like it could drag on for an extended period of time, and that is likely to drive the global price of oil even higher.
#2 Barack Obama is publicly saying that NATO is now considering "potential military options" for solving the crisis in Libya.
#3 Kuwait exports more oil than Libya does, and it looks like the civil unrest that has been sweeping the rest of the Middle East is now starting to spread to that country.
#4 In Saudi Arabia, protest groups are planning a "Day of Rage" on March 11th. If a revolution breaks out in that nation the entire global economy is going to be thrown into turmoil.
#5 The average price of a gallon of gasoline in the United States increased by 33 cents during the two-week period that ended last Friday.
#6 According to the Oil Price Information Service, U.S. drivers spent an average of $347 on gasoline during the month of February, which was 30 percent more than a year earlier.
#7 It is being reported that the average price of a gallon of gasoline in Europe has hit an all-time record of $8.63 a gallon.
#8 Ivory Coast produces nearly 40 percent of all the cocoa in the world and protests against the government there are becoming increasingly violent. If this violence continues to escalate you will soon be paying a lot more for chocolate.
#9 The yield on 10-year Portuguese bonds has increased to 7.6%.
#10 The yield on 10-year Irish bonds has soared to 8.1%.
#11 The yield on 10-year Greek bonds has skyrocketed to a whopping 12.8%.
#12 Moody’s Investors Service has reduced the rating of Greek government debt three levels all the way down to B1.
#13 According to the United Nations, the global price of food set another brand new record high during the month of February. That was the 8th month in a row that global food prices have gone up.
#14 According to the World Bank, global food prices have soared 29% over the last 12 months.
#15 The United Nations is projecting that the global price of food will increase by another 30 percent by the end of 2011.
#16 23 percent of all residential properties with a mortgage in the U.S. were in negative equity as of the end of 2010.
#17 In the state of Nevada, approximately 65 percent of all homeowners with a mortgage owe more on their mortgages than their homes are worth.
#18 Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.
#19 Since 2005, the United States has shelled out 1.1 trillion dollars for products from China but China has only spent 272 billion dollars on products from the United States. This trade imbalance is causing the global financial system to become increasingly unstable.
#20 Collectively, the 50 U.S. state governments are facing a budget shortfall of 125 billion dollars for fiscal 2012.
#21 The U.S. government had a budget deficit of 233 billion dollars during the month of February, which was the largest federal budget deficit ever recorded for a single month.

We are living in the middle of the biggest debt bubble in the history of the world, and a major oil crisis could potentially be the needle that bursts it for good. But if the global debt bubble bursts it is going to be a financial disaster unlike anything we have ever seen before.

Let's hope that things can hold together for the rest of 2011, but right now things look really shaky.

You might want to make sure that your assets are protected and that you are not overexposed because a lot of people are going to get wiped out if things take a turn for the worse.

The economic good times that so many of us have enjoyed for decades are not guaranteed to last forever. The world is changing and it is becoming increasingly unstable.

Nobody is quite sure what is going to happen next, but at this point just about anything is possible.

The U.S. Dollar’s Double Decline


Even silver and gold bears realize that the dollar is in decline, but few realize the extent of such a decline and how massive shifts in capital flows in 2008 will affect the dollar in 2011.  

The Flood into the US Dollar 

If you remember back to the days surrounding the credit crisis, you will probably first think of the massive opportunity to buy silver at $9 per ounce.  However, now think more retail. Think of what happened when the world was struck by fear: they bought dollars.

Despite its shortcomings, the dollar is still one of the best currencies in the world, which says a lot about the other currencies around the world.   When the worst financial crisis in decades hit the markets, investors fled to safety, and so they fled into the US dollar.  However, when you invest in dollars on a massive scale, it does not make much sense to just horde a bunch of paper, nor is it practical to store cash in a bank account of a possibly failing bank. 

Besides, at the time, accounts were only insured to $250,000, which may be sufficient for the middle class, but to the institutional investor, it’s only a rounding error.  So where do you put tens of billions of dollars for safekeeping?  You put it in Treasuries, where hopefully you will earn a positive yield on your money while you wait in safety for the storm to pass.  

Bogged Down by Treasuries 

Fast-forward to 2011, and the markets are beginning to relax.  The emerging markets are finding stability, and the Europeans have bailed out their neighbors to such an extent that the Euro isn’t as treacherous as it once was.  With stability comes predictability, and with predictability comes an appetite for risk.

While many see the dollar to be a declining currency due only to the bank behind its monetary policy, it also has a great deal of short-run influences that will greatly affect its value once calmer markets earn investors’ trust.  Because so many institutions, governments, and bankers bought into Treasuries at the height of the crisis, they now hold dollars in amounts that greatly affect their portfolio weighting.  And while the dollar may be one of the best of the worst, rarely does it make sense to be weighted strongly in one investment for safety.  Instead, diversification proves better than buying one single safety asset class.

When the world begins to diversify out of the dollar, they won’t just be selling their dollars, but they’ll be selling government debt.  What does that mean for the US?  It means double pressure against the valuation of the dollar (more supply, still insignificant demand) and against the value of US debt (more supply, and still no real demand).  

A Vicious Cycle 

This scenario is what practically necessitates a new round of quantitative easing.  In order to continue deficit spending, the Fed will buy another round of Treasuries, and in order to defend the dollar, the Fed will have to devalue the dollar to buy the dollars circulating in the form of debt.  And you thought quantitative easing round two was the end of monetary stimulus?  Not a chance.

A Breakout Is Likely -- but in Which Direction?


A variety of technical signals are suggesting we're at a crucial decision point for the stock market: Either the bull recovers from its recent swoon and moves decisively up toward new highs, or the market reverses trend dramatically and moves down.

Although many market observers dismiss technical analysis as unscientific speculation more akin to astrology than math-based quantitative analysis, those skeptics are missing the point: Technical analysis isn't rooted in brute-force matching of curve sets, it's rooted in human psychology. Levels of resistance and support are not mathematical certainties -- they reflect the human psychological tendencies toward greed and fear.

When the market finally recovers a key level, for example, those investors who have grown weary of being underwater simply want their initial capital back, so they sell. This creates resistance. When the market declines, those who have reaped gains from buying during previous dips will jump in and buy more stock at what they perceive as "bargain" prices. This creates support.

And proponents of number-crunching quantitative analysis shouldn't be too cocky about their tool of choice: Quant analysis is based on past price action and patterns just like technical analysis. Just because a math-derived curve set matches recent price action does not preclude the unexpected from happening. This is why quant-based funds such as Long-Term Capital Management tend to self-destruct when markets trend strongly in unpredictable ways.

There are a lot of crosswinds in the market right now . Gains in retail sales and jobs are trends that support a bullish stance, while rising oil prices, food inflation and geopolitical uncertainty are giving credibility to a more cautious or even bearish perspective.

Warnings from Carl Icahn and Bill Gross


Small investors often look to highly successful "superstar" investors for hints on where the market is heading, and two recent news items about such big names have provided solid support for the bear camp: Legendary investor Carl Icahn has dissolved his hedge fund and is returning its capital to shareholders, citing the risk of another financial crisis. And famed bond manager Bill Gross has reduced the Treasury bond holdings of the world's largest bond fund , Pimco's Total Return Fund, to zero. The amount of cash the fund holds has swollen from $11 billion to more than $54 billion, its largest cash position ever.

There isn't any other way to interpret this except as a multibillion-dollar bet against the Federal Reserve's reassuring stance that inflation will remain tame for years to come. If you fear inflation might accelerate, the last investments you want to own are long-term, low-yield bonds that will instantly lose money if interest rates start rising.

Some analysts also interpret this move as an expression of doubt that the Fed will launch a massive third round of quantitative easing in June when the current QE2 campaign is scheduled to end. The Fed's ongoing $600 billion quantitative easing program is widely regarded as having strongly supported the rising equity markets.

As for the rising retail sales numbers, part of those "gains" can be attributed to rising costs: People and businesses are paying more than before for the same goods. If households are spending borrowed money again, that's not a sign of strength -- it's a sign of weakness in the household balance sheet. Consumers turned on the credit card spigot again in December, andthey've loaded up on car loan debt this year.

What analysts should be looking at is whether household incomes are rising. Unfortunately, the answer is clear: Wage earners aren't benefiting much from the recent strong gains in productivity.

 In an economy based on consumer spending, stagnant household incomes don't provide a strong foundation for future spending increases.

As for stock valuations, by at least one analyst's reckoning, many stocks are at all-time highs . Does the underlying economy support sky-high stock valuations? That's an open question, and one the market is obviously pondering.

To round out the backdrop for the market's current indecision, let's look at these two log-term charts of the S&P 500 and the Nasdaq.

The Nasdaq has retreated from the highs last reached in 2007, following a pattern that looks a lot like a classic "double top."

 
The S&P 500, meanwhile, traced out a massive double top pattern earlier in the decade. Its rapid ascent from the 2009 lows has been far more robust than the recovery in the overall economy, a disconnect that the current market queasiness reflects.


Now let's look at the daily chart of the broad-based S&P 500 (SPX).

 
The push and pull of hope and doubt is visible in the wedge (also called a flag or pennant) that has been traced out over the past three weeks. This is a classic wedge of lower highs and higher lows as prices are squeezed into a narrowing band of volatile swings.
Wedges are typically broken by big moves either up or down. A collapse in oil prices or a strong jobs report might provide the catalyst for an upside breakout, while accelerating inflation, a further rise in oil prices or a weaker-than-anticipated jobs report might trigger a breakdown and a trend reversal.

The 1,300 level offers both a psychological and technical support -- a round number and the 50-day moving average. Any sustained break below 1,300 would signal a possible trend reversal.

The bull has stumbled recently. For it regain its footing, the market would need to climb above the 20-day moving average (MA) and then retest recent highs around 1,343.

The two-month chart of the Nasdaq offers an interesting technical snapshot of indecision: As fear that the rally is over takes hold, the market drops significantly. Then as "bargain-hunting" and hopefulness return, it moves back up to the 2,800 level. But then by day four or five, doubt returns with a vengeance, and the market plummets again only to retrace back up to the 2,800 zone of resistance a few days later.


Now that pattern is breaking down: Price has failed to climb back above the critical 20-day moving average even as it has turned down, and is now clinging precariously to the key 50-day moving average. A break through the 50-day MA would be technically significant.

Nobody knows what the market will do tomorrow, much less three months or three years from now. But to the degree that markets reflect the emotions and calculations of its human participants, the current indicators of doubt and indecision deserve careful watching.


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Which Commodities Are Benefiting From QE2?


Haven’t we seen this movie before? The economy enters a recession; we have a bear market, the Fed cuts interest rates drastically flooding the global financial system with cash, and commodity prices begin to soar.

In the United States, the Fed has a handy way to ignore rising commodity prices, something they call core inflation. While most of us eat, drive, and heat our homes, the Fed excludes food and energy from its core inflation reading to remove “volatile” components of the inflation equation.

A March 3 Financial Times article touched on the Fed’s current focus in terms of inflation and monetary policy – the key points related to the commodity markets are below:
  • Most members of the Fed’s rate-setting Federal Open Market Committee have remained steadfast in their preference for looking at core inflation.
  • Core consumer prices, excluding food and energy, were up by 1% vs. a year ago in January, while the headline index rose by 1.6%.
  • “The Fed remains focused on core inflation at the consumer level, which it thinks will be restrained by high unemployment, and largely dismisses higher food, energy, and commodity prices,” said John Ryding, chief economist at RDQ Economics.
The Fed carries our monetary policies, including quantitative easing, by giving freshly printed cash to the network of eighteen primary dealers in exchange for bonds in the dealer’s inventory. Since the real world implementation of monetary policy, including QE2, floods the global financial system with cash, it is easy to understand how some of this money finds its way into the global commodity markets. Since we believe the Fed’s role in today’s asset markets is more significant than even what is perceived by experienced investors, we published a series of articles on Quantitative Easing and Asset Price Inflation in October 2010. Since then, commodity prices have surged. Understanding what QE is and how it works can help you make better investment decisions.

If excess liquidity is making its way through the global financial system, it is helpful to know where the majority of funds are flowing in the commodity complex. Ciovacco Capital’s proprietary asset classing ranking models compare 220 different investment options around the globe, across market sectors, and numerous asset classes, including commodities. Using liquid ETFs as a proxy for the underlying commodities, how do commodity investments compare head-to-head in terms of their outlook for the next three-to-twelve months? The table below shows the results for our March 1 rankings.


While we are not out of the correction woods yet relative to the short-term, as we outlined on March 3, we believe the longer-term outlook for risk and inflation-friendly assets, including commodities is postive.

From a fundamental perspective, the primary drivers of these commodity markets are related to increased demand as the global economy expands and the attractiveness as a hedge against the loss of purchasing power caused by “at-the-checkout” inflation. Below are some specifics related to each commodity or investment:
  • DBC gives investors exposure to a wide variety of commodities, from zinc to heating oil. With global GDP expected to grow in 2011 and 2012, the demand for commodities should continue to be robust.
  • Silver (SLV) is the economically-sensitive precious metal cousin to gold. Silver has more real-world uses than gold, including electrical and chemical applications.
  • Agriculture (DBA) can benefit from rising populations and migrations from the lower to middle class, which are becoming more common in Asia as people move from rural areas to cities.
  • Gold (GLD) is more attractive than silver when concerns mount related to the economy, geopolitical tensions, and the financial markets. Gold is also attractive to global central bankers and individuals who are concerned about the Fed’s overworked printing presses.
  • According to the USGS, copper (JJC) is used in building construction, power generation and transmission, electronic product manufacturing, and the production of industrial machinery and transportation vehicles. Copper wiring and plumbing are integral to the appliances, heating and cooling systems, and telecommunications links used every day in homes and businesses. Copper is an essential component in the motors, wiring, radiators, connectors, brakes, and bearings used in cars and trucks.
One of the primary fundamental drivers of the commodity markets is the Fed’s loose policies. Ten-month relative strength, where we chart a commodity’s performance relative to the S&P 500, is one of the inputs in our asset class ranking system. The ten-month relative strength charts below give us a good visual indication of which markets are benefiting most from QE2 and near-zero interest rates.


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Beijing Urged to Hoard Gold as Crude Oil Rebounds


THE PRICE OF physical gold and silver bullion rallied near record highs once again in London on Wednesday, while European stock markets slipped and crude oil rebounded to recover half of yesterday's sharp losses.

The gold price rose back to $1435 while while silver hit $36.45 per ounce.

Eurozone citizens wanting to buy gold saw the price rise above €33,150 per kilo – just shy of what was then an all-time record high amid the Greek deficit crisis of June last year – as "peripheral" Euro bonds fell further, pushing debt-interest costs higher.
Portuguese bond yields hit to new record highs as 10-year Greek yields hit 12.85%.

Italian bond yields extended their rise above 5.0% – the highest level since the global banking crisis of 2008.

"China should increase its gold reserves appropriately, and must take every chance to buy, especially when gold prices fall," said Li Yining, a senior economist at Peking University and an advisor to the national parliament's Political Consultative Committee, quoted today by Beijing's official Xinhua News Agency.

Li's comments directly contradict Yi Gang – head of the politburo's foreign exchange management – who last month repeated his view that Beijing should not switch a substantial portion of its $2.85 trillion currency reserves into gold, since it would send the gold price sharply higher in the process.

"The Chinese people will bear the cost at the end of the day as China is often the key buyer in these markets," he said in Feb.

But Li's view "may carry more weight than most," says Reuters, because "many of his former students are now high-ranking officials," including prime minister Wen Jiabao's widely touted successor for 2013, Li Keqiang.

Meantime in North Africa on Wednesday, Libyan leader Colonel Gaddafi told Turkish television that a no-fly zone imposed by US or Euro forces "would be useful" in uniting his country – now descending into civil war – into fighting foreign powers instead.

In neighboring Egypt – where Gaddafi apparently sent a senior member of his government to "deliver a message" to military leaders today – hundreds of pro-democracy demonstrators in Cairo's Tahrir Square were attacked with knives and machetes, according to state TV reports.

"The weak US Dollar and intensifying violence in Libya drove gold to a new set of nominal record prices," says the latest gold investment analysis from Japanese conglomerate Mitsui's London team.

"The metal remains in a well-defined bull channel with parameters at 1420 and 1451," says technical analysis from Russell Browne, strategist at bullion bank Scotia Mocatta in New York.

"The potential risk is crude oil may continue to go higher, and if floods and drought happen again, we'll face further price increases," said the United Nations' Hiroyuki Konuma in an interview.

Senior HSBC economist Karen Ward told Sky News in London that "even in the developed world I think we could see social unrest."

"We have very, very low wage growth, so people aren't getting more in their pay packet to compensate them for food and energy."

"Speculators on Wall Street are using the [Middle East] unrest as an excuse to push prices up in the futures markets," reckons Tyson Slocum, director of energy program at the US non-profit Public Citizen, and now serving on commodity-watchdog the CFTC's new Energy & Environmental Markets Advisory Committee.

For US crude oil in particular, "There's no supply-demand fundamentals that are justifying this huge price spike," he believes.

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