The Case for the Future Direction of SPX Stock Market Index

By: J_W_Jones

A few weeks ago traders and market prognosticators were frantically trying to determine if the S&P 500 would hold the 200 period moving average. As it turns out, the 200 period moving was able to hold sellers in check. After a few days of grinding around, the S&P 500 pushed higher. The price action has been spectacular the past two weeks and the S&P 500 could potentially breakout to new 2011 highs. Only Mr. Market can push prices to the brink of disaster only to have them break to new highs in a matter of weeks.

Last week I was of the opinion that if a major descending trend line did not hold we would see the S&P 500 index push into a major resistance area around the SPX 1,340 – 1,350 area. I posited the following chart in my most recent article:

As it turns out, the descending trend line was taken out and price has jammed right into the major resistance area detailed in the chart above. In fact, yesterday the index was on the verge of pushing through the key resistance area and could likely test the 2011 highs in the near future.

Current price levels offer a multitude of outcomes depending on price action, news items, and economic reports. Predicting the future is a fool’s game, particularly in a marketplace full of government intervention. With that being said, I am going to use this article to point out a few key items that traders should be aware of in coming weeks.

Bullish Camp

For S&P 500 bulls, the price action as of late has been impressive and undeniably bullish. Bulls would point out that the U.S. Dollar Index futures have moved higher and equity indices were able to shrug it off which is generally an unusual set of circumstances considering the greenback’s recent strength.

Additionally the bulls will note the improving economic data points as well as last week’s strong manufacturing report. Another key area that many bulls are pointing out is that earnings forecasts for the 2nd quarter are not expected to be strong according to the analysts. The hidden potential for earnings expectations to be blown away is clearly present.

From a technical standpoint, nearly every major resistance level has been knifed through with ease. In fact, the past two weeks resistance levels have been nonexistent. If we look at the SPX Weekly chart we can clearly see a golden cross represented by the 50 period moving average pushing well above the 200 period moving average. The chart below illustrates the golden cross:

Generally speaking a golden cross on a weekly chart is viewed as bullish momentum. Speaking of momentum, based on recent price action the longer term momentum remains below historical long term levels over the past year. The following chart courtesy of Barcharts.com plots the number of stocks currently trading above the 200 period moving average:

Over the past year the current momentum to the upside in the longer term time frame reveals the potential for stocks to move considerably higher. It would take a huge move for equities to become overbought in this metric of study in the longer term time frames. Overall, conditions for higher prices are clearly present and traders and investors alike may see a major breakout in the near term over 2011 highs. If a breakout plays out readers can expect to see the S&P 500 rally to a resistance area that is shown below on the SPX daily chart:

Bearish Camp

The bears would point out that the present move higher in the S&P 500 has been parabolic. When price action goes parabolic in either direction the pending profit taking / correction is generally just as harsh. The S&P 500 has rallied 7 of the last 8 sessions and has moved over 7% higher since testing the 200 period moving average on the daily chart on June 16th. It is without question that in the short term the S&P 500 is severely overbought. The momentum chart below courtesy of Barcharts.com shows the number of stocks trading above their key 20 period moving averages:

In addition to the short term overbought nature of the S&P 500, the daily and weekly charts clearly illustrate a head and shoulders pattern. The head and shoulders pattern is a typical characteristic of a topping formation that is often found at several major historical tops. The daily chart below illustrates the head and shoulders pattern:

This particular head and shoulders pattern is not getting a lot of recognition in the media which lends it a bit more credence. If we start hearing about this pattern on CNBC or FOX Business I will expect the pattern to fail. Call me a contrarian, but in the past when major television personalities are constantly talking about chart patterns they almost always fail.

Besides just technical data points, continued worries stemming from the European sovereign debt crisis helps the bear’s case further. In the event of a major default in the Eurozone, the implications to the financial sector of the U.S. economy will come into focus. It is widely expected that a banking crisis in Europe could spread to some degree to the large money center banks in the United States. Clearly this would have negative implications on price action in domestic equity markets.

In addition to the European debt crisis, the United States government has a looming credit crisis of its own. With politicians currently arguing over whether to raise the debt ceiling, bears point out that if the United States defaulted on its debt (unlikely) the implications would be severe. However, many traders and economists point out that the end of QE II may have dramatic implications on price action as well. The current uncertainty around the world lends itself in favor of the bears.

As I am writing this the unemployment number just came out and it was far worse than the market expected based on Thursday’s strong ADP employment report. At this point in time we are getting heavy selling in the S&P 500. While this could be the beginning of a larger move, it might make sense that sellers are stepping in taking profits. The real question for traders and investors alike is what the future holds in coming weeks. Do we get a small correction from current prices before breaking out to new 2011 highs or are we putting in a dreadful double top that leads to the return of the bear?

Only time will tell . . .

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Gold Summer Trip and a Long-term Overview

By: Przemyslaw_Radomski

We've entered summer, a typically slow season for the metals, which is why they call it the summer doldrums. Gold closed June just 1.8% lower than it first started. Just for your information, the average summer drop over the last ten years was 8.6%, which at current levels would bring us to $1,407.53. It is also interesting to note that the summer lows have usually represented the bottom of the market for the remainder of the year, with one major exception, which was the difficult-to-forget year of 2008, which was when the summer decline was merely a harbinger of nasty things to come.

Summer is a good time to travel, so we invite you for a brief tour around the world to see what is happening with gold. We save the best for last. 

Central African Republic: This landlocked and sparsely populated country, ranked among the 10 poorest countries in the world, could well be one of the world's leading exporters of gold in the near future. While international mining companies hope to establish operations there soon, farmers are abandoning their fields and are flocking to the gold areas hoping for a lucky strike. We wish them luck. It would be nice to have the riches go to the hands of people in that area of the world instead of corrupt governments.

Greece: One of the first things any person facing insolvency does is to sell the family silver and pay back debts. Apparently, that does not hold true for governments. Greece holds an impressive 125 tons of gold in the vaults of the Greek National Bank, worth approximately 4 billion euros. If Athens were to sell that gold, its government would be able to meet at least part of the debt payments without any outside help. Portugal, another country teetering on the brink of crisis, holds an impressive 383 tons of gold with a market worth of about 13.3 billion euros. The Portuguese have just squeezed an 80-billion-euro aid package from the European Union. Of the 400 tons of gold allowed to be sold each year by central banks, according to the Central Bank Agreement, only 53 tons have been sold so far during the present accounting period. About 52 tons came from the reserves of the International Monetary Fund. If central banks want to sell within the framework of the agreement, they are free to do so until September 26, when sales quotas expire. However, central banks around the world are doing just the opposite –they are stockpiling gold rather than selling it. 

Iran: Iranians have a long history of buying gold coins for wedding gifts, or as a way to squirrel away savings. But recently, what was a steady demand has become a gold rush.

Instead of taking profits on the rise of gold prices, Iranians continued to buy them in ever larger numbers. The Iranian gold rush has been driven by fears about the domestic economy hit by sanctions against the country, lack of trust in the local paper currency and by fears about the global economy.

China: Silver demand in China is soaring. Silver imports have reached new highs, and analysts maintain that demand for this year will only continue to grow. The growth comes not only from industrial and jewelry demand, but also from the increased investments in silver as a hedge. Reports show that net silver imports to China have risen dramatically and will continue to do so going forward. In 2010, the net import of silver quadrupled, hitting a record of 3,500 tons. The pace of Chinese imports since the start of 2011 is still strong. Analysts see growing demand for silver in China, as well as India, rising by as much as 30% on the year. The increase in demand is also strong for Chinese silver ‘Panda’ coins, prompting the Peoples Bank of China to double the maximum issuance of coins for the year.

Great Britain: Britain's first gold dispensing vending machine made its debut this week in west London. The Gold To Go machine, predictably gold in color, is manufactured by a German company. A computer inside the machine updates the price of gold every 10 minutes to reflect fluctuations in the world market. It sells bars and coins in various sizes, including, a special souvenir 2.5g bar with the London skyline engraved on its reverse. Shoppers pay up to 25 per cent above the spot price for the convenience. We reported in the past about the world’s first gold vending machine that opened last year in Abu Dhabi' and about another such machine in Las Vegas, so, if you travel to any of those places, take a photo and send it to us.

California: A Northern California gold mine that has been a tourist attraction for years could go back to mining as high gold prices boost the promise of profits. Sutter Gold Mining Inc. has lined up $20 million in financing to restart operations. If all goes as planned, mining could start next summer. The mine opened in 1989 to host tour groups. The owners say gold prices, topping $1,500 an ounce, make mining economically attractive again. 

India: This is not an Indiana Jones summer blockbuster movie, but a true story. Precious stones, jewelry, gold and silver estimated to be worth several billion dollars have been found in the secret underground vaults of an ancient temple in southern India. An 18-foot-long necklace, 536 kilograms (1,179.2 pounds) of 18th century gold coins, diamond-studded plates, rubies and emeralds were found in the vaults of the Sri Padmanabhaswamy temple in Thiruvananthapuram, the capital of Kerala state. The vaults were opened for the first time in 135 years after the Supreme Court ordered the state government to take over the temple’s assets from a trust controlled by the royal family of Travancore. The temple, devoted to the Hindu god Vishnu, was built in the 16th century by the kings of Travancore. The descendants of the royal family had appealed to the Supreme Court against the petition for the takeover. Meanwhile the government has sent two dozen police officers to the previously unguarded shrine for round-the-clock security. India’s Supreme Court will decide what happens to the treasure. We’re waiting to see how this interesting story develops.

Our tour package covers the above-mentioned countries. So it’s time to wind up the trip. Before saying adieu, let’s have a look at the gold charts (charts courtesy by http://stockcharts.com).

The very long-term chart for gold shows continued attempts to move above the rising, long-term trend channel. So far the attempts have been unsuccessful and we consequently expect to see this index move lower in the near weeks. At this time, there is really no other information forthcoming from this week’s long-term chart. 

The same can be said about the precious metals stocks.

In the very long-term XAU gold and silver mining stocks index chart this week, once again we see the index level attempting to move above the 2008 intra-day highs. The monthly closing highs have been surpassed but the breakout is not confirmed without XAU taking out the intra-day highs. Consequently, with price below 2008 high, the situation remains medium-term bearish.

Summing up, recent market momentum has been quite positive for gold and mining stocks but not much changed from the long-term perspective and a mid-year correction still appears to be in the cards.

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LONG-TERM VIEW

By Carl Swenlin

Dealing with daily blogs tends to narrow our focus to the short-term and to the activity on the daily bar chart. Even if a person trades in the short-term, it is always beneficial to keep an eye on the longer-term, which is where we can see the dominant forces that are affecting all subordinate time frames.

In the last five trading days our mechanical models have generated a large number of buy signals on the major market and sector indexes we track. Also, our short-term indicators registered extremely high overbought readings, which we have interpreted as an initiation climax — an internal indication that a new rally has been initiated.

The new buy signals are still vulnerable to short-term price declines, but we are still in a bull market, so we anticipate bullish outcomes until we see evidence to the contrary. Let’s take a look at the weekly bar chart of the S&P 500 Index. One positive sign is the rising trend line drawn from the 2009 low, and that support held during the recent correction. Another positive is the fact that the PMO (Price Momentum Oscillator) is rising as a result of the recent rally.

The negatives are that volume has been contracting since 2008, and there is a line drawn across the 2010 and 2011 tops that forms a rising wedge pattern — a pattern that most often resolves downward. The top of the wedge may mark the limit of the rally (about 1400), but the internals may be strong enough to take pries to the top of the rising trend channel over the next few months. That would give us a target of about 1550, which is near the all-time highs.

Looking at the monthly bar chart below reveals a 10-year trading range with some serious long-term resistance around 1550. Many believe, I among them, that this trading range will persist for at least another 10 years.

Bottom Line: The current rally has had a strong internal initiation, strong enough to potentially rise about 300 points off the June low, unless it runs out of steam at the top of the wedge pattern around 1400. Assuming the best case, I think that 1550 will prove to be the limit of the rally, and probably the bull market.

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Rampant Unemployment = The Death Of The Middle Class - 40 Facts That Prove The Working Class Is Being Systematically Wiped Out

by The Economic Collapse

Without an abundance of good jobs, the middle class in the United States is going to shrivel up and die. Right now, rampant unemployment is absolutely killing communities all over America. Hopelessness and poverty are exploding and many are now wondering if we are actually witnessing the slow death of the middle class. There simply are not nearly enough "good jobs" to go around anymore, and even many in the mainstream media are referring to this as a "long-term structural problem" with the economy. The only thing that most working class Americans have to offer in the marketplace is their labor. If nobody will hire them they do not have any other ways to provide for their families. Well, there is a problem. Today wealth has become incredibly centralized. The big corporations and the big banks dominate everything. Thanks to incredible advances in technology and thanks to the globalization of our economic system, the people with all the money don't have to hire as many ordinary Americans anymore. They can hire all the labor they want on the other side of the globe for a fraction of the cost. So the rich don't really have that much use for the working class in America anymore. The only thing of value that the working class had to offer has now been tremendously devalued. The wealthy don't have to pay a lot for physical labor anymore. Thousands of our factories and millions of our jobs have been shipped overseas and they aren't coming back. The big corporations are thriving while tens of millions of ordinary Americans are deeply suffering. Almost all of the wealth being produced by our economy is going to a very centralized group of people at the very top of the food chain. The rich are getting richer and the working class is being systematically wiped out.

So the fact that we are facing rampant unemployment that never seems to go away should not be a surprise to anyone. Today, the "official" unemployment rate went up to 9.2 percent even though a whopping 272,000 Americans "dropped out of the labor force" in June. The government unemployment figure that includes "discouraged workers" went up from 15.8% to 16.2%. The mainstream media is proclaiming that this was "a horrific report" because most economists were expecting much better news.

Well, guess what?

Things are going to get a whole lot worse.

More job cuts are coming. One recently released report found that the number of job cuts being planned by U.S. employers increased by 11.6% in June.

It is also being projected that state and local governments across the U.S. will slash nearly half a million more jobs by the end of next year.

Needless to say, things don't look good.

Most people that still have jobs are desperately trying to hold on to them.

Employers know that most workers are easily replaceable these days, so wages are not moving up even though the cost of living is.

We are right in the middle of the worst employment downturn since World War 2. Jay-Z recently summed up the situation this way....

"Numbers don't lie. Unemployment is pretty high."

Jay-Z certainly has a way with words, eh?

If something is not done about the rampant unemployment in this nation, the death of the middle class will accelerate.

Most Americans just assume that the United States will always have a large middle class, but there is no guarantee that is going to happen. In fact, there is a whole lot of evidence that the middle class in America is rapidly shrinking.

Take a few moments to read over the facts compiled below. Taken together, they provide compelling evidence that the working class is being systematically wiped out....

#1 Right now, the U.S. government says that 14.1 million Americans are unemployed.

#2 There are fewer payroll jobs in the United States today than there were back in 2000 even though we have added 30 million people to the population since then.

#3 The number of Americans that are "not in the labor force" is at an all-time high.

#4 The United States has never had an employment downturn this deep and this prolonged since World War 2 ended.

#5 There are officially 6.3 million Americans that have been unemployed for more than 6 months. That number has risen by more than 3.5 million in just the past two years.

#6 It now takes the average unemployed worker in America about 40 weeks to find a new job. Just check out this chart....

#7 There are now about 7.25 million fewer jobs in America than when the recession began back in 2007.

#8 Back in 2000, the employment to population ratio was over 64 percent. Today, it is sitting at just 58.2%.

#9 Only 66.8% of American men had a job last year. That was the lowest level that has ever been recorded in all of U.S. history.

#10 During this economic downturn, employee compensation in the United States has been the lowest that it has been relative to gross domestic product in over 50 years.

#11 The number of "low income jobs" in the U.S. has risen steadily over the past 30 years and they now account for 41 percent of all jobs in the United States.

#12 Half of all American workers now earn $505 or less per week.

#13 According to a report released in February from the National Employment Law Project, higher wage industries are accounting for 40 percent of the job losses in America but only 14 percent of the job growth. Lower wage industries are accounting for just 23 percent of the job losses but 49 percent of the job growth.

#14 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.

#15 Between December 2000 and December 2010, 38 percent of the manufacturing jobs in Ohio were lost, 42 percent of the manufacturing jobs in North Carolina were lost and 48 percent of the manufacturing jobs in Michigan were lost.

#16 Back in 1970, 25 percent of all jobs in the United States were manufacturing jobs. Today, only 9 percent of the jobs in the United States are manufacturing jobs.

#17 Do you remember when the United States was the dominant manufacturer of automobiles and trucks on the globe? Well, in 2010 the U.S. ran a trade deficit in automobiles, trucks and parts of $110 billion.

#18 In 2010, South Korea exported 12 times as many automobiles, trucks and parts to us as we exported to them.

#19 The United States now spends more than 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

#20 Since China entered the WTO in 2001, the U.S. trade deficit with China has grown by an average of 18% per year.

#21 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990.

#22 The United States has lost an average of 50,000 manufacturing jobs per month since China joined the World Trade Organization in 2001.

#23 In 2002, the United States had a trade deficit in "advanced technology products" of $16 billion with the rest of the world. In 2010, that number skyrocketed to $82 billion.

#24 Manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975.

#25 Since 2001, over 42,000 manufacturing facilities in the United States have been closed.

#26 There were more manufacturing jobs in the United States in 1950 than there are today.

#27 Since the year 2000, we have lost approximately 10% of our middle class jobs. In the year 2000 there were about 72 million middle class jobs in the United States but today there are only about 65 million middle class jobs. Meanwhile, our population has gotten significantly larger.

#28 When you adjust wages for inflation, middle class workers in the United States make less money today than they did back in 1971.

#29 One recent survey found that 9 out of 10 U.S. workers do not expect their wages to keep up with soaring food prices and soaring gas prices over the next 12 months.

#30 Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

#31 One out of every six elderly Americans now lives below the federal poverty line.

#32 According to one recent study, approximately 21 percent of all children in the United States were living below the poverty line in 2010.

#33 Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid.

#34 As 2007 began, there were 26 million Americans on food stamps. Today, there are more than 44 million Americans on food stamps, which is an all-time record.

#35 Today, one out of every four American children is on food stamps.

#36 59 percent of all Americans now receive money from the federal government in one form or another.

#37 The number of Americans that are going to food pantries and soup kitchens has increased by 46% since 2006.

#38 In the United States today, the richest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#39 According to Moody's Analytics, the wealthiest 5% of all households in the United States now account for approximately 37% of all consumer spending.

#40 The poorest 50% of all Americans collectively own just 2.5% of all the wealth in the United States.

The cold, hard reality of the matter is that the United States is experiencing a long-term economic decline.

Every single day, more American families fall out of the middle class and into poverty. There are millions of American families out there tonight that are just barely hanging on by their fingernails.

More Americans than ever are constantly borrowing more money just to stay afloat. Even as rampant unemployment plagues this nation and even as wages remain stagnant, middle class Americans are increasing their use of credit.

A CNBC article noted the increase in consumer borrowing that we have seen recently....

The Federal Reserve says consumer borrowing rose $5.1 billion following a revised gain of $5.7 billion in April. Borrowing in the category that covers credit cards increased, as did borrowing in the category for auto and student loans.

It is very hard to live "the American Dream" without going into huge amounts of debt these days.

But for an increasing number of Americans, "the American Dream" is just a distant memory.

Tonight, there are large numbers of people living in the tunnels under the city of Las Vegas. As the wealthy live the high life in the casinos and hotels above them, an increasing number of desperate "tunnel people" are attempting to carve out an existence in the 200 mile long labyrinth of tunnels that stretches beneath Vegas. It is a nightmarish environment, but it is all those people have left.

Don't look down on them, because you never know who might be next.

If you lost your current job, how long would you be able to survive?

Unfortunately, as bad as things are now, the reality is that this is just the beginning.

You ain't seen nothin' yet.

Do what you can to make sure that you and your family are not totally wiped out by the next wave of the economic collapse.

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