We are at the tail of another light volume choppy options expiry week and a big move is brewing… So I thought I would do a mid-week update on what I think is about to unfold in the coming days.

First off I will touch on gold. Everyone is in love with this shiny metal. But as I mentioned last week I think we are nearing a sharp correction. Previously I pointed out that we needed gold to make a new high to the $1275- 1285 area before everyone piles in and gets married to it, only then will the market reverse… Remember the market is out to take money from the masses and the gold trade is getting a little crowded in my opinion.

There are fundamentals which can be taken into account… but when has any investment moved perfectly inline with the underlying fundaments? I’ve seen investments lead fundaments by years, and other times lag the fundamentals by years, not to mention manipulation… but that’s a whole different subject. That being said I don’t hold gold long term for the simple reason I don’t believe much in the buy and hold strategy, nor do I like to watch investments go much more than a few percent against me… I would rather sit in cash jumping in and out when things look ripe for the picking.

Ok let’s jump into the analysis…

Gold Futures Price – Daily Chart

As you can see gold is forming another rising bearish wedge. The last one lead to a $100 drop in gold earlier this year. The part that I find exciting is that this recent run up has been on relatively light volume and without any decent pullbacks along the way. What does that mean? It means fewer people are willing to pay top dollar for it and the big money is riding this train up until they feel its getting exhausted then they will start unloading large amounts at a premium. We also just saw another new high on Thursday which happened on light volume tells me this rally just may have the herd all rounded up before the slaughter.

Silver Futures Price – 15 Minute Intraday Chart

While I don’t trade silver as much as gold due to the added volatility/whipsaw action, this intraday chart is starting to show signs of weakness with a rising bearish wedge today. This is just an intraday chart but these short term patterns tend to lead the longer term charts pointing out exhaustion is starting to creep into the market. Both gold and silver could still have a blow off top and shot up, which is why I have been saying to stay long metals (if you have a position) and to keep raising stop as it could continue higher for some time if a new wave of buyers step in.

Crude Oil – 4 Hour Chart

Oil has been choppy recently making it difficult to get a good read off the chart. Currently it is testing support and looks to be forming a possible right shoulder. It could have some good potential to the down side if we get a neckline break. I’m keeping my eye on it for another low risk entry point.

SP500 ETF – Daily Chart

This chart clearly shows some extreme bullish sentiment levels in the market. The bottom indicator is the total put/call ratio and when it is below 0.80 in an environment like this, it means there are too many people bullish on the market. So with todays spike low its easy to tell that the majority of traders/investors are bullish as they buy all the call options they can.

That being said, we generally get a serious shake out before the market reverses. What I mean by that, we should see the market gap substantially higher or spike up intraday as key resistance is broken. This forces all the shorts to cover their positions just before the market rolls over and sells back down. That’s what I am looking for to take action.

Mid-Week Trading Conclusion:

In short, gold and silver are looking and feeling toppy here. While I am bullish on them long term, we could see sharp pullback which could take months to regain these prices. I am not short metals yet but very close to taking a short counter trend trade.

Oil continues to looks bearish but is taking a long time to play out. This is a 4 hour chart and if we do get this neckline breakdown, it would still take 1-2 months to pay off. That being said, it looks like it will go lower.

SP500, I think the chart gets the point across. The important part to know is that it should go another 0.5% – 2% higher before it goes lower as that would make for a perfect pop & drop reversal pattern which I will alert members to when the time comes to short.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 2-4 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis per customer’s request, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

Read more here:
The Gold, Silver, Oil & SP500 Trading Charts

Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF, OPTIONS

One of the Big Freaking Problems (BFP) created when the treacherous Federal Reserve creates So Freaking Much Money (SFMM), so that the despicable Congress can borrow that SFMM and deficit-spend that selfsame SFMM, is that after awhile you get a serious mal-distribution of wealth: a very few people who are very rich, and a very huge majority of people who are very poor, with everyone who is not rich getting poorer.

LewRockwell.com posted an essay by the Economic Collapse Blog which notes that, astonishingly, “Today, 10,000 people get 30% of the total income in the United States”! Wow! Talk about mal-distribution of wealth!

Not to be outdone, I find in my notes that Emmanuel Saez, an economic professor at Berkeley, concluded that “The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007,” and, between 2002 and 2007, “the top 1 percent captured two thirds of income growth.”

And all that glorious, wonderful money accumulated by the rich came from the twin idiocies of massive, long-term government deficit-spending and the almost-universal assumption of more and more debt to finance raw, mindless consumption, which, in turn, were only possible in the first place because the despicable Federal Reserve, first under the demonic Alan Greenspan and now by the cracked-egghead Ben Bernanke, created, and are still creating, the money to make it possible!

Eventually, of course, we ended up here; everyone is up to their ears in debt, consumer prices are rising as the buying power of the dollar falls, the economy is collapsing, with me screaming about how the Federal Reserve killed us and calling for sweet, sweet revenge!

And now it is, surprisingly, for the first time in decades, true that people are paying down some of their debts, as for example, Consumer Installment Debt, which is essentially credit cards. This debt has actually gone down by $56 billion the last year, dropping that particular indebtedness to a still-massive $2.418 trillion from an even-more massive $2.474 trillion at this time last year.

Caution: The statistic to keep in mind is that there are less than 100 million American workers in the private sector, and these are the only people who can make a profit from their labor with which to pay, out of profits, all this debt.

If you are, as cautioned in the previous paragraph, paying attention, then you know that $2.418 trillion in credit card debt is $24,418 in credit card debt for each of the 100 million private-sector workers.

Since the average interest rate on credit cards is 16%, making a lot of simplifying assumptions, these statistics would indicate that consumers paid $391 billion in interest charges, which is the 16% interest on the average balance of $2.446 trillion, plus another $59 billion to pay down the debt a little bit.

When you add this $391 billion in interest charges to the $56 billion consumers paid on their balances, you get a statistic that is probably meaningless except that 1). Credit card use to finance consumption is going down, which is bad news for an economy dependent on consumption, and 2). It seems like A Lot Of Money (ALOM).

Parenthetically, at this $56 billion-a-year rate, debtors will pay off their credit cards in 43 years, assuming they never borrow another dime for the rest of their lives.

The Astonishingly Worse News (AWN) is that this crushing weight of $2.418 trillion of credit card debt is only a tiny 6% of all the $11.7 trillion in private debt!

And, since you are now paying attention to the fact that there are less than 100 million workers in the private sector and who are the only people who can produce enough profits with which to pay all of this private debt, you instantly calculate that this is $117,000 per worker! Yow!

In case you were wondering, as I wondered, the $11.7 trillion in total private debt (according to the Federal Reserve Bank of New York) is composed of 74% mortgage debt, 6% of the debt is from a revolving line of Home Equity credit, 7% of total debt is auto loans, 4% is student loans and 3% is classified as “other” debt! Wow! That’s a lot of debt!

Here is where it gets hard not to laugh; When you add another $13.5 trillion in national debt, each private sector worker is supposed to make enough in profits to pay off $252,000, and pay interest on the balance until he or she does, which will be many, many times the original $252,000! Hahaha! Hahahaha! Hahahaha! I’m laughing like a hyena here! Hahahaha!

Wiping the tears of laughter from my eyes, I say, “Thanks for the laugh! I sure as hell needed one right about now! Hahahaha!”

So, regaining my composure, I am serious again, calmly discussing the point that if consumption is down because incomes are down, then that is truly the terrifying Death Knell From Hell (DKFH) for an economy that is bizarrely dependent on consumption financed by an expanding fiat currency that is created out of the debt incurred to consume! Most of which is now government borrowing to finance deficit spending! Hahaha!

Sorry, but I can’t help but start laughing again, as it’s astonishing that anyone ever thought such stupidity would turn out okay! Hahaha!

And what’s the government’s next brilliant move? The Economic Collapse Blog notes that “Approximately 57 percent of Barack Obama’s 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf,” which is the kind of massive spending you are going to need when “one out of every eight Americans” is now enrolled in the food stamp program, and “one out of every six Americans is now being served by at least one government anti-poverty program,” which I am sure doesn’t even mention the 50 million people receiving Social Security checks! Wow!

No wonder we are broke! We spent all our money on free lunches for ourselves, and now we are spending it on delivering “free lunches” to more than half of the population!

And it is this bizarrely socialist/communist governmental “free lunch” program that causes mal-distribution of wealth, as the Sorry Dismal Fact (SDF) is that people with money are the only ones who have the collateral necessary to borrow money to loan to the government so that the government can deficit-spend to provide all these free lunches.

So, the government must borrow from the rich, see, and then the government repays, over time, both principal and interest to the rich, leaving the rich with even more money, making the rich richer. It’s just that simple!

And, even worse, the Worst Part Of The Whole Mess (WPOTWM) is that the extra money created by the foul Federal Reserve, to finance both governmental and private over-consumption, ends up making prices higher! Prices go higher and higher, all the time higher and higher, as all that new money works its way into prices (since there is nowhere else for money to go!), which actually worsens the plight of the poor and exacerbates the mal-distribution of wealth! Insanity!

About the only thing that is not insanity these days is the Magnificent Mogambo Portfolio Theory (MMPT), which (sanely) says to buy nothing but gold, silver and oil stocks when the government is spending insanely, and insane, incomprehensible amounts of new money will be created by the insane Federal Reserve to fund the insanity.

And the best part of the MMPT is that it is so easy that you cannot stop yourself from happily exclaiming, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Private Sector to Play “Atlas” in “The Debt Repayment Story” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Private Sector to Play “Atlas” in “The Debt Repayment Story”

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

One of the Big Freaking Problems (BFP) created when the treacherous Federal Reserve creates So Freaking Much Money (SFMM), so that the despicable Congress can borrow that SFMM and deficit-spend that selfsame SFMM, is that after awhile you get a serious mal-distribution of wealth: a very few people who are very rich, and a very huge majority of people who are very poor, with everyone who is not rich getting poorer.

LewRockwell.com posted an essay by the Economic Collapse Blog which notes that, astonishingly, “Today, 10,000 people get 30% of the total income in the United States”! Wow! Talk about mal-distribution of wealth!

Not to be outdone, I find in my notes that Emmanuel Saez, an economic professor at Berkeley, concluded that “The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007,” and, between 2002 and 2007, “the top 1 percent captured two thirds of income growth.”

And all that glorious, wonderful money accumulated by the rich came from the twin idiocies of massive, long-term government deficit-spending and the almost-universal assumption of more and more debt to finance raw, mindless consumption, which, in turn, were only possible in the first place because the despicable Federal Reserve, first under the demonic Alan Greenspan and now by the cracked-egghead Ben Bernanke, created, and are still creating, the money to make it possible!

Eventually, of course, we ended up here; everyone is up to their ears in debt, consumer prices are rising as the buying power of the dollar falls, the economy is collapsing, with me screaming about how the Federal Reserve killed us and calling for sweet, sweet revenge!

And now it is, surprisingly, for the first time in decades, true that people are paying down some of their debts, as for example, Consumer Installment Debt, which is essentially credit cards. This debt has actually gone down by $56 billion the last year, dropping that particular indebtedness to a still-massive $2.418 trillion from an even-more massive $2.474 trillion at this time last year.

Caution: The statistic to keep in mind is that there are less than 100 million American workers in the private sector, and these are the only people who can make a profit from their labor with which to pay, out of profits, all this debt.

If you are, as cautioned in the previous paragraph, paying attention, then you know that $2.418 trillion in credit card debt is $24,418 in credit card debt for each of the 100 million private-sector workers.

Since the average interest rate on credit cards is 16%, making a lot of simplifying assumptions, these statistics would indicate that consumers paid $391 billion in interest charges, which is the 16% interest on the average balance of $2.446 trillion, plus another $59 billion to pay down the debt a little bit.

When you add this $391 billion in interest charges to the $56 billion consumers paid on their balances, you get a statistic that is probably meaningless except that 1). Credit card use to finance consumption is going down, which is bad news for an economy dependent on consumption, and 2). It seems like A Lot Of Money (ALOM).

Parenthetically, at this $56 billion-a-year rate, debtors will pay off their credit cards in 43 years, assuming they never borrow another dime for the rest of their lives.

The Astonishingly Worse News (AWN) is that this crushing weight of $2.418 trillion of credit card debt is only a tiny 6% of all the $11.7 trillion in private debt!

And, since you are now paying attention to the fact that there are less than 100 million workers in the private sector and who are the only people who can produce enough profits with which to pay all of this private debt, you instantly calculate that this is $117,000 per worker! Yow!

In case you were wondering, as I wondered, the $11.7 trillion in total private debt (according to the Federal Reserve Bank of New York) is composed of 74% mortgage debt, 6% of the debt is from a revolving line of Home Equity credit, 7% of total debt is auto loans, 4% is student loans and 3% is classified as “other” debt! Wow! That’s a lot of debt!

Here is where it gets hard not to laugh; When you add another $13.5 trillion in national debt, each private sector worker is supposed to make enough in profits to pay off $252,000, and pay interest on the balance until he or she does, which will be many, many times the original $252,000! Hahaha! Hahahaha! Hahahaha! I’m laughing like a hyena here! Hahahaha!

Wiping the tears of laughter from my eyes, I say, “Thanks for the laugh! I sure as hell needed one right about now! Hahahaha!”

So, regaining my composure, I am serious again, calmly discussing the point that if consumption is down because incomes are down, then that is truly the terrifying Death Knell From Hell (DKFH) for an economy that is bizarrely dependent on consumption financed by an expanding fiat currency that is created out of the debt incurred to consume! Most of which is now government borrowing to finance deficit spending! Hahaha!

Sorry, but I can’t help but start laughing again, as it’s astonishing that anyone ever thought such stupidity would turn out okay! Hahaha!

And what’s the government’s next brilliant move? The Economic Collapse Blog notes that “Approximately 57 percent of Barack Obama’s 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf,” which is the kind of massive spending you are going to need when “one out of every eight Americans” is now enrolled in the food stamp program, and “one out of every six Americans is now being served by at least one government anti-poverty program,” which I am sure doesn’t even mention the 50 million people receiving Social Security checks! Wow!

No wonder we are broke! We spent all our money on free lunches for ourselves, and now we are spending it on delivering “free lunches” to more than half of the population!

And it is this bizarrely socialist/communist governmental “free lunch” program that causes mal-distribution of wealth, as the Sorry Dismal Fact (SDF) is that people with money are the only ones who have the collateral necessary to borrow money to loan to the government so that the government can deficit-spend to provide all these free lunches.

So, the government must borrow from the rich, see, and then the government repays, over time, both principal and interest to the rich, leaving the rich with even more money, making the rich richer. It’s just that simple!

And, even worse, the Worst Part Of The Whole Mess (WPOTWM) is that the extra money created by the foul Federal Reserve, to finance both governmental and private over-consumption, ends up making prices higher! Prices go higher and higher, all the time higher and higher, as all that new money works its way into prices (since there is nowhere else for money to go!), which actually worsens the plight of the poor and exacerbates the mal-distribution of wealth! Insanity!

About the only thing that is not insanity these days is the Magnificent Mogambo Portfolio Theory (MMPT), which (sanely) says to buy nothing but gold, silver and oil stocks when the government is spending insanely, and insane, incomprehensible amounts of new money will be created by the insane Federal Reserve to fund the insanity.

And the best part of the MMPT is that it is so easy that you cannot stop yourself from happily exclaiming, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Private Sector to Play “Atlas” in “The Debt Repayment Story” originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Private Sector to Play “Atlas” in “The Debt Repayment Story”

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

The International Energy Association (IEA) has spoken. What the world needs now is a clean energy technology revolution.

June saw the 2010 launch of IEA’s biannual report, Energy Technology Perspectives. Speaking at the launch was Nobuo Tanaka, executive director for IEA. The Gulf oil spill, he said, could prove to be a tipping point in the world’s energy consumption habits. He added that the disaster serves as a tragic reminder that our current path is not sustainable.

As far as the IEA is concerned, this is probably a very important moment to start looking at alternative energy sources. If we, as a collective group of consumers, continue on the business-as-usual path, the scenario for 2050 is looking grim.

This baseline scenario sees carbon emissions rising by 130%, with power generation accounting for 44% of total global emissions in 2050. Oil demand will be up by 70% – that’s five times the oil production in Saudi Arabia today. I’ll leave you to imagine what this means from an energy security perspective.

The other scenario offered by the publication, known as BLUE Map, is the “target” scenario. It assumes that all carbon emissions will be reduced by 50% by 2050 and suggests the least costly way to get there. This 50% reduction, the IEA insists, is the absolute minimum, should we want to keep climate change within the more acceptable 2-3 degree change.

The main focus of this scenario is, of course, weaning the world off fossil fuels. Carbon intensity of energy use would have fallen by 64% by 2050. Demand for coal would drop by 36%, gas by 12%, and oil demand by 4%. Renewable energy would be providing a hefty 40% of primary energy supply and 48% of the electricity generated. As for cars, 80% will be electric, hybrid, or hydrogen-fueled.

And while the world is expected to reduce emissions by 50% by 2050 in the BLUE scenario, it is the OECD that will bear the real burden. Non-OECD countries can get away with just a 50% reduction; OECD countries are looking at cutting 70-80% of their 2007 emissions. This would mean that the electricity sector for these 32 countries would have be “almost completely decarbonized” by 2050.

So what needs to be done to make this work? Well, gird your loins – the “top priority” will be to increase energy efficiency, reduce energy consumption, and lower energy intensity.

But there’s also some exciting news. The revolution is already under way.

On a global scale, total investment into technology and its deployment between now and 2050 would be about US$45 trillion – 1.1% of average annual global GDP over the period. The good news is, that investment has already begun all around the world.

Even as China grudgingly accepts the mantle of the biggest energy consumer, investment dollars are being poured into renewable energy research. China has already surpassed the United States as the largest producer of clean energy, whether it be hydro, wind, solar, or nuclear.

Germany, Europe’s powerhouse, is lining up renewable energy to compete with nuclear. Currently getting 10% of its energy from renewable energy, Germany’s renewable numbers for 2020 are projected at 38.6% electricity, 15.5% heating and cooling, and 13.2% of the transport sector.

And in the United States, the Obama Administration has been pushing for, and encouraging, clean energy research and development since it came into power. On display are a variety of subsidies and loans guaranteed to tempt even the most conservative producer.

Whether it’s the 30% cash up-front that the government is willing to give renewable energy projects or the vast amounts of cash injections into various energy technologies programs, renewable energy is set to take off in America.

For those investment portfolios that have taken a hit from the BP and Enbridge oil disasters, the IEA report is only going to spur up greater interest in the renewables game. Knowing which companies are enjoying political favor from Washington to Berlin and are at the receiving end of substantial grants is a sure-fire way to repair the damage.

Regards,

Marin Katusa
for The Daily Reckoning

Oil’s Out…Clean Energy Is In originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Oil’s Out…Clean Energy Is In

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

With the market completing an almost exact push up to the S&P 1,130 level, as has been the case two times in the last two months, let’s take a look at the current state of market internal (divergences) and compare those to the prior two times to see if we can get insights into the future move the market is likely to make.

First, let’s see the “Bigger Picture” that the upcoming intraday charts will show us:

All other analysis aside, focus on the highlighted zones, which will be revealed in greater detail in intraday charts.

Reference my former post:  “Third Time’s the Charm?  The S&P 500 Daily Rally Pattern” for more details on the “Rally Pattern.”

The thinking is “It’s happened twice – it will probably happen again,” so let’s take a look at current market internals and compare what’s happening now to what happened internally during the June and July similar rallies.

First, the CURRENT picture of Market Internals:

The internals in all charts – created with TradeStation – show the NYSE Breadth, TICK, and Volume Difference (of Breadth).

Generally, you want to see Internals RISE with price rises as a confirmation, but if internals FALL as price rises into an over-extended position, it is a non-confirmation that suggests a decline – sometimes sharp – is ahead.

That’s what we see right now – price rising, market internals all falling.  Not good for the bulls.

That doesn’t mean that price is required to fall, but that odds – based on historical instances where this pattern formed previously – favor a fall, particularly since the S&P 500 has pushed up into key resistance.

Aggressive traders might start shorting now, placing stops above the breakout resistance of 1,130 (meaning, a push above 1,130 would trigger a “Popped Stops” short-squeeze), while conservative traders might wait until price confirmation (of a down-move) comes via a breakdown of the horizontal support trendline at 1,115 or 1,110.

Let’s now step back in time to see what happened the last two times we’ve had a similar rally into the same 1,130 overhead resistance levels.

Hint:  BOTH times resulted in a pretty sharp decline in the days/weeks ahead.

First, the JUNE Pattern:

We see an almost identical pattern of a market rising but market internals deteriorating.

Unfortunately, buyers gave “one last gasp” before rolling over, resulting in a painful Bull Trap for those who got long on the “Trap” of June 21.  Ouch.

Those CAN happen and it CAN happen again – so that’s why it’s often better to WAIT for a confirmed price signal in terms of an official breakdown of a horizontal trendline, like that at 1,110.

Price then “Collapsed” in a 10-day decline to bottom at 1,010 that kicked off the July rally pattern.

Speaking of the “JULY Rally Pattern,” here is the state of internals in July:

The July rally was certainly the “Rally that Wouldn’t Die!”

When price looked to be topping, buyers rushed back in to support the market, driving it to new highs, as was the case in the July 14th roll-over, then July 27th roll-over.

Even after the price collapse/sell-off of August 6th, buyers gave it one more shot at a final “Last Gasp” rally that resulted in a marginal new high forming just before the “Collapse” that took us back to 1,040.

Again, it was better to wait for the official breakdown, or else risk multiple days of frustration and possible stop-outs if you tried to short ahead of the breakdown.

That leads us to our Lessons portion:

1.  When price has formed lengthy negative momentum divergences, you CANNOT call the exact top.

In fact, in both cases, we had early sell signals that were thwarted with a final “dying gasp” of the bulls before the market rolled over.  It’s possible we’ll see that “dying breath” one more time if indeed we do NOT break above 1,130 soon.

2.  Be on guard for “Last Gasps”

As mentioned above, a “Last Gasp” is a “Bull Trap” that suckers in buyers, thinking the market is breaking out, that then crushes them on a sudden and grossly overdue sell-off.

From the perspective of the Bears/Short-Sellers, this “Last Gasp” likely resulted in stop-losses being triggered JUST ahead of the expected sell-off, leading to immense frustration.

3.  Markets DO eventually roll-over from overextended prices on massive divergences

It’s the way of the world – it happens.  Or at least, it’s what’s “Supposed” to happen.  But that doesn’t mean calling an exact price top is easy.

In these cases, it would have been safer and better to wait for the official price breakdown before going short, and remaining neutral while the upward price trend is … dying.

It’s almost like a cornered dying animal  – yes, it’s dying and its days are numbered, but if you try to mess with it before it ‘dies’, it will lash out and injure you.

Oh – another quick observation – the June rally (which looks most similar to our present rally) ended the day AFTER (Monday) June’s Options Expiration.

Friday gives us September’s Options Expiration.

Watch closely to see if history repeats (leading to a sharp sell-off), or if buyers can break history and break out of 1,130.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Important Lessons From Market Internals Now and the Prior Two Rallies into Resistance

OPTIONS, Uncategorized

It says something about the growing irrelevance of print media that this cover of Time magazine, sitting on newsstands in late August, came to our attention only this week…

We can imagine the thought crossing the minds of at least a few readers: “Wow, maybe we really have hit bottom in housing.” You know, magazine covers as contrarian indicators – including the all-time classic…

Today, that cover stands as a monument to bad calls, coming just as the stock market launched an epic 18-year rally. Except it didn’t, really…

What people forget is that famous BusinessWeek cover hit the newsstands in August 1979…but the stock market didn’t hit bottom until August 1982. With hindsight, we could say it forecast the bear market would stick around for another three years.

So if the Time cover is a reliable indicator, we still have another three years of housing bust ahead of us. Sure enough…

“The slide in US home prices may have another three years to go,” reported Bloomberg just yesterday, “as sellers add as many as 12 million more properties to the market.”

Bloomberg cited the research of Morgan Stanley analyst Oliver Chang, who examined a phenomenon we’ve long chronicled in this space – the “shadow inventory.” That’s all the homes in foreclosure that lenders are keeping off the MLS, lest they flood the market and push down prices even further than they already are.

“The issue is there’s more supply than demand,” says Chang. “Once you reach a bottom, it will take three or four years for prices to begin to rise 1 or 2% a year.”

Coming onto the market soon – 95,364 more bank repossessions that took place during August. That’s a record high, according to RealtyTrac.

But lenders sent out 5.5% fewer default notices compared to a year ago. That means there’s even more shadow inventory backing up in the pipeline. “There is a buildup in delinquent loans that are not in foreclosure,” says RealtyTrac’s Rick Sharga. “It’s a managed slowdown more than anything else.”

So the slide in prices goes on: Home prices in July were flat compared to a year earlier, according to CoreLogic. It was the first month since January that prices didn’t register a year-over-year increase, however meager. In 36 states, prices outright fell – the highest number since last November.

The number of home sellers who cut their prices grew in August for the third straight month, according to the real estate website Trulia. 26% of sellers cut their prices, the highest percentage since last October. The average price cut was 10%.

What could turn this around? “When we see job growth across America,” says Trulia CEO Pete Flint, “we can begin to discuss stability in the housing market.” (Good luck with that: First-time jobless claims fell a paltry 3,000 last week, to 450,000. That total needs to be at least 100,000 less to signal economic growth.)

Even people who don’t worry about their jobs are giving up on the American Dream. Last weekend, the San Francisco Chronicle profiled a couple who qualified in 2006 for a $625,000 mortgage…yet was priced out of the market.

Fast-forward four years and prices are down… but now the couple qualifies for a mortgage of only $280,000. “Our incomes haven’t changed, but the rules have changed,” the husband says, “so we don’t really talk about buying houses anymore. We’ve shelved it.” We suspect they’re not alone.

There’s another problem facing the housing market this fall, one that a sharp-eyed reader reminded us of recently…

“Do you have a ‘we are here’ plot of the Alt-A/subprime, etc., [coming up soon]?” the reader asks. Ah, the famous Credit Suisse chart of adjustable-rate mortgage resets.

“I think Alt-A is going to spike in September-October, so it would be nice to see that one again in an updated form.”

Ask and ye shall receive. And the reader is right: We should hit a peak in resets next month…with an even-higher peak coming late next year.

“The government’s mortgage modification programs have been a complete failure,” says Strategic Short Report’s Dan Amoss, assessing Uncle Sam’s attempts to prop up the market. “They have not addressed the problem of negative home equity.

“The level of home equity is the leading predictor of mortgage defaults and foreclosures,” Dan explains. “With housing prices set to weaken once again, we could see several months of self-feeding downward spiral: In an environment of weak housing demand, selling adds pressure to prices, which begets more selling… There’s still more room to the downside for prices to return to pre-housing bubble levels.

“In banking, they often say, ‘The first loss is the best loss.’ With a renewed downturn in housing prices, we could see a rush to liquidate the ‘real estate owned’ that’s been sitting on bank and GSE balance sheets waiting for a rebound.”

So the trickle of shadow inventory hitting the market now could soon become a flood.

Dave Gonigam
for The Daily Reckoning

Extending the Housing Bust Predictions originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Extending the Housing Bust Predictions

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

Gold sure seems like it has been acting more than a little crazy lately, with the commodity recently hitting new highs and threatening the 1300 level and ETFs for physical gold (e.g., GLD) and gold miners (e.g., GDX, GDXJ) attracting a great deal of attention.

If you listen to the media, a number of extreme positions are being bandied about, ranging from gold going to 10,000 to being described yesterday as the “ultimate bubble” by billionaire hedge fund guru George Soros.

With such strong convictions and emotions riding on the gold trade, this is the type of environment in which one would expect to find extreme volatility. Instead, the exact opposite has been unfolding. As the chart below demonstrates, during the last month the 20-day historical volatility in gold (dotted green line) has dropped to its lowest level in several years. At the same time, the CBOE’s gold volatility index (GVZ), which measures 30-day implied volatility expectations for GLD, has been making all-time lows. GVZ, which has been calculated since June 2008, established a new all-time low on Monday when it closed at 16.69.

With two strong divergent opinions on gold and low implied volatility levels, this could be an excellent time to buy options in order to establish speculative long or short positions in the metal.

In addition to gold’s speculative potential, investors looking for a portfolio hedge or even just a little portfolio diversification might also find gold options to be an attractively priced addition to one’s portfolio at current prices.

Related posts:

• Recent Developments in Gold and Gold Volatility
• Recent Gold Volatility
• Gold and Gold Volatility
• Chart of the Week: Gold
• Three Fear Indicators (or…The Three Baritones)
• The Evolution of the Volatility Family Tree

Disclosure(s): long GDXJ at time of writing

Read more here:
Opportunities Arising from Unusually Low Implied Volatility in Gold

ETF, OPTIONS, Uncategorized

Gold sure seems like it has been acting more than a little crazy lately, with the commodity recently hitting new highs and threatening the 1300 level and ETFs for physical gold (e.g., GLD) and gold miners (e.g., GDX, GDXJ) attracting a great deal of attention.

If you listen to the media, a number of extreme positions are being bandied about, ranging from gold going to 10,000 to being described yesterday as the “ultimate bubble” by billionaire hedge fund guru George Soros.

With such strong convictions and emotions riding on the gold trade, this is the type of environment in which one would expect to find extreme volatility. Instead, the exact opposite has been unfolding. As the chart below demonstrates, during the last month the 20-day historical volatility in gold (dotted green line) has dropped to its lowest level in several years. At the same time, the CBOE’s gold volatility index (GVZ), which measures 30-day implied volatility expectations for GLD, has been making all-time lows. GVZ, which has been calculated since June 2008, established a new all-time low on Monday when it closed at 16.69.

With two strong divergent opinions on gold and low implied volatility levels, this could be an excellent time to buy options in order to establish speculative long or short positions in the metal.

In addition to gold’s speculative potential, investors looking for a portfolio hedge or even just a little portfolio diversification might also find gold options to be an attractively priced addition to one’s portfolio at current prices.

Related posts:

• Recent Developments in Gold and Gold Volatility
• Recent Gold Volatility
• Gold and Gold Volatility
• Chart of the Week: Gold
• Three Fear Indicators (or…The Three Baritones)
• The Evolution of the Volatility Family Tree

Disclosure(s): long GDXJ at time of writing

Read more here:
Opportunities Arising from Unusually Low Implied Volatility in Gold

ETF, OPTIONS, Uncategorized

We’re not exactly in Las Vegas. Not yet. But we’re on our way. Yesterday, we had a funeral in Paris. Today, we have a speech to give in Las Vegas.

This is not the way we planned it. It’s just the way things work out.

Yesterday was a bit of a letdown. After having hit a new record high on Tuesday, gold decided to take it easy on Wednesday. The price slid $3.

Stocks, meanwhile, showed a little progress. Not much.

So we still have no clear trend. We wait. We wait.

For a while it looks like the next leg down has finally begun. Then, it looks like we’re in for another rally.

The only sure thing, so far, is that gold goes up. Even that is not really sure…but it is surer than just about everything else.

Our dear readers who bought gold back in 1999 have made about 4 times their money. This year alone it is up 15% – a very respectable return. Most of that has come as a result of paper currencies going down. Investors are buying gold to protect themselves.

They may also be getting a little insurance from a much more serious level of inflation which many think is coming. We think it is coming too. But in our view it looked like it would be awhile before it showed up. We’re in a major de-leveraging. You don’t get the normal cost-push or demand-pull inflation in a de-leveraging cycle. You get something else…something much more violent and dangerous.

But, heck, we wouldn’t rule out anything.

We made money on gold over the last 10 years simply because gold was cheap when we bought it. We were betting on regression to the mean. Nine times out of ten, when you bet on regression to the mean, you’ll make money.

Can you make money buying gold now? Yes, but now you’re betting on a different phenomenon. Actually, to hear the analysts tell the story, you’ve still got a good chance of making money. If the economy picks up, inflation will likely pick up too – ergo, higher gold prices.

If the economy sinks into deflation, gold still goes up. Why? Because deflation is sure to bring worry, doubt, and trouble.

Then, there are those who think we’re headed to hyperinflation. If so, you ain’t seen nothing yet as far as gold is concerned. The price could get to $5,000 an ounce…and beyond.

What do we think? Well, we agree with them all, more or less. The best bet is probably that we’ll stay in a Japan-like trance for a while longer. This is not necessarily good for gold. And not necessarily bad. Most likely, the yellow metal will meander around…generally headed upwards.

On the other hand, who knows?

The trouble with this market is that there are too many people who think they know. Many are saying that gold is a “can’t lose” investment. Maybe they’re right. But we don’t like the sound of it.

Bill Bonner
for The Daily Reckoning

Why the Price of Gold Goes Up in a Struggling Economy originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Why the Price of Gold Goes Up in a Struggling Economy

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

It’s called “The Great Gold Rush of 2010,” according to a recent Nightline episode featured below. With global demand already high, and many institutional and individual investors still in search of a replacement for paper currency in the face of economic uncertainty, the price of gold has been continually ticking upwards. From $270 an ounce back in 2000 to about $1,270 in 2010, the precious metal of “beauty, scarcity, and solidity,” has provided safe harbor for several millennia of anxious investors.

If that’s not enough to take a gander, there’s a great clip of the gold dispensing machine in Abu Dhabi. All of which begs the question… is it a wild and misguided frenzy for frothy gold as Ben Stein suggests? Or, is it really different this time, given a much more devastating economic downturn in the making?

You can decide for yourself by viewing the Nightline video below which came to our attention from a post on the modern gold rush at The Big Picture blog.

Gold Hits Record High and Follows Hype Trajectory Straight to Nightline originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold Hits Record High and Follows Hype Trajectory Straight to Nightline

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

It’s called “The Great Gold Rush of 2010,” according to a recent Nightline episode featured below. With global demand already high, and many institutional and individual investors still in search of a replacement for paper currency in the face of economic uncertainty, the price of gold has been continually ticking upwards. From $270 an ounce back in 2000 to about $1,270 in 2010, the precious metal of “beauty, scarcity, and solidity,” has provided safe harbor for several millennia of anxious investors.

If that’s not enough to take a gander, there’s a great clip of the gold dispensing machine in Abu Dhabi. All of which begs the question… is it a wild and misguided frenzy for frothy gold as Ben Stein suggests? Or, is it really different this time, given a much more devastating economic downturn in the making?

You can decide for yourself by viewing the Nightline video below which came to our attention from a post on the modern gold rush at The Big Picture blog.

Gold Hits Record High and Follows Hype Trajectory Straight to Nightline originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Gold Hits Record High and Follows Hype Trajectory Straight to Nightline

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized