Wow – what a turn-around intraday in gold prices!  Buyers who purchased gold or the GLD ETF on the breakout to new highs in the morning session were cursed with a mid-day reversal that triggered a Bull Trap that created an ominous looking Bearish Engulfing Candle on the daily chart.

Let’s take a moment to look at the daily chart then step inside today’s intraday action to see what went wrong and learn a lesson in protection when the obvious play becomes a vicious trap.

First, the bigger picture from the Daily Chart:

First of all, I’m showing GLD – the popular GLD ETF on the daily structure.

I’ve mentioned this in weekly reports and I believe in a blog post, but the recent action in gold has concerned me – namely that gold pushed up to a new lifetime breakout high in early March but failed to sustain it.

This kind of behavior is a non-confirmation by price action and is inherently a caution/warning signal.  We typically expect new breakout highs to be met with a rush of buyers which are joined with a frantic rush of short-sellers being forced to buy to cover their losses as price breaks through their protective stop-loss levels.

A breakout that fails to trigger an immediate feedback loop of upside action is suspect and must be monitored very closely.  Gold seems to be displaying this non-confirm or “unexpected” breakout failure action at the moment and must therefore be watched objectively and closely.

No, it’s not true that every single bearish engulfing candle results in a trend reversal, but while price remains under the candle formation at the $139 to $141 level, then gold is in potential danger of a steeper pullback.

A firm breakout – accompanied with higher volume and momentum – negates these signals and puts them behind us, but while they exist, you’ll need to watch your open positions much more closely than otherwise.

Here, let’s step inside the hourly chart to see the progression up and today’s stunning reversal:

Here’s the recent ‘failure’ breakout to new highs in early March which eventually built-up to today’s failure breakout and reversal.

Always pay attention to price relative to momentum and volume – on guard for confirmations (higher price, volume spike/rise, momentum spike/high) or non-confirmations (divergences in volume or momentum with price highs).

Though the first push-up on March 2nd was met with confirming spikes in momentum and volume, the second push on March 7th was NOT.  The divergences hinted at a reversal lower (short-term) and that’s what happened – as price fell along with stocks during the Japan situation to the $135.50 level (from $141).

The recent push-up initially was met with higher volume spikes and higher momentum, but the recent ’second pushes’ on March 23rd and 24th (today) were NOT met with higher momentum – the negative divergence is clear.

That was the structure going into today’s high – that of a weakening of momentum and failure to sustain above the “Resistance Band” I drew from $140 to $140.50.

A breakthrough to new highs WITHOUT a confirmation from volume and momentum is like a handful of troops breaking free from the ranks as they charge ahead into battle, only to look back to see no other soldiers are charging with them.  The result is that the eager troops must then fall-back to the safety of the other troops.

Similar things tend to happen in the markets.

Let’s drop down to the 15-min chart to see that momentum was even worse on the lower timeframes:

The 3/10 Momentum Oscillator peaked on March 18th on the gap/surge to the upside.  From there, price pushed to three additional highs but each time, the oscillator registered a slightly lower high.

I discuss momentum principles – both leading to the upside and forecasting reversals via divergences – in Chapter 3 of the new Trading Course book (which you may actually be able to read a portion online via Amazon).

Anyway, momentum tends to lead price, and you want to see momentum and price surging to new highs together to have confidence in a successful (high probability) buy trade (of course, relative to your timeframe/holding period).

We did initially have volume spike-up in confirmation on the 23rd and today but today, volume steadily and clearly trailed lower each 15-min period until price reversed.

So how do you protect yourself if you bought a breakout this morning?

First, don’t let your greed/emotion blind you from new price developments.

Watch for our old villains “Ownership Bias” and “Confirmation Bias” to sneak up on you – with these, we tend to ignore conflicting evidence to our position (long).  Thus, we might ignore the previous divergences and then ignore the later price breakdowns through rising trendlines and rising moving averages on multiple intraday timeframes.

Namely, price shattered the rising intraday trendline that also happened to be the rising 20 period EMA on the 15-min chart at $140.75.  Fifteen minutes later, price deeply sliced under the 50p EMA at $140.25 then under the key $140 level.  That should NOT happen if you expect a big impulse breakout to happen.

Also, putting moving averages aside, price shattered under the prior support-level price low at the $140.25 region (from Wednesday).

Price also then sharply broke under the rising 20 EMA on the hourly chart – something also that should NOT happen.

The safety/protection play was to exit on the ‘unexpected’ breakdown under the $140 level – it’s that kind of action that triggers “popped stops,” which create big moves as a result of one side of the market rushing for the exits at the same time.

If you hold and hope during a collapse-down or change in chart psychology, you expose yourself to the potential for a serious and sudden loss.

That’s the main logic of protective stops – place stops under logical price levels (namely confluence support levels) under which price should NOT move.  In the event price DOES move under those levels, take your exit gracefully and painlessly as possible.

I’m reminded of one of my favorite axioms of trading wisdom that I frequently share in the daily reports:

“If something SHOULD happen but does NOT, then it often leads to a LARGER than expected move in the OPPOSITE direction.”

Namely because one side of the market is now being unfortunately squeezed out of their positions as the other side capitalizes on this situation, thus creating a temporary but sometimes violent/powerful feedback loop of perpetual motion that cripples those who fight the move in motion.

I’ll leave it at that – trade as normal but always be on guard for surprise actions and know levels ahead of your entry where you will exit.

Today’s action makes gold very suspect – it’ll need to push on to new highs very soon, else it may be in trouble to retest lower support levels soon.  Watch very attentively as the next few days progress.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Stepping Inside the Bearish Engulfing Bull Trap in Gold GLD

Wow – what a turn-around intraday in gold prices!  Buyers who purchased gold or the GLD ETF on the breakout to new highs in the morning session were cursed with a mid-day reversal that triggered a Bull Trap that created an ominous looking Bearish Engulfing Candle on the daily chart.

Let’s take a moment to look at the daily chart then step inside today’s intraday action to see what went wrong and learn a lesson in protection when the obvious play becomes a vicious trap.

First, the bigger picture from the Daily Chart:

First of all, I’m showing GLD – the popular GLD ETF on the daily structure.

I’ve mentioned this in weekly reports and I believe in a blog post, but the recent action in gold has concerned me – namely that gold pushed up to a new lifetime breakout high in early March but failed to sustain it.

This kind of behavior is a non-confirmation by price action and is inherently a caution/warning signal.  We typically expect new breakout highs to be met with a rush of buyers which are joined with a frantic rush of short-sellers being forced to buy to cover their losses as price breaks through their protective stop-loss levels.

A breakout that fails to trigger an immediate feedback loop of upside action is suspect and must be monitored very closely.  Gold seems to be displaying this non-confirm or “unexpected” breakout failure action at the moment and must therefore be watched objectively and closely.

No, it’s not true that every single bearish engulfing candle results in a trend reversal, but while price remains under the candle formation at the $139 to $141 level, then gold is in potential danger of a steeper pullback.

A firm breakout – accompanied with higher volume and momentum – negates these signals and puts them behind us, but while they exist, you’ll need to watch your open positions much more closely than otherwise.

Here, let’s step inside the hourly chart to see the progression up and today’s stunning reversal:

Here’s the recent ‘failure’ breakout to new highs in early March which eventually built-up to today’s failure breakout and reversal.

Always pay attention to price relative to momentum and volume – on guard for confirmations (higher price, volume spike/rise, momentum spike/high) or non-confirmations (divergences in volume or momentum with price highs).

Though the first push-up on March 2nd was met with confirming spikes in momentum and volume, the second push on March 7th was NOT.  The divergences hinted at a reversal lower (short-term) and that’s what happened – as price fell along with stocks during the Japan situation to the $135.50 level (from $141).

The recent push-up initially was met with higher volume spikes and higher momentum, but the recent ’second pushes’ on March 23rd and 24th (today) were NOT met with higher momentum – the negative divergence is clear.

That was the structure going into today’s high – that of a weakening of momentum and failure to sustain above the “Resistance Band” I drew from $140 to $140.50.

A breakthrough to new highs WITHOUT a confirmation from volume and momentum is like a handful of troops breaking free from the ranks as they charge ahead into battle, only to look back to see no other soldiers are charging with them.  The result is that the eager troops must then fall-back to the safety of the other troops.

Similar things tend to happen in the markets.

Let’s drop down to the 15-min chart to see that momentum was even worse on the lower timeframes:

The 3/10 Momentum Oscillator peaked on March 18th on the gap/surge to the upside.  From there, price pushed to three additional highs but each time, the oscillator registered a slightly lower high.

I discuss momentum principles – both leading to the upside and forecasting reversals via divergences – in Chapter 3 of the new Trading Course book (which you may actually be able to read a portion online via Amazon).

Anyway, momentum tends to lead price, and you want to see momentum and price surging to new highs together to have confidence in a successful (high probability) buy trade (of course, relative to your timeframe/holding period).

We did initially have volume spike-up in confirmation on the 23rd and today but today, volume steadily and clearly trailed lower each 15-min period until price reversed.

So how do you protect yourself if you bought a breakout this morning?

First, don’t let your greed/emotion blind you from new price developments.

Watch for our old villains “Ownership Bias” and “Confirmation Bias” to sneak up on you – with these, we tend to ignore conflicting evidence to our position (long).  Thus, we might ignore the previous divergences and then ignore the later price breakdowns through rising trendlines and rising moving averages on multiple intraday timeframes.

Namely, price shattered the rising intraday trendline that also happened to be the rising 20 period EMA on the 15-min chart at $140.75.  Fifteen minutes later, price deeply sliced under the 50p EMA at $140.25 then under the key $140 level.  That should NOT happen if you expect a big impulse breakout to happen.

Also, putting moving averages aside, price shattered under the prior support-level price low at the $140.25 region (from Wednesday).

Price also then sharply broke under the rising 20 EMA on the hourly chart – something also that should NOT happen.

The safety/protection play was to exit on the ‘unexpected’ breakdown under the $140 level – it’s that kind of action that triggers “popped stops,” which create big moves as a result of one side of the market rushing for the exits at the same time.

If you hold and hope during a collapse-down or change in chart psychology, you expose yourself to the potential for a serious and sudden loss.

That’s the main logic of protective stops – place stops under logical price levels (namely confluence support levels) under which price should NOT move.  In the event price DOES move under those levels, take your exit gracefully and painlessly as possible.

I’m reminded of one of my favorite axioms of trading wisdom that I frequently share in the daily reports:

“If something SHOULD happen but does NOT, then it often leads to a LARGER than expected move in the OPPOSITE direction.”

Namely because one side of the market is now being unfortunately squeezed out of their positions as the other side capitalizes on this situation, thus creating a temporary but sometimes violent/powerful feedback loop of perpetual motion that cripples those who fight the move in motion.

I’ll leave it at that – trade as normal but always be on guard for surprise actions and know levels ahead of your entry where you will exit.

Today’s action makes gold very suspect – it’ll need to push on to new highs very soon, else it may be in trouble to retest lower support levels soon.  Watch very attentively as the next few days progress.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Stepping Inside the Bearish Engulfing Bull Trap in Gold GLD

Len Riggio must be kicking himself. The chairman — and largest shareholder — of Barnes & Noble (NYSE: BKS) rebuffed a takeover last summer from Ron Burkle of Yucaipa Investments for a reported $20 a share.

At the time, I thought any buyer of the beleaguered bookseller would simply inherit a bunch of problems. [Read my original analysis.] Shares went on to fall 40% since then.

Seven months later, I'm changing my tune. Not because shares are much cheaper — but because recent events have altered the dynamics for this retailer. Even though hurdles remain, the odds are increasing for a convincing turnaround.

When competition shrinks
One of the greatest challenges in the retail sector is too much capacity. In certain niches, there are simply too many stores to profitably satisfy demand. Yet, when the number of stores in a niche is reduced, profitability for the remaining stores can soar. Pier One Imports (NYSE: PIR) saw rivals Bombay and Linens 'N Things close stores in 2007 and 2008. Since then, shares of Pier One have risen from $0.11 to $9 in the past two years — and that's during a time when retail spending has been depressed. Credit goes to shrinkage in the total industry store base.

This factor is just one of the reasons I'm shifting gears on Barnes & Noble. Rival bookseller Borders, as part of a bankruptcy plan, will close 200 stores. And that may not be the end of it. As we've seen with video-rental firm Blockbuster, the first round of store closures doesn't necessarily return a company to profitability. Blockbuster is on its fourth round of store closures. I expect Borders to keep retrenching.

Many of the Borders stores that are slated for closure are in reasonable proximity to similar Barnes & Noble locales. So it's logical to assume that Barnes & Noble will pick up a chunk of business. Goldman Sachs now assumes Borders-related sales boosts will add more than $30 million to Barnes & Noble's bottom line.

A growing dot-com
Part of my change in sentiment is also due to a factor that I got flat wrong. I assumed Amazon.com's (Nasdaq: AMZN) Kindle would run away with the e-book field. It didn't help that Apple's (Nasdaq: AAPL) iPad makes for a pretty good e-book reader as well. Yet, Barnes & Noble's Nook e-reader is actually holding up well. Market share is just above 20%, well below Amazon's 67%, but still impressive when you consider the total market doubled from the third quarter to the fourth quarter of 2010 and now generates more than 6 million quarterly unit sales. This means Barnes & Noble is selling more than 1 million Nooks per quarter.

As time passes, that rising installed base of Nook readers is likely to help to generate rising profits for the bookseller's Internet arm, BN.com. Digital titles downloaded to the Nook carry far higher profit margins than hardware sales. The BN.com website posted a 52% jump in sales in the third quarter of 2010 (ended December) to $319 million and is one of the fastest-growing e-tailers in the country. I had my doubts that Barnes & Noble could effectively compete in the online and brick-and-mortar worlds simultaneously, but each part of the business looks better than it did six months ago.

To be sure, Barnes & Noble's legacy store base still has room for improvement. The company just missed estimates for the fourth straight quarter, though the bar for future expectations appears to be set lower and the periods of serial disappointments appears to be over.

On one front after another, the Federal Reserve is coming under siege.

On Saturday, to begin, the hacker group calling itself “Anonymous” issued a video manifesto calling for “a relentless campaign of nonviolent, peaceful civil disobedience.”

“We aim to break up the global banking cartel centered at the Federal Reserve, International Monetary Fund, Bank of International Settlements [sic] and World Bank,” Anonymous says.

The group has been around for years, but made its biggest impact last fall, when WikiLeaks began releasing its stash of State Department cables. As Amazon, PayPal, Visa and MasterCard all cut off their business ties with WikiLeaks, Anonymous launched “distributed denial of service” attacks – basically slamming their websites with so much traffic until they were forced to shut down.

“As a first sign of good faith,” says the manifesto, “we demand Ben Bernanke step down as Federal Reserve chairman.”

This morning, Anonymous released some emails given to them by a former employee at Bank of America. The emails are separate from the BoA documents that WikiLeaks is sitting on.

The emails haven’t been independently verified…but they appear to show that, among other things, loan numbers were routinely falsified with the intent of putting mortgage holders in default. You think the “robo-signing” scandal was a big deal? Wait until this one gets legs.

Anonymous is nothing if not ambitious. And they have a rising tide of public anger on their side.

Then, on the same day the tsunami devoured 100 miles of Japanese coastline, New York Fed chief William Dudley – a 21-year vet of Goldman Sachs – stepped out of his bubble to explain Fed policy to real people in Queens.

It might not have been the first time Dudley attempted to gain the trust of the hoi polloi, but we’re pretty sure it’ll be the last. The details here were reported widely. We divined the scene from a Reuters report.

First Dudley swore up and down that inflation was no problem. “When was the last time, sir,” came a reply from the audience, “that you went grocery shopping?”

Dudley boldly proceeded to explain the concept of “core CPI” – the cost-of-living measure designed for people who don’t eat or consume energy. Heh, we know firsthand how well that goes over…

Then in a brilliant stroke, he pointed to Apple’s shiny new iPad 2 to illustrate his point. “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he gamely explained. “You have to look at the prices of all things.”

“I can’t eat an iPad,” someone yelled from the crowd. How big a leap is it from “I can’t eat an iPad” to “douse myself with gasoline and light my body on fire in the street”, we wondered while reading the report. Depends entirely on who’s listening, we suspect.

Addison Wiggin
for The Daily Reckoning

An Anonymous Attack on the “Global Banking Cartel” originally appeared in the Daily Reckoning. The Daily Reckoning now provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
An Anonymous Attack on the “Global Banking Cartel”

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.

I didn’t come up with the phrase, “when money dies,” though I like it a lot. The phrase captures an important idea. It is that money – I refer to that paper kind issued by governments – has a finite life. At some point, it becomes worthless, or dies.

The death of a currency is often a protracted affair. It often takes decades. And as it unfolds, the people who experience it hardly believe it. That is the tale told by Adam Fergusson in his book When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany.

First published in 1975, it had been out-of-print for years and much sought after. A used copy on Amazon cost $300 recently.

The book is a history of the death of the German mark in the 1920s. It is also a scary reminder of the devastating effects of inflation and, therefore, a cautionary tale for US central bankers and politicians who play so fast and loose with US Dollar.

If you don’t know what happened to the German mark, here’s what you need to know from When Money Dies: “In 1913, the German mark, the British shilling, the French franc and the Italian lira were all worth about the same. Four or five of any of these would buy you a US Dollar.”

By 1923, you could exchange one shilling, franc or lira for up to 1 billion marks. “Although,” Fergusson writes, “in practice, by then, no one was willing to take marks in return for anything. The mark was dead, one million-millionth of its former self. It had taken 10 years to die.”

How did that happen?

The short answer is that post-Imperial Germany found itself with a crushing load of debt. Raising taxes or cutting spending is politically difficult in any age. And so it was in Germany. To deal with these debts, Germany chose the path of least resistance. It printed lots and lots of money.

Sounds like the fiscal position the US government finds itself in today. Bleeding deficits with no end in sight. Piling on debt and entitlements with no end in sight. The solution so far? Why, “quantitative easing.” In a new introduction, Fergusson writes:

“Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, ‘quantitative easing,’ that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline.”

But back to Germany…

Eventually, prices started to rise as the mark lost purchasing power. One of the great strengths of the book is the on-the-ground view you get from the people who lived through it. It gives you an unsettling look at German society as it starts to dissolve and as inflation starts to wreak havoc.

It started slowly, with commodity prices starting to rise everywhere. But as the years wore on, prices kept going up in big steps. Soon the damage was remarkable.

In just eight years since 1913, the price of rye bread rose 13-fold. Beef rose 17-fold. Sugar, milk, pork and potatoes went up 23-28-fold. Butter went up 33-fold! And these were official prices. As a practical matter, real prices were often a third higher. It’s hard to fathom.

All this brought out the worst in people. Germany became an ugly society, looking for blame. As Fergusson writes: “They picked upon other classes, other races, other political parties, other nations.” There was a long list of villains: “the greed of tourists, or the peasants, or the wage demands of labor, or the selfishness of industrialists and profiteers, or the sharpness of Jews or the speculators making fortunes in the money markets.”

Erna von Pustau, who lived through it, described what it was like:

“My allowance and all the money I earned were not worth one cup of coffee. You could go to the baker in the morning and buy two rolls for 20 marks; but go there in the afternoon and the same two rolls were 25 marks. The baker didn’t know how it happened… His customers didn’t know… It had somehow to do with the dollar, somehow to do with the stock exchange – and somehow, maybe, to do with the Jews.”

As we know what would happen later in Germany, her comments are particularly chilling.

Each year, people thought it couldn’t get worse. “And yet things always did, from bad to worse, to worse, to worse,” Fergusson writes. “It was unimaginable in 1921 that 1922 could hold any more terrors. They came, sure enough, and were in due course more than eclipsed, with the turn of the following year.”

Germany plunged into hyperinflation. The price changes get ridiculous to talk about – the numbers so large that they are practically meaningless. Who can imagine paying 500 billion marks for a dozen eggs? It’s also interesting to see how society dealt with this breakdown in the currency. The idea of real wealth became very important. Not the kind of wealth denominated in abstract printed marks, but real wealth that one could use.

People bought things. Hugo Stinnes, an industrialist, bought factories, mines, newspapers. The man on the street bought what he could trade. Fergusson ends with a powerful observation:

“In war, boots; in flight, a place in a boat or a seat on a lorry may be the most vital thing in the world, more desirable than untold millions. In hyperinflation, a kilo of potatoes was worth, to some, more than the family silver; a side of pork more than the grand piano.”

Despite the awful experience of the 1920s, Germany would repeat its errors again and again. In the 1930s, Hitler would crank up the money presses. By 1948, the reichsmark (which replaced the old mark) died. So Germany created the deutsche mark. Yet it wasn’t much better. It lost two-thirds of its purchasing power by 1975.

Such is the fate of all paper money.

I will leave it to you to decide how much relevance Germany’s experience has to the US today. I find many alarming parallels.

I would point out, too, that the US dollar has lost 95% of its purchasing power since 1913. And the US dollar is among the best currencies of the last hundred years. That says something about paper currencies, doesn’t it?

It’s also why staying ahead of inflation is one of the chief tasks of investing.

The monetary puppet-masters at the Fed will have you believe inflationary pressures are inconsequential or a far off mirage.

Don’t believe it for a second…

QE2 is humming along with the prospects of a QE3 right around the corner ready to pump untold billions into an already cash-flush banking system.

Now is the time for investors to take action and protect capital from the inflationary pressures building up in our economy.

Regards,

Chris Mayer,
for The Daily Reckoning

“When Money Dies” originally appeared in the Daily Reckoning. The Daily Reckoning has published articles on the impact of quantitative easing, bakken oil, and hyperinflation.

Read more here:
“When Money Dies”

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.

Over the recent holiday period, the e-commerce sector witnessed exceptional growth as many consumers opted to shop on-line, as opposed via the traditional brick and mortar storefronts, paving the path to opportunity in the near future for the sector. 

According to a recent article in Barron’s, U.S. e-commerce spending accelerated 13% during the holiday season, pushing total e-commerce growth in 2010 to 10% year-over-year.  Furthermore, the article also contends that US e-commerce is expected to witness another 10% year-over-year growth in 2011, pushing spending to over $150 billion for the year. 

Additional support to e-commerce should also come from increased consumer spending which is likely to be driven by an improving US economy and governmental decisions which is expected to lead to increased disposable income.  The US economy is showing signs of growth indicated by the recent rise in the Institute for Supply Management’s non-factory index, which constitutes nearly 90 percent of the economy, to a 57.1, signaling growth, and also indicated that measures of new orders and business activity increased to their highest levels since August 2005.  Further support in the US economy came from a report today from ADP Employer Services indicating that companies increased payrolls in December by 297,000, the most since records began in 2001.  These positive trends in the US economy are likely to boost consumer confidence and hence consumer spending. 

In regards to increased disposable income for consumers, the extension of the Bush-era tax cuts as well as the trimming of payroll taxes are both expected to increase disposable income and hence give consumers the ability to increase spending and with current trends, companies that are involved in e-commerce should bode well.

Some ETFs to play the e-commerce trend include:

• Internet HOLDRs (HHH), which allocates a whopping 42.13% to Amazon (AMZN), the current leader in e-commerce and 18.45% to e-Bay (EBAY), another company that is heavily involved in the space.
• First Trust Dow Jones Internet Index (FDN), which boasts Amazon, eBay and Priceline (PCLN) in its top holdings.
• PowerShares NASDAQ Internet (PNQI), which similar to the HHH and FDN boasts as its top holding and also includes Netflix (NFLX) in its top holdings.
• Retail HOLDRs (RTH), which is a diversified play on the retail sector and allocates 11.88% of its assets to Amazon.

Disclosure: No Positions

Read more here:
4 ETFs To Play Surge In E-Commerce

HERE IS YOUR FOOTER

After QE2, analysts were looking for possible consequences of the Federal Reserve Bank’s actions. What has become apparent is that the Fed has created another bubble in China. Investors globally have transferred devalued US dollars and euros to buy Chinese property and equities. China has had to combat imported inflation with rapidly rising asset prices. An influx of capital has caused a real estate bubble, a rise in costs of basic goods, and excessive speculation in the commodity markets. The Chinese central banks will be observing the inflation data which should be coming out this weekend and will be compelled to act aggressively to prevent China from a bust similar to the housing crisis which occurred in the United States in 2007. Yesterday’s IPOs showed that irrational exuberance is here once again, none since I have witnessed since the late ’90s.

I never grew so fearful of the Chinese market until I began hearing the fanfare around yesterday’s IPOs. I began to read the marketing language and began to have strong feelings of déjà vu. I felt like I was reading something that I read almost 10 years earlier with a company called boo.com, which was labeled the next Amazon (AMZN). They were also underwritten by Goldman Sachs (GS). Boo.com burned through $185 million in 18 months and did not make any profits. Investors were wiped out. {FLIKE}IPOs are a measure of market sentiment. Companies come to the market as the future looks bright and they’re expected to expand. A pattern of IPOs begins to show over-enthusiasm and possible peaks in the market. The number of IPOs is a useful tool for technicians to confirm tops and troughs in the market.

Investors are obsessed with China, just like the IPOs in the late ’90s right before the tech bubble burst. They piled into two new IPOs, Youku and Dangdang, which are not showing much of any profit and only offering panaceas. This year approximately one in four IPOs are Chinese companies. Investors are expecting exponential growth, and even though these have been marketed as the next YouTube (GOOG) and Amazon, both companies have a long way to go; they are currently not making much profit at all. Lessons should be learned from the tech bubble: Highly marketed IPOs should be viewed as a contrarian signal. Ironically, these latest IPOs come at a time when the Chinese central banks are committed to fighting excessive speculation.

International markets are going to carefully examine China’s inflation data (to be released this weekend). This information should evoke central bank response by early next week.

The chart above shows the rapidly accelerating price appreciation of housing markets in China’s major metropolitan areas. China has already implemented regulations to curb rampant speculation in their housing market.

Many investors are unaware of the rising dangers of externally generated inflation. Month after month applications to start real estate operations from foreign entities are doubling. The carry trade has become apparent. Investors are exchanging easy, electronically printed money for Chinese assets.

The chart above illustrates the China 25 Index (FXI) and shows a possible “V” reversal top and negative divergence. This is when price breaks into new highs, then with no warning, the price breaks the uptrend and support levels. The FXI broke through the 50-day moving average and has already failed to regain the 50-day on the upside once. Until it regains that 50-day, I am cautious on commodities and equities. Ideally a break into new highs should show some follow-through strength, and this has not occurred. The Chinese markets are showing weakness, and this effect has morphed over to the precious metals and commodity markets.

It would be naive to think that a surprise hike in rates and a downturn in China would not put pressure on gold and silver. Gold (GLD) and Silver (SLV) are beginning to show signs of bearish reversals after a powerful move. Open interest in gold futures peaked on November 9, a major reversal day. A tightening policy in China could keep buyers away for a significant amount of time or until prices come down to a more reasonable level.

The demand and consumption of raw materials in China has a major impact on commodities. It used to be that one had to watch a sneeze from the US, but precious metals investors need to also be aware of a sniffle from China.

Read more here:
Is The Chinese Bubble About to Burst?

Although it is hard to say that the US economy is in a sustainable recovery, there are plenty of signs showing that economic growth is accelerating, paving the path to opportunity for the Retail HOLDRs (RTH), the PowerShares Dynamic Retail (PMR) and the First Trust Dow Jones Internet Index (FDN).

The most promising and upbeat news recently came from a decline in new applications for jobless claims in the week ending November 20, 2010.  The 407,000 applications were far lower than expected and is aiding in easing concerns about job security and income growth.  This can further be supported by an increase in personal spending, which jumped to 0.4% in October, marking the fourth consecutive month of increased consumer spending. 

As for income growth, wages and salaries witnessed there largest jump in five months, increasing 0.6% while personal income jumped 0.5% in October.  This, in conjunction with non-existent inflation, is expected to increase purchasing power which is resulting in improved consumer sentiment.  According to the University of Michigan/Reuters consumer sentiment index increased to a 71.6 from 67.7, the highest level in nearly 20 months. 

To further support the notion that the US economy is in growth mode, many suggest that, aggregately, Americans have increased their credit-card debt for the first time in nearly two-years in such a manner that is consistent with increases in household income.  The consumer is such a critical factor in US economic growth because consumer spending constitutes nearly 70% of US GDP.

As mentioned above, three ETFs influenced by accelerated economic growth include:

• Retail HOLDRs (RTH), which allocates a significant portion of its assets to Wal-Mart (WMT), Amazon (AMZN) and Target (TGT).
• PowerShares Dynamic Retail (PMR), which allocates a significant portion of its assets to Bed Bath & Beyond (BBBY), Limited Brands (LTD) and Costco Wholesale Corp. (COST).
• First Trust Dow Jones Internet Index (FDN), which boasts Amazon, eBay (EBAY) and Priceline (PCLN) as top holdings, all internet-based companies that are highly correlated with increased consumer spending.

Disclosure: No Positions

Read more here:
Three ETFs Influenced By Accelerated Economic Growth

HERE IS YOUR FOOTER

Austrian economist Joseph Schumpeter first introduced the world to the concept of “creative destruction” by which, in his own words, sets forth a “fundamental impulse that sets and keeps the capitalist engine in motion [and] comes from the new consumers, goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates.”

In other words, just like in nature, business models and companies evolve over time. And if they don't, they eventually give way to new technologies or rivals or die out all together. Andy Obermueller, editor of the Game-Changing Stocks newsletter, is always on the hunt for firms that are already making shareholders significant profits for their successful, disrupting technologies. So I thought I would look into some areas I thought would be game-changers in the coming years myself and see if there was a potential way for investors to profit.

With that, here are five industries that I think could see significant disruption in the years ahead — and the players that could end up toppling the incumbent giants.

1. Cloud Computing
Incumbents: Microsoft (Nasdaq: MSFT), Adobe (Nasdaq: ADBE), Oracle (Nasdaq: ORCL)
Potential Winners: Amazon (Nasdaq: AMZN), Google (Nasdaq: GOOG), Intuit (Nasdaq: INTU), Microsoft

The current software business model consists of buying a copy of a software program and copying it to your computer. This leaves the maintenance tasks and updates to the computer user or corporate IT department. But software as a service, or SaaS for short, consists of using the Internet to access a program for a fee and leaves the maintenance and updating to the provider of the software.

This has major potential implications for those that currently benefit from the current business model. For the leaders, it is highly lucrative, as it has scale advantages — design the software once and sell it to a basically unlimited number of users. The new model could shift the advantage to those who fully embrace SaaS instead of fighting it to try and keep the current model intact. Amazon is a potential winner for providing servers to run all the software.

The music industry is a perfect example of fighting the migration of music to online servers and digital subscription services. Pure software providers, such as those listed above could benefit. Traditional providers could topple, but could also survive if they embrace the way the industry is shifting. [StreetAuthority contributor Tom Taulli recently gave his three favorite cloud computing clicks. Go here to read his article.]

2. Voice Over Internet Protocol
Incumbents: AT&T (NYSE: T), Verizon (NYSE: VZ), Sprint (NYSE: S)
Potential Winners: Google, Vonage (NYSE: VG), Skype.

Voice Over Internet Protocol, or VoIP for short, is simply the use of the Internet to transmit traditional voice telephone calls. It is in pretty wide use already, but if firms like Google have their way, they will use it to put traditional phone companies out of business.

If VoIP really takes off, it would make the existing fixed line networks that AT&T and Verizon have spent billions building and maintaining for more than a hundred years obsolete. Google recently acquired Swedish firm Global IP Solutions to beef up its VoIP capabilities and has supposedly acquired a firm with cutting-edge technologies in the space.

Vonage is a pure play in the space and has struggled to prove that customers are willing to pay for VoIP, but it is quite clear that the incumbents would be toppled if a low-cost or free option were made available. This threatens every incumbent telecom provider out there and could benefit firms including Skype, which recently announced plans to go public and could benefit investors if it can create an economically-viable VoIP business model.

3. eReaders
Incumbents: Barnes & Noble (NYSE: BKS), Borders Group (NYSE: BGP)
Potential Winners: Amazon, Apple (Nasdaq: AAPL), Barnes & Noble

eReaders, including Apple's iPad, Amazon's Kindle, and even Barnes & Noble's Nook, are rapidly stealing market share from printed books. The iPad is an early leader, whose success is largely already priced into Apple's share price. Amazon's offering is a small part of its strategy to dominate online sales, but could represent another key growth avenue to its operations.

The main potential play for investors is if the advent of digital books completely destroys the traditional book retailers. Barnes & Noble is somewhat hedging its bets with the Nook, but still relies heavily on its bricks-and-mortar book stores. Borders is at a clear disadvantage to B&N and could easily meet its demise with the onslaught of eReader competition. [My colleague David Sterman thinks Barnes & Noble is in trouble, too (and could be a compelling short play). Click here to read his analysis.]

4. Mobile Transaction Services
Incumbents: MasterCard (NYSE: MA), Visa (NYE: V), Global Payments (NYSE: GPN)
Potential Winners: eBay (Nasdaq: EBAY), LM Ericsson (Nasdaq: ERIC)

At some point in the future it will be possible to make payments and transfer money simply from your mobile phone. Of course, this is already possible on the web thanks to eBay's PayPal service. Certain features do exist on cell phones, but are limited and almost non-existent when transacting between two individuals.

Japan is a leading region for this type of technology and is offered by global telecom firm LM Ericsson. eBay is another clear leader that could benefit as it provides the technology over mobile phone networks. Leading payment processors including MasterCard and Visa are obvious beneficiaries, though as incumbent leaders, they could be toppled by more nimble competitors.

5. Waste-to-Entergy (WtE)
Incumbents: Waste Management (NYSE: WM), Republic Services (NYSE: RSG)
Potential Winners: Covanta (NYSE: CVA), Waste Management

I won't spend too much time covering the waste-to-energy industry, as I did more thoroughly in a previous article. [Read that article here] But WtE has the potential to permanently alter the business models of traditional waste management firms such as Waste Management and Republic Services. The ability to literally turn garbage into energy is fascinating, and Covanta is a pure play in the space and a global provider of WtE facilities.

As I detailed in the previous article, Waste Management already has ambitions in the space. If it embraces this industry transformation, the company could grow into a global player in WtE, given its clear advantage of having a huge supply of waste to transform into energy.

Action to Take —> As you may have noticed, many incumbents are also potential beneficiaries as long as they don't let creative destruction completely destroy their business models. In my mind, cloud computing and mobile transaction services have the greatest likelihood to be the most destructive to the status quo.

In terms of individual firms, Google, Amazon, and Apple are among the biggest disrupters, have already toppled larger rivals, and have healthy appetites for additional creative destruction going forward. But you may also want to look into some of the lesser-known disruptors on this list, such as Vonage or Covanta, and also be on the lookout for a Skype IPO in the near future.

– Ryan Fuhrmann

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