Equities see a bit of a relief rally overnight as ES futures trade up above 1150. The beat down on the metals however has continued. Gold Futures traded as low as $1535, experiencing a remarkable range of more than $131 in a volatile overnight session. Gold has since rallied to trade back above $1600. Silver Futures also saw a continued smack-down trading as low as $26.15. Silver futures have not seen the same recovery as Gold and currently trade down 8% off Friday's close. Silver is now down over 42% off the April Highs and more than 35% off the high on August 23d.
The key to trading in times like these is to make sure and have cash on hand to be able to take advantage of potential lower prices. If you trade on leverage and get into a losing position, you get into trouble. The market will present rallying opportunities and it is necessary to have cash on hand to take advantage of cheaper prices.
I am currently long SLV. You can follow that position here.
Monday, September 26, 2011
Friday, September 23, 2011
Market Consolidating After Decline
Unless you are trading the precious metals that is. I have to say I am shocked to see Silver down 15%!!! In any case, Silver just hit some very key support. This is a buying opportunity. I am long Silver via the SLV at $29.55
Note: See comments below to follow this trade.
Note: See comments below to follow this trade.
Thursday, September 22, 2011
Sell-off Continues, Is it Time To Buy?
Markets have sold off down toward the bottom of the recent trading range as I predicted yesterday. We are now hitting some support (ES currently trading just below 1120). Didn't take long to get here. I had said that I would be getting long when that happened. However, I just want to make it clear that I am not bullish here. Not a bad spot to get long, but you don't want to defend the position. Any longs right now will be scalps or day trades. No signs of a significant reversal yet. Bonds continue to be strong on the heels of the Fed announcement yesterday as Operation Twist is successfully bringing down longer-term yields. US dollar the current safe-haven currency. Everything else pretty much getting killed...
Tuesday, September 20, 2011
What to Expect from Bernanke and the FOMC Announcement
The FOMC began its two day meeting this morning and will make its announcement on monetary policy tomorrow (Wednesday) at 2:15pm EST.
I am expecting volatility following the announcement. It is a gamblers game to try and predict how the market will react, but often times the initial move is the false move and will be followed by a reversal. We already know what the Fed's longer-term game plan is. To put it simply, the Fed wants to keep interest rates low and devalue the US dollar. This is nothing new. Low interest rates encourage spending and a devalued dollar makes US exports more affordable for foreign importers. This in theory will increase employment and stimulate the economy. At the same time it will decrease the existing US debt by essentially making that debt worthless. If the dollar is worth half as much as it once was, that makes the debt only half as large as it should be. This is good for an insolvent government, but bad for its people as their ability to purchase real assets decreases.
That describes what the Fed wants to do. Now the question is what will they actually announce tomorrow?
OPTION A)
More Stimulus in the form of a QE3 type of measure:
There are some economic conditions, at present, that could warrant this type of action. The US has seen zero job growth and flat retail sales in August. Commodity prices seem to be in a downtrend which provides additional support that inflation is not a problem. That being said, I don't see QE3 (or something similar) as an option. Expanding the balance sheet to buy more bonds will send more money into the precious metals market and drive commodity prices higher. The Fed and Central Banks around the world do not want to see the price of Gold increase further. They want to continue to deceive the uninformed public that fiat currency is legitimate tender. Depreciating currencies will eventually lead to the adoption of a gold standard or something like it and that would prevent the Central Banks from being able to print money at will. QE1 and QE2 can already be viewed as failures and launching a QE3 now would be ill-advised. It will likely happen down the road, but the time is not now.
OPTION B)
The Fed will announce a plan to sell short-maturity Treasury debt and use the proceeds to buy longer-term bonds:
This is what many expect the Fed to do, an action popularly coined "Operation Twist" because the goal is to bend the yield curve. Currently the yield curve shows 3 month treasury yields at 0.1% and 30 year yields at 3.2%. By selling short-term bonds and buying longer-term bonds, the Fed will attempt to flatten the yield curve. Flat yield curves generally precede economic slowdowns, but low yields across the board generally promote spending through borrowing. So in reality, "Operation Twist" seems more like rhetoric from the Fed than anything else. In any case, unlike quantitative easing or QE, the "Twist" (good or bad) can be done without increasing the money supply.
Implementation of "Operation Twist" alone should not have a large effect on the markets. In fact, that news alone would likely send the markets lower as I believe it is already priced in. The FOMC's 2-day meeting is a break from the standard 1 day meeting and suggests that the Fed has something else up its sleeve...
What else could the Fed do?
Below I have included some additional options (taken from David Rosenberg and commented on by Mish Shedlock):
-------------------------
-------------------------
Whatever the Fed announces, expect volatility. I will most likely stay away from trading the initial reaction. For me it is best to try and digest the announcement and wait for the market to settle down and give a more realistic indication of the next direction.
What I foresee is initial selling pressure that could take the markets down significantly. This will signal a buy entry for me as I believe the goal of whatever the Fed announces will be to stimulate the markets. We'll have to wait and see what unfolds tomorrow... Could be some fireworks...
I am expecting volatility following the announcement. It is a gamblers game to try and predict how the market will react, but often times the initial move is the false move and will be followed by a reversal. We already know what the Fed's longer-term game plan is. To put it simply, the Fed wants to keep interest rates low and devalue the US dollar. This is nothing new. Low interest rates encourage spending and a devalued dollar makes US exports more affordable for foreign importers. This in theory will increase employment and stimulate the economy. At the same time it will decrease the existing US debt by essentially making that debt worthless. If the dollar is worth half as much as it once was, that makes the debt only half as large as it should be. This is good for an insolvent government, but bad for its people as their ability to purchase real assets decreases.
That describes what the Fed wants to do. Now the question is what will they actually announce tomorrow?
More Stimulus in the form of a QE3 type of measure:
There are some economic conditions, at present, that could warrant this type of action. The US has seen zero job growth and flat retail sales in August. Commodity prices seem to be in a downtrend which provides additional support that inflation is not a problem. That being said, I don't see QE3 (or something similar) as an option. Expanding the balance sheet to buy more bonds will send more money into the precious metals market and drive commodity prices higher. The Fed and Central Banks around the world do not want to see the price of Gold increase further. They want to continue to deceive the uninformed public that fiat currency is legitimate tender. Depreciating currencies will eventually lead to the adoption of a gold standard or something like it and that would prevent the Central Banks from being able to print money at will. QE1 and QE2 can already be viewed as failures and launching a QE3 now would be ill-advised. It will likely happen down the road, but the time is not now.
The Fed will announce a plan to sell short-maturity Treasury debt and use the proceeds to buy longer-term bonds:
This is what many expect the Fed to do, an action popularly coined "Operation Twist" because the goal is to bend the yield curve. Currently the yield curve shows 3 month treasury yields at 0.1% and 30 year yields at 3.2%. By selling short-term bonds and buying longer-term bonds, the Fed will attempt to flatten the yield curve. Flat yield curves generally precede economic slowdowns, but low yields across the board generally promote spending through borrowing. So in reality, "Operation Twist" seems more like rhetoric from the Fed than anything else. In any case, unlike quantitative easing or QE, the "Twist" (good or bad) can be done without increasing the money supply.
Implementation of "Operation Twist" alone should not have a large effect on the markets. In fact, that news alone would likely send the markets lower as I believe it is already priced in. The FOMC's 2-day meeting is a break from the standard 1 day meeting and suggests that the Fed has something else up its sleeve...
What else could the Fed do?
Below I have included some additional options (taken from David Rosenberg and commented on by Mish Shedlock):
-------------------------
- Eliminate the interest paid to commercial banks on excess reserves (to try to spur lending).
- Announce an explicit ceiling on the 10-year note yield (say 1.5%), which the Fed has done in the distant past. Based on Bernanke's prior rhetoric, this would seem to be a preferred strategy (though the Fed relinquishes control of the balance sheet).
- Buy foreign securities (bail out Europe and weaken the U.S. dollar — talk about killing two birds with one policy stone).
- Announce an explicit higher inflation target or perhaps a lower unemployment rate target (i.e. reinforce the DUAL mandate).
- As Mr. Bernanke stated for the record in November 2002, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.
-------------------------
Whatever the Fed announces, expect volatility. I will most likely stay away from trading the initial reaction. For me it is best to try and digest the announcement and wait for the market to settle down and give a more realistic indication of the next direction.
What I foresee is initial selling pressure that could take the markets down significantly. This will signal a buy entry for me as I believe the goal of whatever the Fed announces will be to stimulate the markets. We'll have to wait and see what unfolds tomorrow... Could be some fireworks...
Monday, September 19, 2011
Gapping Down to Begin the Week as FOMC Meeting Looms
Following positive gains for five consecutive days last week, the markets gap down significantly this morning. The negative sentiment follows similar action in global markets as all the major bourses are down to begin the week.
I like long entries around 1180 ES today.
The big event this week will be the 2-day FOMC meeting which begins tomorrow. Expect volatility. I will publish more detailed thoughts on this topic this evening.
I like long entries around 1180 ES today.
The big event this week will be the 2-day FOMC meeting which begins tomorrow. Expect volatility. I will publish more detailed thoughts on this topic this evening.
Thursday, September 15, 2011
European Central Bank Offers Liquidity to Euro Banks
The ECB has announced liquidity measures resulting in a surge in early morning trading.
The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010. These will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment. Further information on tender procedures can be found on the ECB's website. -Briefing.com
This should only add fuel to the buying we have seen over the past 3 trading days.
This week's bullishness contradicts my anticipation of further weakness. I expected some more selling before seeing the rise we have witnessed over the past 3 days. I continue to anticipate a downturn, but I am not looking to get short this market yet as bulls have the momentum. Sometimes it is best to sit and watch rather than force a trade. I will be patient and wait for the market to provide a better trading signal. We may continue to chop around in the current trading range until the FOMC meeting next week.
The Governing Council of the European Central Bank (ECB) has decided, in coordination with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank, to conduct three US dollar liquidity-providing operations with a maturity of approximately three months covering the end of the year. These operations will be conducted in addition to the ongoing weekly seven-day operations announced on 10 May 2010. These will all take the form of repurchase operations against eligible collateral and will be carried out as fixed rate tender procedures with full allotment. Further information on tender procedures can be found on the ECB's website. -Briefing.com
This should only add fuel to the buying we have seen over the past 3 trading days.
This week's bullishness contradicts my anticipation of further weakness. I expected some more selling before seeing the rise we have witnessed over the past 3 days. I continue to anticipate a downturn, but I am not looking to get short this market yet as bulls have the momentum. Sometimes it is best to sit and watch rather than force a trade. I will be patient and wait for the market to provide a better trading signal. We may continue to chop around in the current trading range until the FOMC meeting next week.
Monday, September 12, 2011
Volatility in the Stock Market Will Continue
The market has seen a volatile mix of selling and buying over the past month and a half. I have been a confident buyer during each major decline throughout the month of August right up through the first week of September. After beginning on a down note last week, the ES rallied up to 1200 as expected. This week however, I am not a confident buyer. The up-trending support (between 1140-1150 ES) has already broken down.
Much of the negativity this morning comes on the heels of selling pressure in Europe. European debt remains a major concern. The latest rumors suggest that Moody's may downgrade French Banks at any time.
This morning we are seeing support come in off 1124 ES. The current bounce may have a little more juice, but I like shorts between 1140 and 1150 ES.
The next attractive long entry will be somewhere between 1097-1106 (ES). From there we could see a nice rally back to the mid 1100s or even as high as 1170-1180. Whether the ES rallies back up to 1150 or 1180, I expect selling pressure will again push markets lower. There will likely be enough momentum to move price below the August 8th low. The next downward target from there is 1000 ES.
While I believe there is a high potential for lower lows, there will be plenty of opportunities to get long in the process. My overall bias, however, is to the short-side.
I will try and post some trades this week...
Much of the negativity this morning comes on the heels of selling pressure in Europe. European debt remains a major concern. The latest rumors suggest that Moody's may downgrade French Banks at any time.
This morning we are seeing support come in off 1124 ES. The current bounce may have a little more juice, but I like shorts between 1140 and 1150 ES.
The next attractive long entry will be somewhere between 1097-1106 (ES). From there we could see a nice rally back to the mid 1100s or even as high as 1170-1180. Whether the ES rallies back up to 1150 or 1180, I expect selling pressure will again push markets lower. There will likely be enough momentum to move price below the August 8th low. The next downward target from there is 1000 ES.
While I believe there is a high potential for lower lows, there will be plenty of opportunities to get long in the process. My overall bias, however, is to the short-side.
I will try and post some trades this week...
Tuesday, September 6, 2011
Declining Market Should Present a Nice Buying Opportunity
Markets gapping down this morning in the US on the heels of sharp losses in Europe on Monday. The quick descent we have seen over the past few trading days has brought price back towards attractive levels. The latest decline is setting up to give us a higher low in what is still an upward channel off the early August lows. Support, of course, must hold in the lower 1130s (ES) for this to hold true. As long as we don't see a daily close (today or tomorrow) on the ES below 1133-1135, I like long entries and will expect to see a rally back toward 1200 (ES) and higher.
In the News:
A commitment by Switzerland to set a minimum exchange rate target for its franc at 1.20 per euro and purchase foreign currency in unlimited quantities was met with a positive response in Europe, but pessimism has prevailed as stocks have now sold further there. I expect the news to push European markets higher though once it is digested further. The Swiss Market has jumped 4% on the news while the Franc is down over 7%.
Tomorrow (Sept. 7th) the German courts will decide on the legality of the Greece bailouts. Global markets may see continued volatility as the courts make a decision. Ultimately I believe the courts will rule in favor of the bailouts which will be positive for markets...
In the News:
A commitment by Switzerland to set a minimum exchange rate target for its franc at 1.20 per euro and purchase foreign currency in unlimited quantities was met with a positive response in Europe, but pessimism has prevailed as stocks have now sold further there. I expect the news to push European markets higher though once it is digested further. The Swiss Market has jumped 4% on the news while the Franc is down over 7%.
Tomorrow (Sept. 7th) the German courts will decide on the legality of the Greece bailouts. Global markets may see continued volatility as the courts make a decision. Ultimately I believe the courts will rule in favor of the bailouts which will be positive for markets...
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