Showing posts with label volatile. Show all posts
Showing posts with label volatile. Show all posts

Wednesday, June 1, 2016

John's Short-Term Low-Risk Set Ups for Volatile Markets


Our trading partners at Simpler Options are back with another free webinar. This time it's "Precise Short Term Options Setups for Low Risk Profits in Volatile Markets" hosted by John Carter and Chris Belcher.

As always John and Chris have provided a free video to give you some hints as to what we will be covering....Watch that video now!

It all starts this Tuesday June 7th at 7:00 pm central.

Just visit this link to reserve your seat for this game changing webinar right now since all of these webinars get over subscribed.

Watch Todays Video and Sign Up for the Webinar Right Here

These two highly respected traders (with more than 50 years of combined experience) reveal low risk option strategies designed to catch quick explosive moves in volatile stocks. Get ready to take notes because we’re going to review results from actual live trades executed in real time during current market conditions.

Red Thumb Trades: Stop wasting time (and precious capital) on dud stocks. Discover how to find the right options to trade on the right stocks today.

Precision Exit Strategies: Finally know when to take fast profits intraday and when to let your position turn into a swing trade so you can get maximum gains.

Simple Option Setups: Cut through all the jargon and ‘Greek’ mumbo jumbo and learn how to follow a step by step process to create consistent income trading stock options.

The Ultimate Timing Secret: How to know in advance which stocks are likely to explode (in any time frame) and when to jump in with confidence

Miracle Grow Positions: Simple rapid growth strategies for small accounts. Discover why it’s possible to make a whole lot more money with options than you can with trading stocks. The key is to follow a few precise option setups.

Massive Mistakes Exposed: Learn why most traders will never be consistently profitable and discover how to actually profit from the most common (and costly) mistakes.

The Perfect Storm: Why the current volatile conditions are a trader’s paradise, and key catalysts to watch for in the coming months.

Case Study: Review one of John's live trades on TSLA that brought in $17k in 1 day (along with several other recent real money examples so you can see these setups in action).

As always, make sure you get your reserved seat now while you and make sure you log in early on Tuesday so you don't lose your spot.

Reserve Seat Right Here and Now

See you Tuesday evening,
Ray C. Parrish
aka the Crude Oil Trader


Get John's latest FREE eBook "Understanding Options"....Just Click Here!

Wednesday, February 25, 2015

A Math Free Guide to Higher and Safer Returns

By Andrey Dashkov

I can make you instantly richer, and safely, by explaining a finance concept with a story about a dog.

There’s a hole in your pocket you probably don’t know about. You may feel instinctively that something is wrong, but unless you look in the right place, you won’t find the problem. The money you’re losing doesn’t appear in the minus column on your account statements, but you’re losing it nevertheless.

Frustrated? Don’t be. I’m going to tell you where to look and how to stop the drainage.

Volatility is every investor’s worst enemy. Over time, it poisons your returns. Unlike a 2008 style market drop, though, volatility poisons them slowly. There’s no obvious ailment to discuss with friends or hear about on CNBC. You only see it when you compare how much you lost to how much you could have earned—and looking back at your own mistakes is not a pleasant thing to do.

Here's the Replay of Last Nights Free Webinar....."Options and Premium Decay"

So instead let’s imagine two fictional companies: X-Cite, Inc., an amusement park operator with a volatile stock price that adventurous investors love; and Glacial Corp., a dull, defensive sloth of a corporation whose stock returns are consistent but often lower than those of its more glamorous counterpart.

Average return on both companies’ stocks was 5% for the past five years, but Glacial’s was less volatile. Safety is comfortable, but doesn’t higher volatility mean higher potential returns? Sometimes, but not always. When you accept high volatility, your returns might be higher at times, but they also might be lower. In other words, higher volatility generally means greater risk.

Nothing new so far, but the oft-overlooked point is that boring stocks make you richer over time.
The chart below shows each stock’s annual return over a five year period.


At first glance, Glacial Corp. appears to be the loser. It underperformed X-Cite in four out of five years. Both stocks returned 5% on average during these years, and X-Cite was almost always voted the prettiest girl in town. But for Year 3, it would be easy to persuade investors to buy X-Cite stock. Few would give Glacial a second glance.

Hold for the punchline: X-Cite, the stock your broker would have a much easier time selling you (before you read this article), would actually make you poorer. Let me explain.

I won’t get into any supercharged math here. Glacial is better because it makes you richer eventually. After five years, the total return on X-Cite is 25%. Not bad. Glacial? 27%. If you invested $10,000 in both (assuming no brokerage fees or taxes), at the end of Year 5 you would have earned $2,507 on X-Cite or $2,701 on Glacial.

Year-End Account Balance
X-Cite, Inc.
Glacial Corp.
Year 1
$10,500
$10,300
Year 2
$11,550
$11,021
Year 3
$10,164
$10,801
Year 4
$10,875
$11,341
Year 5
$12,507
$12,701
Total return
25%
27%


Where does the extra $194 come from? It comes from lower volatility. Although X-Cite looks like a winner most of the time, it has a higher standard deviation of returns. Note that X-Cite’s stock price dropped 12% in Year 3. The following year it increased 7%, while Glacial Corp.’s stock price only increased 5%—yet Glacial is still worth more from Year 3 onward. Why? X-Cite’s 7% jump is based on the previous year’s low.

But I promised to keep this note math-free, so imagine a person walking a dog instead. The shorter the leash, the less space the dog has to run around. The longer the leash, the more erratic the dog’s path will be. Standard deviation measures how much data tend to scatter around its mean—the path. As we just saw, low standard deviation also pays you money.

I could stop right here and hope that you take this lesson to heart, but I won’t. As much as I love describing finance concepts using clever company names and dogs, I want you to start making money right now.

I said this advice could make you instantly richer, and “instantly” doesn’t mean “maybe sometime in the future.” In the latest issue of Money Forever, we shared an opportunity to invest into a vehicle built to outperform the market by managing volatility. I was extremely excited to present it to our paid subscribers because I knew they’d love to earn more by risking less. Who wouldn’t?

So please pardon my blatant self-promotion. I work in an industry where 80% of the time the market is obsessed with the wrong stock, and the noise drowns out the right idea. I can silence the cacophony for you, though, and show you where to find the right ideas. And that goes beyond our most recent pick, although you do need it in your portfolio. Money Forever’s mission is to make your money last—plain and simple.

We think this pick will go a long way toward doing just that.

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And we’ll even prorate your refund after that—it’s a no lose proposition. Click here to start earning more by risking less now.

The article A Math-Free Guide to Higher and Safer Returns was originally published at millersmoney.com.


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Wednesday, January 21, 2015

The Cult of Central Banking

By John Mauldin

In today’s Outside the Box, good friend Ben Hunt informs us that we have entered the cult phase of the Golden Age of the Central Banker:

We pray for extraordinary monetary policy accommodation as a sign of our Central Bankers’ love, not because we think the policy will do much of anything to solve our real world economic problems, but because their favor gives us confidence to stay in the market. I mean, does anyone really think that the problem with the Italian economy is that interest rates aren’t low enough? Gosh, if only ECB intervention could get the Italian 10 yr bond down to 1.75% from the current 1.85%, why then we’d be off to the races! 

Really? But God forbid that Mario Draghi doesn’t (finally) put his money where his mouth is and announce a trillion euro sovereign debt purchase plan. That would be a disaster, says Mr. Market. Why? Not because the absence of a debt purchase plan would be terrible for the real economy. That’s not a big deal one way or another. It would be a disaster because it would mean that the Central Bank gods are no longer responding to our prayers.

But, he points out, the cult phase of any human society is a stable phase in the sense that, while change may happen, it will not happen from within:

There is such an unwavering faith in Central Bank control over market outcomes, such a universal assumption of god-  omnipotence within this realm, that any internal market shock is going to be willed away.

However, there is a minor catch: external market risk factors are all screaming red.


I’ve been doing this for a long time, and I can’t remember a time when there was such a gulf between the environmental or exogenous risks to the market and the internal or behavioral dynamics of the market. The market today is Wile E. Coyote wearing his latest purchase from the Acme Company – a miraculous bat-wing costume that prevents the usual plunge into the canyon below by sheer dint of will.



Ben identifies the three most pressing exogenous risks as the “supply shock” of collapsing oil prices, a realigning Greek election, and the realpolitik dynamics of the West vs. Islam and the West vs. Russia. (You or I might want to expand Ben’s list with one or two of our own favorites; but the point is, it’s a big, bad, volatile world out there right now.) Ben admits that it feels a bit weird to have written on all three of his chosen topics a few weeks before each of them appeared on investors’ radar screens. “Call me Cassandra,” says Ben. (Naw, I’ll stay with Ben.)

I wouldn’t want to steal too much of Ben’s thunder here, but I just can’t help sharing with you the punch line to his piece: “The gods always end up disappointing us mere mortals.”  This is one of Ben’s better pieces, and I really commend it to you as something you need to think about.

Before we examine our collective religious delusions (or at least our central banking delusions), let’s have a little fun. My friend Dennis Gartman (who could be the hardest working writer in the business) found this gem and shared it with his readers this morning. It is about the supposed lack of environmental concern of the Boomer generation has. And some of you will read it that way.

But I want those of you who are of a certain age (ahem) to realize just how much your world has changed in the last 50 years. If you are young, yes, we really did all the stuff listed below. I personally experienced every one of the rather long list of activities mentioned by the “little old lady.” Major changes in lifestyle since then? No, not really. But I’ll grand you that things are a good deal more convenient and time-saving today. Now sit back and enjoy.

Checking out at the store, the young cashier suggested to the much older lady that she should bring her own grocery bags, because plastic bags are not good for the environment. The woman apologized to the young girl and explained, "We didn't have this 'green thing' back in my earlier days." The young clerk responded, "That's our problem today. Your generation did not care enough to save our environment for future generations." The older lady said that she was right – her generation didn't have the "green thing" in its day. 

The older lady went on to explain: “Back then, we returned milk bottles, soda bottles and beer bottles to the store. The store sent them back to the plant to be washed and sterilized and refilled, so it could use the same bottles over and over. So they really were recycled. But we didn't have the ‘green thing’ back in our day. 

Grocery stores bagged our groceries in brown paper bags that we reused for numerous things. Most memorable besides household garbage bags was the use of brown paper bags as book covers for our school books. This was to ensure that public property (the books provided for our use by the school) was not defaced by our scribblings. Then we were able to personalize our books on the brown paper bags. But, too bad we didn't do the ‘green thing’ back then. We walked up stairs because we didn't have an escalator in every store and office building. We walked to the grocery store and didn't climb into a 300 horsepower machine every time we had to go two blocks. But you’re right, we didn't have the ‘green thing’ in our day. 

Back then we washed the baby's diapers because we didn't have the throwaway kind. We dried clothes on a line, not in an energy gobbling machine burning up 220 volts. Wind and solar power really did dry our clothes back in the early days. Kids got hand me down clothes from their brothers or sisters (and cousins), not always brand-new clothing. But you’re right, young lady; we didn't have the ‘green thing’ back in our day. Back then we had one TV, or radio, in the house – not a TV in every room. And the TV had a screen the size of a handkerchief [remember them?], not a screen the size of the state of Montana. In the kitchen we blended and stirred by hand because we didn't have electric machines to do everything for us. When we packaged a fragile item to send in the mail, we used wadded up old newspapers to cushion it, not Styrofoam or plastic bubble wrap. Back then, we didn't fire up an engine and burn gasoline just to cut the lawn. We used a push mower that ran on human power. 

We exercised by working, so we didn't need to go to a health club to run on treadmills that operate on electricity.” But you’re right; we didn't have the ‘green thing’ back then. We drank from a fountain when we were thirsty instead of using a cup or a plastic bottle every time we had a drink of water. We refilled writing pens with ink instead of buying a new pen, and we replaced the razor blade in a razor instead of throwing away the whole razor just because the blade got dull. But we didn't have the ‘green thing back then. 

Back then, people took the streetcar or the bus, and kids rode their bikes to school or walked instead of turning their moms into a 24 hour taxi service in the family's $45,000 SUV or van, which cost what a whole house did before the ‘green thing.’ We had one electrical outlet in a room, not an entire bank of sockets to power a dozen appliances. And we didn't need a computerized gadget to receive a signal beamed from satellites 23,000 miles out in space in order to find the nearest burger joint. But, isn't it sad, how the current generation laments how wasteful we old folks were just because we didn't have the ‘green thing’ back then?”

I wonder what our grandchildren will be telling their grandchildren in 50 years… “I remember a time when we actually used combustion engines to drive our cars that belched out dirty gases. We actually had massive electricity generating power plants and wires everywhere to deliver the electricity, rather than the small, efficient home units that produce free electricity for us now. We used something called glasses to help us see. People actually had to carry their communications devices around, and computers were measured in pounds not ounces. We had to do something called “typing” to write; and while we didn’t have to actually go to places called libraries like our grandparents did, we could and did spend all day searching through a disorganized Internet for what we needed. You weren’t connected biologically to your computer, so getting information in and out of it was a drag.

“People actually got sick and died; and though the situation was getting better, billions of people didn’t have enough food at night. People went to big stores to buy what was needed rather than just ordering it or producing it on the spot. We actually threw garbage away in huge resource-consuming “dumps” rather than completely recycling it into new products at the back of the house. It took like forever to get from one point to another. People actually had to “drive” their car rather than just getting in it and telling it where to go. And people died all the time in those cars – they were so dangerous and uncomfortable. In those days you couldn’t even instantly communicate with anybody by just thinking. You had to push buttons on that clumsy communication device you hauled around, and then talk into it; and if you lost it you were out of touch and out of luck. We didn’t even have intelligent personal robots in those days. It was so Stone Age.”

I could go on and on, but you get the drift. The changes in the last 50 years are simply a down payment on the change we’ll see and live in the next 50.

When I think about central banks and markets and try to figure out how to get preserve and grow assets from where we are today to where we will be in 10 years, it can be a rather daunting and sometimes even a depressing task. But then I think about what the world will be like and how much fun my grand kids are going to have, and I get all optimistic and smiling again.

Have a great week. The future is going to turn out just fine.
Your wondering if we will have flying cars analyst,
John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com

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“Catch-22”

By Ben Hunt, Salient Partners
Epsilon Theory, Jan. 12, 2015
Four times during the first six days they were assembled and briefed and then sent back. Once, they took off and were flying in formation when the control tower summoned them down. The more it rained, the worse they suffered. The worse they suffered, the more they prayed that it would continue raining. All through the night, men looked at the sky and were saddened by the stars. All through the day, they looked at the bomb line on the big, wobbling easel map of Italy that blew over in the wind and was dragged in under the awning of the intelligence tent every time the rain began. The bomb line was a scarlet band of narrow satin ribbon that delineated the forward most position of the Allied ground forces in every sector of the Italian mainland.
For hours they stared relentlessly at the scarlet ribbon on the map and hated it because it would not move up high enough to encompass the city.

When night fell, they congregated in the darkness with flashlights, continuing their macabre vigil at the bomb line in brooding entreaty as though hoping to move the ribbon up by the collective weight of their sullen prayers. "I really can't believe it," Clevinger exclaimed to Yossarian in a voice rising and falling in protest and wonder. "It's a complete reversion to primitive superstition. They're confusing cause and effect. It makes as much sense as knocking on wood or crossing your fingers. They really believe that we wouldn't have to fly that mission tomorrow if someone would only tiptoe up to the map in the middle of the night and move the bomb line over Bologna. Can you imagine? You and I must be the only rational ones left."

In the middle of the night Yossarian knocked on wood, crossed his fingers, and tiptoed out of his tent to move the bomb line up over Bologna.
― Joseph Heller, “Catch-22” (1961)

A visitor to Niels Bohr's country cottage, noticing a horseshoe hanging on the wall, teased the eminent scientist about this ancient superstition. “Can it be true that you, of all people, believe it will bring you luck?”

“Of course not,” replied Bohr, “but I understand it brings you luck whether you believe it or not.”
― Niels Bohr (1885 – 1962)

Here's an easy way to figure out if you're in a cult: If you're wondering whether you're in a cult, the answer is yes.
― Stephen Colbert, “I Am America (And So Can You!)” (2007)

I won't insult your intelligence by suggesting that you really believe what you just said.
― William F. Buckley Jr. (1925 – 2008)

A new type of superstition has got hold of people's minds, the worship of the state.
― Ludwig von Mises (1881 – 1973)

The cult is not merely a system of signs by which the faith is outwardly expressed; it is the sum total of means by which that faith is created and recreated periodically. Whether the cult consists of physical operations or mental ones, it is always the cult that is efficacious.
― Emile Durkheim, “The Elementary Forms of Religious Life” (1912)

At its best our age is an age of searchers and discoverers, and at its worst, an age that has domesticated despair and learned to live with it happily.
― Flannery O’Connor (1925 – 1964)

Man is certainly stark mad; he cannot make a worm, and yet he will be making gods by dozens.
― Michel de Montaigne (1533 – 1592)

Since man cannot live without miracles, he will provide himself with miracles of his own making. He will believe in witchcraft and sorcery, even though he may otherwise be a heretic, an atheist, and a rebel.
― Fyodor Dostoyevsky, “The Brothers Karamazov” (1880)

One Ring to rule them all; one Ring to find them.
One Ring to bring them all and in the darkness bind them.
― J.R.R. Tolkien, “The Lord of the Rings” (1954)

Nothing’s changed.
I still love you, oh, I still love you. Only slightly, only slightly less Than I used to.
― The Smiths, “Stop Me If You’ve Heard This One Before” (1987)

So much of education, I think, relies on reading the right book at the right time. My first attempt at Catch-22 was in high school, and I was way too young to get much out of it. But fortunately I picked it up again in my late 20’s, after a few experiences with The World As It is, and it’s stuck with me ever since. The power of the novel is first in the recognition of how often we are stymied by Catch-22’s – problems that can’t be solved because the answer violates a condition of the problem. The Army will grant your release request if you’re insane, but to ask for your release proves that you’re not insane. If X and Y, then Z. But X implies not-Y. That’s a Catch-22.

Here’s the Fed’s Catch-22. If the Fed can use extraordinary monetary policy measures to force market risk-taking (the avowed intention of both Zero Interest Rate Policy and Large Scale Asset Purchases) AND the real economy engages in productive risk-taking (small business loan demand, wage increases, business investment for growth, etc.), THEN we have a self-sustaining and robust economic recovery underway. But the Fed’s extraordinary efforts to force market risk-taking and inflate financial assets discourage productive risk-taking in the real economy, both because the Fed’s easy money is used by corporations for non-productive uses (stock buy-backs, anyone?) and because no one is willing to invest ahead of global growth when no one believes that the leading indicator of that growth – the stock market – means what it used to mean.

If X and Y, then Z. But X denies Y. Catch-22.

There’s a Catch-22 for pretty much everyone in the Golden Age of the Central Banker. Are you a Keynesian? Your Y to go along with the Central Bank X is expansionary fiscal policy and deficit spending. Good luck getting that through your polarized Congress or Parliament or whatever if your Central Bank is carrying the anti deflation water and providing enough accommodation to keep your economy from tanking.

Are you a structural reformer? Your Y to go along with the Central Bank X is elimination of bureaucratic red tape and a shrinking of the public sector. Again, good luck with that as extraordinary monetary policy prevents the economic trauma that might give you a chance of passing those reforms through your legislative process.

Here’s the thing. A Catch-22 world is a frustrating, absurd world, a world where we domesticate despair and learn to live with it happily. It’s also a very stable world. And that’s the real message of Heller’s book, as Yossarian gradually recognizes what Catch-22 really IS. There is no Catch-22. It doesn’t exist, at least not in the sense of the bureaucratic regulation that it purports to be. But because everyone believes that it exists, then an entire world of self-regulated pseudo-religious behavior exists around Catch-22. Sound familiar?

We’ve entered a new phase in the Golden Age of the Central Banker – the cult phase, to use the anthropological lingo. We pray for extraordinary monetary policy accommodation as a sign of our Central Bankers’ love, not because we think the policy will do much of anything to solve our real-world economic problems, but because their favor gives us confidence to stay in the market. I mean ... does anyone really think that the problem with the Italian economy is that interest rates aren’t low enough? Gosh, if only ECB intervention could get the Italian 10-yr bond down to 1.75% from the current 1.85%, why then we’d be off to the races! Really? But God forbid that Mario Draghi doesn’t (finally) put his money where his mouth is and announce a trillion euro sovereign debt purchase plan. That would be a disaster, says Mr. Market.

Why? Not because the absence of a debt purchase plan would be terrible for the real economy. That’s not a big deal one way or another. It would be a disaster because it would mean that the Central Bank gods are no longer responding to our prayers. The faith based system that underpins current financial asset price levels would take a body blow. And that would indeed be a disaster.

Monetary policy has become a pure signifier – a totem. It’s useful only in so far as it indicates that the entire edifice of Central Bank faith, both its mental and physical constructs, remains “efficacious”, to use Emile Durkheim’s path breaking sociological analysis of a cult. All of us are Yossarian today, far too rational to think that the totem of a red line on a map actually makes a difference in whether we have to fly a dangerous mission. And yet here we are sneaking out at night to move that line on the map. All of us are Niels Bohr today, way too smart to believe that the totem of a horseshoe actually bring us good luck. And yet here we are keeping that horseshoe up on our wall, because ... well ... you know.

The notion of saying our little market prayers and bowing to our little market talismans is nothing new. “Hey, is that a reverse pennant pattern I see in this stock chart?” “You know, the third year of a Presidential Administration is really good for stocks.” “I thought the CFO’s
body language at the investor conference was very encouraging.” “Well, with the stock trading at less than 10 times cash flow I’m getting paid to wait.” Please. I recognize aspects of myself in all four of these cult statements, and if you’re being honest with yourself I bet you do, too.

 

No, what’s new today is that all of our little faiths have now converged on the Narrative of Central Bank Omnipotence. It’s the One Ring that binds us all.

I loved this headline article in last Wednesday’s Wall Street Journal – “Eurozone Consumer Prices Fall for First Time in Five Years” – a typically breathless piece trumpeting the “specter of deflation” racing across Europe as ... oh-my-god ... December consumer prices were 0.2% lower than they were last December. Buried at the end of paragraph six, though, was this jewel: “Excluding food, energy, and other volatile items, core inflation rose to 0.8%, up a notch from November.” Say what? You mean that if you measure inflation as the US measures inflation, then European consumer prices aren’t going down at all, but are increasing at an accelerating pace?

You mean that the dreadful “specter of deflation” that is “cementing” expectations of massive ECB action is entirely caused by the decline in oil prices, something that from the consumer’s perspective acts like an inflationary tax cut? Ummm ... yep. That’s exactly what I mean. The entire article is an exercise in Narrative creation, facts be damned. The entire article is a wail from a minaret, a paean to the ECB gods, a calling of the faithful to prayer. An entirely successful calling, I might add, as both European and US markets turned after the article appeared, followed by Thursday’s huge move up in both markets.

When I say that a Catch-22 world is a stable world, or that the cult phase of a human society is a stable phase, here’s what I mean: change can happen, but it will not happen from within. For everyone out there waiting for some Minsky Moment, where a debt bubble of some sort ultimately pops from some unexpected internal cause like a massive corporate default, leading to systemic fear and pain in capital markets ... I think you’re going to be waiting for a loooong time. Are there debt bubbles to be popped?

Absolutely. The energy sector, particularly its high yield debt, is Exhibit #1, and I think this could be a monster trade. But is this something that can take down the market? I don’t see it. There is such an unwavering faith in Central Bank control over market outcomes, such a universal assumption of god-like omnipotence within this realm, that any internal market shock is going to be willed away.

So is that it? Is this a brave new world of BTFD market stability? Should we double down on our whack- a-mole volatility strategies? For internal market risks like leverage and debt bubble scares ... yes, I think so. But while the internal market risk factors that I monitor are quite benign, mostly green lights with a little yellow/caution peeking through, the external market risk factors that I monitor are all screaming red. 

These are Epsilon Theory risk factors – political shocks, trade/forex shocks, supply shocks, etc. – and they’ve got my risk antennae quivering like crazy. I’ve been doing this for a long time, and I can’t remember a time when there was such a gulf between the environmental or exogenous risks to the market and the internal or behavioral dynamics of the market. The market today is Wile E. Coyote wearing his latest purchase from the Acme Company – a miraculous bat-wing costume that prevents the usual plunge into the canyon below by sheer dint of will. There’s absolutely nothing internal to Coyote or his bat suit that prevents him from flying around happily forever. It’s only that rock wall that’s about to come into the frame that will change Coyote’s world.


My last three big Epsilon Theory notes – “The Unbearable Over-Determination of Oil”, “Now There’s Something You Don’t See Every Day, Chauncey”, and “The Clash of Civilizations” – have delved into what I think are the most pressing of these environmental or exogenous risks to the market: the “supply shock” of collapsing oil prices, a realigning Greek election, and the realpolitik dynamics of the West vs. Islam and the West vs. Russia. I gotta say, it’s been weird to write about these topics a few weeks before ALL of them come to pass. Call me Cassandra. I stand by everything I wrote in those notes, so no need to repeat all that here, but a short update paragraph on each.

First, Greece. And I’ll keep it very short. Greece is on. This will not be pretty and this will not be easy. Existential Euro doubt will raise its ugly head once again, particularly when Italy imports the Greek political experience.

Second, oil. I get a lot of questions about why oil can’t catch a break, about why it’s stuck down here with a 40 handle as the absurd media Narrative of “global supply glut forever and ever, amen” whacks it on the head day after day after day. And it is an absurd Narrative ... very Heller-esque, in fact ... about as realistic as “Peak Oil” has been over the past decade or two. Here’s the answer: oil is trapped in a positive Narrative feedback loop. Not positive in the sense of it being “good”, whatever that means, but positive in the sense of the dominant oil Narrative amplifying the uber-dominant Central Bank Narrative, and vice versa.

The most common prayer to the Central Banking gods is to save us from deflation, and if oil prices were not falling there would be no deflation anywhere in the world, making the prayer moot. God forbid that oil prices go up and, among other things, push European consumer prices higher. Can’t have that! Otherwise we’d need to find another prayer for the ECB to answer. By finding a role in service to the One Ring of Central Bank Omnipotence, the dominant supply glut oil Narrative has a new lease on life, and until the One Ring is destroyed I don’t see what makes the oil Narrative shift.

Third, the Islamist attack in Paris. Look ... I’ve got a LOT to say about “je suis Charlie”, both the stupefying hypocrisy of how that slogan is being used by a lot of people who should really know better, as well as the central truth of what that slogan says about the Us vs. Them nature of The World As It Is, but both are topics for another day. What I’ll mention here are the direct political repercussions in France.

The National Front, which promotes a policy platform that would make Benito Mussolini beam with pride, would probably have gotten the most votes of any political party in France before the attack. Today I think they’re a shoo-in to have first crack at forming a government whenever new Parliamentary elections are held, and if you don’t recognize that this is 100 times more threatening to the entire European project than the prospects of Syriza forming a government in Greece ... well, I just don’t know what to say.

There’s another thing to keep in mind here in 2015, another reason why selling volatility whenever it spikes up and buying the dip are now, to my way of thinking, picking up pennies in front of a steam roller: the gods always end up disappointing us mere mortals. The cult phase is a stable system on its own terms (a social equilibrium, in the parlance), but it’s rarely what an outsider would consider to be a particularly happy or vibrant system. There’s no way that Draghi can possibly announce a bond buying program that lives up to the hype, not with peripheral sovereign debt trading inside US debt.

There’s no way that the Fed can reverse course and start loosening again, not if forward guidance is to have any meaning (and even the gods have rules they must obey). Yes, I expect our prayers will still be answered, but each time I expect we will ask in louder and louder voices, “Is that all there is?” Yes, we will still love our gods, even as they disappoint us, but we will love them a little less each time they do.

And that’s when the rock wall enters the cartoon frame.

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The article Outside the Box: The Cult of Central Banking was originally published at mauldineconomics.com.


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Thursday, December 4, 2014

The Healthy Bull Market: Bah, Humbug!

By Tony Sagami


Are you a long term investor? Convinced that all you have to do is wait long enough to be guaranteed huge stock market profits? Take a look at the chart below of rolling 30 year returns of the S&P 500 and tell me if it affects your enthusiasm.

The reality is that stock market results vary widely depending on what your starting point is. For example, any investor who put $100,000 into the stock market 1954 was rewarded with roughly the same $100,000 30 years later in 1984.

Yup… 30 years in, and not a penny of profits.



With the stock market at all-time highs, you may find it hard to be pessimistic, but the stock market is doing as well as it’s ever done, with a rolling 30-year return of better than 400%.

How would you feel about earning 0% on your money for 30 years?

Could the stock market go even higher? Yes, it could—but the odds aren’t favorable after the QE fueled rally has pushed stocks to historically high valuations. High valuations? Despite what the mass media and the Wall Street crowd try to tell you, valuations are quite high.

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The most popular myth spouted on financial TV these days is the notion that the S&P 500 is trading at 19 times earnings. Baloney!

First, that 19 P/E is based on “forward” earnings, not trailing earnings. As unreliable as economists and self-serving analysts are, I’m surprised that anyone—especially you—believes anything they say.

Second, that forward looking earnings forecast is based on those 500 companies increasing their earnings by an average of 23% over the next 12 months. Yup… a 23% increase!

That’s extremely optimistic, but I think especially misplaced now that the steroid of quantitative easing is behind us. Consider this: everybody agrees that stocks responded extremely positively to quantitative easing, so doesn’t it make sense to be concerned now that the monetary punch bowl has been yanked away?

The first place to look for signs of waning enthusiasm are small-cap stocks. While the Dow Jones Industrial Average and the S&P 500 were setting all-time highs, the Russell 2000 wasn’t able to punch through its March, July, and September peaks.



This quadruple top looks like a formidable resistance level for small stocks and clear evidence that investors are reducing risk by rotating out of small-cap stocks and into big cap stocks.



Additionally, financial stocks are showing signs of exhaustion too. Healthy bull markets are often led by financial stocks, but the financials are lagging the major indexes now. That’s why I think last week’s 3.9% GDP print smelled fishy; some weak economic numbers are spelling trouble.

Durable Goods Orders Not So Good: The headline number for October durable goods orders was strong with a +0.4% increase, but if you back out the volatile transportation sales, the picture is a lot uglier. If you exclude transportation—because just a few $100 million jet orders can skew the numbers—the 0.4% gain turns into a 0.9% decrease.

By the way, orders for defense aircraft were up 45.3%, but orders for non defense aircraft orders were down 0.1% in October. If not for some big government orders, the results would be absolutely horrible!

Unemployment Claims Rise Despite Holiday Hiring: The job picture, which had been improving, showed some deterioration last week despite going into the busy holiday hiring season. Initial jobless claims jumped to 313,000, a 7.2% increase from last week as well as much higher than the 286,000 forecast. It also broke a 10-week streak of claims below 300,000.

Before You Cheer Cheap Oil: After OPEC agreed to keep production levels unchanged, the price of oil plunged by 7% on Friday to less than $68 a barrel. That’s good news for drivers, but oil’s falling prices (as well as those of other commodities) are a very bad sign for economic growth. Moreover, the energy industry has been one of the few industries producing good, high-paying jobs. Thus, low oil prices could turn that smile into a frown in no time.



The Bond Conundrum: The yield on 10 year Treasury bonds was as high as 3% earlier this year but dropped to 2.31 last Friday. If our economy were rocking as well as the 3.9% GDP rate suggests, interest rates should be rising… not falling like a rock.

The stock market may not fall out of bed tomorrow morning, but the holiday season for stock market investors looks like it may be more Scrooge than Santa Claus.

30 year market expert Tony Sagami leads the Yield Shark and Rational Bear advisories at Mauldin Economics. To learn more about Yield Shark and how it helps you maximize dividend income, click here.

To learn more about Rational Bear and how you can use it to benefit from falling stocks and sectors, click here.



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Saturday, May 3, 2014

Commodities Market Recap and this Weeks Stops and Trading Numbers

Today our trading partner Michael Seery gives our readers a weekly recap of the Futures market. He has been a senior analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.....

Crude oil futures in the June contract finished up around $.35 this Friday afternoon in New York as prices were down about $2.00 for the trading week right near 4 week lows and I am neutral in this market currently and waiting for a better trend to develop as supplies are at 85 year highs here in the United States which is a bearish factor however you also have problems in the Ukrainian region which is a bullish indicator so this market could remain choppy so wait for better chart structure to develop. Crude oil futures are trading below their 20 day moving average but above their 100 day moving average telling you that the trend is mixed so look for a better trending market to get involved with.
TREND: MIXED
CHART STRUCTURE: EXCELLENT

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Natural gas futures in the June contract finished lower for the 3rd consecutive trading session finishing higher by 3 points for the trading week to close around 4.69 as I’m recommending a long position in this contract placing my stop loss below the 10 day low which stands at 4.50 risking around 20 points or $500 per contract as the trend is still higher in my opinion as the risk reward situation is highly in your favor as we enter the demand season of summer.

Natural gas prices have been in a bull market for quite some time and if you read some of my previous blogs several months back when prices were in the low $3 I was recommending if you have deep pockets and a longer term horizon to buy natural gas as prices were extremely cheap due to the fact of large supplies, however we had an extremely cold winter which reduced supplies dramatically and I do think natural gas prices will be sharply higher from today’s level in the next year as prices have bottomed out in my opinion.

As a trader I focus on today and tomorrow only so when I can buy a natural gas contract and risk 1,500 I will take that trade even if I don’t believe the trade. Natural gas prices are trading above their 20 and 100 day moving average telling you that the trend is higher after we consolidated in the month March after the big run-up in early winter as prices seem to be resuming back up to the upside so play this market to the upside using my stop loss and proper risk management.
TREND: HIGHER
CHART STRUCTURE: OUTSTANDING

Fed Proof Your Portfolio

Gold prices had a volatile trading week basically finishing unchanged to settle around 1,298 in the June contract after having a tremendous reversal selling off down to 1,272 when the monthly unemployment number was released adding 280,000 jobs which is bullish the economy and bearish gold but then turned on a dime with the Ukrainian problems escalating sending gold finishing up $14 this Friday right near session highs as prices have been consolidating in recent weeks. I’ve been sitting on the sidelines in the gold market for quite some time as this market remains choppy and it might be bottoming at the current price levels as gold rallied $200 to start the year but now has given back over $100 so were at about the 50% retracement so if your bullish gold I would buy a futures contract at today’s price while placing my stop at the 10 day low which is also the 10 week low of 1,268 an ounce risking around $3,000 per contract. I’ve lived through many of these political escalations including one last August with Syria and they always seem to fizzle away so we will see if today’s rally will do the same but sit on the sidelines and see what develops. The one thing gold does have going for it is trading above its 20 and 100 day moving average which is telling you that the trend might be turning higher as prices could be bottoming out.
TREND: MIXED
CHART STRUCTURE: EXCELLENT

Why Are So Many Boomers Working Longer?

Silver futures are trading below their 20 and 100 day moving average as volatility has come back into this market in the last week as prices reversed sharply off of yesterday’s contract lows of 18.66 to go out this Friday afternoon at 19.47 an ounce and if you been reading any of my previous blogs for months I’ve been talking about the possibility of silver bottoming at the $19 level and if you have deep pockets and you’re a longer-term investor I’m recommending that you buy silver as I think prices are cheap. I am bullish silver not because of the Ukrainian problems but because of the fact that the commodity markets are in a bullish trend and silver will catch up eventually as this is a highly inflationary commodity with a lot of demand as silver is used in smart phones unlike gold which really has no purpose except for a flight to quality and jewelry. Prices reversed today because of the Ukrainian situation seems to be escalating and it sent prices sharply higher but the true breakout in this market is at 20.40 that’s where I really would be recommending to get long and if you are in a futures contract already I would be adding to my position if prices break that level as a spike bottom may have occurred in yesterday’s price action.
TREND: MIXED
CHART STRUCTURE: EXCELLENT

Here's our Critical Line in the Sand for Silver

Coffee futures settled last Friday at 207 while going out this afternoon in New York at 203 continuing its high volatility as prices are still trading above their 20 and 100 day moving average as the chart structure is starting to improve with the 10 day low currently standing at 194 which is about 1000 points away or $3,500 risk. As I’ve talked about in previous blogs coffee is a very large contract and should not be traded with a small trading account due to its high volatility as prices remain strong in my opinion so I’m sticking with my previous recommendation and just keep my stop at the 2 week low as will start to see some estimates on the Brazilian crop which should give us some short term price direction. Prices have basically stalled out in the low 200s in recent weeks as prices are still consolidating the giant move up we had earlier in the year as coffee prices are about 80% in the year 2014 as the drought in Brazil really took its toll so I remain bullish.
TREND: HIGHER
CHART STRUCTURE: IMPROVING


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Monday, March 24, 2014

Why Junior Gold Mining Stocks Are Our Favorite Speculations

By Laurynas Vegys, Research Analyst

Despite last week’s pullback, the precious metals market is off to an impressive start in 2014. Gold is up 10.6%, silver 4.3%, and the PHLX Gold/Silver (XAU) 17.1%. Gold, in particular, had a great February, rising above $1,300 for the first time since November 7, 2013. This has led to some very handsome gains in our Casey International Speculator portfolio, with a few of our recommendations already logging triple digit gains from their recent bottoms.

Why Junior Gold Mining Stocks Are Our Favorite Speculations


One of Doug Casey’s mantras is that one should buy gold for prudence, and gold stocks for profit. These are very different kinds of asset deployment. In other words, don’t think of gold as an investment, but as wealth protection. It’s the only highly liquid financial asset that is not simultaneously someone else’s obligation; it’s value you can liquidate and use to secure your needs. Possessing it is prudent.

Gold stocks are for speculation because they offer leverage to gold. This is actually true of all mining stocks, but the phenomenon is especially strong in the highly volatile precious metals. Most typical “be happy you beat inflation” returns simply can’t hold a candle to stocks that achieved 10 bagger status (1,000% gains). In previous bubbles—some even generated 100 fold returns. And we may see such returns again.

It’s Not Too Late to Make a Fortune

Here’s a look at our top three year to date gainers.


What’s especially remarkable is that all three of these stocks shot up much more than gold itself, on essentially no company specific news. This is dramatic proof of just how much leverage the right mining stocks can offer to movements in the underlying commodity—gold, in this case. Two of the stocks above are on our list of potential 10 baggers, by the way.

So have you missed the boat? Is it too late to buy?


Looking at the chart, two bullish factors jump out immediately:
  • Gold stocks have just now started to move up from a similar level in 2008.
  • Gold stocks remain severely undervalued compared to the gold price. A simple reversion to the mean implies a tremendous upside move.
Now consider the following data that point to a positive shift in the gold market.
  1. After 13 consecutive months of decline, GLD holdings were up over 10.5 tonnes last month. The trend is similar to other ETFs.
  1. Hedge funds and other large speculators more than doubled their bets on higher gold prices this year.
  1. Increase in M&A—for example, hostile bids from Osisko and HudBay Minerals to buy big assets.
  1. Apollo, KKR, and other large private equity groups have emerged as a new class of participants in the sector.
  1. Gold companies’ hedging of future production—usually a sign of insecurity among the miners—shrunk to the lowest level in 11 years.
  1. China continues to consume record amounts of gold and officially overtook India as the world’s largest buyer of gold in 2013.
  1. Large players in the gold futures market that were short have switched to being long.
  1. Central banks continue to be net buyers.
To top it off, there’s been no fallout (yet) from the unprecedented currency dilution undertaken since 2008—and we don’t believe in free lunches. The gold mania train has not yet left the station, but the engine is running and the conductor has the whistle in his mouth. This means…..

Any correction ahead is a potential last-chance buying opportunity before the final mania phase of this bull cycle takes our stock to new highs, well above previous interim peaks.

In spite of the good start to 2014, most of our 10 bagger gold stocks are still on the deep discount rack. And you can get all of them with a risk free, 3 month trial subscription to our monthly advisory focused on junior mining stocks, the Casey International Speculator.

If you sign up today, you can still get instant access to two special reports detailing which stocks are most likely to gain big this year: Louis James’ 10 Bagger List for 2014 and 7 Must Own Stocks for 2014.
Test drive the International Speculator for 3 months with a full money back guarantee, and if it’s not everything you expected, just cancel for a prompt, courteous refund of every penny you paid.

Click Here to Get Started Now

I hope you will take advantage of this opportunity in front of us—while shares are still relatively cheap.
The article Junior Mining Stocks to Beat Previous Highs was originally published at Casey Research


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Wednesday, October 30, 2013

What NOT to Do When Investing in Miners

By Eric Angeli, Investment Executive, Sprott Global Resource Investments

 

Precious metals miners are the most volatile stocks on earth. They're so volatile that investors often forget that underneath those whipsawing stock prices lie real businesses. But even many of those who consider themselves old pros in natural resource investing tend to get one thing wrong. Eric Angeli, an investment executive with Sprott Global Resources and protégé of legendary resource broker Rick Rule, explains how not to fall into the "top down" trap…



If the past two years have taught us anything, it's that trying to predict short term moves in the gold price can be a road to ruin. Parsing the umpteen countervailing forces that combine to set the price of gold is tough. And it's even tougher when you consider that oftentimes, market moving news, such as a central bank trade, isn't reported until after the fact.

In my years spent evaluating natural resource companies as a broker and analyst, I’ve found that there are two ways to successfully invest in precious metals equities. Doing it right can bolster the strength of your portfolio, not to mention your own confidence in your holdings.

Method #1—Top-Down Approach

 

You may have heard this method referred to as “Directional Investing.”
A directional investor decides that gold prices will increase in the long run. That's the starting point of his thesis. He then proceeds to find the companies that will be successful if his prediction comes true. He looks for companies with leverage to the gold price.

If an investor can get the timing right, this can be a lucrative strategy. There is an obvious caveat, though: for this strategy to work, precious metals prices must rise.

In my role as a broker, I deal with both companies and investors all day long. I can tell you that most speculators involved with gold equities use this top down approach.

That's why the number one question I’ve heard over the last three months has been, “Why isn’t gold moving up?” To directional investors, the answer to this question is paramount.

This mindset leads to the herd mentality and, frankly, gives us our best bull markets.
I prefer method #2.

Method #2—Fundamental Approach

 

Fundamental investors ignore prognostications about where gold prices might move next. We eliminate gold price movements as the crux of our investment decisions, which removes a lot of the guesswork from our portfolios. For a fundamental investor, gold prices are still a piece of the puzzle, but they are not the only driver.

Fundamental investors want to know: which company has a promising deposit in a relatively safe jurisdiction? Which has a tight share structure? This “bottom up” method, however, does require a lot more homework.
Fundamental investing is all about identifying the difference between a stock’s intrinsic value and the price at which it is trading at in the open market.

While I do believe in higher gold prices eventually, and inevitably, I know that short-term movements in the price of gold are beyond my control. I instead prefer to position my clients for success in the current environment. Instead of focusing on when the gold price will move, which we can never know, we focus on picking quality companies.

Why Hasn’t the Top-Down Approach Been Working?

 

You might say: because the price of gold hasn’t gone up! That's true, but there’s more to the story.
Until quite recently, gold has continued to rise, though not at the same clip we enjoyed after 2008. The problem is that miners' operating costs rose faster than the price of gold. Investors didn't expect that.
Nor did they factor in other cost increases. Sure, the value of a deposit rises every day the gold price rises. But did oil prices jump at the same time, making trucking the goods out more expensive? Did your laborers start demanding high wages? Did energy costs increase? Did the federal government demand a bigger slice of the pie?

Top down investors can stop trying to figure out why they haven’t been correct over the last several years. They were correct on the gold price, but they ignored underlying cost factors.

The Top 7 Things to Look For

This is where the Fundamental Approach shines. All of your investments should fulfill a few key checkpoints:
  1. Look for companies where management owns a large percentage of the stock. A vested interest at a higher share price is even better.
  2. Look for a tight capital structure. A bloated outstanding share count is a red flag. As is a history of management carelessly diluting away shareholder interest by issuing new stock.
  3. Look for a thrifty management team. A good company should spend their capital on projects, not swanky new offices.
  4. The company's mine should remain profitable even if gold drops to $1,000 per ounce. It could happen.
  5. Look for companies with enough cash to finance their current drill program, expansion plans, feasibility study, or construction phase. This year in particular, companies are having a very difficult time finding financing. Those who have adequate cash are diamonds in the rough.
  6. Know which countries support mining. A tier-one asset under the control of a wildly corrupt government isn't really a tier-one asset. You don't want to get caught in the middle of a government dangling final permits above managements’ heads.
  7. Know the geological potential of the exploration area. A four-million-ounce gold deposit is swell, but what if your company discovers not just one gold mine, but an entire new gold district? How will you factor in that upside?

Don't Let Fear Make You Miss Out

 

Mining companies have a fiduciary responsibility to make their shareholders money, so they can’t help but paint a rosy picture for potential investors. That's why you need to have a disciplined and impartial eye. Most companies are not worthy of your hard earned capital.

Having an advisor you trust, or access to technical expertise, is crucial. Ideally you should have both. The most educated investor always has the edge.

I'll conclude with this: the markets have not been kind to the miners recently. But selling a stock just because it dropped in value is an emotional decision. Seeing red on your computer screen is painful, but it is not relevant. What is relevant is what you do with that capital going forward. Don't let emotion cloud your judgment.
 
On the other hand, if you’re waiting for the gold price to move higher before you sell, then you’re a speculator masquerading as an investor, and you may as well buy a ticket to Vegas.

My boss and mentor, Rick Rule, recently said, “Bear markets are the authors of bull markets.” When these markets do start moving, if you’re not positioned with the highest quality tier one companies, you could miss out on one of the biggest bull market moves of your investing life.

Eric Angeli is an investment executive at Sprott Global Resources. 

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Sunday, September 29, 2013

Weekly Market Recap with Mike Seery - Gold, Silver and Coffee


Here is a weekly recap of the gold, silver and coffee markets from our trading partner Mike Seery.....  

Gold futures traded up $7 for the trading week and higher by $15 dollars an ounce this Friday afternoon at 1,340 still in a sideways to downward pattern & I am still advising traders to sit on the sidelines and wait for a real trend to develop, but I do believe that prices look weak at this level and are headed lower with the possibility of testing 1,290 once again. Gold is still trading below its 20 and 100 day moving average and it wouldn’t surprise me to see gold retest the June 28th low of 1,182 but that day prices closed at 1,225 & that’s only about $100 dollars away and I think in the long run if your bullish gold you probably want to see gold retest that level and rebound strongly confirming that the possibility of a long-term bottom would be in place. The chart structure in gold is improving which will allow you to place a closer stop loss in the futures market minimizing your risk especially if you trading the mini contract and the liquidity in the gold futures are outstanding as money flowed back into the stock market today and out of the precious metals. TREND: SIDEWAYS TO LOWER –CHART STRUCTURE: IMPROVING

The silver market was basically unchanged for the trading week and finished up 10 cents at 21.85 this Friday afternoon in New York in a real lack luster trade as volatility has slowed down in recent days but I don’t think that will last for long as silver is one of the most volatile commodities in the world on a daily basis. Silver futures are still trading below their 20 but right at their 100 day moving average with a possible retest of the recent low at 21.22 and is still looks relatively weak in my opinion but if you’re a long term investor I still believe silver prices are cheap & I do think prices will head higher eventually but they might retest the $20 level first in my opinion. Silver is extremely volatile and impossible to try & pick a top or bottom so the object is if your bullish is to try to buy near the bottom or what I still believe is to take advantage of big down days in silver. The most recent high in silver was 25.17 which was during the Syria situation so prices have dropped around $3.50 from those highs; however I think prices will chop around for a while and form a long term bottom at these levels. TREND: SIDEWAYS – CHART STRUCTURE: SOLID

The coffee market continues its bearish trend in New York this week trading as high as 119 on Wednesday in the December contract looking to possibly breakout to the upside but then prices got slammed hitting a 4 1/2 year low down another 180 points at 113.90 this Friday with the next major support between 100 – 110 & in my opinion it looks like were headed to those price levels. The coffee market has excellent chart structure allowing you to place a tight stop loss above 119 if you’re looking to get short risking around $2,000 per contract as rumors of a massive crop coming out of Vietnam possibility 29 million bags which is well above recent estimates of 27 million bags pushing prices lower and I still believe if prices get down to the 100 level & your long term investor prices look awful cheap at major yearly support. The biggest fundamental problem with coffee currently is supplies are huge with excellent growing conditions around the world which is keeping a lid on prices at this time. The one positive influence coffee has is the fact that all the bad news is already priced into the market and the fact that the U.S dollar is hitting another 8 month low today could start to support coffee and all the other commodities as well in my opinion. TREND: LOWER – CHART STRUCTURE: EXCELLENT

What do I mean when I talk about chart structure and why do I think it is so important when deciding to enter or exit a trade? I define chart structure as a slow and grinding up or down trend with low volatility and no chart gaps. Many of the great trends that develop have very good chart structure with many low percentage daily moves over a course of at least 4 weeks thus allowing you to enter a market and allowing you to place a stop loss with will be relatively close due to small moves thus reducing risk.

Charts that have violent up and down swings are not considered to have solid chart structure but markets that continue to trend like the current soybean complex allowing for you to place close stops as it continues to fall dramatically. I always like to place my stops at 10 day highs or 10 day lows and if the charts have a tight pattern that will allow the trader to minimize risk which is what trading is all about and if the chart has big swings your stop will be further away allowing the possibility of larger monetary loses.

Click here to see some more of Mike's calls on commodities to get you started for the work week.



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Friday, May 24, 2013

Weekly Energy Markets Recap with Mike Seery

We've asked Michael Seery of INO.com to give our Crude Oil Trader readers a weekly recap of the futures market. He has been Senior Analyst for close to 15 years and has extensive knowledge of all of the commodity and option markets.....

Energy futures had a volatile trading week as usual with crude oil basically finishing unchanged this Friday afternoon at 94.10 still trading below its 20 and 100 day moving average with very little chart structure with giant swings to the upside and to the downside with a possible double top around $97 and if you’re looking to get short this market my recommendation would be to put a stop above 97.35 in case the market does rally settling last Friday at 96.30 basically unchanged for the trading week.

Heating oil futures for the June contract are trading below their 20 and 100 day moving average after hitting a 4 week high last Monday down for the 4th consecutive day as we enter the summer when demand for heating oil generally lightens so I’m still not bullish this commodity but I’m still advising traders to basically sit on the sidelines in crude oil and in heating oil.

And look at unleaded gas which is still trading below their 20 and 100 day moving average settling last Friday at 2.90 with major support 2.70 down 800 points for the week currently trading at 2.84 and I do believe that a bottom has occurred in unleaded gas prices as we enter the demand season in the next couple of months.

The commodity markets have been extremely volatile in recent weeks with the U.S dollar hitting contract highs a couple of days back, however crude oil and its products have held up very well despite all the negative news with record inventories here in the United States they continue to hang near recent highs and I just wonder how long that is going to continue especially in heating oil & crude oil.

Trend: Sideways – Chart structure improving


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Tuesday, October 11, 2011

Will The S&P 500 and Gold Make up Theirs Minds Already


A lot of eyes were watching the Slovakian Parliament around the closing bell today as they voted on the European Financial Stability Fund (EFSF). The first vote failed to pass the pending legislation, but members of the opposition party have indicated that they will vote for the bill in a second scheduled vote. The S&P 500 E-Mini futures contract has not sold off sharply on the news, but the trap door risk for equity traders is that the second vote comes up short and the legislation fails unexpectedly.

The marketplace is expecting the second vote to pass without issue and if a different scenario plays out selling pressure could become extreme potentially. With earnings season now upon us, there is plenty of headline risk to go around and this Slovakian situation just adds more complexity to the news flow.
We have seen the S&P 500 Index rally more than 10% in five trading sessions which could potentially mean we have more downside work to accomplish before probing higher.

The flip side of that argument is that prices continue to rally and push towards key resistance levels overhead. At this point in time, I do not have an edge for a directional trade so I am sitting on the sidelines presently. I do have a few time decay based trades in place, but they do not have a directional bias so my book is flat here.

The S&P 500 is a tough buy after a 10% rally in such a short period of time, but the strength and momentum are tough to short. The buyers seem to be higher and the sellers appear to be lower which complicates a potential entry even further. Presently there appears to be two possible scenarios:

Bullish Scenario
The daily chart of the S&P 500 Index is shown below with key overhead resistance levels illustrated on the chart and the potential price action in coming days.......

SPY ETF Options Trading


Bearish Scenario


The daily chart of the S&P 500 Index is shown below with key support levels and the potential price action if price works lower.....

SPY Option Trade



Overall, I do not have a real edge on the S&P 500 at this point. A pullback makes some sense here, but defined risk metrics and a trading plan must be used to reduce risk. Regardless of the price direction traders are considering, this is a situation where proper position sizing and stop orders can allow a trader to take on a defined risk that he/she is comfortable with.

This market has been tough to trade for several weeks. The price action has been choppy and volatility levels have been elevated since the early part of August. This type of market environment chops up a lot of traders and it sucks bulls and bears into the price action late in the game opening the door for potentially devastating losses if risk is not properly defined. 

My Trading partner Chris Vermeulen pocketed over 38% gain during these choppy times using bull and bear ETFs with his subscribers.

As an option trader familiar with a variety of spreads, recently I have been utilizing the elevated volatility levels to sell option premium and use the passage of time as a primary profit engine for my open positions. Currently I have 3 open positions which are all taking advantage of the passage of time as a profit engine.

Back on 9/26 I entered a $DIA Iron Condor Spread to take advantage of heightened volatility and capitalize on time decay leading up to the October monthly option expiration. On 10/06 I was able to close the $DIA position to lock in 15% based on maximum risk. Even though price action was excessively volatile during the past several weeks, my $DIA trade was never a major concern in terms of price action. No adjustments were necessary and members and I pocketed some relatively quick money watching the days pass by.

Gold Analysis
The recent price action in gold has been equally as tough to trade as the S&P 500 Index. After rallying sharply into early September, gold prices plummeted and price action has been consolidating ever since. Similar to the price action in the S&P 500, gold prices have just chopped around for several weeks. Gold is currently trading in a bear flag formation which if triggered could result in additional downside.

GLD ETF Options Trading

In the short-term more downside is always possible, but in the longer term I think higher prices are probable for both gold and silver as this money printing binge will one day end and inflationary pressures may present themselves at that time. The weekly chart of gold futures is shown below......

Option Trade GLD ETF
As can be seen above, gold has traded in a long term rising channel for over a year. Back in August and September gold prices broke out to the upside of the rising channel and went parabolic. In the beginning of September, gold prices sold off sharply back down into the previous rising channel. As it stands right now, gold prices remain near the upper resistance level of that channel and have not tested the lower support line since February.

If gold prices do begin to rollover in the days and weeks ahead, a logical entry point would be a test of the lower channel. The price level I would be watching for would be around $1,500 an ounce. If we get to that area, I would not be shocked to see an overthrow of that support level and a test of the 1,480 price level before reversing to the upside.

The other side of this story is that the U.S. Dollar Index falls out of favor again and its price gets crushed. If the U.S. Dollar gets hammered lower, it would make sense that U.S. domestic equities would rally along with other risk assets such as gold, silver, and oil. Right now I do not have a clear short term bias, but in the intermediate to longer term cycles I remain quite bullish. If the gold price does work back down to that support level, I will be looking to get long. Another possible long entry would present itself on a breakout to the upside back out of the upward sloping channel.

Gold is quite volatile and is impacted by a litany of outside forces such as foreign currency and the U.S. Dollar. For right now the short term bias could be to the downside, but when this period of malaise in the yellow metal ends the next bullish phase of this move higher is going to be quite strong.

As I have said many times, sometimes the best trade is no trade at all. Right now I do not have an edge in either the S&P 500 or gold so I am just going to sit and watch price action patiently while looking for high probability, low risk setups to emerge.

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.com and take advantage of our free occasional trade ideas and our free options trading strategy book.

Monday, June 20, 2011

Is This Market Flashing a Buy Signal or Another Market Collapse?

Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.

Let’s take a quick look at the SP500 hourly chart covering the month of June.

As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.


There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.

Let’s take a look at the financial sector:
As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.


The other main ingredient to a higher stock market is the technology sector.

Looking at the technology sector:
Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.


Weekend Trading Conclusion:
In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.

Get Chris Vermeulens free weekly technical analysis on sectors here at The Gold and Oil Guy.Com


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