How the Chinese Will Establish a New Financial Order

By Porter Stansberry

For many years now, it’s been clear that China would soon be pull­ing the strings in the U.S. financial system. In 2015, the American people owe the Chinese government nearly $1.5 trillion.

I know big numbers don’t mean much to most people, but keep in mind… this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both cor­porate and individual) each year. It’s basically a sum we can never, ever hope to repay – at least, not by normal means.
Of course, the Chinese aren’t stupid. They realize we are both trapped.

We are stuck with an enormous debt we can never realistically repay… And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese govern­ment is now taking a secret and somewhat radical approach.

China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens, like you and me.

The Chinese “State Administration of Foreign Exchange” (SAFE) is now engaged in a full fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to cre­ate a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.5 trillion the U.S. government has borrowed as possible.

Lucky for us, we know what’s going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isn’t the first time the U.S. has tried to stiff its foreign creditors.

Most Americans probably don’t remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government’s policy of print­ing overvalued U.S. dollars to pay for its trade deficits… which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction.

So de Gaulle took action...…

In 1965, he took $150 million of his country’s dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France.

Today, this gold is worth about $12 billion.

Keep in mind… this occurred during a time when foreign govern­ments could legally redeem their paper dollars for gold, but U.S. citizens could not. And France was not the only nation to do this, Spain soon re­deemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.

By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the country’s gold. It’s estimated that during the 1950s and early 1970s, we essentially gave away about two thirds of our nation’s gold reserves, around 400 million ounces, all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold.

In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion, a 4,330% difference. Incredibly stupid, wouldn’t you agree? This blunder cost the U.S. much of its gold hoard. When the history books are finally written, this chapter will go down as one of our nation’s most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse.

The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government’s annual deficits, which were larger than ever and growing… thanks to the gigantic new welfare programs and the Vietnam “police ac­tion.” You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar.

Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon’s. On August 15, 1971, he went on live television before the most popular show in Ameri­ca (Bonanza) and announced a new plan. The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports!

Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse. Of course, Nixon pitched these moves as patriotic, saying: “I am determined that the American dollar must never again be a hos­tage in the hands of international speculators.”

The “sheeple” cheered, as they always do whenever something is done to “stop the speculators.” But the joke was on them. Within two years, America was in its worst recession since WWII… with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.

And that brings us to today…..
Roughly 40 years later, the United States is in the middle of anoth­er currency war. But this time, our main adversary is not Europe. It’s China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That’s not the case today.

This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It’s critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near certain outcome.
Regards,
Porter Stansberry

(This is an adaptation of an article that was originally published in Porter's Investment Advisory.)
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The article was originally published at internationalman.com.

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World Money Analyst: Europe....Cliff Ahead?

By Dirk Steinhoff
When Kevin Brekke, managing editor [of World Money Analyst], contacted me last week, I knew it was time again to survey the investment landscape. This month, I will focus on Europe and its decoupled financial and real economy markets.

Globally, the last two years were marked by booming stock exchanges of developed markets, disappointing bond markets, and devastation across the precious metals markets.

Since June 2012, the EURO STOXX 50 Index, Europe’s leading blue chip index for the Eurozone, has advanced by approximately 50% and outperformed even the S&P 500 and the MSCI World indices.

Over the last six months, European stock exchanges have seen a surprising change of leadership: The major stock market indices of the “weaker” countries, like Portugal, Spain, and Italy, have outperformed those considered stronger, like Germany. One of the top performers was a country that was and still remains in “bankruptcy” mode: Greece.

The question at this point is: Can these outstanding European stock market performances continue?

In our search for an answer, let’s start with a closer look at the economic conditions within the European Union (EU), where approximately 2/3 of total “exports” (internal and external) of the EU-28 are traded. And then let’s have a look at the economic setting of some major trading partners, such as the US and BRIC countries, which account for roughly 17% and 21%, respectively, of the external exports of the EU-28.
Although the EURO STOXX 50 Index has soared since June 2012, certain key measures of the underlying real economies paint a different picture.

To start, the GDP of the EU-28 is not really growing. In 2012, it contracted by 0.4% and grew by the smallest fraction of 0.1% in 2013. The GDP growth numbers for the countries in the euro area are even worse: -0.7% in 2012 and -0.4% in 2013. Whereas Germany’s GDP was up in 2013 by 0.5%, economic growth was down in Spain, Italy, and Greece by -1.2%, -1.8%, and -3.6%, respectively.

Real GDP Growth Rates 2002-2012
	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012
EU	1.3	1.5	2.6	2.2	3.4	3.2	0.4	-4.5	2.0	1.6	-0.4
Germany	0.0	-0.4	1.2	0.7	3.7	3.3	1.1	-5.1	4.0	3.3	0.7
Spain	2.7	3.1	3.3	3.6	4.1	3.5	0.9	-3.8	-0.2	0.1	-1.6
France	0.9	0.9	2.5	1.8	2.5	2.3	-0.1	-3.1	1.7	2.0	0.0
Italy	0.5	0.0	1.7	0.9	2.2	1.7	-1.2	-5.5	1.7	0.5	-2.5
Portugal	0.8	-0.9	1.6	0.8	1.4	2.4	0.0	-2.9	1.9	-1.3	-3.2

The EU unemployment rate stood at 10.2% at the beginning of 2012 and stands at 12.1% today. That the European Union is anything but a homogenous body that moves in unison can be seen in the following chart:

Where Germany has a current unemployment rate of 5.2% and a youth (under 25) unemployment rate of 7.5%, the numbers for other countries are worrisome: Current unemployment in Spain is 26.7%, and 12.7% in Italy, with youth unemployment in Spain at an incredible 57.7%, and 41.6% in Italy. And don’t forget Greece, which is mired in a historically unparalleled economic depression where unemployment is 28% and youth unemployment is a shocking 61.4%. Keep in mind that all of these numbers are those officially released by bureaucratic agencies. The real numbers, as we know, would likely be even worse.

Recent EU industrial production numbers have shown some slight improvement. Nevertheless, industrial production has only managed to recover to its 2004 level, and remains way below its 2007 heights (see next graph).

Source: Eurostat

So let’s see: a shrinking GDP, high and rising unemployment, and stagnant production significantly below 2007 levels. Those are not the rosy ingredients of a booming economy (as indicated by the stock exchanges) but of one that is struggling.

Europe is not in growth mode.

This verdict is further supported by the export numbers for trade between EU countries, known as internal trade. In 2001, internal trade accounted for 67.9% of EU exports. Today, this share is down to 62.7%. In an attempt to compensate for sluggish European growth, EU companies had to develop other export markets, such as the US or the emerging markets.

Will these markets help rescue European companies?

Time to Taper Expectations

With regards to the U.S., two important developments are worth mentioning. The first key development, which will have severe consequences for the global economy, was brought to my attention by my friend Felix Zulauf, an internationally well-known investor and regular member of the Barron’s Roundtable for more than 20 years. Running ever-increasing deficits in its trade and current accounts for almost 30 years, the US thus provided an enormous amount of stimulus for foreign exporters. Since 2006, however, the US trade deficit has shrunk, with deteriorating trade data for many nations as a consequence.

The second key development is that the newly appointed head of the US Federal Reserve system, Janet Yellen, seems determined to continue the taper of its bond buying program. This fundamental shift in monetary policy could be questioned if the economic numbers for the US begin to show significant weakness. But in the meantime, the reduction of economic stimulus in the US should lead to a reduced appetite for European export goods.

The emerging markets had been seen, not too long ago, as the investment opportunity and alternative to the fiscal and debt crisis-stricken countries of the developed world. Today, on a nearly daily basis, you hear bad news about the situation and developments in the emerging countries: swaying stock markets, plunging currencies, company bankruptcies, corruption scandals, and even riots.

The emerging markets are dealing with the unintended consequences of the Quantitative Easing (including liquidity easing and credit easing) programs in the West. The increased liquidity spilled over into the emerging markets in the hunt for yield. This flow of capital into the emerging markets lowered capital costs, inflated asset prices like stocks and real estate, and boosted commodity prices. All that, and more, sparked the emerging markets boom.

Now, this process has reversed. The natural conclusion to exaggerated credit-driven growth, the tapering of QE programs, the shrinking US trade deficit, and lower commodity prices has been an outflow of capital from emerging markets, triggering lower asset prices and exchange rates. The attempt of some countries to defend their currencies by raising interest rates will only exert further pressure on their economies.

With weaker emerging market economies and currencies, there will be no big added demand for European exports. Revenues and profits for EU companies (measured in euros) will fall.

When Trends Collide

So, over the last two years we had opposing trends—booming European stock markets and weak underlying real economies. This conflicting mix was mainly fostered by easy money that drove down interest rates to historic low levels. Plowing money into stocks, despite the poor fundamentals, was the only solution for most investors.

At their current elevated levels European stock markets appear vulnerable, and it seems reasonable to doubt that we will see a continuation of booming stock markets. Of course, such a decoupling can continue for some time, but the longer it continues, the closer we will get to a correction of this anomaly. Either the real economy catches up to meet runaway stock prices, or stock prices come down to meet the poor economic reality. Or some combination of the two.

Because of the economic facts that I discussed above, in my view, we may be seeing just the beginning of a stronger correction in stock prices.

Dirk Steinhoff is chief investment officer of portfolio management (international clients) at the BFI Capital Group. Prior to joining BFI in 2007, Mr Steinhoff acted as an independent asset manager for over 15 years. He successfully founded and built two companies in the realm of infrastructure and real estate management. Mr Steinhoff holds a bachelor’s and master’s degree in civil engineering and business administration, magna cum laude, from the University of Technology in Berlin, Germany. 

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The article World Money Analyst: Europe: Cliff Ahead? was originally published at Mauldin Economics

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Put Your Seatbelts On, It’s About To Get Bumpy!

It was just about a year ago today when the S&P was sitting at fresh highs and everyone was enjoying a rather upbeat summer. It was a nice summer, the markets were calm, and there was a surreal sense of optimism. Then, in the matter of a few days, things got real ugly, real quickly.

Well, it doesn’t seem like too much has changed since then. We’ve had mixed earnings reports, ever evolving worries in Europe, and the always looming fiscal mess in the U.S. Once again, are we in the calm before the storm?

It looks like things in Europe may start to heat up again. Riots turned violent again in Spain as protestors took to the street over austerity measures. With seemingly no resolution, a sinking tourism industry in the PIGS, and a typically hot summer August on its way, all signs point to further turmoil.

Technically, we’re currently seeing a number of bearish indicators setting up in the S&P and other markets. First, on the weekly chart of the SP500 Futures we can see what appears to be a bear flag formation developing. Note the recent rise in price since the beginning of June on decreasing volume.


Weekly SP500 Futures Chart Patterns

Daily Chart Elliott Wave Count For SP500

A second look at the S&P daily illustrates a down trend and 5 wave count bounce in the market, both are currently pointing to lower prices.

>> Completion of two intermediate cycles within longer term 5 wave pattern

>> Downwards wave one from April until beginning of June followed by wave 2 correction from June until present.

The wave two correction typically proceeds the longest wave, wave three, which is pointing towards a large move down (Note that in the first shorter term cycle the downwards wave three was the longest by far. We expect the same to be repeated in the longer term cycle.)

SP500 BIG PICTURE Wave Count

A look at the longer term view once again using the weekly chart, again supports our argument for a major correction. We have just completed a 5 wave pattern since the 2009 lows, and it is looking more like a big pull back is due. Remember most major trends end after the fifth wave.

Copper Weekly Chart Patterns

If we take a look at the copper ETF, “JJC”, we are provided with further justification. Copper is often referred to as “Dr.Copper” due to its industrial application and is known to be a leading indicator for equity markets. Copper has significantly underperformed equity markets and is likely leading the next move down. A look at the weekly chart which points to a rather dismal outlook. There is a major head and shoulder patterns developing.

Major Market Pattern Analysis Conclusion:

Last summer turned into a bloodbath with nothing but red candlesticks taking stocks and commodities sharply lower. If you haven’t already, it’s time to lock in some profits. Short, intermediate, and long term cycles are pointing down, and the increasingly bearish technical developments cannot be ignored. We’ll be looking at entering multiple shorts potentially in the very near future once/if setups present themselves.

 Buckle up and stay tune for more....

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Crude oil appears to set a near term bottom

Crude oil for August delivery closed sharply higher on Friday gaining $7.27 to settle at $84.96 a barrel, above the 20 day moving average crossing at 82.52 confirming that a short term low has been posted. The high range close sets the stage for a steady to higher opening when Sunday's night session begins.

Stochastics and the RSI are oversold but are turning bullish signaling that sideways to higher prices are possible near term. If August renews this spring's decline, the 75% retracement level of the 2011-2012 rally crossing at 73.28 is the next downside target.

First resistance is the reaction high crossing at 87.32. Second resistance is the reaction high crossing at 92.52. First support is Thursday's low crossing at 77.28. Second support is the 75% retracement level of the 2011-2012 rally crossing at 73.28.

European leaders attending a two day summit agreed early Friday on a plan to use bailout funds to directly aid banks in Spain and Italy. The move in crude oil futures came as investors cheered the plan to help the euro zone's struggling banks.

The move, along with plans to bring Europe closer together, led to a surge in the euro, equities and commodities markets. The euro recently traded at $1.2684, up 1.9% from $1.2444 on Thursday. The Dow Jones Industrial Average recently traded 1.5% higher at 12,789.

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Crude Oil Spikes as Euro Leaders Relax Spains Debt Conditions

Check out our latest Video, Market Analysis and Forecast for the Dollar, Crude Oil, Gold, Silver, and the SP500

CME: August crude oil prices traded sharply higher during the early morning hours, helped by an EU agreement aimed at relaxing borrowing costs in Spain and Italy. Risk assets across the globe appeared to embrace an agreement, and that has fostered ideas that global oil demand could turn higher. In addition to easing concerns over the European debt debacle, the crude oil market has also drafted support from tightening North Sea supply concerns.

COT: Crude oil was higher due to short covering overnight as it consolidates around the 62% retracement level of the 2009-2012 rally crossing at 80.33. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 82.31 are needed to confirm that a short term low has been posted. If August extends this year's decline, the 75% retracement level of the 2009-2011 rally crossing at 73.28 is the next downside target. First resistance is the 20 day moving average crossing at 82.31. Second resistance is the reaction high crossing at 87.32. First support is Thursday's low crossing at 77.28. Second support is the 75% retracement level of the 2009-2011 rally crossing at 73.28.

Bloomberg: Crude posted its steepest intraday gain in eight months, increasing as much as 4.5 percent and trimming the biggest quarterly decline since the final three months of 2008. Oil gained after euro area leaders agreed to relax conditions on emergency loans for Spanish banks and possible help for Italy. Prices may advance after the European Union’s ban on the purchase, transport, financing and insurance of Iranian crude starts on July 1, a Bloomberg survey showed. Norway’s first industrywide energy strike since 2004 is in its sixth day.

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Gold and Silver on the Verge of Something Spectacular

Gold and silver have taken more of a back seat over the past 12 months because of their lack of performance after topping out in 2011. Since then prices have been trading sideways/lower with declining volume. The price action is actually very bullish from a technical standpoint. My chart analysis and forward looking forecasts show $3,000 ish for gold and $90 ish for silver in the next 18-24 months.

Now don’t get too excited yet as there is another point of view to ponder....

My non technical outlook is more of a contrarian thought and worth thinking about as it may unfold and catch many gold bugs and investors off guard costing them a good chunk of their life savings. While I could write a detailed report with my thinking, analysis and possible outcomes I decided to keep it simple and to the point for you.

Bullish Case: Euro land starts to crumble, stocks fall sharply sending money into gold and silver which are trading at these major support levels which in the past triggered multi month rallies.

Bearish Case: Greece, Spain and Italy worth through their issues over the next few months while metals bounce around or drift higher because of uncertainty. But once things have been sorted out and financial stability (of some sort) has been created and the END OF THE FINANCIAL COLLAPSE has been avoided money will no longer want to be in precious metals but rather move into risk on.

Take a look at the gold and silver charts below for an idea of what may happen and where support levels are if we do see money start to rotate out of metals in the next 3-6 months.

Over the next few months things will slowly start to unfold and shed some light on what the next big move is likely going to happen to gold and silver.

The price movements we have seen for both gold and silver indicate were are just warming up for something really big to happen. It could be a massive parabolic rally to ridiculous new highs in 2012/2013 or it could be a huge unwinding of the safe havens as countries sort out their issues and the big money starts moving out of metals and into currencies and stocks.

Only time will tell and that is why I analyze the market multiple times per week to stay on top of both long term and short term trends.

To keep up with Chris Vermeulen and his thoughts on current trends and trades for gold, silver, oil, bonds and the stocks market checkout The Traders Video Playbook


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Monday Precious Metals and Equity Prices are Marked UP!

The past couple months have been a roller coaster ride for investors and traders. Overseas headline news has made investing and trading more difficult than normal because of prices gaping up or down at the opening bell several times per week. The next two weeks are going to be even crazier because of the Greek election and Spanish bank bailout.

This past weekend it looks as though the Spanish banks are getting bailed out which will be similar to the 2008 – 09 bailout we saw in the United States. This news has marked up stocks and commodity prices during overnight trading Sunday. The major indexes are up 1-2% across the board.

Looking at the technical and sentiment this is what I feel will take place and how it can be attacked…

Major stock indexes and commodities will be trading at resistance at the open on Monday.

And the dollar which was hit hard in overnight trading Sunday is now trading at support. A bounce in the dollar and sellers stepping in at resistance could pull the market down for session or two.

The big questions is what do traders do with this jump stocks and commodities?

The first 15 minutes of Monday’s session short sellers will be panicking out of their positions and getting stopped out. Once the dust starts to settle resistance and an oversold dollar may do their part and force the market lower later in the day.

Now if we add sentiment into this picture thinking of the masses covering their short positions in a big way we know from past events that when the masses all trade the same direction the market quickly reverses goes the opposite direction in the short term for 1-3 days.

So what does one do if they are short the market this week as I am in this boat?

Personally, I would wait 15-30 minutes to let things unfold and see what the price, volume and sentiment is doing. Keep in mind morning trends tend to stall out and roll over at 10am ET, or 11:30am ET. Knowing that; I will be watching price and volume to see if there is a bearish intraday pattern unfolding that looks as though it will unfold within those time frames. If so, I will hold my position and look for a reversal back down where I can exit at a lower price hopefully. But for all we know this news may just put the top market and we get much lower prices yet. Anyways, that is my plan as of Sunday night.

Stocks, Gold & Dollar Rising Together?

The recent few months I have been talking about how we could stocks, commodities and the dollar rise together. While is sounds crazy we just may start seeing that happen sooner than later. The Euro group appears to be willing to bailout the Spanish banks and that should cause the Euro lose more value and send the US dollar soaring.

Having more Euro liquidity is bullish for stocks and commodities along with the dollar. For all we know this just may be the financial storm for American’s next eggs (investments owned in Dollars) to rebound strongly over the next 12 months.

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CNBC: Crude Oil May Slip Towards Mid $80s on Greece and Spain Worries

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Crude oil prices will likely extend losses for a fifth straight week as fears about a Greek exit from the euro zone and Spain's banking system continue to trigger outflows from riskier assets including commodities and into the relative safety of the U.S. dollar, according to CNBC's weekly survey of oil market sentiment.

Getty Images

Many traders and strategists polled forecast U.S. crude futures could make a sustained breach below $90 a barrel and test $85 or possibly $84 a barrel this week. Much will depend on the U.S. labor report on Friday. A solid reading may help establish a floor in the oil market while a poor number could compound the woes of the global economy.

The poll showed consensus opinion was overwhelmingly bearish: Ten out of the eleven respondents in the sample group expect prices to fall this week. Phil Flynn of PFGBest, the survey's sole respondent with a bull call, expected a rebound based on technical indicators which suggested markets were oversold and fears that tensions would resurface.

Talks last week between Tehran and world powers did not result in any agreement, with negotiations continuing next month at another meeting in Moscow, Reuters reported. Meanwhile, the U.N.'s International Atomic Energy Agency found uranium particles refined to a higher than expected level than what Iran has disclosed.

"Right now, I continue to expect a general 'risk-off' or 'short the world' attitude," said Tom Weber at Portfolio Managers, Inc. Commodity Futures & Options. "However, I won't underestimate the ability of the political elite to save the day with pronouncements and promises of solidarity. I believe traders have adapted to a 'show me' approach to global markets. The market is going to call the bluff of central bankers regarding QE."

Posted courtesy of CNBC

This should create some controversy, when is the best time of day to profit?

Will Crude Oil Break Through Support This Week?

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The June crude oil market rallied every day last week. The market put in higher lows and higher highs on a daily basis after it tested the support trendline (#3 on the chart) last week on Monday morning. Any technical trader would say last week had all of the necessary ingredients for a bull run.

On Monday crude oil was under pressure following unfavorable reports out of Spain and the United States coupled with profit taking ahead of a Labor Day Holiday in Europe and Asia.

The selloff seemed to be targeting the dominant trendline and the 20 day moving average (#1 on the chart) above the highs on the daily chart that kept Crude Oil in a downward channel until Thursday of last week when it closed above. This line was the dominant resistance for months, and may be the dominant support if the market can stay above in the near term.

If oil does not sell off any further, the near term target would likely be a price of $105.50. This price is where the high price from April 17th and the upper resistance trendline will converge on the chart (#2 on the chart). Closes above this number should be seen as a very bullish signal.

Any closes below #3 on the chart would likely invite heavy selling pressure on the June crude oil, as it would signal a break in the support trendline that the market has held since December 2011.

Phil Flynn: To Embargo or not to Embargo, That is Indeed the Question

While the market got a boost on reports that European refiners were meeting with Saudi Arabia and other oil producers and securing an alternative to Iranian oil supply, apparently some in the EU did not like the answers that they heard. An overbought oil market seemingly got a reason to sell-off on a Bloomberg report that the European Union embargo on imports of Iranian oil will likely be delayed for six months to allow countries such as Greece, Italy and Spain to find alternative supply, quoting an EU official with knowledge of the talks and it hit the market at just the right time.

The truth is, as I have said before, the EU would like to put off an embargo until after winter and Italy still wants some of the money that the Iranians owe them. Still do not think that Iran will be able to sell their oil very easily. The bottom line is that all Iranian oil will be sold, but it will be sold at a discount. Is it any wonder that Iran is rattling that saber to keep prices high. They are hopping if they can keep prices artificially high they won't miss the loss of revenue! Which means it will be a saber rattling kind of weekend! With a three day holiday in the US, being short over the weekend might be a dangerous propostion.
Yet Bloomberg News is reporting that.....Read the entire article.

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Adam Hewison: Was Last Week’s Market Rally a Head Fake?

Last week, the equity markets rallied along with many other markets. We felt at the time this was a counter trend rally and with Monday’s action we have probably put in an interim top. We also expressed the feeling that professional traders would be selling against the recent highs around 1220 to 1230 basis the S&P 500 index.

The rally was pretty unusual in the fact that it was on very light volume and it took off to the upside very quickly without any kind of market consolidation.

This is going to be a big week! Are we going to continue going up? Or are we going to see the longer term downtrend kick in? A downside reversal could be quite dramatic. This also holds true for the crude oil market, which has been mirroring the US equity markets.

The problems in Europe remain and we see little reason to celebrate any victories on that front. Greece will eventually default, and it remains to be seen if Ireland, Spain and Italy will dodge a bullet.

Every week it seems we go from “the world is coming to an end” to euphoria. Eventually the markets will sort out this conundrum. Our view longer term remains with our Trade Triangle technology which remains negative on the equity markets indicating long term weakness.

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Is The SP 500 About to Stage a Multi Month Rally?

J.W. Jones of Options Trading Signals tells us where he sees this market headed...... 

The S&P 500 must have taken notice of the multitude of headlines coming at market participants and proceeded on a path of pure chaos. Since October 4th, the S&P 500 Index (SPX) managed to trade in a range that spanned from 1,074 to as high as 1,171 in 4 days. To put the past 4 days price action into perspective, the S&P 500 Index rallied 97 points or 9% in less than 96 hours.

Since late July, market participants have been dealing with a whipsaw that has been wrought with headline risk coming from Europe and huge swings in the price action of the volatility index. A few short days ago I was calling for a bounce higher in the SPX as every time frame was oversold. After the jobs number came out Friday morning domestic equities rallied sharply higher and in the short term prices were excessively overbought prompting some profit taking.

Around lunch time the news wires broke that Spain and Italy had their sovereign debt downgraded by Fitch Ratings. The downgrade put U.S. banks under pressure quickly and the price action started to rollover. By the end of the day price action was starting to work higher but a sharp selloff played out in the final 30 minutes of the session putting the major indices back into the red at the closing bell. So the real question that lies ahead is where do we go from here?

There is no easy answer to that question as the headline risk coming out of Europe over the weekend could have a dramatic impact on prices on Monday. Just as a reminder, U.S. bond markets will be closed on Monday for Columbus Day, but equities markets will be open as usual. At this point in time my short term bias is to the downside.

It would be healthy to see the S&P 500 roll over here and find a key support level where buyers step in and support prices. A higher low would be constructive and could lead to a more prolonged intermediate term rally which could last into the holiday season. However, before we can see any sort of rally we need to see a bottom form. While I do believe we have initiated that process, until I see a higher low carved out on the daily chart I will consider the current price structure to remain bearish.

In order to break to new lows, the SPX would have to push through several layers of support. I am of the opinion that we are unlikely to see the recent lows broken, but the chart below illustrates the key support levels going forward. A test of the 1,040 – 1,050 price range remains possible, but the price action the past week makes it seem less likely. Within the context of a hyper volatile period of time, just about any possible outcome remains feasible. The daily chart of the SPX below illustrates key support levels for the index:

In addition to the weak price action into the close on Friday, several other clues are pointing to potentially lower prices in the near future. Members of my service know that I focus daily on several underlying ETF’s which help me get a grasp of the overall market conditions. On Friday, the financials (XLF), the Dow Jones Transportation Index (IYT), and the Russell 2000 Index (IWM) all showed relative weakness against the S&P 500. The chart below illustrates the relative performance on Friday:

The financials and the Dow Jones Transportation Index are excellent sectors to monitor when trying to determine the future price action of the S&P 500. Most of the trading session on Friday the financials (XLF) were exhibiting relative weakness versus the S&P 500 Index. Later in the session, the Dow Jones Transportation Index (IYT) started to roll over as well and once both ETF’s were under pressure it was not long before the S&P 500 Index flipped the switch to the downside.

The financials (XLF), the Russell 2000 (IWM), and the Dow Jones Transports (IYT) all put in large reversal candlesticks on the daily chart by the close of business on Friday. This is an ominous signal that lower prices for domestic equities may be forthcoming. The fact that key sectors are showing signs of weakness is a negative omen for the S&P 500 and the early part of next week. However, there is a bright side to this scenario.

If support levels can hold up prices next week and we see a higher low on the daily chart form, the bottoming process could be underway which could lead to a strong rally into year end. Obviously a probe to new lows is possible, but I believe that we are in the beginning stages of forming a bottom and a base for a rally to take shape.

If support levels hold up prices, a bottoming formation will likely get carved out on the daily chart of the SPX. The chart below illustrates two potential outcomes that could cause prices to rally sharply. In one case, a higher low is formed and we see prices take off to the upside. The other scenario involves an intraday selloff down to the 1,040 – 1,050 price level that gets snapped back up and a huge reversal candlestick would be formed. These scenarios are common during bottoming processes. The daily chart of the S&P 500 Index is shown below with the two scenarios highlighted:

The other scenarios would involve prices blowing through support and possibly knifing down to test the S&P 500 1,000 – 1,008 support area. While I find this scenario to be less likely at this time, anything could happen in this trading environment.

The key in the short run is the utilization of defined risk through the use of stop orders. In addition, a trading plan with stop orders and profit taking levels planned ahead will help remove emotion in a volatile tape. The price action is wild, but from my perch the likely scenarios all involve some short term selling pressure. If my analysis is right, this could be a huge turning point for price action the rest of the year.

The next few weeks are going to provide us with clues about the rest of 2011. 

The question traders should really be asking is whether support will hold, or will we break below the recent lows? Right now, the upside looks limited, but in this trading environment the best thought out plans can turn out to be useless if price action does not cooperate. Be nimble and define your risk, as volatility is not likely to subside anytime soon.

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 or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

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India Interest Rates, UK and Spain News Weighing on Crude Oil Bulls

I know we are guilty from time to time of making it sound like it's all about China. But let's not forget Chinas partner in massive growth, India. And this week it looks like the U.S. consumer seems to be getting a bit of help from a rate increase in India that is weighing on the commodity bulls. And India's central bank warns that inflation risks will remain a problem for some time.

And from across the pond contributed to the pull back with worse than expected GDP data out of the United Kingdom and renewed worries popping up in Spain's bond market. A plan supported by their finance minster does not seem to be convincing investors that Spain can get a handle on their financial woes. All of this appears to be weighing investors and crude oil and commodity prices.

And this just supports our continued predictions for a mid January pull back. And if you look at recent years the facts support our theory. In seven of the past 10 years imports expanded during January. And the street agreed on Tuesday taking March oil futures down $1.68 to $86.19 a barrel, the lowest settlement price since Nov. 30.

But the long oil crowd seems to be holding it's ground as many commercial traders are feeling that it will take a downside break in crude oil of 80.06 support to be the first sign of medium term reversal and break of 64.23 to confirm it. Otherwise a good majority of these traders outlook will remain bullish. This same "bull camp" see a further rise could still be in the cards all the way to the 61.8% retracement at 103.70 and possibly above.

But we are trading today and it appears crude oil is still rolling over. Here is your pivot, support and resistance numbers for Wednesday morning......

Crude oil was higher due to short covering overnight as it consolidates some of this month's decline. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term. If March extends this month's decline, the 38% retracement level of the May-January rally crossing at 85.51 is the next downside target. Closes above the 20 day moving average crossing at 90.61 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 90.61. Second resistance is this year's high crossing at 93.46. First support is Tuesday's low crossing at 86.12. Second support is the 38% retracement level of the May-January rally crossing at 85.51. Crude oil pivot point for Wednesday morning is 86.72.

Natural gas was lower overnight as it extends the decline off Monday's high and is trading below the 20 day moving average crossing at 4.494. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near term. Closes below the 20 day moving average crossing at 4.494 are needed to confirm that a short term top has been posted. If March renews the rally off October's low, the 62% retracement level of the June-October decline crossing at 5.025 is the next upside target. First resistance is Monday's high crossing at 4.823. Second resistance is the 62% retracement level of the June-October decline crossing at 5.025. First support is the 20 day moving average crossing at 4.494. Second support is the reaction low crossing at 4.302. Natural gas pivot point for Wednesday morning is 4.494.

Gold was higher due to short covering overnight as it consolidates some of this month's decline. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible. If February extends this month's decline, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. Closes above the 20 day moving average crossing at 1376.10 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 1358.70. Second resistance is the 20 day moving average crossing at 1376.10. First support is Tuesday's low crossing at 1323.50. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Wednesday morning is 1330.70.


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Commodity Corner: Crude Oil Begins Week Much Higher

A weaker equities market and a stronger dollar failed to place downward pressure on crude oil Monday. Crude oil for January delivery gained $1.97 to settle at $85.75 a barrel during a trading day influenced by factors ranging from oil products demand to the release of politically sensitive information attributed to U.S. State Department officials. In the latter case, ongoing fallout from the widespread leaks has heightened perceived geopolitical risks.

Exacerbating the geopolitical situation have been escalating tensions between North and South Korea as well as continued speculation about Europe's debt crises. Although the European Union approved a EUR85 billion bailout for Ireland over the weekend, there are fears that other heavily indebted countries such as Spain and Portugal will be next in line for massive financial aid packages. In addition, tightening inventories of gasoline contributed to oil's rally Monday. December gasoline ended the day seven cents higher at $2.28 a gallon

Oil traded within a range from $83.59 to $85.54. Gasoline, meanwhile, peaked at $2.29 and bottomed out at $2.21. Despite a chillier than normal forecast for the Northeast, January natural gas fell 19 cents to settle at $4.21 per thousand cubic feet. The natural gas futures price fluctuated from $4.17 to $4.49.

Posted courtesy of Rigzone.Com


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Reuters: Crude Oil Approaches Two Week High on Ireland Rescue

Crude oil rose past $84 on Monday after the European Union approved a rescue for Ireland and outlined a permanent system to resolve the euro zone's debt crisis, providing some confidence that energy demand growth will remain resilient next year. U.S. crude for January rose as much 0.8 percent to $84.46 a barrel, nearing Friday's peak of $84.53, the highest intraday price since November 16, and was up 52 cents at $84.28 by 9:09 p.m. EST. Prices reached a two year high of $88.63 on November 11.

ICE Brent for January rose 57 cents to $86.15, returning to positive territory as the dollar pared gains. Finance ministers from the 16 nation euro zone, anxious to prevent market contagion engulfing Portugal and Spain, unanimously endorsed an emergency loan package of 85 billion euros ($115 billion) to help Dublin cover bad bank debts and bridge a huge budget deficit.

"The southern European sovereign debt crisis would have to take a severe turn for the worse to derail positive commodity price trends that are finding strong support from improving fundamentals and positive market sentiment toward growth assets" following the second wave of U.S. expansionary monetary policy, Barclays Capital analysts, including Kevin Norrish, said in a report on Monday.

Still, some market participants were wary that the package for Ireland would fail to end Europe's credit problems, citing the Greek crisis as a precedent of how markets intially reacted positively to a bailout and then slumped. "It is just a relief rally, but there are still so many structural problems that people are already targeting other dominoes like Portugal and Spain," said Michelle Kwek, an analyst at Informa Global Markets in Singapore.

Currency and bond traders doubted the deal was enough to prevent fiscally pressured Portugal and Spain from being next in line to suffer a debt crisis. "Markets are not believing measures will be enough to contain the crisis, and that also combines with the tensions in Korea. You wouldn't want to be punting on anything," Kwek said.......Read the entire article.


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Bloomberg: Crude Oil Declines Because of Concern Ireland Debt Crisis May Spread to Spain

Crude oil declined in New York amid concern Ireland’s debt crisis will spread to Portugal and Spain, diminishing the appeal of the region’s assets. Futures slipped as the euro dropped against the dollar, curbing investor demand for raw materials. Floor trading was closed yesterday for Thanksgiving in the U.S. and electronic trades will be booked with today’s for settlement purposes.

With the U.S. markets closed “attention was instead focused on Europe and Ireland bailout talks, with sovereign debt concerns weighing on oil prices,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in a note today. The January contract fell 32 cents, or 0.4 percent, to $83.86 a barrel, in electronic trading on the New York Mercantile Exchange at 11:58 a.m. Sydney time. Futures are 2.9 percent higher this week, heading for the first weekly gain in three weeks. Prices are up 5.6 percent this year.

Oil rose the most in four months on Nov. 24 after U.S. jobless claims fell to the lowest level since 2008, bolstering optimism economic growth will accelerate in the biggest crude consuming nation. The Labor Department said applications for unemployment benefits declined by 34,000 to 407,000. Brent crude for January settlement gained 26 cents, or 0.3 percent, to settle at $86.10 a barrel on the London based ICE Futures Europe exchange yesterday.

Posted courtesy of Bloomberg News

Bloomberg reporter Ben Sharples can be contacted at bsharples@bloomberg.net


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New Video - It's more important to the market than Ireland, Greece, Portugal, and Spain Combined

It's more important to the market than Ireland, Greece, Portugal, and Spain combined

The trials and tribulations of these four countries (that have run up huge deficits) have been well known for quite some time. What is more important in my opinion is not the size of the debt, which is staggering, but rather what is going on with market perception.

Market perception trumps everything else out there. Market perception trumps market fundamentals every time. Market perception is the one card that the government cannot control. It is the card that can potentially give the individual trader an edge.

So what is market perception? Well, have you ever noticed that when some big world event happens, or a new "hot" IPO hits the markets, traders expect that market to go in the talked about direction and typically it does. What doesn't get talked about is how the market then corrects itself and the technicals really come into play.

The only real way to avoid the trap is through the use of technical analysis, or in the case of MarketClub, our "Trade Triangle" technology. This technology doesn't read the newspapers, doesn't watch cable news, and is independent of everything else except the market itself.

What is the most important thing to most investors? I would have to say it is the bottom line. If you're not making money in the market, then you're doing something wrong. Maybe you're paying more attention to the talking heads on cable, or to the nightly news, but you're not really paying attention to market perception.

I was lucky enough when I began my career to learn about technical analysis very early on. I said to myself, when it can be this easy there must be something more that I'm missing. It was then that I made the mistake of looking at all these other so called tools like fundamentals, earnings reports, etc. You name it, I looked at it.

One day I finally got smart and realized that I had already found the "true gold" in trading by using technical analysis.

I was just watching some talking head author on TV and they were saying that technical analysis is so 1920's and old technology. Of course, the person who was saying that was looking to sell copies of their book.

I said to myself, boy oh boy, not to look at technical analysis, which is like the DNA of the market, is a huge mistake. I can see people going out and buying this author's book and being led down the wrong path. I will not name the book as readers of this gobbledygook are going to spin their wheels only to find that it really doesn't work.

Let's keep things simple. That is the secret to successful trading.

At MarketClub we tend to look at the market in a very simple fashion. Let me explain; the market can only do three things: it can go up, it can go down, and it can go sideways. In life there are very few things that you can simplify as easily as that.

So using MarketClub's "Trade Triangles" you are able to determine when the market is going up, in which case you want to be long, and when the market's going down, in which case we want to be short or out of the market.

Now of course we do filter the "Trade Triangles" of MarketClub to help avoid trading losses. With any kind of trading or investing program the risk of loss is always there. The key to success is how you manage those losses. Are the losses small enough as to not bite into your capital in a major way?

Again, when you're looking at market fundamentals or other ways to trade, they really don't tell you when to get out. Obvious examples of this would be the Enron scandal or the recent GM debacle that took unwary investors to the poor house.

But it's hard to fake a market saying everything is great, when the market is heading south. So what is an investor to think? I believe you have to trust your eyes and the direction of the market. After all, that's what makes up your bottom line.

In today's video we're going to be looking at one or two markets and how the "Trade Triangles" are positioned right now. We are not predicting what's going to happen in the future. We are simply going to look at the purity of the "Trade Triangles" and how they can help investors with the most important market element of all, market perception.

As always our videos are free to view and there are no registration requirements.

So watch and enjoy "It's more important to the market than Ireland, Greece, Portugal, and Spain Combined"

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Phil Flynn: QE2 Or Not To QE2 That Is The Question

While the Fed printing presses continue to roll interest rate worries are seemingly dominating the direction of the oil market. While the Federal Reserves prints more money rates continue to raise giving surprising strength to the dollar and putting downward pressure on oil. The Chinese stock market got hammered overnight after The Bank of Korea worried about inflation raided their base interest rate by a quarter points to 2.50%. The move means that more than likely China will not be too far behind as countries across Asia are reacting to a major onslaught of inflationary pressures.

In the mean time the markets are focused on the problems in Europe. EU members want Ireland to take their money as they fear that Irelands debt problems could spread to other countries. Ireland ion the other hand says that they are fine and is telling the EU that they do not need their help. Yet the EU feels that the fallout from Ireland’s debt could drive up borrowing costs in other PIIG countries especially Portugal, Italy and Spain. The EU is saying please take the money. Of course all of this global intrigue is impacting the......Read the entire article.

Watch > What a Difference a Week Makes....Is It All Over For Gold?

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