Gold Chart of The Week

After the worst weekly decline of the year in US equities, we are slowly on the mend as we enter a week full of FED activity.

A few standouts from last week included a terrible Non Farm Payroll number on Friday and a full throttle campaign from the BOJ to continue to crush the Yen. Fridays jobs number was a big miss as 88,000 jobs were added and some real numbers regarding the drop in individuals that are actively looking for jobs was revealed. Even after these figures were announced, the stock indexes were only rattled for a short period of time before the realization that the FED will step up Quantitative Easing set back in. Since then, the stock market seems to be holding up fairly well.

The Japanese Yen had a wild week last week after the BOJ doubled down on its asset purchase program and effectively wiped out two week’s worth of recovery, and more. I think it will be interesting to see how the Yen responds to this weeks FOMC announcement that will be held on Wednesday.

The week ahead of us may be tricky as Wednesday’s Interest Rate decision looms. Traders will be less concerned about the actual rate decision, and will focus on the language used by Bernanke and other FED members throughout the week. The standout will be Bernanke’s view on the amount and the length of time the FED plans to participate in easing the market.

Keep in mind that in last month’s report, the FED maintained its focus on the labor market and we also saw a less divided FED panel on the length of Quantitative Easing. After a big miss in the Non Farm Payroll, it would be difficult to expect anything but a more aggressive campaign to keep Interest Rates row in an effort to stimulate growth.

After Wednesdays news, the markets will begin to use this information along with first quarter earnings and Fridays Retail Sales and Consumer Confidence numbers. Overall, this week should be very active for the US markets as well as commodities like Gold. The question for Gold prices is whether last week’s drop to test last Summers low is actually the low. I think after Wednesday, we should have the information necessary to make a confident decision.

The chart shows last week’s test of support, which will continue to be the focal point as Wednesdays FOMC announcement comes to pass.




Posted courtesy of Brian Booth and the staff at INO.com

John Thomas on Selling USO Short Position

From the desk of   John Thomas The Mad Hedge  Fund Trader Friday, June 03, 2011

I am going to use the huge spike down in oil prices this morning triggered by a disastrous May nonfarm payroll report to take profits on my short position in the oil ETF (USO). Specifically, I am selling my August $37 puts at $1.60, the price I am seeing my screen. The (USO) itself is now trading at $38.90. I initially bought these puts on May 16 for $1.55, when oil was at $100.50. Within days, crude fell to $95.50, boosting the puts to over $2.00, and I should have taken profits there. But I didn’t. Crude then rebounded to $103, knocking the puts back down to $1.00. This morning, crude is back down to $98.25, a dip of $2.50 since I started this trade, and the puts are essentially unchanged, the profit entirely eaten up by time decay. That is the lesson with trading these out of the money options. You have to grab the profits when you can before they go up in smoke. The August options only have 2 ½ months left in them, and time decay is starting to accelerate. For the notional $100,000 portfolio with a 5% weighting, I am booking a profit of $160 (32 X $.05 X 100). This amounts to a 3.2% profit on the position, which adds 3 basis points to your annual return. I’ll be using the next serious rally in oil to reestablish my short, given the dismal economic prospects we are now facing.

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