Here is quick pre-week analysis video explaining what "The Gold and Oil Guy" thinks could happen in the gold, silver, oil and the stock market this week.
It looks like the dollar continues to control the short term movements in both stocks and commodities
We are about to see some fireworks across the board in the next few trading sessions and Chris seems to be leaning more towards lower prices.
It looks as though we are at a tiping point similar to March 9 - 10th on the SP500......
This week should shed some light on what the market wants to do, Rally or Selloff.
Just Click Here to Watch the Video Analysis
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Monday, May 16, 2011
Sunday, May 15, 2011
George S. Patton....Take calculated risks. That is Quite Different From Being Rash.....HI YO Silver, Away!
Last week silver was the focus of incredible price swings which left many licking their wounds and shaking their heads at the trading losses they had incurred. This sell off was likely triggered by the increase in margin requirements for futures contracts, but the stunning price decline extended to all vehicles like exchange traded funds use to trade the glimmering metal.
I recognized the potential opportunity early in the week, and began to look at various position structures using options on Tuesday morning. In order to understand the thinking behind this trade, it is necessary to understand the concept of implied volatility of an option contract. Implied volatility, together with time to expiration and price of the underlying security, form the three primal forces that rule the world of option pricing. This measure of volatility is best described as the collective opinion of traders as to the future volatility of the price of the underlying. Implied volatility is the variable which determines if options are priced cheap or overvalued.
One of the fundamental behavioral characteristics of options is the reaction of implied volatility to rapid price change. As a general rule, implied volatility goes down as the price of the underlying increases and vise-versa. Another functional characteristic is that it tends to revert to its historic mean once rapid price movements have moderated and actual price volatility returns to its historic range. The chart below is from a historical database of SLV implied volatility. Note the dramatic rise, indicated by the blue line, beginning in mid April and reaching historically unprecedented levels in early May.
Books have been written to describe details of various option trade structures, and a discussion of all potentially useful strategies is beyond the scope of my mission today. Suffice it to say that individual trades can be structured to respond either positively or negatively to reductions in implied volatility. Given the extremely elevated state of the SLV implied volatility, which side would you want to take? Hint: Volatility doesn’t remain elevated forever. A well-established characteristic of implied volatility is its tendency to revert to its historic mean.
The trade structure I chose to use was that of a calendar spread. This two legged spread is constructed by selling a short dated option and buying a longer dated option. The options selected to construct each spread are at the same strike price and are of the same class, either puts or calls. Maximum profit of each spread occurs at expiration of the shorter dated option when the price of the underlying is at the strike price of the spread. The main profit engine for this spread is the more rapid time decay of option premium in the shorter dated option relative to the longer dated option. My trade plan was to buy the May monthly option series which had 18 days of life remaining and sell the weekly options, an option series with only 4 days of life remaining when the trade sequence was started. An essential part of my plan was to adjust the spread as required by price movement to keep in the profit zone of the P&L curve.
It is important to recognize the “secret ingredient” of the spread that put the wind at my back; this special ingredient was the much greater implied volatility of the option I was selling compared to the option I was buying. In the language of the option trader, this situation is termed a positive “volatility skew”. This positive volatility skew increases our odd of success because we are selling a richly priced option and buying a more reasonably priced option; the old adage of “buy low, sell high” applies to volatility as well as price.
The trade that I will discuss began mid-morning on Tuesday, May 3 when SLV was trading around $42.50. My opening traded was to establish the calendar spread at the 42 strike, in options peak, this is known as an at-the-money calendar spread. The opening trade is displayed below:
Price continued to decline for the next several hours and by mid afternoon, SLV was trading around $40. This rapid decline was beginning to approach my lower breakeven price point at $39.24 and I felt I needed more room to allow for price action movement. At this point I chose to add an additional calendar spread at the 38 strike using puts to create a double calendar spread. The resulting trade lowered my breakeven point on the low side from the original $39.24 to $36.21. The new spread’s profitability curve is graphed below:
Price action the next day, Wednesday May 4, was a bit more subdued, and price remained within my profitable zone. Time decay of the short option premium was accelerating and no further action was required. All systems were “go”. The following day, Thursday May 5, price movement resumed its rapid decline and price had moved beyond the profitable zone of our double calendar spread. Action was required; “wishing and hoping” in these situations is strictly not allowed
The original position needed to be modified in order to re-establish a new zone of profitability surrounding the current price of SLV. Because SLV had moved well below the lower breakeven point of the double calendar, radical surgery was necessary. I chose to remove the entire position and re-center the spread. I closed both the 42 call calendar and the 38 put calendar and bought 2 put calendars at the 34 and 35 strikes. As Thursday ended, I had the position illustrated below:
Price movement during the next day, Friday, remained within the range of $33.60 to $35.57. These price extremes for the day were within our limits of profitability of the new double calendar. I closed the spread by mid afternoon when the time premium of the options I had sold short had largely eroded.
This trade had a profit of 15.9% net of commissions for trade duration of approximately 72 hours. I think the lesson to be learned from this trade is that a knowledgeable option trader can survive and prosper in a variety of market conditions. This demonstration is, I think, an example of the tremendous power of options to mitigate risk and provide controlled risk trading opportunities in fast moving markets.
This trade has been part of a strong period of performance for members at OptionsTradingSignals.com
Recent performance has been outstanding as 6 out of 7 trades have produced profits while the final trade remains open. The following returns are based on trade entry and executions. Commissions have not been factored in as option commission structures are different and members may have received a better or worse trade execution. With that said, the gross returns are listed below:
GLD Call Calendar Converted To Vertical Spread – 58%
RUT Call Calendar Spread – 12%
SPY Call Vertical Spread – 32%
SLV Call Calendar Spread Converted to Double Calendar Spread – 18%
AMZN Call Calendar Spread – 37%
SLV Call Calendar Spread Discussed Above – 20%
The cumulative return of the most recent 6 trades is 177%. Obviously the recent track record has been strong and the overall return for members would differ based on position size, risk tolerance, and account size. Since the beginning of the service in December, the overall win / loss record is 14 winning trades, 1 breakeven trade, and 8 losing trades. The overall successful trade percentage based on the trades that have been closed is just shy of 61%. In full disclosure, two trades remain open at this time.
Recently I have used a lot of calendar spreads due to the low volatility environment we have been trading in. The trade constructions that I use adjust based on volatility levels of underlying assets and the VIX index in general. Essentially the service does not use the same trades over and over unless the volatility environment is little changed. Recently we have had consistently low volatility levels and calendar spreads have been attractive. In the future, volatility levels will likely change and other trade constructions would be warranted at that time.
The special offer currently being presented to new members is an extreme value. Most long term members have pointed out that they would be willing to subscribe just for the daily technical analysis provided as well as the 2 – 3 weekly videos that members receive that contain technical analysis of key indices, futures, and ETF’s. My primary focus is to deliver value to members beyond just solid trade management and performance.
I am focused on performance, but my greatest thrill is watching novice option traders start to learn how to trade options in spreads effectively and for consistent profits. Options are one of the most overlooked trading tools in financial markets and the power they offer individual investors is consistently overlooked. Options are more than just hedging tools; they offer individual investors the power to diversify away from standard assets.
I recognized the potential opportunity early in the week, and began to look at various position structures using options on Tuesday morning. In order to understand the thinking behind this trade, it is necessary to understand the concept of implied volatility of an option contract. Implied volatility, together with time to expiration and price of the underlying security, form the three primal forces that rule the world of option pricing. This measure of volatility is best described as the collective opinion of traders as to the future volatility of the price of the underlying. Implied volatility is the variable which determines if options are priced cheap or overvalued.
One of the fundamental behavioral characteristics of options is the reaction of implied volatility to rapid price change. As a general rule, implied volatility goes down as the price of the underlying increases and vise-versa. Another functional characteristic is that it tends to revert to its historic mean once rapid price movements have moderated and actual price volatility returns to its historic range. The chart below is from a historical database of SLV implied volatility. Note the dramatic rise, indicated by the blue line, beginning in mid April and reaching historically unprecedented levels in early May.
Books have been written to describe details of various option trade structures, and a discussion of all potentially useful strategies is beyond the scope of my mission today. Suffice it to say that individual trades can be structured to respond either positively or negatively to reductions in implied volatility. Given the extremely elevated state of the SLV implied volatility, which side would you want to take? Hint: Volatility doesn’t remain elevated forever. A well-established characteristic of implied volatility is its tendency to revert to its historic mean.
The trade structure I chose to use was that of a calendar spread. This two legged spread is constructed by selling a short dated option and buying a longer dated option. The options selected to construct each spread are at the same strike price and are of the same class, either puts or calls. Maximum profit of each spread occurs at expiration of the shorter dated option when the price of the underlying is at the strike price of the spread. The main profit engine for this spread is the more rapid time decay of option premium in the shorter dated option relative to the longer dated option. My trade plan was to buy the May monthly option series which had 18 days of life remaining and sell the weekly options, an option series with only 4 days of life remaining when the trade sequence was started. An essential part of my plan was to adjust the spread as required by price movement to keep in the profit zone of the P&L curve.
It is important to recognize the “secret ingredient” of the spread that put the wind at my back; this special ingredient was the much greater implied volatility of the option I was selling compared to the option I was buying. In the language of the option trader, this situation is termed a positive “volatility skew”. This positive volatility skew increases our odd of success because we are selling a richly priced option and buying a more reasonably priced option; the old adage of “buy low, sell high” applies to volatility as well as price.
The trade that I will discuss began mid-morning on Tuesday, May 3 when SLV was trading around $42.50. My opening traded was to establish the calendar spread at the 42 strike, in options peak, this is known as an at-the-money calendar spread. The opening trade is displayed below:
Price continued to decline for the next several hours and by mid afternoon, SLV was trading around $40. This rapid decline was beginning to approach my lower breakeven price point at $39.24 and I felt I needed more room to allow for price action movement. At this point I chose to add an additional calendar spread at the 38 strike using puts to create a double calendar spread. The resulting trade lowered my breakeven point on the low side from the original $39.24 to $36.21. The new spread’s profitability curve is graphed below:
Price action the next day, Wednesday May 4, was a bit more subdued, and price remained within my profitable zone. Time decay of the short option premium was accelerating and no further action was required. All systems were “go”. The following day, Thursday May 5, price movement resumed its rapid decline and price had moved beyond the profitable zone of our double calendar spread. Action was required; “wishing and hoping” in these situations is strictly not allowed
The original position needed to be modified in order to re-establish a new zone of profitability surrounding the current price of SLV. Because SLV had moved well below the lower breakeven point of the double calendar, radical surgery was necessary. I chose to remove the entire position and re-center the spread. I closed both the 42 call calendar and the 38 put calendar and bought 2 put calendars at the 34 and 35 strikes. As Thursday ended, I had the position illustrated below:
Price movement during the next day, Friday, remained within the range of $33.60 to $35.57. These price extremes for the day were within our limits of profitability of the new double calendar. I closed the spread by mid afternoon when the time premium of the options I had sold short had largely eroded.
This trade had a profit of 15.9% net of commissions for trade duration of approximately 72 hours. I think the lesson to be learned from this trade is that a knowledgeable option trader can survive and prosper in a variety of market conditions. This demonstration is, I think, an example of the tremendous power of options to mitigate risk and provide controlled risk trading opportunities in fast moving markets.
This trade has been part of a strong period of performance for members at OptionsTradingSignals.com
Recent performance has been outstanding as 6 out of 7 trades have produced profits while the final trade remains open. The following returns are based on trade entry and executions. Commissions have not been factored in as option commission structures are different and members may have received a better or worse trade execution. With that said, the gross returns are listed below:
GLD Call Calendar Converted To Vertical Spread – 58%
RUT Call Calendar Spread – 12%
SPY Call Vertical Spread – 32%
SLV Call Calendar Spread Converted to Double Calendar Spread – 18%
AMZN Call Calendar Spread – 37%
SLV Call Calendar Spread Discussed Above – 20%
The cumulative return of the most recent 6 trades is 177%. Obviously the recent track record has been strong and the overall return for members would differ based on position size, risk tolerance, and account size. Since the beginning of the service in December, the overall win / loss record is 14 winning trades, 1 breakeven trade, and 8 losing trades. The overall successful trade percentage based on the trades that have been closed is just shy of 61%. In full disclosure, two trades remain open at this time.
Recently I have used a lot of calendar spreads due to the low volatility environment we have been trading in. The trade constructions that I use adjust based on volatility levels of underlying assets and the VIX index in general. Essentially the service does not use the same trades over and over unless the volatility environment is little changed. Recently we have had consistently low volatility levels and calendar spreads have been attractive. In the future, volatility levels will likely change and other trade constructions would be warranted at that time.
The special offer currently being presented to new members is an extreme value. Most long term members have pointed out that they would be willing to subscribe just for the daily technical analysis provided as well as the 2 – 3 weekly videos that members receive that contain technical analysis of key indices, futures, and ETF’s. My primary focus is to deliver value to members beyond just solid trade management and performance.
I am focused on performance, but my greatest thrill is watching novice option traders start to learn how to trade options in spreads effectively and for consistent profits. Options are one of the most overlooked trading tools in financial markets and the power they offer individual investors is consistently overlooked. Options are more than just hedging tools; they offer individual investors the power to diversify away from standard assets.
Join J.W. Jones at Options Trading Signals.Com and learn to harness the power that options offer investors and traders alike!
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Friday, May 13, 2011
Market Sentiment Reaching Extreme Levels for Gold & SP500
Chris Vermeulen has kept us ahead of the market so far in 2011, what's he got to say today?..........
This week we are seeing fear across the board from traders and investors as they dump their long positions is stocks and commodities. Just in the past two trading sessions alone we have seen extreme overbought conditions and extreme oversold conditions which generally mean another big move is brewing…
Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I start to prepare for a trading setup which should form within a couple of trading sessions.
Keep in mind that fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for 1-3 more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.
SPY 10 Minute Chart of My Market Sentiment Readings
Panic selling, coupled with oversold NYSE market conditions and fearful options traders makes for an extreme reading in stock prices.
Panic selling, coupled with oversold NYSE market conditions and fearful options traders makes for an extreme reading in stock prices.
GLD 10 Minute Chart of My Market Sentiment Readings
Sentiment readings many times carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions etc..
Sentiment readings many times carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions etc..
Mid-Week Market Trading Update:
In short, I feel the market is at a major tipping point along with the US Dollar. It is just a matter of time before we get another low risk setup and take a position for the next move in either direction.
In short, I feel the market is at a major tipping point along with the US Dollar. It is just a matter of time before we get another low risk setup and take a position for the next move in either direction.
Get Chris Vermeulens Weekly Reports Free Here The Gold and Oil Guy.Com
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Monday, May 9, 2011
COMEX Drops Nepalm Bomb on Silver, What Next for the Precious Metals?
What was David Banister thinking......
What was I thinking trying to forecast a normal “wave 4” correction in Silver without the required insider information that the COMEX was going to raise margin/equity requirements four times in a week? My pullback silver low target of $40.10 was obliterated after two consecutive days of equity requirement increases early last week, knocking silver into the low 33’s before it got off the mat and staggered around a bit. Gold followed right behind as margin calls and stop losses required over- zealous traders on the long end to liquidate everything they could find to avoid complete meltdown of their trading accounts.
That is all well and good, but now all of my subscribers want to know just one thing…what now? For starters, Silver had completed an A B C rally pattern from around $18.50 in late August to $49.90 about eight Fibonacci months later. I had written about that coming rally late last August with Silver at $18.73, so we were prepared for the opportunity. I even looked for long term targets as high as $45. That rally was pure crowd behavior in motion, and when you reach the extremes of a “C Wave” in optimism, the next leg down (Which I call the “D wave”) is extremely difficult to predict. I trade A-B-C patterns all the time, looking for that imminent “C wave breakout”, and last August I forecasted a huge move in Silver mostly because a very long B wave triangle had just about completed, and the powerful C wave rally was nigh.
Now that we ended that rally by touching the all time highs near $50 from 1980, it was clear we would have a corrective pattern, and the problem was trying to come up with a reasonable “Crowd Behavioral” bottom pivot forecast amidst the COMEX interfering. This D wave ended in catastrophe for those who were over exposed, or shall I say… “Greedy”. You know what they say on Wall Street, Hogs get fat and pigs get slaughtered. Well, for those who want to dip their toe back in the water, here is the likely path going forward.
1. I expect Silver to recover over several months and re-attack the $50 zone again.
2. Silver will get past $50 by year end and probably reach $60 before the next strong correction.
3. With three years left in the Gold and Silver bull cycle from 2001, there is a very good chance silver will be well north of $100 an ounce by 2014, but one week at a time.
I do not trade Silver or Gold futures, and never have… I just forecast direction and price as best as I can for my subscribers. Probably one of the reasons I’ve been lucky and accurate for many years is I have no bias, as I am not forecasting my own book… just what I see. Near term look for Silver to try to rally back to about $38 to $41.50 ranges, with another pullback to follow.
Gold should have bottomed at $1462 in what I call an “A wave” down, with the “B wave” currently bouncing to about $1520 if I’m right. Once this bounce is completed, I look for a soft pullback to $1489 or so, followed by a strong rally to re-test the $1577 highs. Gold should reach a minimal target of $1627 on this final 5th wave up from the January 1310 lows, with potential to spill higher than that.
Silver has tripped on itself for now, and Gold will probably move a tad smoother over the near term, but look for Silver to regain it’s sprinting abilities this summer-fall and re-take the baton from Gold and continue it’s out-performance. If you would like to have frequent updates during the week, lots of good charts, and avoid scratching your head while the action unfolds, take a look at Market Trend Forecast.Com for a special coupon offer today, or sign up for our occasional free reports!
What was I thinking trying to forecast a normal “wave 4” correction in Silver without the required insider information that the COMEX was going to raise margin/equity requirements four times in a week? My pullback silver low target of $40.10 was obliterated after two consecutive days of equity requirement increases early last week, knocking silver into the low 33’s before it got off the mat and staggered around a bit. Gold followed right behind as margin calls and stop losses required over- zealous traders on the long end to liquidate everything they could find to avoid complete meltdown of their trading accounts.
That is all well and good, but now all of my subscribers want to know just one thing…what now? For starters, Silver had completed an A B C rally pattern from around $18.50 in late August to $49.90 about eight Fibonacci months later. I had written about that coming rally late last August with Silver at $18.73, so we were prepared for the opportunity. I even looked for long term targets as high as $45. That rally was pure crowd behavior in motion, and when you reach the extremes of a “C Wave” in optimism, the next leg down (Which I call the “D wave”) is extremely difficult to predict. I trade A-B-C patterns all the time, looking for that imminent “C wave breakout”, and last August I forecasted a huge move in Silver mostly because a very long B wave triangle had just about completed, and the powerful C wave rally was nigh.
Now that we ended that rally by touching the all time highs near $50 from 1980, it was clear we would have a corrective pattern, and the problem was trying to come up with a reasonable “Crowd Behavioral” bottom pivot forecast amidst the COMEX interfering. This D wave ended in catastrophe for those who were over exposed, or shall I say… “Greedy”. You know what they say on Wall Street, Hogs get fat and pigs get slaughtered. Well, for those who want to dip their toe back in the water, here is the likely path going forward.
1. I expect Silver to recover over several months and re-attack the $50 zone again.
2. Silver will get past $50 by year end and probably reach $60 before the next strong correction.
3. With three years left in the Gold and Silver bull cycle from 2001, there is a very good chance silver will be well north of $100 an ounce by 2014, but one week at a time.
I do not trade Silver or Gold futures, and never have… I just forecast direction and price as best as I can for my subscribers. Probably one of the reasons I’ve been lucky and accurate for many years is I have no bias, as I am not forecasting my own book… just what I see. Near term look for Silver to try to rally back to about $38 to $41.50 ranges, with another pullback to follow.
Gold should have bottomed at $1462 in what I call an “A wave” down, with the “B wave” currently bouncing to about $1520 if I’m right. Once this bounce is completed, I look for a soft pullback to $1489 or so, followed by a strong rally to re-test the $1577 highs. Gold should reach a minimal target of $1627 on this final 5th wave up from the January 1310 lows, with potential to spill higher than that.
Silver has tripped on itself for now, and Gold will probably move a tad smoother over the near term, but look for Silver to regain it’s sprinting abilities this summer-fall and re-take the baton from Gold and continue it’s out-performance. If you would like to have frequent updates during the week, lots of good charts, and avoid scratching your head while the action unfolds, take a look at Market Trend Forecast.Com for a special coupon offer today, or sign up for our occasional free reports!
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Saturday, May 7, 2011
J.W. Jones: What's Next For The S&P 500, Gold, & Crude Oil
Brokers have made it easier then ever for the average investor to get started trading options. Don't even consider trading options without subscribing to J.W. Jones newsletter. Here's his weekend post that will prepare you for trading the amazing moves we are having in commodities this week......
The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.
Talking heads everywhere are predicting the commodity bubble has burst and pointing fingers at excessive speculation in silver and oil. Margin requirement changes in silver futures have been fingered as the primary catalyst for the nasty sell off. Silver had gotten way ahead of itself in terms of price and parabolic moves higher are usually followed by parabolic moves lower. For silver buyers on Friday, April 29 a painful lesson has been learned as their investment has declined more than 30% in 5 days.
It doesn’t take a genius to realize that we are going to bounce higher at some point. With a sell off of this magnitude it would not be shocking to see at least a 50% retracement of the entire move in coming weeks.
It is also possible that this is a buying opportunity for precious metals and oil. It is too early to be certain, but a bounce next week is likely as silver went from being severely overbought to severely oversold on the daily chart in one week. The chart below illustrates the 50% retracement and the RSI reading for silver futures:
In the month of April OptionsTrading Signals members were able to capitalize on rising silver prices to close a trade that produced an 18% return in less than 5 days using a double calendar spread in order to produce outsized profits based on maximum risk. Members regularly receive trade alerts focusing on gold and silver using ETF’s GLD & SLV which have extremely liquid options.
While silver prices have been absolutely crushed, gold prices have held up a bit better. In fact, in this selloff gold has been less volatile in terms of intraday percentage price movement and has not suffered from near the losses that we have witnessed in silver. The gold futures chart below illustrates key price levels:
Members of the OTS service received a trade alert on April 6th for a calendar spread that was converted to a vertical spread. When the vertical spread was closed on April 26th the members realized a gain close to 56% based on the maximum risk of the trade.
Recently we have received some poor economic data which has put a drag on equities the past few weeks. This morning we are seeing a strong bounce in the S&P 500 futures and if we have another light volume Friday prices tend to drift higher throughout the trading day. The S&P 500 futures spiked to around 1,370 on the news of Osama Bin Laden’s death and then sold off from that point. The chart below illustrates the S&P 500 futures rally and subsequent sell off highlighting current key price levels:
Members of Options Trading Signals received a trade alert on April 12th to put on a call vertical spread to capitalize on rising prices. On April 21st partial profits were taken and eventually stop orders closed out the position on May 4th locking in a total gain of around 32% for the trade based on maximum risk.
Oil prices have sold off sharply, albeit not as sharp as the downside move in silver recently from a percentage standpoint, but a significant amount of the risk premium has come out of oil prices. I continue to believe that oil prices over the long term have only one direction to go based on tightening supply / demand going forward and lower production levels in the future. Similar to silver, a .500 retracement of the entire recent move is rather likely in coming weeks. The daily chart below illustrates key price levels in oil futures:
I continue to believe that oil prices are going to work higher over the longer term for a variety of reasons, but a drop in gasoline prices would not hurt U.S. Consumers and the domestic economy. Higher oil and gasoline prices weigh on the U.S. Economy heavily so this sudden decline in price is beneficial to most Americans which could juice consumption if prices stay lower for a longer period of time.
Overall, price action in the commodity space has been extremely volatile the past week with silver and oil really getting hammered lower. Gold and the S&P 500 held up a bit better and it would not be shocking to see the S&P 500 put on a rally from here if oil prices stabilize. However, if the U.S. Dollar continues its recent rally it will force the commodity space as well as equities lower. The daily chart of the U.S. Dollar Index futures is shown below:
In closing, I am expecting a bounce in coming days and a .382 or .500 retracement of the entire move in gold, silver, and oil would make sense so I would not be too aggressive shorting. However, I would not necessarily be an aggressive buyer either. It is going to take time for market participants to digest the recent moves. In weeks ahead it will be more apparent what price action is likely to do and I would be shocked if we did not see a few low risk, high probability trades setting up.
Speaking of low risk, high probability trades, the month of April was the best performance for the Options Trading Signals service so far year to date. Seven total trades were opened and six trades have been closed with sizable profits. Recent returns included an 18% return in SLV, a 56% return on a GLD trade, 32% return on an SPY call vertical spread, a 12% return on a RUT Calendar spread, and a 37% return on an AMZN calendar spread. The total cumulative return in April was 155%.
Assuming a trader had a $10,000 account and risked a maximum of $1,000 per trade, the gross gains would have been well over $1,400 in April alone. The overall service is up over 15% year to date handily beating the S&P 500 return while assuming less risk. Take advantage of the special offer going on now where new members get 3 months for the price of one!
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Thursday, May 5, 2011
Parabolic Moves are Only Temporary for Silver and Gold
The past few weeks we have been seeing the US Dollar slide to new lows at an increasing rate. The strong devaluation of the dollar has sent precious metals like silver and gold rocketing higher out of control sending them parabolic!
During the past 6 weeks both silver and gold have been rising in a parabolic formation. Meaning the price is going straight up with strong volume as everyone gets greedy and buys into the commodities at the same time. Most of you who follow my work already know that if the general public is piling into an investment rocketing prices higher, you better start focusing on tightening your protective stops and or taking some profits off the table before the price collapses.
Take a look at the weekly chart of Silver below:
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.
Parabolic moves can provide some big gains but most traders end of giving it all back and then some because the price can drop very abruptly as seen on this chart.
The weekly chart of gold below shows much of the same thing but without the extreme volatility that silver has.
Now, if you take a look at the US Dollar chart it’s starting to look very bullish in my opinion. The chart shows a falling wedge which typically means the selling pressure should be coming to an end soon. I’m not sure how large the bounce/rally will be. I do think a quick move to the 75 level is very likely in the near future though.
I find that metals tend to turn just before the dollar does. So I’m very cautious here on buying any stocks or commodities at the moment. The past 2 years we have seen stocks and commodities have an inverse relationship with the dollar so a rising dollar means a market pullback will take place. Sell in May and Go Away…?
Mid-Week Trading Conclusion:
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.
You can sign up for our free trading reports each week at The Gold and Oil Guy.Com
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Monday, May 2, 2011
The SP 500 Just Might Hold Some Clues to the Peak in Gold and Silver
J.W Jones....."The warning signs were all Dismissed or shouted down So it goes".......
The single biggest news event this week besides the Royal Wedding (who actually cares) was Federal Reserve Chairman Ben Bernanke’s televised press conference. The Federal Reserve is attempting to appear more transparent after coming under pressure from the United States Congress because of their obscure and potentially nefarious operation. For most Americans, Ben Bernanke is someone they likely have never even heard of, but on Wednesday Mr. Bernanke got to bask in the sunlight that is generally only reserved for public elites such as celebrities, pro athletes, and the President of the United States.
While Chairman Bernanke had his brief moment of publicity, his answers to seemingly pre-screened questions were vague, misleading, and rather contrived. He answered questions using very long responses which generally obfuscated rather than clarified the situation. In my estimation, Mr. Bernanke solidified what many market participants already believed; he is nothing more than an academic.
Mr. Bernanke and the Federal Reserve have based every decision they seemingly make on antiquated models and algorithms which work in a classroom and fail in real time. To the average man (myself included), he blathered on speaking about things that most people do not even understand. It is almost as if he did this to prove his intelligence and ability.
For long time readers, my disdain for the Federal Reserve is relatively easy to recognize. While the U.S. Congress is nothing more than charlatans, the Federal Reserve is the greatest thief in American history. Through the debasement of the U.S. Dollar and a long time track record of reacting too late or not at all to economic events, the Federal Reserve has stolen purchasing power from the American people.
The inflation that has been unleashed over the past 10 years has been tremendous and the long term impact on the standard of living in the United States has been negatively altered. In essence, the Federal Reserve took from everyone and “we the people” got nothing tangible in return.
Mr. Bernanke made comments about the U.S. Dollar including “that it fluctuates.” The only direction it has fluctuated since he has been in charge at the Federal Reserve is lower. If lower and fluctuation are synonyms, I wish my weight would fluctuate!
Where were the hard questions from reporters? Where were questions about gold and silver rallying to new highs nearly every day? Where was the question about the Fed’s credibility when it totally missed the sub-prime crisis and referred to it as a contained event? What has the Federal Reserve done a good job at besides causing inflation based bubbles immediately followed by nasty busts. However, the real question still remains, what does the future hold for financial markets?
What I’m about to say may surprise readers, but history supports my thought process. If the Federal Reserve continues on the same path it is possible that the U.S. Dollar could go through a real currency crisis. The potential for such an event is intensified by the fact that Asia and Europe are raising interest rates due to inflationary pressures. Time will tell, but gold and silver remain strong, however I would not fall in love with either commodity, or any commodity for that matter. Whether we have a currency crisis or not, there is going to be one nasty sell off in commodities in the future, specifically in silver.
I agree with many market prognosticators in that we are in a commodity bubble. The weekly chart of silver futures below illustrates just how parabolic the move has been:
At some point the U.S. Dollar will bottom, and when it does a significant rally will take shape. When the U.S. Dollar rallies it has the potential to be sharp and fast. Silver would be hit hardest as the chart above shows the parabolic move higher that has transpired over the past few months. The timing of the U.S. Dollar’s bottom is difficult to quantify, and picking bottoms is a fool’s game. Nevertheless, the commodity charts will tell us when it’s time for the rally to unfold, but for right now prices will likely continue higher for commodities and equities.
While I think longer term precious metals investors might be able to withstand the impending selloff, the other side of that selloff will likely see gold and silver work higher still. Longer term gold and silver will likely perform well, but traders must be aware that a sharp pullback is not only likely, but would be considered healthy by many market participants. The Dollar Index weekly chart illustrates the sharp selloff in the U.S. Dollar the past few months.
While several articles have been proffered by authors I respect deeply, they have not offered a means to determine when the Dollar has bottomed. While nothing is full proof, the longer term SPX chart may be a guide as to when the U.S. Dollar will begin to bottom. The SPX weekly chart shown below illustrates the long term ascending channel that the S&P 500 has been trading in for some time.
My “educated guess” as to when the Dollar will begin to bottom will likely coincide with a test of the ascending trend line. In previous articles, I opined that I thought we would see the S&P 500 rally and we are in that process now. My guess is that about the time the S&P 500 tests the rising channel, we will see the U.S. Dollar begin to bottom. The short opportunities that will be presented from a risk / reward perspective could be outstanding. Cycles typically line up, particularly when one particular asset, in this case the U.S. Dollar, are driving markets in one particular direction for a long period of time.
Typically business cycles end when commodities and commodity based stocks such Exxon or Barrick Gold rally. We are in that stage of the business cycle right now, and typically when that stage has been reached it is indicative that the economy is starting to overheat. Cyclicality in financial markets has been discussed for years, but often times technical analysis will align with the business cycle. While I may not be exactly right as to the timing, it certainly gives a solid framework for risk-based decisions going forward.
Conclusion
I believe that the actions taken by the Federal Reserve for the past 2-3 years are going to result in additional selling pressure in the future for the U.S. Dollar which will propel commodity prices and equity futures prices higher than what many will expect. While the selloff may occur within the confines of a short to intermediate term time frame, the U.S. Dollar will eventually bottom and a nasty selloff in commodities and stocks will transpire and the next leg of the secular bear market will begin. The business cycle and the technicals are aligned at this point, the question is really how long it is going to take to get there.
I believe that the actions taken by the Federal Reserve for the past 2-3 years are going to result in additional selling pressure in the future for the U.S. Dollar which will propel commodity prices and equity futures prices higher than what many will expect. While the selloff may occur within the confines of a short to intermediate term time frame, the U.S. Dollar will eventually bottom and a nasty selloff in commodities and stocks will transpire and the next leg of the secular bear market will begin. The business cycle and the technicals are aligned at this point, the question is really how long it is going to take to get there.
The end game will likely result in the Federal Reserve looking foolish while the American people and the global economy will suffer from the Fed’s ineptitude. The possibility that the Federal Reserve is forced to raise interest rates to slow down inflation at the same time the U.S. Dollar bottoms is a recipe for a potential economic disaster.
Slowing economic conditions based on higher oil prices and inflationary pressures paired with higher interest rates will result in another recession fueled by the Federal Reserve’s Keynes based economic models and decision making. Ben Bernanke was right about one thing, the Federal Reserve uses educated guesses based on their models when setting monetary policy. I posit to readers, what happens if the Federal Reserve Chairman and Governors’ price models and educated guesses are completely false?
To get J.W.'s Free Trade Setups visit Options Trading Signals.Com
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Understanding Where we are in the Silver Bull Market
Last August David Banister told his subscribers to prepare for a monster rally in Silver. What else does Banister have to say?
From guest analyst David Banister........
At the time of my forecast silver was $18.73 per ounce. I drew up a chart and predicted a huge rally to $29 an ounce, and we ended up at $31 or so just a few months later. This was entirely a crowd behavioral move that I foresaw in advance, based on patterns that R.N. Elliott developed in the 1920’s and 1930’s. My theory was besides the crowd pattern (a 20 month odd Triangle consolidation), that investor’s would begin to view Silver as “Poor man’s Gold” and buy it. Literally, the idea is as simple as investors will simply think that “Gold is too expensive, but silver is cheap”. That is the explosion power that is behind this move from $19 to $50 an ounce since late August 2010.
Below is the original chart I sent to my subscribers outlining this triangle pattern and the likely move:
After Silver ran hard and fast, it left a lot of talking heads on CNBC and everywhere else scratching their heads and wondering what just happened. If you learn and understand the basics of Elliott Wave Theory, you can begin to foresee what is about to happen and stop scratching your head all the time. Watching the analysts on CNBC is like watching the Monday morning quarterbacks following an NFL Sunday. After that massive silver run from $18 to $31, it was time for a correction and I called for $25 to $26.50 as likely in a normal pessimistic crowd wave 2 pattern down. Once that completed, I sent my subscribers the chart below outlining another Bull wave to $39-$45 per ounce:
Silver then eventually ran to $45 per ounce in April of 2011 and had a brief spike to near $50 to test the all time highs just in the past week or so. The action has been wild since then, because after a wave pattern from $18 to $31, then back to $26, then up to $47… the crowd will begin to turn mildly pessimistic in a current “wave 4 “ correction pattern. This is when you will begin to hear excuses for Silver dropping, including believe it or not blamed on the death of Osama Bin Laden. In truth, whatever happens near term to explain the current correction in Silver is simply Monday morning quarterbacking. Using the current days headlines to explain the action that I already know is coming. Other excuses are the change in margin requirements on silver contracts and the squaring of positions at end of month etc.
I expect Silver to correct to the 40 to $42.75 areas based on my Fibonacci work and Elliott Wave views, and after this 4th wave consolidation we will see a surge to as high as $60 per ounce. Any pullbacks in Silver should be bought here and same with the Silver stocks post haste. Below is my latest chart forecast on Silver:
If you would like to stop scratching your head, get more comfortable where the markets are heading in both Gold , Silver, SP 500 etc in advance, then take a look at Market Trend Forecast.Com , and take advantage of a 24 hour coupon special to subscribe, or just sign up for the occasional but not always timely free updates. Our subscribers learn and earn!
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Wednesday, April 27, 2011
U.S. Dollar, Gold and SP500 Trend Report
Chris Vermeulen's Mid Week Trend Report......
The dollar continues to control the equities and commodities market with its inverse relationship to them. The past couple years it seems that the dollar does what it wants and the all other investments move according to their relationship with rising or falling dollar prices.
Most of you know that I follow the dollar very closely. And each morning I provide my analysis with what I feel will take place throughout the session or next 48 hours.
In Today’s (Wednesday’s) pre-market trading analysis I talked about the strength of the equities market in the past few sessions and that it looks as though it still has more power behind it.
Dollar Index 60 Minute Chart
Taking a look at the US Dollar I noticed this morning that it was pointing to even lower prices and that it would likely happen today. It was only a few hours later that the dollar went into a free fall blowing through my downside price target of $73.30. It was this sharp drop in the Dollar which sent stocks, silver and gold soaring higher yet again in our favor.
Taking a look at the US Dollar I noticed this morning that it was pointing to even lower prices and that it would likely happen today. It was only a few hours later that the dollar went into a free fall blowing through my downside price target of $73.30. It was this sharp drop in the Dollar which sent stocks, silver and gold soaring higher yet again in our favor.
Equities Market – SPY 60 Minute Chart
Stepping back a couple hours before the US dollar dropped in value sending stocks higher I did see fear creep into the market as traders started selling their shares and buying put options expecting the stock market to fall. When I saw this I got exciting because higher stock prices are usually just around the corner which they were! That’s when I sent an update out subscribers noting we should see some fireworks very soon.
Stepping back a couple hours before the US dollar dropped in value sending stocks higher I did see fear creep into the market as traders started selling their shares and buying put options expecting the stock market to fall. When I saw this I got exciting because higher stock prices are usually just around the corner which they were! That’s when I sent an update out subscribers noting we should see some fireworks very soon.
While I am bullish on the stocks and metals at the moment and are long in several positions I am starting to see signs that a pullback is becoming more likely each trading session. This is when money management is important. I do not want to give back to much profit, but I must make sure we lock in some gains during times when the market is overbought like this.
Mid-Week Trading Conclusion:
In short, we continue to ride the trend of higher stock and precious metal prices as the US Dollar spirals down out of control. Our SP500 positions are deep in the money and we continue to ride it for all it’s worth raising our stops as we go.
In short, we continue to ride the trend of higher stock and precious metal prices as the US Dollar spirals down out of control. Our SP500 positions are deep in the money and we continue to ride it for all it’s worth raising our stops as we go.
The big question is if the Sell In May, and Go Away will take shape or not… I'm thinking it will as when the time is right I will be looking to short the market.
If you are not getting Chris Vermeulens pre-market chart analysis be sure to join by visiting The Gold and Oil Guy.Com
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Tuesday, April 26, 2011
EIA Examines Alternate Scenarios for the Future of U.S. Energy
"EIA's projections indicate strong growth in shale gas production, growing use of natural gas and renewables in electric power generation, declining reliance on imported liquid fuels, and projected slow growth in energy-related carbon dioxide emissions in the absence of new policies designed to reduce them," said EIA Administrator Richard Newell. "But variations in key assumptions can have a significant impact on the projected outcomes."
In addition to considering alternative scenarios for oil prices, economic growth, and the uptake of more energy efficient technologies, the AEO2011 sensitivity cases explore important areas of uncertainty for markets, technologies, and policies in the U.S. energy economy.
Key results highlighted in AEO2011 include:
U.S. reliance on imported liquid fuels falls due to increased domestic production ¿ including biofuels ¿ and greater fuel efficiency. Although U.S. consumption of liquid fuels continues to grow through 2035 in the Reference case, reliance on petroleum imports as a share of total liquids consumption decreases. Total U.S. consumption of liquid fuels, including both fossil fuels and biofuels, rises from about 18.8 million barrels per day in 2009 to 21.9 million barrels per day in 2035 in the Reference case. The import share, which reached 60 percent in 2005 and 2006 before falling to 51 percent in 2009, falls to 42 percent in 2035. Sensitivity cases illustrate opportunities for further reductions in U.S. reliance on imported liquid fuels through additional increases in fuel efficiency or domestic liquid fuels production.
Domestic shale gas resources support increased natural gas production with moderate prices, but assumptions about resources and recoverability are key uncertain factors. Shale gas production continues to increase strongly through 2035 in the AEO2011 Reference case, growing almost fourfold from 2009 to 2035 when it makes up 47 percent of total U.S. production¿up considerably from the 16 percent share in 2009.
Although more information on shale resources has become available as a result of increased drilling activity in developing shale gas plays, estimates of technically recoverable resources and well productivity remain highly uncertain. Over the past decade, as more shale formations have gone into commercial production, the estimate of technically and economically recoverable shale gas resources has skyrocketed.
However, the increases in recoverable shale gas resources embody many assumptions that might prove to be incorrect over the long term. Alternative cases in AEO2011 examine the potential impacts of variation in the estimated ultimate recovery per shale gas well and the assumed recoverability factor used to estimate how much of the play acreage contains recoverable shale gas.
Proposed environmental regulations could alter the power generation fuel mix. The EPA is expected to enact several key regulations in the coming decade that will have an impact on the U.S. power sector, particularly the fleet of coal fired power plants. Because the rules have not yet been finalized, their impacts cannot be fully analyzed, and they are not included in the Reference case.
However, AEO2011 does include several alternative cases that examine the sensitivity of power generation markets to various assumed requirements for environmental retrofits. The range of coal plant retirements varies considerably across the cases, with a low of 9 gigawatts (3 percent of the coal fleet) in the Reference case and a high of 73 gigawatts (over 20 percent of the coal fleet) in the most extreme case.
Electricity generation from natural gas is higher in 2035 in all the environmental regulation sensitivity cases than in the Reference case. The faster growth in electricity generation with natural gas is supported by low natural gas prices and relatively low capital costs for new natural gas plants, which improve the relative economics of gas when regulatory pressure is placed on the existing coal fleet. In the alternative cases, natural gas generation in 2035 varies from 1,323 billion kilowatthours to 1,797 billion kilowatthours, compared with 1,288 billion kilowatthours in the Reference case.
Assuming no changes in policy related to greenhouse gas emissions, carbon dioxide emissions grow slowly. Energy related CO2 emissions grow slowly in the AEO2011 Reference case due to a combination of modest economic growth, growing use of renewable technologies and fuels, efficiency improvements, slow growth in electricity demand, and more use of natural gas, which is less carbon intensive than other fossil fuels.
In the Reference case, which assumes no explicit regulations to limit greenhouse gas (GHG) emissions beyond vehicle GHG standards, energy related CO2 emissions do not return to 2005 levels (5,996 million metric tons) until 2027, growing by an average of 0.6 percent per year from 2009 to 2027, or a total of 10.6 percent. CO2 emissions then rise by an additional 5 percent from 2027 to 2035, to 6,311 million metric tons in 2035. The projections for CO2 emissions are sensitive to many factors, including economic growth, policies aimed at stimulating renewable fuel use or low carbon power sources, and any policies that may be enacted to reduce GHG emissions, all of which are explained in sensitivity cases.
The projections from the complete AEO2011, including the Reference case, all of the alternative cases, supplemental tables showing the regional projections, as well as a report on the major assumptions underlying the projections, can be accessed on EIA's Internet site at: www.eia.gov/forecasts/aeo
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