Tuesday, May 29, 2012

E-mini Success Formula Closes in 24 Hours

The deadline for you to grab a spot in Todd Mitchell’s E-mini Success Formula program is almost here. Enrollment closes tomorrow. You have less than 24 hours to get access to his private trading strategies and get mentoring risk free for an entire year.


Your investment in the program is a bargain, especially considering the quality of material and what Todd normally charges for private coaching. If you’re looking for a trading option that allows you to react to market conditions as they happen, risk as little as you want and still make unlimited profits, I urge you to try Todd’s program.

Todd is so confident you’ll trade profitably using his strategies that he’s giving you a 1-year, 100% Money Back “Train & Trade” 

Performance Guarantee PLUS $500 – that’s how confident he is in his program. You can only lose by missing out….


Monday, May 28, 2012

SP 500 Update.... U.S. Markets wear the Heavy Crown

Get our Free Trading Videos, Lessons and eBook today!

The US market is one of very few trying to maintain a long term uptrend Bull cycle around the world.  Most major world indices are in decline, only Germany and London are also trying to hang in of the major indices.

Will the rest of European problems continue to spillover and weigh down our markets in finally cause a flush?  Or… will the US stay strong and lead higher amidst the turmoil?

The threat of debt repudiation resonates throughout Europe and has major headwinds for the Banking industries and otherwise… and it may be hard for the US market to gain much traction until we find out if there are any resolutions near term.

The Technical picture is mixed.  The drop to 1292 from 1422 highs created a 38% fibonacci retracement of the October lows at 1074 and the March highs of 1422.  This is typical for a 4th wave correction after 3 waves of rally.  In addition, we had Mclellan Oscillators at extreme lows coming into this past week, investor sentiment running at multi month lows not seen since last summer, and many other oversold indicators.

This led to a 36 point bounce early in the week from 1292 to 1328, but it had trouble holding into the end of the week. I was looking for a strong close over 1322 to help confirm the downtrends lows were in place at 1292, but we did not get that just yet.  Near term we have to see a very strong bounce this coming week over 1330 on a closing basis or the market will be at risk of a rising bearish wedge and then another large downleg to new lows since the 1422 highs.  Therefore, Tuesday and Wednesday in my opinion will likely immediately tell us which way this market is about to go.

We have a few outlooks that are valid.  One is that we had an ABC correction from 1422-1292 and we are in the early stages of a Major Wave 5 up bullish pattern.  The  other is we had 3 waves down, this is a 4th wave bounce, and a 5th wave to new lows on the move is next.  Again, early in the week will be key in my opinion.

Here are two charts. One shows the Weekly SP 500 pattern and prior pivot points where downtrends halted and reversed. In each case the candlestick pattern for the week was inside and above the prior weeks lows and closed higher (White Candlesticks).  This also happened this past week, but I again would like to see higher closing levels early in the week to confirm.

The other chart is a daily chart showing the 1330 barrier we would like to see crossed to avoid a rising bearish wedge pattern.

Join us at Market Trend Forecast and sign up for free weekly updates. Alternatively, you can use our 33% discount on that page to subscribe and receive 4-5 updates per week on US Markets, Gold, and Silver!


David Banister

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

Thursday, May 24, 2012

Surprise....He didn't mention this....a new bonus!

Get our Free Trading Videos, Lessons and eBook today!

You won't believe this .....

Trading legend, Todd Mitchell just pushed the mentoring piece of his E-Mini Success Formula program to unprecedented levels. Now he's inviting you to come to his Michigan office for a day so you can watch him trade and get in-person guidance!


As you might expect, this exclusive invitation to watch Todd demonstrate his time-tested system is only for traders who
enroll in E-Mini Success Formula today. And let's face it ... if you were lucky enough to get live, in-person training from Todd these days (outside his E-Mini Success Formula program), you'll need to shell out several thousands of dollars just get a spot on his schedule.

Obviously, this opportunity to get a host of trading tools, receive guidance guaranteed to make you a profitable trader, and have a 24 year trading veteran teach you in person is something that doesn't come along often.

Sincerely,
Ray C. Parrish
President/CEO Rays Stock World

P.S. Once you enroll, you and Todd will discuss dates and schedule a time for you to visit him.

Have The Small Cap Stocks Bottomed Yet?

Get our Free Trading Videos, Lessons and eBook today!


The IWM ETF represents the Russell 2000 small cap growth index. This ETF peaked at 84.66 this spring and has fallen in the the 74′s before the recent two day bounce. What we are looking at is a possible 5 wave rally from October into March, and now a possible 3 wave correction (Wave 2) of 38-50% of that entire 5 wave rally.  Elliott Wave theory is broken down into 5 wave and 3 wave movements in the markets and individual stocks, where a full 5 wave pattern in a Bull market is obviously bullish and a 3 wave pattern corrective of the prior 5 wave rally.

The small cap index peaked with the reset of the market in March of this year, interestingly about 3 years into the Bull Market. The first low so far was a  typical 38% fibonacci retracement of the rally from October through early March.  The next low pivot would be a 50% pullback.  This would place the IWM target around 72.10 plus minus some pennies.

In the 72′s that would represent a C wave decline that is equivalent to 161% of the A wave decline in the chart below from the 84.66 highs. ABC declines are common in a Bull cycle and are designed to throw investors off the back of the Bull. Normally the C wave is where investors finally throw in the towel near the bottom, as we saw in early October of 2011.  I wrote an article on October 3rd last year, one day before the bottom outlining why a massive rally was about to ensue.  Will we see the same thing now?

Well, this correction could indicate one more possible decline of 4-5% worst case should this projection in the chart below fulfill.

That said, the 38% retracement we have had so far would also qualify as a Wave 2 low last Friday. Therefore, this outline is to give you some indications of what to watch in case we drop further and pierce those lows.  If we can hold this rally and rebound smartly again, then the C wave of the ABC is likely over and we can get an all clear to be more aggressive.

Join us at Market Trends Forecast.com for weekly reports and or a subscription and a 33% discount!


It’s Easy, get started trading options today. Let’s us show you how

Tuesday, May 22, 2012

Gold and Silver Long Term Signal

Long time readers know that we have been and remain bullish on gold and gold stocks in the longer term. However, the reasons why I believe gold and silver will perform well in the longer term are a bit different than what many economists and pundits are expecting.
I am a contrarian by nature. I generally try to do the opposite of the crowd in every situation I find myself regardless of whether I am in a movie theater or trading options. Before getting into the gold and gold miners analysis, I thought I would explain my position publicly to readers. I do not consider myself an expert economist, but I try to read those who many consider to be experts looking for similarities in their viewpoints and expectations.
The herd mentality exists in financial markets and a similar behavior exists among economists. Most economists in the mainstream media today tend to be Keynesians or neo-classical economists. Both viewpoints are generally accepted as the correct interpretation of economic and monetary policies by academia.
However, the academic world can actually reduce open thought through ridicule and persecution. In the world of academia the herd is right, until someone proves that they are wrong using logic based reasoning.
Very similar to political ideologies, economic ideologies are deeply rooted. Paul Krugman is a great example of Keynesian economist. Like it or not, the majority of economists believe his views are correct regardless of whether they are based on fact, history, or dare I say “common sense.”
This leads me to the reason why precious metals and commodities in general may be approaching a major bottom and the potential for a monster rally. The reasoning stems from the fact that across the world central bankers generally share the same views as Paul Krugman. They believe that the modern finance system does not need gold and that fiat currency is the answer even though history argues in their face across multiple millennia.
Most economists and financial pundits believe that sovereign debt is going to bring down the economy and they may be correct. Many believe that the debt will unleash a massive deflationary spiral that will consume fiat valuations, specifically on risk assets and debt obligations.
I do not necessarily disagree that this is a likely outcome, but what concerns me is the number of people that believe this is true. This is the herd’s idea and as I have said many times before the herd is rarely right. This time may be different, although it rarely is. For inquiring minds I offer a rather different potentiality.
What if the debt crisis causes a totally different outcome that very few economists envision? What if they follow Dr. Krugman’s ideas and create massive amounts of debt to stimulate the economy while printing vast quantities of fiat money to prop up failing financial institutions? Clearly increasing debt levels and debasing the currency do not imply a long term positive scenario.
Central banks do not have a strong track record when it comes to reducing liquidity or increasing liquidity at the appropriate times. Thus these actions are likely to facilitate some sort of crisis in the future whether it is a result of runaway deflation or inflation.
I believe that should a deflationary crisis caused by massive debt levels and diminishing economic strength present itself, central bankers around the world will behave exactly the same way. They will act simultaneously and through dovish monetary policy central bankers will flood the world with massive sums of freshly printed fiat currency with the intent to print away issues with a liquidity induced risk-on orgy.
Should that be their ultimate choice, risk assets will rally sharply higher initially. Paper assets like stocks will produce huge gains in a short period of time while supposedly safe assets such as Treasuries would likely arrive at negative interest rates across the yield curve in nominal terms. The next phase is the scary part and why I am bullish long term of precious metals specifically.
The devaluation of fiat currencies simultaneously around the world will result in a monster economic crash when the masses realize that the majority of the major worldwide currencies are becoming worth less and less. The resulting crash would be caused by the opposite force of runaway inflation while the herd mentality that anticipates a deflationary debt spiral espoused by most experts and pundits would be proven materially false.
Under those circumstances, precious metals will be the true safe haven. Gold and silver will prove to be a true store of wealth that they have been for centuries. So many so-called experts fail to recognize that gold and silver are currencies. Yes they have industrial uses, but gold and silver represent the last unequivocal bastion of wealth preservation against the constant debasement procured by central bankers and their minions.
Under the scenario whereby central bankers flood financial markets with cheap, freshly printed fiat currency one would expect other essential commodities such as oil to also perform well. Furthermore agricultural based commodities would also flourish under those economic conditions. Investors would be in much better fiscal condition owning things that they could hold in their hands versus stocks or bonds.
I posit this potentiality not to say that this is exactly what is going to happen, but to challenge readers to open their minds. The crowd is usually wrong. The central bankers and most economists generally share the same viewpoints and their behavior is literally a giant group think.
Is it possible that they are a herd which ultimately will be proven wrong? Will the herd mentality of economists and central bankers cause a massive currency crisis as they attempt to stem the tide of a deflationary debt crisis?
The two possible outcomes go hand in hand. I do not know what is going to happen, but neither outcome in the longer-term is especially optimistic. Should either scenario come to pass, the human condition will likely be threatened by a decrease in the standard of living across multiple developed countries and ultimately the threat of revolution and military action on a scale not seen in several decades could eventuate.
Clearly I have simplified the issues at hand presently for ease of reading, but the ultimate endgame will likely be one or a combination of both a debt crisis and a currency crisis. They will likely occur in close proximity to one other in terms of time, but the precise outcome will likely be different than what is commonly expected.
Regardless of which scenario occurs, precious metals will eventually be sought for their protection against the constant devaluation of fiat currencies by central banks around the world. For this reason, I remain a long term precious metals bull. With that said, why don’t we take a look at the recent price action in gold, silver, and gold mining stocks shown below.
A lot of writers have stated that gold has bottomed. I am not totally convinced, however I do believe that gold is in a bottoming process. For me to get completely in my gold bull suit I would need to see price action exceed the key resistance trend line shown below.
Gold Futures Contract Daily Chart
trading videos
As can be seen above, until we see price push through resistance I will remain cautious. I would also point out that the last two times gold found bottoms near current prices the bottom forming process took several weeks to complete.
I do not expect for gold to form a V shaped reversal. In fact, lower prices in the short term would help drive the bullish case for the longer term. Bottoms take weeks to form and can be very dangerous trading environments where active traders get chopped around.
Silver is very similar to gold in that it appears to have formed the beginning of a possible bottom. Bottoms are generally not formed in one day. During the recent selloff, silver showed relative strength against gold. It is important to acknowledge that silver has yet to test the key lows that should offer support.
Because of this divergence in these two precious metals, I continue to believe that gold may see more downside again before a much stronger rally begins to take hold. Similar to gold, the descending trend line offers a great resistance level where traders can flip from being short-term bearish to longer-term bullish if the resistance line is penetrated. If we see silver carve out multiple daily closes above the resistance trend line paired with strong volume, I would anticipate that a bottom has formed and silver prices will have an upward bias. The daily chart of silver is shown below.
Silver Futures Contract Daily Chart
silver trading videos
As expected, the gold miners have shown relative strength recently. The miners were just absolutely massacred during the recent sell off in equities and precious metals. However, gold miners similar to precious metals have a major descending trend line which they have already tested today. If the gold miners can push through resistance a large scale rally could play out. The daily chart of gold miners is shown below.
Gold Miners (GDX) Daily Chart
gold miners trading videos
In addition, if readers look at a long term GDX price range that dates back to the 2009 lows the recent pullback is almost precisely a 0.50% Fibonacci Retracement. Similar to gold and silver, I would expect to see the gold miners pull back a bit here before pushing through major resistance. We may be setting up for a possible major bottom in precious metals and gold miners in the near future. Only time will tell.
In closing, remember to keep an open mind with regards to the future. The more often you hear the same message coming from financial pundits and experts, the more cynical you should become. Both potential scenarios will likely not end well. The question is whether the reason for the crash is deflation, inflation, or a combination of both scenarios. Regardless of the outcome, the long term future for precious metals remains quite bright.
Happy Trading and Investing!

Can The Bulls Regain Control?

Do the Bulls still stand a chance to make another run?

That is the question this weekend after we saw the 1340, 1322 pivots crashed right through following the “SP 500 Bear Case” weekend report on May 13th I sent to subscribers with a chart last weekend (May 13th SP 500 at 1353).

We ended the week with the SP 500 falling from 1353 to about 1292 and the US Dollar having rallied 13 of the past 15 days to the upside. We also have The Mclellan Oscillator at extreme oversold levels as in the November 2011 lows and close to the August 2011 lows. The Sentiment gauges are running at only 24% Bulls as opposed to the historic 39% averages, and the Percentage of NYSE listed stocks trading above the 50 day moving average plummeted to 12%. That is about as low as it has been during this bull market, other than last August when we hit 5%.

So that means that the sentiment/human behavioral ingredients are actually in place for a marked rally to the upside. What we examine this week is whether that can still happen and what type of Elliott Wave pattern would we need to see to validate it.
We can still make a case that this correction of 130 points from 1422 to 1292 (about 9.1% similar to many Bull market corrections since 2009 lows) is a wave 4 correction of waves 1-3. Wave 1-3 rallied in total from 1074-1422 and a 38% retracement of that entire cycle would put us right around 1291/92 pivots.

So below we have the chart that the Bulls would hang onto as possible for a dramatic recovery to new highs past 1422 and onward to 1454 or so. This needs to begin very shortly though and much below 1285 we can wipe this idea off the slate in my opinion.
So, last weekends Bear View is now a 50% probability and the Bullish count below is also 50%. The good news is I think we will know which one is taking control very early in the week. This is probably not a good time to place a big bet just yet in either direction, we are at an inflection point.

If you would like to be on top of the major trends before they begin, make sure to sign up for our TMTF subscription service and get a 33% discount by joining now! 

   

Monday, May 21, 2012

The Shape of Reversals to Come

Eventually....someday....the price will reverse and go higher again, even if it’s for a short while. There are two types of reversals that we can see, a V-Bottom or a Complex bottom. This video discusses what each reversal formation looks like and the characteristics of each.

Watch todays video...."The Shape of Reversals to Come"


Sunday, May 20, 2012

Todd’s Secret Weapon, the 30 Minute Breakout Strategy

It was American writer Orison Swett Marden who observed, “A good system shortens the road to the goal.”

If you have a trading goal, but the lack a proven system for getting there, grab veteran trader Todd Mitchell’s step by step blueprint for setting up a profitable trade right now.

Get Todd's "30 Minute E-Mini Breakout, valued at $497"

He’s fine tuned and perfected a system for making money during just the first 30 minutes of the trading day. Yes, only 30 minutes....Please don’t miss out on this.

If you visit this website right now, you can download this strategy at no cost to you whatsoever. Everything you will need to know about trading this strategy is revealed to you. Nothing is being held back.

Take a few minutes to just click here and watch the 30 Minute E-Mini Breakout video and see what I mean.

Todd Mitchell is only making this free report and trading tutorial available for a limited time.

Get the free strategy now ... trade it tomorrow.

Saturday, May 19, 2012

A Different Approach to Apple Using Options

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

Apple (AAPL) is one of the most actively traded stocks currently. For the trader who trades only stock, there are two major difficulties in executing trades in this stock:
1. It is breathtakingly expensive.
2. It exhibits periods of neck snapping volatility exposing the trader to substantial losses if he gauges the direction wrong and does not act quickly.
For the investor who is willing to learn an option based approach, both these problems can be easily dealt with by using structured option trades to control risk crisply and make efficient use of capital.
Because this underlying is such an actively traded stock, the options are extremely liquid and trade with very tight bid / ask spreads. These are the two essential characteristics for selecting an appropriate vehicle in which to trade options.
I thought it would be interesting to look at a high probability trade that does not depend on accurately predicting the price direction of AAPL.  Let us first consider the price chart below:
The horizontal orange lines represent the price boundaries of the option trade we will consider. The lines have been placed to coincide with areas of recent support and resistance. The lines are obviously placed somewhat subjectively and can be modified to reflect the nuances of the reader’s technical analysis biases.
The point of the thought process I want to lay out here is not to debate the exact placement of these lines, but to demonstrate how a high probability trade can be constructed using whatever technical methods you wish to use to determine areas of support and resistance.
The next point we need to discuss is the concept of a “vertical credit spread”. This is, as implied by the name, an options spread in which a credit is received into the trader’s account. The spread is constructed in either calls or puts, and represents a bearish or bullish trade respectively.
An example of a bullish trade, a vertical put credit spread, would be to sell the AAPL 490 strike put in June and buy the 485 strike. The result of entering this trade would currently be a credit of $60 for each contract and the full value of this contract would be realized if AAPL closed at 490 or above at June expiration. No additional profit is possible for this trade. The position has a maximum potential loss of $440 because we own the long put.
A similar bearish trade can be established using a vertical call spread.  In this example, the June 595 call could be sold and the June 600 call bought for a net credit of $45 per contract. This is the absolute maximum profit that can be made from the position.
The full value of the position would be realized if AAPL closed at 595 or below at June expiration. The position has a maximum defined risk of $455 because we own the long call.
The astute reader will now undoubtedly ask the question:  Why would anyone take a trade where he could make $45 and lose $455?  The answer lies in the probability of realizing the profit. At current prices, each of these credit spreads has an 88% probability of achieving its maximum profitability.
The position I would like to call to the reader’s attention is to do both trades simultaneously. The combination of a bearish call spread and a bullish put spread is termed an “iron condor”. The characteristic P&L curve is presented below:

The illustrated trade has a return of 31% on margin requirements and a probability of being profitable of 72%. Because it is a credit spread, the trade has no direct cost, but does have margin encumbrance requirements to secure the ability to enter the trade.
An important point is that only one side of the trade requires margin since it is clearly not possible to lose on both sides of the position. It is critical to confirm that your broker only requires margin on one side; a few “option unfriendly” brokers require margin on both sides.
If you find your broker is one of these dinosaurs- run, don’t walk away since that illogical requirement halves the potential return on the position.
This is but one example of using options to construct a high probability trade that is profitable over a wide range of price and uses capital efficiently. In addition, risk is crisply defined and accounts cannot be “blown up” by Black Swan events.
The use of options opens a host of potential profit opportunities beyond the simple “going long” or “going short” available to the stock trader. In missives to come we will explore more of these unique opportunities.

Looking for a Simple ONE Trade Per Week Trading Strategy?
If So Join Option Trading Signals today with our 14 Day Trial

J.W Jones




Get Today's 50 Top Trending Stocks

Tuesday, May 15, 2012

E-Minis Unfair Advantage....Have You Watch This Yet?

So many people are CRUSHING the markets right now and making lots of money!

At the same time, far more traders are gripped with fear and struggling just to break even….

The difference?

Confidence and consistency.

As you know, you build both when you understand the best times of the day to trade and how to avoid the common mistakes and “hidden” pitfalls that prevent consistent profits.

Trading veteran, Todd Mitchell ,just came out with a video training that shows (using his actual charts!) the hurdles holding back most traders from making money!

Watch closely as he uses minimal money to pull predictable profits from the E-minis, while only researching a single chart.

VIDEO > The E-Minis Unfair Advantage

The knowledge he shares will shortcut your learning curve and help you avoid falling victim to shady advice. Please don’t miss out.


P.S. When you watch the video, I’m almost certain you’ll uncover several nuggets of wisdom that will eliminate mistakes costing you profits. This is not just about gain – it’s about acting prudently to prevent and avoid financial pain!

Just click here, every trader must see this video

Monday, May 14, 2012

Exiting an Option Position

From guest blogger Todd Mitchell.......


Todd MitchellOnce you own options, there are three methods that can be used to make a profit or avoid loss: exercise them, offset them with other options, or let them expire worthless. By exercising what you have purchased, you are choosing to take delivery of (call) or to sell (put) the underlying asset at the option’s strike price. Only buyers have the choice to exercise an option. Sellers, on the other hand, may experience having an option assigned to a holder and subsequently exercised.
Offsetting is a method of reversing the original transaction to exit the trade. If you bought a call, you have to sell the call with the same strike price and expiration. If you sold a call, you have to buy a call with the same strike price and expiration. If you bought a put, you have to sell a put with the same strike price and expiration. If you sold a put you have to buy a put with the same strike price and expiration. If you do not offset your position, then you have not officially exited the trade.
If an option has not been offset or exercised by expiration, it expires worthless. If you originally sold an option, then you want it to expire worthless because then you get to keep the credit you received from the premium. Since a seller wants options to expire worthless, the passage of time is a seller’s friend and a buyer’s enemy. If you bought, the premium is nonrefundable even if you let the it expire worthless. As it gets closer to expiration, it decreases in value.
It is Important to note that most options traded on u.s. exchanges are American style. In essence, they differ from European options in one main way. American style options can be exercised at any time up until expiration. In contrast, European style options can be exercised only on the day they expire. All the options of one type (put or call) which have the same underlying security are called a class of options. For example, all the calls on ibm constitute a class. All the options that are in one class and have the same strike price are called a series. For example, all ibm calls with a strike price of 130 (and various expiration dates) constitute a series.


Check out Todds latest program "How to Risk Less When You Trade"

Gold & Gold Miners Are Closing in on a Major Bottom

From this mornings Video Traders Playbook.....

Members of my service as well as long time readers know that I do a lot of analysis based on the past. I am constantly looking at long term historical price charts and data. As a trader, I am always looking for an edge.

Obviously the keys to long term success involve proper position sizing, risk management mechanisms, and ultimately leveraging probability. Professional traders are masters of these tenets. These characteristics are what separate successful traders from average traders over the long haul.

Sometimes through my rigorous analysis I come across price charts and oscillators that help put together a picture that helps shape my view of the marketplace. The past few months have been some of the most difficult market conditions that I have seen in some time.

The “wall of worries” permeates the financial landscape as risk at present seems unprecedented. The list of macroeconomic concerns ranges from the European sovereign debt crisis to escalation of military action in the Middle East.....Read the entire article and watch video!

Friday, May 11, 2012

Video Update: JPMorgan loss slams bank stocks


Try MarketClub for 30 Days for just $8.95 - Click Here!

Monday, May 7, 2012

The Dollar and Manipulation Control the Market

Learn To Trade The Eminis For Serious Income!

Over the weekend I had an interesting conversation with a local trader. We typically meet a few times a year to share our market outlooks, new trading tools and techniques, and usually finish our session off in a debate about the US market manipulation and how to trade around it.

Talking about market manipulation always opens up a can of worms and sparks some interesting theories… And while everyone has their own views and opinion on this subject I thought I would briefly share the main points I pulled from our conversation.

I did talk about the dollar index last week, but the recent price action unfolding today is important so I’m going to recap on it again.

My Weekend Conversation Key Thoughts:

Point form thoughts supporting Lower Equity prices and a Higher Dollar:
-          Dollar index looks ready for a major rally (high dollar means lower stocks)
-          SP500 may have just formed a double top
-          SP500 closed strongly below the 20 day moving average
-          First week of May for the past two years have been intermediate market tops

Points supporting Higher Equity prices and a Lower Dollar:

   Countries around the globe are trying to keep their currency value low including the United States.

   Presidential cycle strongly favors higher stocks prices which means the dollar should not rally until Nov.

   What do all these points mean? Let’s take a look at the dollar charts below…

4 Hour Dollar Index Chart:

This chart time frame allows us to see all intraday price action while being able to zoom out several months for patterns along with key support and resistance levels.

As you can see over the past few months the dollar has been consolidating sideways. Within this consolidation it has formed two bullish falling wedges with the most recent one breakout last week right on queue.

Using this 24 hour futures dollar index chart we can see where things are trading through the weekend. On Friday the dollar index closed around the 79.50 level. As you can see the dollar has surged Sunday night by more than half a penny breaking through its down trend line.

The next few weeks will continue to be exciting ones as strong moves in the dollar will create wild movements in stocks and commodities.


Long Term Weekly Dollar Index Chart:

If you zoom WAY OUT using the weekly chart this shows you the two major areas where the dollar index is likely to reach come November. Also with these levels are my SP500 price points which are simply numbers I pulled from the charts using basic analysis. I say this because I’m not into long term forecasting but rather shorter term price movements. A lot can change between now and then.

So, if the dollar index rallies to the 86 – 88 level then I would expect the SP500 to be trading back down at the 1000 level. If this takes place, the Fed will likely issue QE3 to jam the dollar back down and boost equities.

The flip side of the coin is that the dollar rolls over here and gets pulled down. This will boost stock prices in favor for the president’s election. After that the dollar would likely rally which in turn would put a major top in the stock market, kick starting a bear market.


The big question…

Do you short the market in anticipation of rising dollar and falling stock prices? OR do you buck the trend and stick with the theory of a lower dollar value and presidential cycle?

The charts above clearly show how we are entering a major tipping point for the market and the next couple months are likely going to provide some big price swings for stocks, commodities and currencies.

If you want to get my thoughts and market ideas each morning before the opening bell be sure to join my video newsletter The Gold & Oil Guy.com

Chris Vermeulen

Sunday, May 6, 2012

The Dollar & Gold Have Eyes on Europe

Friday saw heavy selling pressure coming into risk assets, specifically equities and oil. However, the real driving force behind the selling pressure is likely the result of several unrelated economic/geopolitical events. Clearly the unemployment report had an impact on price action, but strangely enough it would appear to those more in tune with reality that market participants want lower prices so that the next quantitative easing program can be initiated.


Another key development in equities price action as of late has been selling pressure in Apple (AAPL). A few weeks ago we witnessed a sharp downturn after prices surged higher into a blowoff top. Earnings came out and prices jumped again and we have watched Apple’s stock price drop considerably since.
Friday saw sellers circling the wagons pushing the tech behemoth down around 2.25% as of the scribbling of this article. When AAPL was rallying it helped the Nasdaq Composite and the S&P 500 grind higher. Now that it has clearly given up the bullish leadership role, it now appears to be a drag on the price action of domestic indices.
Additionally there was a mountain of economic data released out of Europe overnight which was entirely negative. Spain, Italy, France, Germany, and the Euro-area in general saw their Service PMI readings all come in below expectations. Europe is moving into a recession which whether economists want to acknowledge it or not has implications on domestic U.S. markets. The Eurozone as a whole is the largest economy in the world. Clearly the European economy is slowing, and our exports to Europe will slow as well.
This leads me to the final data point which is still unknown. What will the outcome of the French and Greek elections over the weekend mean for the Eurozone’s geopolitical ties as well as the potential impact on the Euro currency itself?
The answer to that question will likely not be known until late Sunday evening; however by the time U.S. markets open this coming Monday the cat(s) will be out of the bag. This final question leads me to the real topic of this article. The question I want to know is what impact these elections could have on the value of the U.S. Dollar Index as well as gold?
As an option trader, I am always focused on the volatility index (VIX) as well as implied volatility on a number of underlying assets. I came across the following chart courtesy of Bloomberg which appeared in an article posted on zerohedge.com. The chart below illustrates the differential between European Union equities’ implied volatility levels and the EUR/USD currency pair.
Currency Trading
Chart Courtesy of Bloomberg
It is rather obvious that EU stocks and the EUR/USD implied volatility levels have diverged. Generally speaking, when volatility increases it means that price action will typically move lower. The higher levels of volatility, the lower the price the underlying will move. There are exceptions to that rule such as earnings reports or key headlines which drive volatility higher, but generally speaking high volatility levels correlate with uncertainty and risk.
What is particularly troubling about the chart above is that the EUR/USD currency pair is seeing reduced implied volatility. This essentially means that the market is not expecting any major moves in the currency pair amid all of the poor economic numbers coming out of Europe.
For those not familiar, the EUR/USD currency pair reflects the value of the Euro against the Dollar. Thus, if the EUR/USD is rising, this means that the Euro is moving higher against the Dollar. The opposite is true when EUR/USD is selling off.
At present implied volatility levels are quite low by comparison to European equities. The zerohedge.com article entitled “Is EURUSD Volatility About to Explode?” shares the following statement to readers, “The last two times this has occurred (in the last year), EURUSD implied vol has rapidly caught up to equity’s risk.”
What that statement means is that it is becoming more likely that implied volatility of the EUR/USD currency pair is going to increase back in par with European stocks. If that takes place, which based on recent data is likely, the intraday volatility in the EUR/USD will increase thus intraday price ranges and sharp moves will become more prevalent.
The long story short is if implied volatility picks up in EUR/USD then it is likely going to be quite beneficial to the U.S. Dollar. The largest concern for Fed Chairman Ben Bernanke has to be the potential for a monstrous move higher in the U.S. Dollar should an unforeseen event arise in Europe. An event such as a disastrous auction or the discussion by German Parliament about leaving the Euro could both help push the Dollar much higher than anyone expects.
A higher Dollar is negative for risk assets and Mr. Bernanke does not like the word deflation at all. None of the central banks around the world like deflation because it means all of the debt they are holding and helping to prop up has a much more significant intrinsic value. If the Dollar is worth more, Dollar denominated debt is also more expensive to pay off.
The U.S. Dollar Index has languished for several weeks, but recently the greenback started to reverse higher and at this time has managed to push above major resistance levels overhead on the daily timeframe. The daily chart of the U.S. Dollar Index is shown below.
US Dollar Trading
If the Dollar remains firm into the bell on Friday which appears likely, the results of the two key European elections over the weekend could provide the ammo needed to really force the U.S. Dollar higher or lower depending on market sentiment. It appears the Dollar wants to go higher currently, but a sharp reversal is not out of the question.
The key level to watch is the 80.76 price level on the U.S. Dollar Index futures. If that level gets taken out, the Dollar could extend to recent highs and beyond should the situation in Europe begin to unravel.
If the Dollar surges what will that mean for gold? Generally speaking most readers would expect gold and silver to move lower on Dollar strength. For a time, that would likely be true, but if a real currency crisis plays out gold and the Dollar might rally together as citizens would try to move their wealth into safe, liquid assets.
Under that type of scenario, gold and silver could both rally along with the Dollar. When the moment finally arrives where the Euro begins to selloff sharply, physical gold and silver will be tough to acquire in Europe.
In the short to intermediate term, gold will likely continue to drift lower searching for a critical bottom. The weekly chart of gold futures below demonstrates the key support and resistance levels that may have to be tested before a major reversal can play out.
Gold Trading
Make no mistake, I remain a gold bull in the long term. However, in the short run the Dollar has the potential to outperform gold under the right circumstances. Ultimately it is important to recognize the distinction between selling pressure and what would likely happen in a full blown currency crisis in Europe which is possible, if not ultimately inevitable.
The price action over the weekend on Monday will likely be telling and we could see the beginning of a major move in a variety of underlying assets depending on the election results. Clearly times have changed when U.S. market participants are concerned about what is going on in Europe more so than domestic issues. Unfortunately, we live in very strange times.

Looking for a Simple ONE Trade Per Week Trading Strategy?
If so, join today and start trading options today!