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Sample MarketGauge Stock Market Outlook: March 23, 2011

**Here’s another sample of MarketGauge’s Market Outlook newsletter.  Given the amount of global political and economic news affecting the stock market, we thought this latest newsletter from MarketGauge is a worthwhile read for both the big picture and technical analysis of market conditions and trade ideas.

March 23, 2011

by Keith Schneider
According to Venezula President, Hugo Chavez, life on Mars was destroyed by Capitalists. He believes that those same guys moved here and are going to do the same thing. He could be right, if one looks at the market’s behavior today and trusts that a modicum of logic should prevail while trading.

Today we had so much bad news that it is mind boggling to see the market close as strong as it did. Bad housing starts, continued unrest in the Mid-East, a terrorist attack in Israel, higher oil prices, record setting gold prices, and food embargoes because of nuclear contamination all were headlines today.

The icing on the cake was that the 9.0 earthquake that devastated Japan will cost upwards of 300 billion (dollars… not yen). Food is unsafe to eat in large areas of Japan, including Tokyo. The US Equity Market closed up across the board with good volume. As a student of the markets, I call upon the old adage, “Horrible news/good action=Bullish.” This, however, is extreme.

SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100) Indexes

The market phases of the key U.S Equity indexes are quite divergent. The NASDQ (QQQ’s) and the SPY (S&P 500) are the weakest and are in warning phases, while the DIA (Dow Industrials) and IWM (Russell 2000) are back into bullish phases after flirting with warnings. We turned from a 1% morning decline in the weakest index to a modest +.47% gain in spite of several pieces of news that should have brought this market down big time. At this point in time we are now down since the start of the year.

Market Internals

VIX (sentiment): This sentiment indicator flashed a sell signal after moving above the 200 day MA for a few days and then with the rally off the panic low, moved back into bullish territory, but in an overall weaker position before the Mid-East crises began. This indicator is cautiously bullish.

Accumulation/Distribution Volume: The market responded to all the news with several bearish distribution days and is currently on a sell signal with over 4 days of distribution in all key indexes. However to add another piece of data to the mix is that last week’s 240 plus decline in the Dow had the earmarks of a selling climax.

Sectors

Gold (GLD): Gold’s closing price is on new all-time highs today, and looks poised for another big leg up. If we can take out the 5 month intraday high, we could move up another $100-$125 quickly.

Oil (OIL) and Coal (KOL): The Mid-East unrest and current disruption of Libya oil production along with the viability of nuclear power in question put continued pressure on energy prices. This includes coal, crude and natural gas.

New Economy Stocks: The most interesting charts playing out in terms of leading stocks representing the web economy are both NFLX and BIDU. BIDU is at all-time new highs and NFLX keeps roaring. Other leaders such as AMZN GOOG and AAPL performed well today but have been a drag overall on the NASDQ indexes. All look a bit oversold, so they could bounce.

Netflix Nasdaq Tradestation Chart Technical Analysis

Opening Range Strategies

Today we featured an energy play BTU in our live trading room. It was a fairly classic pattern with the daily chart pattern very strong and we bought an OR breakout but waited for the stock to clear R1 (a floor trader pivot number) before entering. By the end of the day we achieved our first profit target as the stock ended up over 3%.

BTU stock opening range breakout trade

Good Night and Good Trading.

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Technical Analysis of SPX Chart Shows Deteriorating Social Mood

contributed by JW Jones, OptionsTradingSignals

“We crawl on our knees for you,
Under a sky no longer blue
We sweat all day long for you,
But we sow the seeds to see us through
‘Cause sometimes dreams just don’t come true,
Look now at what they’ve done to you.”

– Rise Against: Re-Education (Through Labor) –

Before getting into the broader markets, I thought it was pertinent to share with readers that recently I have noticed a trend in alternative music, also known as modern rock. As a fan of music in general, I have noticed that more modern and mainstream music is starting to underscore the deterioration in social mood. Mainstream songs are having a resoundingly similar lyrical undertone which outlines the “us against them”, “rich versus poor”, and the political class versus everyone else.

While I am not a sociologist nor do I have any real training in the area, the underlying tone in a lot of artistic mediums highlights the current chasm between the haves and the have-nots. While some might argue that it does not matter, if you as a reader, trader, or investor believe in behavioral finance you might agree that social mood matters a great deal. After all, the entire premise of technical analysis is an attempt to quantify market participant behavior at specific price levels.

Social mood is but one catalyst that can have a dramatic impact in price discovery, and thus must at the very least be monitored. Current music trends are literally screaming loud and clear that the average American can relate to the undertones and messages of song lyrics with the same resounding tone as the Rise Against lyrics listed above. Believe me, it may not matter right now, but it will matter and when it does it will likely be too late for financial markets.

Now that I have my little rant out of the way, why don’t we take a look at where the S&P 500 has been, where it is now, and where it might be going. Currently price action in the S&P 500 is sitting on the edge of a fence. We could be looking at an intermediate bottom or it could end up being a bull trap. As for me, my recent prediction for lower prices has indeed come to pass, but from hereon I have no real idea where price action is headed. Mr. Market is leaving a few clues behind which I will outline, but anything is possible. We have seen stocks climb a wall of worry for nearly two years now so there is precedent for a rally from this current point of indecision.

The daily chart of the S&P 500 listed below illustrates key technical levels on the daily chart, however readers will notice that we are currently caught between a ton of overhead resistance and a key support level. Until we see price move in either direction with volume confirmation, I will be sitting on the sidelines.

Another key chart to consider is the SPX weekly chart. A quick glance at the slow stochastic readings at the bottom of the chart reveal that the S&P 500 might have additional downside left before the market is able to form a solid bottom. If that is true, we could see the SPX test the 200 period moving average on the daily chart which would be around the 1186 price level. Additionally, the 50 & 200 period moving averages on the weekly chart correspond with the 1180 price level which is likely not coincidental. The level also corresponds with key resistance areas going back to the November 2010 lows. While a downward move that large seems a bit extreme to me at this point, anything is possible.

As can be seen from the chart above, price action is currently sitting above the 20 period moving average on the weekly SPX chart. Key support levels are around the 1225 and 1180 price levels. I would also point out that a Fibonacci retracement of the recent pivot high to the recent pivot low gives us a possible 1.618 retracement around the 1190 price level. Additionally, the slow stochastic on the chart above is eerily similar to levels that were seen on the weekly chart back in May of 2010. Will price action work lower? Will the weekly slow stochastic reading kiss the 20 level?

At this point, a few of you might think I’m outlining the case for lower prices in the equity market. I honestly have no idea where price is going from here, I’m just outlining some key aspects that I have found in my analysis to the downside. The upside is just as likely and we could see the SPX price bounce off of the 20 period moving average on the weekly chart and a challenge of the recent highs could play out. Should recent highs give way to breakout, the SPX would likely test the 1,400 price level at some point in the future.

If we look at the VIX for any clues, all that can be seen from that chart is a spike higher and a subsequent selloff as fear and uncertainty leave the marketplace. The VIX is currently arguing for higher prices in equities, however the financials represented by XLF are the fly in the proverbial ointment. The banks were unable to attract a bid on Monday’s strong advance and they experienced additional selling pressure on Tuesday.

In fact, the XLF’s daily chart shown below reveals a key test and subsequent failure.


A quick look at the XLF daily chart and it is rather obvious that price action in XLF has been weak in the past two sessions. Price moved higher off of the recent lows, tested the 20 period moving average and rolled over. Price is currently below key support levels, but we could witness a reversal on Wednesday. I am going to be watching the financials (XLF) quite closely in coming days as I believe the banks will provide traders with clues as to which direction Mr. Market is favoring. Right now it would appear that Mr. Market is favoring lower prices, but that would seem a bit too easy from these eyes.

We could consolidate at these price levels for a period of time. The volume on Monday and Tuesday was light and we have non-confirming signals showing up in a variety of underlying indices. I am unwilling to accept any directional risk at this point. I will let others do the heavy lifting while I sit safely in cash and watch the price action play out.

The price action will eventually give us a confirming signal as to which direction prices will be heading, but right now I believe the prudent thing to do is remain in cash and wait for Mr. Market to signal which direction he favors. We are either sitting at the beginning of a major move higher or we are at a precipice and prices are about to plunge. Either way, risk remains high and the risk / reward is simply not there to warrant an entry. As I have said many times, sometimes the best trade is no trade at all!

Get My Trade Ideas Here

WikiLeaks: Friend or Foe?

The biggest news that has surfaced in the past few weeks (nay, months) has been…Wikileaks. And for good reason. Yes, this is even bigger than the news yesterday about the list of recipients for the frivolous bailout spending. However, issues such as this are exactly why Wikileaks, in my opinion, is such an asset to the public good. Now for those who don’t know what Wikileaks is, it’s basically a website that collects both illegally illicited and/or “leaked” information pertaining to a lot of important subjects. Not all the information is confidential but some of it is obtained in a “black market” mannerism and has recently caused an uproar in the governing bodies due to the distribution of illegally obtained, confidential government documentation and proprietary information. It has introduced big issues pertaining to the degree to which the freedom of speech and press are allowed in the ever-changing internet world, and has, furthermore, brought about circumstantial evidence that further support our suspect view of the government’s transparency and actions.

Personally, I am a fan of Wikileaks for 2 reasons: (1) I believe that an extreme, radical action was necessary for both the Supreme Court as well as the public to really scrutinize the secrecy and hypocrisy that goes on within the government every single day (some might think martyrdom). (2) Furthermore, even though every individual entity (including government bodies) has their rights to intellectual property, trade secrets, confidential operatives etc, it keeps me hopeful that this is an ACTIVE stepping stone to a middle ground that will actually spark a reform policy focused on less pseudo-political, bipartisan shenanigans and more on the transparency of governments and individual entities at least when pertaining to actions that have detrimental ramifications towards society and the public good.

Now, I am by no means advocating the stealing and distribution of secret government documentation and/or proprietary information from any individual entity, but on the other hand, it’s somewhat unbearable to stand by and watch the underhanded, now turned social norm, way of “handling” business whereby those with the deepest pockets or the biggest guns dictate the policy of the regime independent of its effects on society.  Thus, although Wikileaks has placed the government’s reputation and information at stake, and to some degree, has introduced a worldwide portal for “black market” collaboration, I have to commend their audacity and direction. Much like the Arizona immigration law that was passed back in April 2010, this effort, while slightly ill-conceived and a little extreme, has opened up a new middle ground for us all…and I hope that we can find a way to take it.

FIRST FA-22 DELIVERED TO LANGLEY, SIMPLY AWESOME!

FIRST FA-22 FIGHTERS DELIVERED TO LANGLEY AIR FORCE BASE.
These are Great In-flight Photos Of the FA-22 as the first Aircraft delivery was being made to Langley AFB in Va.  Langley is to be first Operational AFB for the FA-22. It is A very beautiful AFB, located in a Picturesque location, as you can see In these photos, near Norfolk and Hampton, Va. The Aircraft flying along with the FA-22 in the last of these photos is The F-15, which will be replaced by The FA-22 which is several times better. In Actual In-flight (simulated)
Combat Operations against the F-15, Two FA-22s were able to operate without detection while they went head to head against (8) F-15s. The FA-22s scored missile hits (kills) against all the F-15 Aircraft and the FA-22s were never detected by either the F-15s or Ground Based Radar.. Maj. Gen. Rick Lewis said: ‘The Raptor Operated Against All Adversaries with Virtual Impunity; Ground Based Systems Couldn’t Engage and NO Adversary Aircraft Survived’!
FA-22 — America ‘s Most Advanced Fighter Aircraft for the 21st Century! They’re a titanium and carbon fiber Dagger. They’re so advanced that if Their on-board locator is switched off even our own satellites can lose track
of them. They’re the first military Aircraft ever built that is equipped With a ‘black-out button’. What that means is this: The best conditioned fighter pilots are capable of maintaining consciousness up to in the vicinity of 15+ G. The
Raptor is capable of making 22+ G Turns.. If someday an adversary builds a missile that is capable of catching Up to one of these airplanes and a Raptor pilot sees that a strike is imminent, he hits the ‘b.o.b.’ and the Airplane makes a virtual U-turn, leaving the missile to pass right on by. They know that in the process he will temporarily lose consciousness, so the Raptor then automatically comes back to straight and level flight until he Wakes back up.
DON’T MESS WITH THE USA !

*The commentary and photos were emailed to me I tried to track down where they came from but was unable. I would like to give credit to the source. Thank you!

Desperate Times, Ridiculous Measures…

We all knew something like this would arrive…The government states a bunch of proposed spending cuts (which of course isn’t just cost cutting but increased tax revenues and reformed social programs etc for the private sector). The debt panel that Obama has put together states that none of these changes will be enacted until 2012 or 2013 depending upon how slow the recovery continues (if we ever do recover)…

Here’s an excerpt of the list below from the above CNN article:

[Spending] targets: The report recommends that spending ultimately be capped at 21% of gross domestic product.

Rein in spending: The report proposes close to $200 billion in domestic and defense spending cuts in 2015. That’s a key way it would meet Obama’s goal of working the annual deficit down to 3% of GDP by 2015. In fact, the final report would do one better, getting the deficit to less than 2.5%.

Control health care costs: The report recommends capping growth in total federal health spending — everything from Medicare to health insurance subsidies — to the rate of economic growth plus 1%.

It also proposes reforming physician payments, cost-sharing with Medicare beneficiaries, malpractice law and prescription drug costs.

Reform tax code: The report would lower income tax rates and simplify the tax code. It would abolish the Alternative Minimum Tax — the so-called wealth tax — and proposes either significantly reducing or eliminating the hundreds of tax breaks in the federal code that reduce federal revenue intake by more than $1 trillion a year.

Raise gas tax: The report would raise the federal gas tax by 15 cents a gallon. It would dedicate the extra revenue to fund transportation and limit spending on projects to whatever has been collected by the increased tax that year.
[…]

Cost of living increases: It would offer less generous annual cost-of-living adjustments and reduce benefits for wealthier recipients.

Retirement age: The plan would slowly usher in an increase in the retirement age from 67 to 68 by 2050 and to 69 by 2075. Over the same period, the early retirement age would increase gradually from 62 to 64. There would, however, those who are unable to work past age 62 would be offered “hardship exemptions.”

Payroll tax: The report also recommends expanding over 40 years the amount of workers’ income subject to the payroll tax, which funds Social Security. As a result, the amount of one’s earnings subject to the payroll tax would rise to $190,000 in 2020, about $22,000 higher than it would be under current law.

Protection against poverty: To prevent seniors from falling into poverty — a key mission of the Social Security program — the report proposes creating a new special minimum benefit.

For low-income workers with 30 years of earnings, benefits could never fall below 125% of the poverty line in 2017, a level that would be indexed to wages thereafter. The formula would be reduced for workers with less than 30 years of earnings but more than 10.

With the ridiculous debt spending that occurs by most households combined with the inflated housing and energy prices, these increases in tax costs will have detrimental effects to lower and middle-class. Additionally, with the renouncing of the dollar as the main stable currency by countries such as China, and a target date of debt reduction to 40% of current levels by 2035, the continual QE spending along with endless under the table funding does not promote any means of a re-vamp that will bring about any type of conducive, underlying change in our economic situation. The government has already shown over and over that it will save the big guy before the little guy, and once again, I feel that these so-called “tax increases and spending cuts” are just a facade to hide us from the profligate lives that have brought us to this downward spiral, and that will continue to erode the very core of this country’s economy.

But it’s ok…let’s just enjoy the holidays. For now. Mayans call for 2012 apocalypse. We might just see it…

The Number One Mistake for Forex Traders: Losing Focus

by Scott Downing, BigTrends.com

This article is one that I’m asked to do over and over again…and that’s because so many people fail to focus! In the article I’ll give you some rock solid tips and methods to staying focused, and in my Forex Toolkit I’ll give you an indepth video on making the methods stick! Get my kit here, and enjoy the report!

What you probably don’t realize is that the “mind game” of Forex trading is just as important as having a proper trading system. This is why up to 95% of novice fx traders blow up their accounts. They make simple mistakes that cause a downward spiral of confidence. Or they let greed and fear push them into that one crucial decision that costs them all their profits (remember the big leverage that Forex gives you is a double-sided sword).

We’ve been successfully trading and educating traders at BigTrends.com for over 10 years and we know the proper mindset is extremely crucial to long-term trading success. One of the most important factors is to take the emotion out of your trading as much as possible. Logical, systematized, rule-based trading is a much better bet versus emotional trading and not having a plan.

[continue…]

The Market Continues The FOMC March Upward

By Chris Vermeulen, November 4th, 2010

With the election over and congress divided, it may be difficult for the president to get much done. None of this will take affect until the near year but traders are asking the big question… Will the government work together as a team or will it be a stalemate?

Today’s whipsaw action after the FOMC statement shook things up as it always does. We saw gold, silver, the dollar, SP500 and bond prices go haywire. It took about 30 minutes for the market to digest this news in that time a lot of people lost money because of the wide price swings. Trading around news, I find, is a net losing trade over the long run and I advise never to do it. Rather wait for a trend to form and trade any low risk setups that come your way.

I truly believe that the market has already priced in most news and events which unfold, and that news tends to agree with the overall trend of the market. Of course there will be short term blips on the charts from the news, but they tend to be minor setbacks in the underlying market trend. That being said, the trend is our friend, and while so many are trying to pick a top in the equities market it makes me cringe because they are fighting the trend and the Fed.

…read more

Critical Assessment of the Dodd-Frank Wall Street Reform and Consumer Protection Act

The Dodd-Frank Reform Bill is regarded as one of the largest financial reform bill in the past 70+ years that addresses the systemic risks and stability problems associated with the banking and finance industry. It addresses “too big to fail”, regulatory issues, expanding the responsibility of the Federal Reserve, implementing a variant of the Glass-Steagall (Volcker Rule), and increased transparency across the industry.  Although this bill is intended to do some good, it has some shortcomings…

Dodd-Franks Wall Street Reform Act: Building A Better Trap. Image from http://www.politicsdaily.com/2010/08/08/dodd-frank-wall-street-reform-building-a-better-trap/

Below is an excerpt from “A Critical Assessment of the Dodd-Frank Wall Street Reform and Consumer Protection Act” on http://www.nakedcapitalism.com:

“The shortcomings
That said, from the standpoint of providing a sound and robust regulatory structure, the Act falls flat on at least four important counts:

  • The Act does not deal with the mispricing of pervasive government guarantees throughout the financial sector.

This will allow many financial firms to finance their activities at below-market rates and take on excessive risk.

  • Systemically important firms will be made to bear their own losses but not the costs they impose on others in the system.

To this extent, the Act falters in addressing directly the primary source of market failure in the financial sector, which is systemic risk.

  • In several parts, the Act regulates a financial firm by its form (bank) rather than function (banking).

This feature will prevent the Act from dealing well with the new organisational forms likely to emerge in the financial sector – to meet the changing needs of global capital markets, as well as to respond to the Act’s provisions.

  • The Act makes important omissions in reforming and regulating parts of the shadow banking system that are systemically important.

It also fails to recognise that there are systemically important markets – collections of individual contracts and institutions – that also need orderly resolution when they experience freezes.”

(excerpt written by: Viral Acharya, Professor of Finance, Stern School of Business, New York University, Thomas F. Cooley Professor of Economics, Stern School of Business and Faculty of Arts and Science, New York University, Matthew Richardson, Professor of Applied Economics, Stern School of Business, New York University, Richard Sylla, Professor of Economics, Stern School of Business, New York University and Ingo Walter, Seymour Milstein Professor of Finance, Corporate Governance and Ethics at the Stern School of Business, New York University. Cross-posted from VoxEU)

Thus, even with the passing of this new reform act and all its good intentions, there probably won’t be a huge, sweeping paradigm shift in the way that banking and business will be done in this country.  Instead, it will just impede some parts of banking business in Wall Street, but ultimately allow for new ways for banks to make sure they can continue to make their exorbitant profits in high risk environments with lack of regard for the rest of the consumer base.

Read the rest of the article here

ETFs Affirm This Unbelievable Bullishness (QQQQ, SPY)

by ETFTRADR’s Andrew Hart

We all know the ride’s going to end sometime, but in the meantime (and until further notice) it’s still a trade-worthy ride. What is it? It’s this bullishness. Yes, it’s overextended, hard to believe, against the odds, and….. not a bit surprising to us?

One of the greatest parts about being disciplined enough to stick to a proven trading methodology is that you really don’t have the option – in a good way – of convincing yourself it’s “alright to ignore the evidence just this once”. Either something is bullish, or it isn’t. One of Price’s oldest and most successful of bull/bear methodologies like these can be applied by making of just two ETFs. Which ones? The S&P 500 SPDRs Fund (SPY) and the NASDAQ 100 Trust (QQQQ). Here’s the gist.

You’re probably aware that the market’s different indices – and different ETFs – tend to move in tandem with the market’s bigger trend. What’s not quite as recognized, however, is that the NASDAQ tends to lead the way with stronger moves, both up and down.

The practical application of such a theme is two-fold. First, spotting this relative strength of the QQQQ’s over the SPDRs (or QQQQ’s under the SPDRs, in bearish cases) can identify new trends as they emerge. Second, and perhaps better, by waiting for the NASDAQ’s relative leadership, you can distinguish the real emerging trends from the fakeouts.

A couple of examples will really nail down the premise. [..read more]

 

Geithner vows U.S. will not devalue dollar | Reuters

“PALO ALTO, Calif./WASHINGTON (Reuters) – Treasury Secretary Timothy Geithner vowed on Monday that the United States would not devalue the dollar for export advantage, saying no country could weaken its” -> Full Article on Reuters

‎…but U.S. will indirectly use other central banks and monetary policy to devalue the dollar. Planet earth is all in this together!