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Economy

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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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.


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 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


Japan Intervenes in the Japanese Yen Currency First Time in 6 Years!

A big news this Tuesday night (here in CA) and Wednesday morning elsewhere in the world, the Bank of Japan directly intervened in the currency markets, selling Yen to stop the Yen’s rise that’s hurting their trade and thus economic recovery.  Reuters said:

” The dollar extended its gains after intermittent yen selling and was up 2 percent on the day and nearly two yen above a 15-year low. But it was unclear whether Prime Minister Naoto Kan’s government had the stomach for a prolonged campaign similar to Japan’s last foray into foreign exchange markets in 2003-2004.

Finance Minister Yoshihiko Noda confirmed the intervention, saying Tokyo was also communicating with authorities overseas but indicating that Japan acted alone.

U.S. officials at the Federal Reserve and the Treasury declined to comment immediately about Tokyo’s action.

Noda would not say whether the authorities were buying dollars in the first intervention since March 2004, but two traders said the Bank of Japan appeared to have bought dollars around 83 yen at the start of the action.

The Bank of Japan acts on behalf of the Ministry of Finance in currency intervention.

“We will take decisive steps if necessary, including intervention, while continuing to closely watch currency market moves from now on,” Noda told reporters at a hastily arranged news conference.

The dollar had hit a 15-year-low at 82.87 yen earlier in the day but was at 84.78 yen by noon.

Prime Minister Naoto Kan’s government has been trying to talk down the yen but until Wednesday had stopped short of intervening in the markets, apparently worried that acting without Group of Seven partners would not be very effective. “

This is bound to cause big waves in trading around the world on Wednesday.  Raymond Anselmo, aka @RiskCap on twitter & Forex moderator on Hamzei Analytics’ HFT, tweeted this chart of the USD/JPY currency pair (and that is why traders should always use stops! talk about in-your-face-ness…):