AUDUSD is facing the support of the upward trend line on 4-hour chart. As long as the trend line support holds, we’d expect uptrend to resume, and another rise to 1.0550 is still possible. However, a clear break below the trend line will indicate that a cycle top has been formed at 1.0474, and the uptrend from 1.0246 has completed, then the following downward movement could bring price back to re-test 1.0225 previous low support.
Article by Investment U
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In focus this week: A natural gas stock that’s going up, your granny’s growth stocks, bond ladders and the SITFA.
One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).
There may seem to be no bottom to natural gas (NG), but there is. In fact, there are several gas stocks that can do quite well despite the industry suffering through near historic low prices.
But, according to Barron’s the bottom is already here for NG and several analysts are calling for higher prices by the end of the summer.
One way to play this turn around is liquefied natural gas (LNG) and the companies that service it. Barron’s mentioned KBR (NYSE: KBR).
KBR is an engineering and construction company whose projects are necessary for LNG infrastructure. They already have a pile of signed contracts for liquefaction facilities for LNG producers and Aaron Visse, of the Forward Global Infrastructure Fund, said in the Barron’s article that KBR is a stand out in what could be the reindustrialization of America.
LNG will be one of this country’s leading exports for many years to come. Producers are literally standing in line to get their liquefaction and export facilities up and running.
Citi Group says this stock should be trading at a multiple of 15, much higher than its current 10, and although the gas business is in price limbo now, it will change and KBR will be one of the big winners.
Definitely have this on your bogey board.
Some of the stocks your grandparents would have owned have been on a tear this year: Colgate Palmolive (NYSE: CL), Disney (NYSE: DIS), McDonald’s (NYSE: MCD), Kimberly Clark (NYSE: KMB). Most blue-chip and large-cap growth indices are up 10% and 15% this year.
The strange part of this scenario is that when our economy shows signs of struggling to grow, growth stocks do very well. This year is no exception.
Ned Davis Research was quoted in the Journal as believing that as this economy wallows in slow to no growth, the blue chip and quality dividend stocks should continue to do well. It’s like a split between the security of cash and the riskier returns of a better market.
This sector could continue to grow even if the market hits another slump. So if you’re planning on riding this one out in some granny-like investments, you’re on the right track.
One other name Barron’s mentioned was Nike (NYSE: NKE). Take a look at this one.
Finally, someone other than yours truly is talking about preparing income portfolios for when rates move up.
When rates hit zero it was painfully obvious that the rush to income of all kinds was the first step to a disaster of biblical proportions. The buying pressure on anything with any income has driven prices on bonds and packaged income products through the stratosphere.
But get ready, when rates go up it all must come down and it will be something to watch. One of the only ways to protect yourself against the inevitable drop in value in an income or bond portfolio is to ladder your bonds in one form or another.
MarketWatch ran an article last week about doing just that, laddering.
It’s quite simple, really. You buy one bond with about a two- to three-year maturity, one at about five to seven, one in the 10-to-12-year range, then a 15-year, maybe a 17, and a 20-year maturity.
The idea is to have some money coming due every so often to allow you to buy back into a rising interest rate market.
My idea is a little more conservative. Set up your ladder so you have several bonds a year coming due, not one every few years.
Why the multi-bond-a-year set up? When rates move up, and they will, it will not take a few years for the market value of bonds and income investments to drop; you do know that bonds and stocks drop in value when rates move up. Well, now you do!
So if you have three or four bonds coming to maturity each year, you will have lots of fresh money coming in to jump on the higher rates that will be available when rates move up.
A traditional ladder only returns principal every few years. You could very likely miss a buying opportunity.
Of course, if you’re buying more bonds to fill this ladder you want to buy fewer bonds in each position so you can spread your money around on a greater number of bonds. That’s a good thing. It forces you to diversify over many bonds and not hold too much in one place.
As safe as bonds are compared to stock you still don’t want to get too loaded up on one place. Always a good idea.
It isn’t a perfect solution, but it helps smooth out the rough spots that are certain to come.
This week it goes to China. The economic giant may have crossed the line this week in their quest to feed the huge consumer appetite in their country.
One of the most popular products now in China, Helen Keller glasses.
Yup, a blind person is the name sake of an eye glass company. That is a little strange. A spokesman for the company said it is unusual but Keller is a highly respected figure in China and people like the link.
Isn’t that’s kind of like naming a prosthesis company after a track star.
Oh well. See you all next week.
Article by Investment U
Article by Investment U
Todd Schoenberger recommends investing in just two stocks – Apple (Nasdaq: AAPL) and Exxon Mobil (NYSE: XOM). This is a very bad idea.
“Nobody ever got rich off of asset allocation.”
That’s what Todd Schoenberger, Managing Principal at The BlackBay Group, told Yahoo! Finance readers recently.
Instead, he advises, it’s much better to hold just two stock investments – specifically Apple Inc. (Nasdaq: AAPL) and Exxon Mobil Corporation (NYSE: XOM).
Exxon, after all, has $60 billion in cash at its disposal and Apple has $110 billion, more than enough to let both of them coast for some time. Similarly, they’re both stellar companies with impressive assets to offer investors… from Apple’s amazing stock price run-up over the years to Exxon’s steady dividend payouts.
But what he forgets is that there is no “sure thing” investment in life.
Sure, both companies have performed excessively well so far. But the past can only offer so much insight into the future – a tough lesson investors often have to learn the hard way.
I wonder if Todd was advising people back in 1999 that the only stocks they needed were Enron and RadioShack (NYSE: RSH)…
Even a well-educated, highly experienced professional can get it wrong now and again. I would suggest Todd pick up a copy of William Bernstein’s book The Intelligent Asset Allocator or Alexander Green’s bestseller The Gone Fishin’ Portfolio – based on Dr. Harold Markowitz’s Nobel Prize-winning Portfolio Theory.
People have always wanted to believe in a sure thing, something to keep them safe and sound in every possible situation that might arise. It’s perfectly natural to crave that kind of security, but it’s also completely unrealistic in most areas of life, including – and possibly even especially – in the stock market.
History is filled with examples of people who desperately wanted to think otherwise, and ended up crashing and burning. Here are just some of the more recent instances:
Sometimes a company can even inexplicably fail through no fault of its own at all. But regardless of why “sure-thing” investment opportunities have failed in the past, the bottom line is that they can – and you can be sure that some ultimately will.
Truly successful investors don’t just fill their portfolios with a bunch of random stocks that look and sound good. They instead carefully allocate their portfolios among a number of assets, or categories, including stocks, bonds, funds and cash.
That’s because smart investors know that no single investment or even investment class ever goes straight up. And they also understand that when one group goes down, another usually goes up and vice versa.
Here at Investment U, we explain asset allocation this way:
“Asset allocation means diversifying among different classes of financial assets. Sometimes investors think of this as just dividing their money between stocks, bonds and cash. But true asset allocation goes much further.
“Within the category of stocks, there are large-caps and small-caps, foreign and domestic, growth and value, etc. Then, within the bond category, there are governments and corporates, high-grade and high-yield, inflation-adjusted treasuries, mortgage bonds, etc. And the beauty of asset allocation is that it allows you to take these non-correlated assets (assets that don’t move in tandem) and combine them in such a way that you maximize your returns while minimizing risk.”
And that’s the most important thing to keep in mind here: minimizing risk. This is your retirement, your child’s education, your livelihood at stake. Don’t risk it on two “can’t miss” stocks.
As Alexander Green has written in the past:
“Asset Allocation is a Nobel Prize-winning strategy. No other strategy shares this seal of approval.
“Research demonstrates that Asset Allocation accounts for approximately 90% of investment returns, making it nearly 10 times as important as stock picking and market timing combined. There is no other investment strategy that can boast the same.
“The world’s most successful and respected investors swear by it. As Paul Sturm of Smart Money puts it, Asset Allocation is “a simple strategy that comes as close to guaranteeing long-term success as anything I’ve seen.”
“Its benefits are unparalleled: significantly reduced expenses, protection against inflation, maximized returns with minimal risk-the list goes on.”
No Todd, asset allocation isn’t a “get-rich-quick” scheme. But for people who can’t afford to lose their shirts on investments gone wrong, it’s the most time-tested, successful method out there.
Good Investing,
Jeannette Di Louie
Article by Investment U
Article by Investment U
There is concern that Spain will drag the rest of Europe into recession. But ultimately, the financial markets will force politicians to do the right thing.
The Eurozone is back in the news again and – needless to say – it isn’t good.
The problem is Spain. Unemployment is almost 24%. Among those under 25, it’s 50%. Last year, the budget deficit was 8.5% of GDP. Tax revenue is down sharply. And the IMF projects that this year’s deficit is going to be another stunner.
This is a much bigger problem than Greece… or Ireland… or Portugal. Why? Because Spain’s economy is more than twice as big as those three countries combined.
Germany and France want Spain to bite the bullet and follow austerity measures. But the Spanish government is acutely aware that its citizens don’t want austerity, they want growth. They want jobs.
There is concern that Spain will drag the rest of Europe into recession. Remember: Europe is about one-fifth of the world economy (roughly equal with the United States). The 27 members of the European Union are the world’s largest importer (excluding exports to each other).
So while politicians dither, the clock keeps ticking. And investors on both sides of the pond keep wringing their hands. They shouldn’t.
Yes, politicians throughout the West are famously spineless, afraid to act (and therefore offend some special interest group) and always ready to kick the can down the road, especially past the next election. But, ultimately, the financial markets will force them to do the right thing.
How can we be sure? Because it always happens, and it’s happening now.
Opinions and talk are worth about what you pay to hear them. But investment capital is precious. And it doesn’t stick around where it’s treated poorly.
Note that interest rates on Spanish government bonds have already pushed up to 6%. This is a warning shot across the bow. Spain well knows that it cannot afford to keep borrowing at 7% or higher. At that point, its deficit becomes immediately unsustainable.
Ultimately, markets force politicians to make the tough decisions. At last they can tell their constituents the truth: “We simply have no other choice.”
All politicians learn this in the end.
Bill Clinton’s most famous quote wasn’t “I smoked it, but I didn’t inhale” or “The era of big government is over” or “I did not have sexual relations with that woman, Miss Lewinsky” or even “It depends on what the meaning of the word ‘is’ is.”
As Bob Woodward reported in his book The Agenda, Clinton was astounded to learn that he couldn’t just take whatever executive action he wanted or pass populist legislation to stimulate the economy. The markets would tell him what he could and couldn’t do.
Or as Clinton put it, “You mean to tell that the success of the economic program and my re-election hinges on a bunch of ****ing bond traders?”
Ah, daylight at last.
I’m not saying Europe isn’t a mess right now. It is. I would certainly stay away from European banks or Spanish bonds or euro-denominated debt of any kind right now. But in the end, financial markets will force Europe’s politicians to act responsibly.
And that’s a good thing.
Good Investing,
Alexander Green
Article by Investment U
London Gold Market Report
from Ben Traynor
BullionVault
Monday 30 April 2012, 08.00 EDT
SPOT MARKET gold bullion prices held above $1660 an ounce during Monday’s morning trading London – holding on to gains from last week of 1.1% – while stock markets ticked lower, commodities were broadly flat and US and German government bonds gained as Spain continued to generate headlines.
“On the physical front [however] things were looking not as one might have hoped for [last week]”, says a note from Swiss bullion refiner MKS.
“There’s no support from the physical market,” one Hong Kong dealer told newswire Reuters this morning.
Prices for silver bullion fell this morning to $31.10 per ounce – 0.6% down on Friday’s close.
Gold bullion prices in Euros meantime hit their highest level in almost two weeks this morning, touching €40,474 per kilo (€1259 per ounce) as the Dollar made up some lost ground against the Euro.
Earlier on Monday, the US Dollar Index – which measures the Dollar’s strength against a basket of six other currencies – fell to its lowest level in almost a month, continuing last week’s slide.
The Dollar’s slide was compounded on Friday after preliminary gross domestic product data showed the US economy had slowed by more than expected in the first quarter of 2012, leading to speculation that the Federal Reserve might embark on a third round of quantitative easing.
“We don’t know whether there will be QE3,” the Hong Kong dealer said.
“If the economic performance continues to be good, then there will be a diminishing prospect for QE.”
“In the short run, you can have one or two weeks for the market to get excited about QE,” adds Dominic Schnider, Singapore-based head of commodity research at UBS Wealth management.
“If you look for QE, we are going to have a situation where prices will trend higher.”
The Spanish government is in talks to set up a “bad bank” scheme, which would see troublesome property loans taken of banks’ books and transferred to new asset management companies, the Financial Times reports.
Spanish GDP meantime fell by 0.3% in the first quarter of the year, according to official data published Monday. This is less than the 0.4% forecast by the Bank of Spain last week.
The government in Madrid forecasts that Spain’s economy will contract by 1.7% in 2012, before growing 0.2% next year. The government has set a deficit-to-GDP target of 5.3% for this year, and 3% for 2013.
By contrast, ratings agency Standard & Poor’s – which last week downgraded Spain’s sovereign rating from A to BBB+ – said last week it expects negative growth both this year and next, with the deficit-to-GDP ratio hitting 6.2% this year and 4.8% next.
“It’s likely [Spain’s government will] have to create more fiscal tightening,” says Citi economist Guillaume Menuet.
“That’s going to be counterproductive.”
S&P followed the sovereign downgrade on Monday by taking negative rating actions on 16 Spanish banks. Several banks had their debt ratings cut, among them Santander, while others were placed on CreditWatch negative, a move which often precedes a downgrade.
Despite the downgrades, Spanish 10-Year bond yields remained below 6% this morning, a level they breached for the first time in the Euro era last July, and above which they have traded at several points over the last month.
In France meantime, incumbent president Nicolas Sarkozy has closed the gap on his Socialist Party opponent Francois Hollande, according to a poll published Monday.
The Ipsos poll, for which voters were surveyed on Friday and Saturday, shows Sarkozy still lags Hollande, with only 47% of the vote ahead of this Sunday’s runoff.
“Sarkozy has moved further to the right,” says the Wall Street Journal, “repeatedly underlining his strong line on immigration and a pledge to strengthen France’s borders in an attempt to pick up the first round share of almost 18% achieved by Front National’s Marine Le Pen.”
“Austerity alone won’t help cut debt,” Hollande told his supporters at a rally yesterday.
“The head of the [European Central Bank] can also see [this]. They are starting to hear what we are saying.”
German chancellor Angela Merkel however said at the weekend “there will be no new negotiations on the fiscal pact”, referring to the Fiscal Stability Treaty agreed by 25 of the 27 European Union members, which states they will seek to bring their budgets into balance or surplus, with counter measures being triggered should they miss agreed targets.
Over in Greece, where voters are also due to go to the polls this Sunday, the Golden Dawn party – whose leader has been filmed making a fascist salute – may be set to enter parliament for the first time, Bloomberg reports.
In New York meantime, the difference between bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – the so-called speculative net long – fell 5% in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.
Long positions fell by the equivalent of 9.4 tonnes of gold bullion, while at the same time short positions rose by the equivalent of 13.6 tonnes.
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Switzerland will always have a special place in the hearts of doom mongers. For decades its franc has been the “go to” safe haven currency when the world got dicey. The meticulous Swiss gnomes have always had a well-deserved reputation as prudent stewards of wealth—and a well-deserved reputation for discretion and privacy. And importantly, their policymakers had little tolerance for inflation.
Investors with long memories will recall that the Swiss franc was the currency of choice in the 1970s for Americans looking to escape rampant inflation (and perhaps leisure suits and disco as well). Outside of gold Krugerrands, few other asset classes offered much in the way of protection.
Like shag carpet and other novelties from the 1970s, Switzerland is popular again. It’s easy enough to understand why. With the world—and particularly Switzerland’s backyard of Europe—in a prolonged period of on-again / off-again crisis, the Alpine country is viewed as a refuge.
Consider the strength in recent years of the CurrencyShares Swiss Franc Trust (NYSE:$FXF). As the European sovereign debt crisis really started to heat up last year, the franc almost went parabolic vs. the and euro. Unfortunately, the strength of the currency was killing exports and destabilizing the Swiss financial system. To the detriment of investors and traders who had been piling into the franc as a haven, the Swiss National Bank came down like a hammer to weaken the value of the franc. Yet even after the move, many trust a devalued franc over a fragile euro or dollar. I can’t say I that don’t understand.
There is a lot to like about Switzerland as an investment haven. It is home to some of the world’s finest multinational companies, including Sizemore Investment Letter favorite Nestle (Pink:$NSRGY), pharmaceutical heavyweights Roche(Pink:$RHHBY) and Novartis (NYSE:$NVS) and engineering juggernaut ABB Ltd (NYSE:$ABB), which is the major competitor to Sizemore Investment Letter recommendation Siemens (NYSE:$SI).
Perhaps unfortunately, it is also home to two of the largest international banks in the world, UBS AG (NYSE:$UBS) and Credit Suisse (NYSE:$CS), two institutions that gave country quite a bit of heartburn during the 2008-2009 meltdown.
Investors looking for blanket exposure to Swiss stocks could consider the iShares MSCI Switzerland ETF (NYSE:$EWL). It is a basket of Switzerland’s biggest and most influential companies.
A note of warning on this ETF, however. If you buy EWL, you had better like Nestle, as the food and consumer products company makes up nearly a quarter of the portfolio. Health care stocks collectively chip in 30 percent as well. So, well over half of the ETF is investing in defensive (if not outright boring) sectors. This is not necessarily bad, of course. It’s just something to consider.
Nestle has been hit in recent years by rising commodity costs and the trend of consumers trading down to generic food products. Even so, the company has a fantastic foothold in virtually every major emerging market country, and I consider Nestle about the closest thing to a “buy and forget” company available today. It helps that the company pays a solid dividend of 3.5 percent.
Nestle recently made a splash by announcing that it would buy Pfizer’s (NYSE:$PFE) baby food business for $12 billion. The purchase fits well with Nestle’s existing product lines, and it further strengthens its position in emerging markets. Roughly 85 percent of the unit’s revenues come from emerging markets, and I would expect that number to only increase with rising incomes and livings standards.
On April 19, management announced that the company would be raising the dividend by CHF 1.95. Expect to see more of this in the years ahead. Nestle is not a “home run” stock, but it should be a steady producer for decades to come.
ABB also announced earnings in April, with mixed results. Revenues grew by 8 percent for the quarter , but new orders from China—one of ABB’s key markets—were down 35 percent. ABB, like Siemens, is a fine company with great long-term prospects in building out the infrastructure that emerging markets need to rise to developed-world status. But with budgets tight and markets jittery, the next year may prove to be challenging.
The Swiss banks, like their American and European counterparts, also face a rocky road ahead. Regulators are squeezing risk out of the system and banks are shrinking their balance sheets and reducing leverage—all of which is good for long-term stability. But it’s not good at all for bank profits.
Credit Suisse revealed late the month that earnings had improved over the last quarter but were down substantially from the first quarter of last year. Profits were 44 million Swiss francs, down from 1.1 billion the first quarter of 2011.
Overall, I continue to like Swiss stocks in general and Nestle in particular. But given the nonexistent yields and the SNB’s recent tendencies to aggressively lower its value, I’d stay away from currency positions in the franc.
Disclosures: Charles Sizemore is long Nestle.
This week – on the economic data front – is dominated by the realease of the US jobrapport and the industrial indicator, ISM.
Senior Strategist Ib Fredslund Madsen outlines this weeks most important events, tendencies and economic data.
Video courtesy of en.jyskebank.tv
By TraderVox.com
Tradervox (Dublin) – Analysts are warning that the loonie might not just pare its gains against the greenback , but it might also loose its best performing form it has gained for the last six months. Analysts are saying that the expected increase in the interest rate may be bad for the Canadian dollar as it would restrict consumer spending which is the main support for the loonie.
Despite the fact that investors favor currencies with high interest rates due to the high returns potential associated with them, the Canadian dollar might not enjoy this as the economy is underpinned by debt. Reports show that house hold borrowing rose to 152.9 percent of disposable income by the end of 2011. In 2007, the figure was at 135 percent, the new data indicates that the country has exceeded the US’s household borrowing which stands at 145 percent. According to Shahab Jalinoos who is a Senior Currency Strategist in Stamford Connecticut, the Canadian growth has been driven by domestic demand which is driven by consumer spending; consumer spending is directly linked to expanded leverage which would be hampered by an increase in interest rate.
According to some analysts and currency strategists, the Canadian currency will depreciate to parity against the US dollar as the Bank of Canada Governor indicated that a rate increase might be necessary for the economy. The BOC had last increased borrowing cost in 2010 when it raised it to 1 percent from 0.25 in a three step process which started in June and ended in September. In this period, the currency depreciated by 7.46 percent against nine of the most traded currencies in the world.
The Canadian economy has been propelled by domestic consumers especially the housing market, which account for 2/3 of the economy. The BOC has projected that the economy will grow by 2.4 percent during this year hence hedging economic growth on consumer spending.
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By JW Jones – www.OptionsTradingSignals.com
Unfortunately I was sick the past few weeks and I am just now getting back into the swing of things. Similar to the demand pull that the warmer than usual spring has had on macroeconomic data, the warmer spring caused me to have an earlier than usual sinus infection as well as some horrific allergies. I suppose I am pushing it a bit far when I am comparing my health concerns to economic data, but alas I fly my nerd flag proudly.
Recently I have been advising members of my service to be cautious as the market appears to be at a major crossroads. The U.S. Dollar Index is on the verge of a major breakdown. If a breakdown occurs it will be clear that the Federal Reserve will have officially stopped any potential rise in the U.S. Dollar. Over the past few months the Dollar has been producing a series of higher highs and higher lows, however the current cycle may break the pattern as can be seen below.
If the U.S. Dollar pushes down below the recent lows and we get continuation to the downside, we will break the recent bullish pattern. Furthermore, if the Dollar starts to weaken it should benefit equities and other risk assets such as oil. Higher energy prices would not be long term bullish for equity markets so there is concern if the Dollar really starts to extend lower.
However, if the Dollar finds a bottom and rallies it clearly would create a headwind for equities. We should know whether we have a major breakdown on the daily chart in the next few weeks. Until then, the Dollar could go either way and obviously the price action in the Dollar will have a major impact on risk assets and stock market returns in the near future.
From a macroeconomic viewpoint, risk assets such as the S&P 500 Index could be in trouble in the months ahead. U.S. gross domestic product (GDP) came in lower than expected with revisions likely in the near future. Unemployment claims appear to have bottomed and are rising week after week even though the major media fails to report it appropriately as it would appear that the Bureau of Labor Statistics has stumped media pundits with data revisions.
Additionally, there are two other macroeconomic data points which need to be mentioned. The Citigroup Economic Surprise Index has moved below zero and is showing a negative reading. This index is generally a leading indicator regarding equity prices and the recent decline shown below is problematic for the bullish case.
Chart Courtesy of Morgan Stanley
As can be seen above, fundamental data is starting to skew towards the downside which is likely a result of the recession that is in the process of developing over in Europe and potentially in China. Time will tell if the index can reverse, but the bulls need to see a major reversal in the near future.
The chart below illustrates the relationship between metal prices and industrial productivity. Demand for metal increases when economies are expanding and prices generally contract when economies retract. The chart below demonstrates global metal demand. The chart speaks for itself.
Chart Courtesy of Morgan Stanley
Clearly if industrial production contracts (reduction in Global Manufacturing PMI) the impact on the global economy will be felt across multiple countries’ economies. The chart below illustrates the MSCI World Index compared to global manufacturing PMI. Similarly to the chart above, this chart also tells a significant story about what investors and traders should expect if the PMI numbers come in light against expectations.
Chart Courtesy of Morgan Stanley
As quoted from the zerohedge.com article entitled What do Metal Prices Tell us About the Future of the Stock Market, “In other words, for those who still believe in logical, causal relationships (even in a time of ubiquitous central planning) unless something drastically changes to push fundamental demand of metals higher, one could say the the outlook for equities is not good.”
Essentially, the data shown above is certainly not bullish in the intermediate to longer term. However, it generally takes time for macroeconomic data to permeate all the way through to equity markets. For right now, the story regarding global growth is at the very least questionable based on the data illustrated above.
In the short term anything is seemingly possible. The S&P 500 Index closed above the key 1,400 price level on Friday. I would not be shocked to see prices extend up to the recent highs near 1,420. Ultimately I think we are in a long term topping formation that might require another higher high up to around 1,440 before we see a deeper correction.
The past few weeks have produced a very mild correction compared to the monster rally we have seen since October of 2011. This is a bullish signal, but we need to see prices continue higher and climb a serious “wall of worry” that is coming out of a variety of places. The European situation continues to worsen overall and we have lower than expected GDP numbers in the US paired with concerns about growth in China.
The S&P 500 has some negative headlines to deal with, but so far it has been able to shrug off poor economic data and we could see an extension higher that would shake out the shorts and run stops above the recent highs. However a move lower remains possible. The daily chart of the S&P 500 illustrates the recent correction and the 1,420 highs.
I believe that the next few weeks are going to be critical and the S&P 500 may trade in a consolidation zone between recent lows and the 1,420 highs while traders await more economic data. Fundamental data is starting to indicate that a slow down may be beginning. In contrast, the topping pattern that we appear to be carving out may require higher prices to suck in more longs before moving into a deeper correction.
In the short run, the Dollar will likely hold clues regarding the immediate future for risk assets. However, the longer term picture for equities is quite murky based on the economic data points we are seeing paired with additional concerns stemming from the European sovereign debt crisis. Right now I am looking at time decay based strategies in the near term and will likely stay away from directional biased trades. I would urge readers to be cautious regardless of which direction they favor.
Jw Jones
This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.
