Month: December 2010

A free report from Elliott Wave International reveals the risks of portfolio diversification
December 16, 2010

By Elliott Wave International

Despite near-unanimous endorsement among mainstream advisors, the strategy of portfolio diversification has a huge, glaring flaw: Namely, when large sums of liquidity begin to flow into global investment markets, formerly disparate trends become strongly correlated. And markets that go up together ultimately go down together; in turn, the value of diversified portfolios goes down with them.

For years now, Wall Street has tap-danced around the liquidity risk. Here’s how former Citigroup CEO Charles Prince described it in July 2007:

“When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance.”

Three months later, Prince announced that Citigroup’s quarterly earnings would be down 60%. Within the year, Prince had danced himself out of a job. Diversified investors around the world were feeling the liquidity crunch.

But after many miserable months for stock and commodity investors, the markets rebounded together — almost in lock-step. Commodities lifted off in late 2008, and stocks followed in March 2009. Everything that declined together was going up together, and market watchers began to take notice.

“Liquidity with respect to stocks has become indiscriminate,” reported a widely respected market technician. “When money’s flowing in, they all go up. When money’s flowing out, they all go down.”

Mainstream investors finally began to recognize the phenomenon Elliott Wave International’s Robert Prechter warned about in his 2002 best-seller, Conquer the Crash.

Turns out, now almost 10 years after Prechter coined the phenomenon “All The Same Markets,” the correlation is still positive. Unfortunately for millions of diversified investors, the outlook is not.

According to a new report authored by Prechter and his EWI colleagues, the second round of liquidity crisis is fast approaching and perhaps has already begun. If you invest your money in a diversified portfolio, it’s time you read this incredible new report now.

Follow this link to instantly download this special free report, Death to Diversification — What it Means for Your Investment Strategy

By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com

After my adventure in Winter Wonderland without heat or water for 30 hours, I think I’ve become highly sensitive to energy news and investments.

That’s why, when I was catching up on some reading, I zeroed in on Michael Sankowski’s article from his service, Currency Profits Trader. Michael’s been applying technical analysis to the natural gas market — something after my own heart, as I used to bang the commodities drum when I teamed up with Adam Lass at WaveStrength a couple years ago.

But why would a currency expert talk about commodities?

It’s an extremely natural fit. Most commodities are priced in U.S. dollars. That’s why you see gold being used as a natural hedge against U.S. dollar fluctuations.

The power of combining expert knowledge of the currency markets with the increasingly dynamic commodity market makes for an amazing investment scenario. And to take it a step further, Michael has the economic acumen to really put his technical analysis into the bigger picture.

Here’s what I mean… This is straight from Michael’s article:

The most recent tax data shows that daily tax revenue in November is up about 7% over last year, which is a huge increase. October was even more astonishing, up over 12%.

This economy is earning much more money than last year. This increase has been large over the past few months. Something happened in March of 2010 — and this economy took off.

Why is this increase in the amount of taxes collected important? Because tax receipts and GDP are very correlated. When more taxes are collected, it is an excellent sign of economic growth. When tax receipts fall dramatically, expect a recession.

Most currency traders in the market are all about “getting pips” — little tiny bits of gains on their positions; fragments of pieces of U.S. dollars, or euros, or British pounds. They don’t care about tax receipts. They are completely reactionary.

But if you’re talking about the long-term economic health of a country, then you can’t ignore these macro factors.

Same thing goes for currencies and commodities.

Again, from Michael’s article:

Most of the markets around the world have been involved in the currency market trade for all of 2010. Right now, the euro trade dominates nearly every other concern out there. The euro is the 800-pound gorilla of the trading world. Everybody is afraid it will default, go away, or maybe even solve all the problems, and all of this fear is refreshing.

Not many markets have been able to avoid the currency plays, but natural gas is one of them. Every other commodity in the world is near its highs, or in a rally, but natural gas is near multi-decade lows.

There have been huge discoveries of natural gas in unconventional places, and this has opened up much of the world for exploration and drilling. The U.S. always had lots of natural gas, but remarkably, the U.S. may have twice as much as we thought.

So you can understand why natural gas is in its own personal bear market — or at least it had been in a bear market. Natural gas is 20% off its lows and broke a trend line, plus a neckline of an inverted head-and-shoulders formation.

(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Jared Levy simplify the market with our easy-to-understand articles.)

As Michael suggests, commodities and currencies are strongly linked. And currencies take their cue from overall economic health.

Everything is intertwined.

Including technical analysis. TA shouldn’t be removed from fundamental analysis — particularly when you’re talking about commodities. I learned this the hard way. A crude oil chart may show a bullish pattern with a high success rate, but if an inventory report comes out showing an unexpected rise in supply, oil prices will fall.

Michael says, “I like trading commodities with technical patterns like this, but what I really like is the overall pattern of natural gas to spike in the winter. It doesn’t happen every year, but it seems like every other year, there is at least one month where there is a gigantic upswing in prices.”

Cyclical or seasonal trading is an easy way to combine technical analysis with strong real-world events.

But you also have to know the overall fundamental data behind a commodity’s price… and that means supply and demand.

While we have increased supply and capacity of natural gas, we could still face a cold winter. Natural gas has a tendency to spike.

It isn’t that we don’t have enough natural gas — we have plenty — but that we cannot deliver unlimited quantities next week. So you get these spikes in the price of natural gas if the winter is a bit colder than expected.

Due to the delivery constraints of natural gas, there is no easy way to increase the deliverable supply in a short amount of time. That’s why natural gas builds up supply all summer long to a huge level, and then draws this down over the winter.

After my adventure in well-below-freezing temperatures on Sunday and Monday, I’d have paid just about anything for natural gas.

As Michael explores commodity trading in his service, I’ll be following along to see just where natural gas is headed. I’m probably headed toward upgrading my heating system…

About the Author

Sara is Co-Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country.

As Senior Research Director, global correspondent and co-editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.

The US dollar remained bullish versus Euro and Japanese Yen on the latest report showing increased manufacturing output in the state of Philadelphia.

Traders and investors are optimistic about the US economy as the Federal Reserve’s manufacturing index for Philadelphia showed a sudden increase for the current month. Further the decrease in Jobless claims in United States is making investors to shift their focus back to US dollar as the safe haven.

Global Head G10 FX, Alan Ruskin from Deutsche Bank commented, “Data like this portends well for global growth and the positive growth data is tending to help the U.S. dollar even against the commodity currencies.”

The dollar index DXY which measures the greenback’s performance versus its major counterpart currencies surged to 80.237 as compared to 80.19 on Wednesday.

The Euro declined to 1.3206 versus the greenback as compared to 1.3229 as on late Wednesday’s trading session. The Euro however remained strong in the overnight trading and gained especially versus the Swiss franc as European leaders are about to meet in Brussels.

Global head of currency strategy Marc Chandler at Brown Brothers commented, “There may be agreement on new funding for the ECB, this year will finish without a clear and convincing strategy to address the debt crisis, which will be a major force into next year.”

The Euro surged 0.6 percent versus the Swiss franc as the Swiss National Bank announced that it could intervene to tackle deflation situation in the country.

The Pound Sterling however advanced 0.3 percent to 1.5602 versus the US dollar on the latest national data showing increase of 0.3 percent in retail sales of the month of November in UK.

The US dollar traded at 84.28 versus the Japanese Yen as compared to 84.32 on late Wednesday North American trading session.

Daily forex trading news written by Rehan from DailyForexTrade.com

By CountingPips.com

The U.S. dollar has been mixed in forex market trading today against the other major currencies while the American stock markets have had a positive session so far today. The dollar has gained ground versus the euro, Canadian dollar and the New Zealand dollar while losing ground against the British pound sterling and the Japanese yen in today’s forex trading action. The dollar is trading close to unchanged against the Swiss franc and the Australian dollar from the day’s opening exchange rates.

The U.S. stock markets, meanwhile, have had a positive session today with the Dow gaining by approximately 35 points, the Nasdaq increasing by over 14 points while the S&P 500 is up by over 5.00 points at time of writing.

In commodities, Oil has moved lower by $0.79 to $87.83 per barrel while gold has declined by approximately $20 to trade at the $1,365.50 per ounce level.

Spot Gold Daily (XAU/USD) Chart – Gold has tumbled sharply today in the spot gold trading market to the 1,365.00 level and has broken the rising trendline that has held for quite some time. The precious metal is currently trading right at its 50-day moving average.

By CountingPips.com

The latest housing data out of the US showed that housing starts rose in November while building permits and housing completions slipped lower. Housing starts increased by 3.9 percent in November to an annual rate of 555,000 housing starts following October’s annual rate of 534,000, according to the latest data by the US Commerce Department. On an annual basis and despite the monthly increase, November’s level is 5.8 percent below the November 2009 standing.

Building permits, a measure of future construction, fell by 4.0 percent to an annual rate of 530,000 permits in November. This follows an annual rate of  552,000 building permits registered in October. On an annual basis, November’s building permits are 14.7 percent lower than the November 2009 level.

Housing completion data, released in the same report, showed that housing completions fell by 14.1 percent in November while falling 39.6 percent on an annual basis from the November 2009 housing completion level.

The housing starts and building permits data failed to meet market forecasts which were expecting housing starts to increase by 6.0 percent and building permits to rise by 1.5 percent for the month.

By CountingPips.com

U.S. weekly jobless claims decreased by more than expected in the week that ended on December 11th, according to the release by the U.S. Labor Department today. New jobless claims fell by 3,000 workers to a total of 420,000 unemployed workers, marking the lowest level of claims since July 2008. The 4-week moving average of unemployed workers decreased by 5,250 workers from the previous week to a total of 422,750.

Market forecasts were expecting jobless claims to decline to 425,000 unemployed workers following the prior week’s 423,000 revised number of claims.

Meanwhile, workers seeking continuing claims for unemployment benefits for the week ending December 4th increased for the week. Continuing claims rose by 22,000 workers to a total of 4,135,000 unemployed workers while the 4-week moving average of continuing claims dropped by 47,250 workers to a total of 4,185,500.

Continuing claims were higher than expected as market forecasters were looking for 4,115,000 continued unemployment claims.

Written by FastBrokers House
2010-12-16 00:00

By Chris Vermeulen, TheGoldAndOilGuy.com

The much anticipated EU summit in which European leaders discuss the state of the Union is due to begin shortly, and obviously the big topic of discussion is the EMU debt crisis. For instance The Telegraph reported this morning that the markets almost abandoned Spain in its recent auction of Government bonds, pushing insurance costs to a decade high.

Obviously then both EU leaders and the currency exchange markets are eager to unveil a solution at the end of the two day summit. So what solutions then might we expect? In short EU officials are divided into two camps regarding the EMU debt crisis and the answers available, and these will determine what happens.

Camp One: Let The Indebted Nations Take Responsibility For Themselves

The EU leaders in the first camp believe that indebted nations such as Portugal and Spain should take responsibility for their own financial woes. They ought implement crippling austerity programs to compensate for (1) the excessive borrowing of their Governments and (2) the excessive lending of their banks.

Perhaps unsurprisingly the EU leaders in this group belong to the relatively solvent nations of Northern Europe. The German Chancellor Angela Merkel is the obvious example: she has vetoed all suggestions to collectivise EMU debt either through ECB bonds (E-bonds) or increasing the EFSF rescue fund. Other members of this group include the Swedish Prime Minister Fredrik Reinfeldt.

Camp Two: The EMU Needs To Be More Closely Integrated

The EU leaders in the second camp believe that the EMU should collectivise European debt to take the pressure off individual members. Equally unsurprisingly the EU leaders of this group belong to indebted nations such as Greece and Portugal.

The solutions posited by these members are unlikely to be implemented because they involve fundamentally altering the EMU. Presently the EMU is a monetary union in which member states retain responsibility for their own economic policies. If European debt is collectivised this would begin the process of creating a centralised European authority, which is extremely unlikely now.

So What’s Going To Happen?

The EU leaders in the two camps are unlikely to work out their differences in the upcoming summit. Two days isn’t enough to work aside the fundamental differences in their opinions. Yet the currency exchange markets clearly demand some kind of decisive action in order to be reassured that the debt crisis will not become worse.

So in all likelihood EU leaders will do the least possible to reassure the markets without altering the status quo. This might involve making the EFSF rescue fund a permanent mechanism of the EMU: this tells the markets that Spain and Portugal will not be abandoned in the event of a bailout but doesn’t change the existing political relations between member states.

By Peter Lavelle with foreign currency exchange specialist Pure FX.

By Anton Eljwizat

In the last three weeks trading, the AUD/NZD experienced much bullishness, as it stands now at 1.3400. However as I demonstrate below, it seems that the pair’s bullish run may have run of steam, and a bearish correction could be underway soon. Forex traders can take advantage of this imminent downward movement by entering short positions at an excellent entry price.

• Below is the 8-hour chart of the AUD/NZD currency pair.

• The technical indicators that are used are the William Percent Range, Relative Strength Index (RSI), and Slow Stochastic.

• Point 1: There is a “doji” candlestick that has formed on the chart, indicating that a reversal should take place.

• Point 2: The Slow Stochastic indicates a bearish cross, signaling that the next move may be in a downward direction.

• Point 3: The Relative Strength Index (RSI) indicates that the price of this cross currently floats in the overbought territory, signaling downward pressure.

• Point 4: The Williams Percent Range also supports the downward direction.

AUD/NZD 8-Hour chart

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.