Month: February 2011

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com

Yes, it’s true. I know what you are thinking… that I’m probably going to show you some fancy stock or futures contract strategy to offset higher crude oil prices — but it might be simpler than that. The question is whether it’s worth it or not… Let’s take a look.

West Texas Crude Oil Above $90

Sometimes it takes a geopolitical crisis or catastrophe to act as a “reality check” and create a catalyst for movement in the prices of stocks or commodities. Natural and man-made catastrophes can not only change the fundamental picture of a commodity like oil, but also rouse speculators to drive prices wildly higher (or lower). Sometimes an impending catastrophe can be right under our noses, as Sara discussed in yesterday’s Smart Investing Daily article. Whether you’re an investor or simply an informed citizen, you cannot afford to ignore what is going on around the world.

The events unfolding in Egypt and in other areas across the world (Australia) remind us of not only the fragility of some political and social systems, but also the unpredictability of our Mother Earth. The protests to oust President Mubarak alone have catapulted crude oil prices from $85 to over $92 a barrel in just two days. Egypt is not even a major oil exporter by comparison, but the Suez Canal is a major thoroughfare for tankers.

Even at two-year highs, crude oil prices are still drawing support, not just because of tensions in Egypt and the Middle East, but by the weakening dollar and a 20-year high reading of the Chicago Purchasing Managers Index, which perhaps indicates continued growth regionally and also nationally.

Let’s not forget our friends at OPEC who “manipulate” supply to keep crude oil prices steady. I am sure that the 12 members — Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Libya, United Arab Emirates, Algeria, Nigeria, Ecuador and Angola — want to do everything they can to keep prices low. (Chuckle.)

So where do we go from here? I say higher over the next year… Crude oil has been on Smart Investing Daily‘s radar for some time; we saw this coming and have offered you a couple of ways to play it from an investment standpoint. But we also realize that it’s not just your investment account that can benefit (or suffer from) from a rise in the price of crude oil. What about your transportation costs?

Do You Need to Protect Your Fuel Costs?

Crude oil at $100 is not an “if” but a “when” in my humble opinion, which unfortunately is shared by many. At the height of the commodity boom in 2008, I found a company called MyGallons.com, which allowed you to “lock in” your fuel costs, the same way Southwest Airlines did during that same period. It seems like a decent idea, but I wanted to check it out for all of you beforehand.

Here’s How It Works

If you think gas prices are going to be on the rise, you can lock in fuel prices at MyGallons.com, but there are some nuances you need to know. You have to have an idea about how much gas you use on a monthly basis and just how much gas you want to purchase beforehand. Take a look at your past receipts to help figure that out.

MyGallons.com charges $30 per year for their service. They allow you to lock in a price for up to 150 gallons per month, per car (you can add up four cars and purchase up to 600 gallons per month… wow).

Think of them as a “gas storage facility.” You buy as many gallons as you want up front and they guarantee the price for as long as you are a member (paying the $30 annual fee).

Basically, the website has an interactive map which you can use to check out the average fuel price for your state and purchase your gas with a click of the mouse. Think of the map as the “stock market” for your gas prices (the prices go up and down daily as fuel prices ebb and flow).

On the site, I can purchase a gallon of (87 octane) gas (in Texas) for $3.03. So if I wanted, I could log on today and buy 100 gallons for a total cost of $303.30, giving me about a five-month supply of gas based on my personal usage, locked in at that rate. You can also have MyGallons send you a debit card to purchase your gas with (which they charge extra for), or you can tell them how much you actually spent at the pump and they will credit your bank account for the difference, no matter where or how much you spent per gallon.

I know it seems a bit confusing — even the customer service agents I spoke to had a tough time explaining.

You do need to know that MyGallons charges 6 CENTS a gallon to process your rebates for gas. So in reality, add 6 CENTS to the MyGallons website price to find the “real” price you are locking in at.

(Crude oil may be in the news, but it’s not the only thing moving the market right now. If you’re looking for additional market analysis, sign up to read my and fellow editor Sara Nunnally’s latest on financial market trends and investment commentary).

Does It Make Sense?

The first downside I see is the big upfront cost: purchasing all your gas in one transaction. Some of us may not be able to afford that. Secondly, if the price of gas drops, you can just go purchase at the pump and wait for the price to go back up to use the gas you prepaid for. (Remember that your locked-in price is good indefinitely as long as you pay the $30 annually.)

The third con is managing how much you use and figuring out just how much you want to buy and lock in.

According to gasbuddy.com, a gallon of gas in my area costs $2.90 on average, but the Shell station across the street from me is currently at $3.19, so maybe MyGallons.com is a good deal right now for me.

View larger chart

The bottom line is that a service like this is not for everyone; the biggest hurdle is having the means to buy your gas in one lump sum.

According to the Department of Transportation, the average American drives about 17,000 miles per year (2003). The DOT also puts the average MPG of the autos we drive at about 20, which means that on average you can expect to use 850 gallons of gas annually. Just a 25-cent rise in the price of gas from here would cost you about $213 annually at that amount of consumption.

From January to July 2008 alone, gas prices rose over $1.20, while crude oil rose from $88 to $140. While I don’t see crude oil at $140 by July, anything can happen; this is just another potential resource for you, the smart investor, to consider…

Editor’s Note: This coming crisis could blow a 950% profit your way! The U.S. wants to use “green technology” to decrease our dependence on oil. But China has a 97% monopoly on a natural resource that is vital to green technology… and we’re about to experience a serious shortage! In this URGENT FREE REPORT learn which companies could solve this crisis and hand you 950% gains in as few as 24 months!

About the Author

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

View the original post at http://blog.currensee.com/2011/01/has-the-relationship-between-stocks-and-the-dollar-broken-down/

By John Forman

There’s been loads of talk this week about the correlation between stocks and the dollar thanks to an article in the Wall Street Journal and the reactions to it from folks on CNBC and in the blogosphere. The driving idea is that the relationship has broken down of late. Is that really the case? Well, let’s take a look at a comparative chart.

The graph below shows how stocks and the dollar have traded through the month of January. The red line is the stock market as measured by the mini S&P 500 futures. The black line is the cash Dollar Index.

So what’s the conclusion? At times the markets definitely show a strong negative correlation. The period between January 10^th and January 18^th show two markets almost totally going in opposite directions. The two markets were positively correlated during the earlier part of the month, however, and since the 18^th things have been rather muddled. The point is correlations change, even from day to day at times.

And change is the key. The chart below goes back a year and plots the 1-month trailing correlation between the S&P 500 index and the EUR/USD rate (the latter being the major element to the Dollar Index). When EUR/USD is rising it means a weaker dollar, so a strong positive correlation means stocks and the buck are moving in opposite directions.

Notice how much variability there’s been in the correlation just in the last year. Certainly, most of the time stocks and the dollar have moved in opposite directions (positive correlation on the above chart), including of late. That wasn’t always a strong correlation, though, and at several points the correlation was negative, indicating stocks and the dollar moving in the same direction.

Then there’s the relationship between gold and the dollar, which hasn’t been nearly as consistent as the one between stocks and the dollar. The chart below shows the last year worth of trailing 1-month correlations between the metal and the greenback.

Again, here we have EUR/USD as a kind of reverse proxy for the Dollar Index. If gold and the dollar consistently trade in opposite directions we would expect to see a consistent strong positive correlation between gold and EUR/USD. That clearly has not been the case, however. Most of the time, in fact, the relationship has been the other way around – gold and the dollar generally moving in the same direction.

The changes in correlations between markets reflect changes in the primary moving force underlying those markets. Stocks and the dollar have moved in opposing directions thanks to risk on/off psychology in the past. That’s less the case now, which is why the arguments are being made about the negative correlation breaking down. There are other things, however, which can cause that inverse relationship to continue. One of those is relatively low interest rates in the US pressuring the greenback, but at the same time benefiting stocks.

Likewise, gold and the dollar have traded in the same direction at times of risk-on/off because investor money flows into dollar and into gold when there’s a lot of fear in the market. The two markets trade in opposite directions when the market is more fixated on the negative impact of something like quantitative easing on the dollar (higher money supply reduces the value of the dollar in terms of real assets).

The point is, just because one set of causes for markets being correlated or uncorrelated are no longer the major driving force, it doesn’t mean that there isn’t another set of causes that can maintain the same or similar linkage.

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Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.

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John Forman is a senior foreign exchange analyst for the IFR Markets group of Thomson Reuters and author of The Essentials of Trading. John is a 20+ year veteran of the financial markets. He holds an MBA from the University of Maryland and a BS from the University of Rhode Island, both concentrating in Finance.

Chinese manufacturing data continued to expand in January but the data marked a five-month low, according to a government report released earlier today. China’s official purchasing managers index, released by the China Federation of Logistics and Purchasing, leveled at 52.9 in January from a score of 53.9 in December.

A score above 50 in the PMI data indicates expanding growth while score below 50 signals a contraction in that area. The PMI manufacturing data failed to surpass economic forecasts that were expecting a 53.5 score for the month.

HSBC, in conjunction with Markit, also released their purchasing managers index today and showed that China’s manufacturing edged higher in January to 54.5 from a 54.4 score in December. The increasing PMI score signaled continued improvement in manufacturing, according to the report.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the latest report: “China kick-started the New Year with another upbeat manufacturing PMI reading, following the stronger-than-expected 4Q GDP growth release. The strong growth momentum leaves room for Beijing to fully focus on checking liquidity and inflation pressure. Quantitative tightening in the form of reserve requirement ratio hikes will remain the most effective policy tools.”

Data Summary:

Official China PMI: JAN – 52.9 vs. DEC – 53.9, CONSENSUS – 53.5

HSBC China PMI: JAN – 54.5 vs. DEC – 54.4

Article by FxNewsChina – China Forex News

By Zac, CountingPips.com

Today, I am pleased to share a forex interview/commentary on this week’s major events and forex trends with currency strategist at DailyFx.com, David Song. David studied macroeconomic policies under a visiting scholar at the Federal Reserve Bank of St. Louis while attending the Zicklin School of Business at Baruch College and incorporates both fundamentals and technicals in his analysis. David authors the daily briefings for the U.S. at DailyFx.com.

Q: Egypt has provided a new political factor in the markets to take note of this week. Can we look at the typical safe haven currencies to strengthen in the case of the situation becoming unstable? Which currencies would be worthwhile to monitor throughout this political crisis?

As tensions in Egypt intensify, the U.S. dollar and Swiss franc would be the two main beneficiaries from a flight to safety, while demands for the Japanese Yen could accelerate over the near-term as carry interest wanes. With political uncertainties bearing down on market sentiment, the Australian and New Zealand dollar are certainly at risk for a sharp reversal, and we may see a large break to the downside as investors scale back their appetite for risk.

Q: We have seen the euro continue to increase against the US dollar as well as a sharp rise in the futures commitment of traders report. Do you feel this is a fundamental change in sentiment for the euro that may last? Has the market put aside the worries of the sovereign debt crisis?

Indeed, demands for the euro have increased in recent weeks, but the short-term shift shouldn’t last for too long as European policy makers maintain a relaxed approach in addressing the sovereign debt crisis. With the turmoil in Egypt taking center stage, it seems as though the political tensions in North Africa have taken the spot light off of Europe, but the single-currency remains at risk as the EU fails to address the root cause of the crisis. It will certainly take some time to strengthen the European financial system as the governments operating under the fixed-exchange rate system face rising borrowing costs, and the risk for contagion may intensify over the coming months as the region copes with an uneven recovery.

Q: The US nonfarm payrolls government job report is due on Friday with the daily FX calendar showing an early projection of 135,000 jobs to be gained for January. Could a strong job result signify to the market a solid recovery is occurring in the US and would this necessarily coincide with US dollar strength?

A positive U.S. employment report could trigger a bullish reaction in the greenback, but the labor market still has ways to go to recoup the 8.5M job lost during the financial crisis. A 135K rise in non-farm payrolls is certainly a step in the right direction, but we would need to see a larger pick up in employment to underscore a solid recovery. Until we see the U.S. economy adding 500+K jobs on a monthly basis, the Fed is likely to retain a weakened outlook for growth and inflation, and the central bank may see scope to expand monetary policy further later this year as it aims to bring down unemployment.

Q: The British pound has had an interesting few weeks with a rise on higher than expected inflation and a potential outlook for a rate increase to a decline on worse than expected economic growth. Is the British currency inclined to show weakness on the outlook of the weak economic growth?

The British Pound may come under pressure this week as we expect the economic developments to reinforce a weakened outlook for future growth, and the risks for a double-dip recession could materialize going forward as the tough austerity measures dampen the prospects for a sustainable recovery. However, in light of the recent comments by the Bank of England, the hawkish tone held by the central bank should help to prop up the sterling, and the exchange rate may consolidate going into February as investors speculate the MPC to gradually normalize monetary policy later this year. In turn, the sterling may trend sideways ahead of the next interest rate decision on February 10, and there could be a growing split within the committee given the opposing views on growth and inflation.

Q: Does the GBP/USD seem to be overvalued at the moment near 1.6000 exchange rate?

Given the recent economic developments from the U.S. and U.K., a case could be made that the British Pound is overvalued after we saw the economy unexpectedly contract in the fourth-quarter. As the new coalition in the U.K. takes extraordinary steps to balance the budget deficit, the tough austerity measures are likely to bear down on the recovery, and the risk for a double-dip recession may materialize over the coming months as the government withdraws fiscal support. The recent strength behind the British Pound appears to be coming off of the hawkish tone held by the Bank of England, and the sterling may continue to retrace the decline from back in November as investors speculate the central bank to gradually normalize monetary policy later this year.

Q: The Reserve Bank of Australia’s interest rate decision is out this week with the RBA holding the interest rate steady. Due to it positive correlation with risk, do you feel the Aussie may be a risky prospect this week with a political crisis in Egypt and rate expectations holding steady?

As the Reserve Bank of Australia maintains its wait-and-see approach, a rise in risk aversion (flight to safety) coming off of the political crisis in Egypt could spark a sharp reversal in the Australian dollar. With Cyclone Yasi is expected to hit Australia this week, the natural disasters are likely to hamper the outlook for future growth as the region copes with the worst flood in eight decades, and the central bank may retain a neutral outlook for future policy as it expects inflation to stay within the 2-3 percent target over the medium-term.

Thank you David for taking the time for participating in this week’s forex interview. To read David’s latest currency analysis and trading strategies you can visit DailyFx.com.

A free 14-page Club EWI report shows you 5 ways trendlines can improve your trading decisions

By Elliott Wave International

Technical analysis of financial markets does not have to be complicated. Here are EWI, our main focus is on Elliott wave patterns in market charts, but we also employ other tools — like trendlines.

A trendline is a line on a chart that connects two points. Simple? Yes. Effective? You be the judge — once you read the free 14-page Club EWI report by EWI’s Chief Commodity Analyst and Senior Tutorial Instructor Jeffrey Kennedy.

Enjoy this free excerpt — and for details on how to read this report in full, free, look below.

Trading the Line — 5 Ways You Can Use Trendlines to Improve Your Trading Decisions
(Free Club EWI report, excerpt)

Chapter 1
Defining Trendlines

Before I define a trendline, we need to identify what a line is. A line simply connects two points, a first point and a second point. Within the scope of technical analysis, these points are typically price highs or price lows. The significance of the trendline is directionally proportional to the importance of point one and point two. Keep that in mind when drawing trendlines.

A trendline represents the psychology of the market, specifically, the psychology between the bulls and the bears. If the trendline slopes upward, the bulls are in control. If the trendline slopes downward, the bears are in control. Moreover, the actual angle or slope of a trendline can determine whether or not the market is extremely optimistic, as it was in the upwards sloping line in Figure 1-1 or extremely pessimistic, as it was in the downwards sloping line in the same figure.

You can draw them horizontally, which identifies resistance and support. Or, you can draw them vertically, which identifies moments in time. You primarily apply vertical trendlines if you’re doing a cycle analysis.

Chapter 2
Drawing Trendlines

In this section, I’ll show you how I draw trendlines. I’ll start with the most common, simple way to draw them…

For more free trading lessons on trendlines, download Jeffrey Kennedy’s free 14-page eBook, Trading the Line – 5 Ways You Can Use Trendlines to Improve Your Trading Decisions. It explains the power of simple trendlines, how to draw them, and how to determine when the trend has actually changed. Download your free eBook.

By CountingPips.com

U.S. Manufacturing data, released today by the Institute for Supply Management, showed that January’s manufacturing activity grew for the 18th straight month and at the fastest rate since 2004. January’s ISM Report On Business index reading for economic activity rose to 60.8 from December’s reading of 58.5 and surpassed market forecasts as the manufacturing sector continues to rebound. According to the report, the overall U.S. economy expanded for the 20th straight month in January.

A score above 50 percent is considered to be growth and less than 50 percent is considered to be contraction in that sector. Market forecasts were predicting an approximate reading of 58.0 for the month.

Norbert J. Ore, chairman of the ISM Business Survey Committee, stated in the report that, “The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent. The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector. New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004.”

The indexes for new orders, production, prices, employment, inventories, supplier deliveries, customer inventories, exports, imports and backlog of orders all showed increasing levels for January.

The new orders index increased by 5.8 percentage points to a reading of 67.8 in January and has increased for 19 consecutive months while production rose by 0.5 percentage points to a 63.5 score and has advanced for 20 straight months. Prices and exports have also advanced for 19 consecutive months.

US Dollar on the defensive in Forex Trading.

The U.S. dollar has been lower in forex trading today against all of the other major currencies on the first full day of trading in February 2011 as positive a risk appetite has dominated the markets. The dollar has lost ground today versus the euro, British pound, Japanese yen, New Zealand dollar, Australian dollar, Swiss franc and the Canadian dollar at 11:45 am EST, according to currency data by Oanda.

The U.S. stock markets, meanwhile, have been trading sharply higher today with the Dow Jones rising by just about 100 points, the Nasdaq increasing approximately 40 points and the S&P 500 up by over 15 points at time of writing.

In commodities, Oil has edged lower by $0.57 to the $91.62 per barrel level while gold futures are lower by $1.40 to trade at the $1,332.40 per ounce level.

By Greg Holden

The Swedish economy has been outperforming many of its regional neighbors over the past few years and traders are beginning to see a signal that its currency is breaking barriers.

The krona (SEK) touched a 2-year high against the US dollar (USD) yesterday, a high of 6.3886. As a recent safe-haven away from the sovereign debt crisis of the euro zone, the SEK also pushed towards a 10-year high against the euro (EUR), reaching 8.7830 before bouncing back to its recent price near 8.8200.

Sweden’s relative growth was highlighted by December’s trade surplus figures, revealing an expansion beyond the expected 7.9B SEK to a whopping 10.9B SEK. Growth in Sweden’s large telecom industry, with Ericsson leading the way, helped boost Swedish exports and drive the trade surplus to this December reading.

Swedish fashion retailer H&M, however, experienced a mild dip in Q4 profits, but announced its plans to open another 250 stores in fiscal 2011, citing market optimism. The stronger SEK has begun to gouge Sweden’s retail industry by increasing the price of domestic goods, but the impact has so far not been dire enough to dampen Sweden’s economic growth forecasts.

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.

By Russell Glaser

The January candlestick on the USD/CHF monthly chart shows two contrasting signals that could be interpreted as either bullish or bearish. However, bias remains to the downside.

An argument for a rally in the pair holds water as the January candlestick closed as an inverted hammer. This minor reversal pattern requires confirmation in the form of a move above the January close at 0.9415.

First resistance comes in at the lower channel line that comes in this month at 0.9440, followed by the January high of 0.9780, and finally by the November and December highs near the 1.0070 mark.

However, bias is to the downside as the past monthly chart shows, 5 of the last 8 monthly bars have been declines with the long term trend to the downside. Supporting a continuation of the downtrend is the January close that failed to end the month above the lower channel line that comes off of the 2008 low.

Support is found at the January 2010 low at 0.9320 followed by the all-time low from the November candlestick at 0.9300.

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.

Good Morning. It’s Tuesday, February 1, 2011. At this hour, U.S. equity futures are higher. Overseas, the Asian markets advanced, while the European markets are up. BP (BP) resumes quarterly dividend, to pay 7c a share for Q4. BP announces intention to divest two U.S. refineries. BP plans to increase significantly its investment in exploration.  BP announces plans to reshape U.S. downstream business. BP says on track to meet $30B of divestments target by end of 2011…Prudential Financial (PRU) announced that the company completed its acquisition of AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Co. in Japan from AIG (AIG) for about $4.8B…Corning (GLW) to acquire MobileAccess…Cavium Networks (CAVM) to acquire Celestial Semiconductor… Alaska Airlines (ALK) employees ratify three-year contract.

This is what’s in the new for Tuesday, February 1st. the Wall Street Journal reports that Samsung Electronics said it will offer full refunds to customers who have bought its personal computers built with Intel’s (INTC) flawed new chipset. …the Daily Mail reports that Microsoft (MSFT) warned of a newly discovered flaw in Windows that could be used by hackers to take over computers or steal personal details…the New York Post reports that Netflix (NFLX) shares yesterday fell 1.79% following rumors that Amazon.com (AMZN) may start a rival service. WedBush Securities analyst Michael Pachter says that in addition to streaming movies, Amazon may also form a partnership with Redbox owner Coinstar (CSTR), and notes that HBO is still “up for grabs” as a partner for Amazon…And finally, Reuters reports that GM (GM) is considering adding new plants in China in 2011 and beyond.