Is This the Ultimate Sell Signal?

stock crashLast week I discussed the chance of a major drop in the S&P 500. And for the past couple of months, Sara and I have accurately warned of sell-offs and market corrections. After all this selling you would think we would look at the bright side of the equities markets… unfortunately there is more bad news.

We may have just gotten the ultimate sell signal.

Those of you who have read or watched my commentary for some time know I am a fan of technical analysis and am an ardent statistical observer. In fact, I made a career out of numbers. It’s not because I believe in some secret mathematical code that controls the stock market, but rather I use numbers to find patterns in human behavior.

You don’t have to be a psychologist. With a smidgeon of knowledge, math reveals the truth behind human logic.

The 200-Day Moving Average

The world of technical and statistical analysis of stocks and options is massive and complex. There are many folks who study much more than I and have dozens of computer algorithms running in unison trying to figure out the market’s next move. It does not have to be that difficult.

Yesterday on CNBC, I must have heard the word “moving average” mentioned at least 20 times in a matter of two hours. Specifically, experts were referring to the 200-day exponential moving average (EMA) of several stocks, but one, Apple, was very popular.

Apple was the stock du jour and was on everyone’s radar because it fell below the 200-day moving average of about $316. Once this happened, the stock quickly dropped another $5, stabilized and closed right at $315.32 (the 200 EMA is $315.88, according to freestockcharts.com).

There are two major moving averages that traders use to determine if a stock or index is in a bullish or bearish trend. The 200-day EMA can be a major support or resistance level for a stock.

Some investors keep it ultra-simple; they buy a stock once it gets solidly above the 200-day EMA and sell it once it falls below it.

The 50-Day Moving Average

The 50-day moving average is more volatile but can provide a stronger early warning of a change in a trend and can also help identify the end of a trend.

Some traders will wait for the 50 to cross above the 200 as an entry signal, then wait for it to cross back below for confirmation that the trend is over and it’s time to sell.

If the trader has a good profit on his hands, he may sell simply when the price of a stock closes below the 200-day moving average.

Let me show you an example…

Below is a daily chart of Apple going back to January 2009. The yellow line is the 50-day EMA and the red line is the 200-day EMA.

The last time Apple was below its 200-day EMA was in April of 2009; the stock was trading at $111. Soon after that, the 50 EMA crossed above the 200 EMA — a signal to buy.

Since then the stock has never closed below its 200-day SMA… until yesterday. The trade has worked out, but now may be the time to look for an exit in Apple — at least until it gets back above that 200-day EMA.

Apple moving average chart
View Larger Chart

(Sign up for Smart Investing Daily and let me and fellow editor Sara Nunnally simplify the market for you with our easy-to-understand articles.)

Apple’s Misery Has Company

Unfortunately, this has become a common theme in the marketplace. I ran a scan of the equity markets to find how many stocks had fallen below their 50- and 200-day moving averages. I also searched for stocks that have seen their 50-day moving averages cross below the 200-day.

It’s not pretty. Here are the numbers…

Out of all the 6,798 publicly traded companies in the U.S. (data courtesy of finviz.com):

  • (73%) or 4,929 stocks are below their 50-day moving averages
  • (47%) or 3,180 stocks are below their 200-day moving averages
  • (31%) or 2,099 stocks have 50-day moving averages below their 200-day moving averages

Remember, this is an extremely broad measurement. When I narrowed the search down to the S&P 500 stocks, I found the numbers were slightly lower, but still relatively high considering we are supposedly climbing out of a recession.

Many stocks are not that far away from falling below one of these major moving averages and if they do, sharp sell-offs can often follow.

Know what your stock’s charts look like and where the major averages are. It can only help you!

The Invisible Hand

What concerns me most is technical analysis has a very strong following and can influence the equity markets in big ways.

Algorithms that run on big computers at powerful hedge funds and trading firms around the world pay close attention to these common moving averages. If a stock breaks out above or below an average, it can trigger thousands of buy or sell orders and can have a dramatic effect on prices.

I have seen it with my own eyes and have many friends in the business who rely heavily on technical analysis to make their money. It’s a serious game, and if many of these stocks fall just a bit further, it could trigger more selling.

Look at how Apple sold off yesterday on NO news and in a bullish market. Do you think it was coincidence? I don’t think so…

Whether or not you believe in looking at the charts, you would be a fool not to. At least learn the basics so you can spot any potential support or resistance points for your investments.

P.S. This kind of mathematical analysis is the backbone of my WaveStrength system. I recently put together an in-depth report on the subject that shows how you can use these techniques to give your portfolio a double-digit boost.

Follow the link to get your hands on my recent report.

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  • GBPUSD rebounded from 1.6078

    Being contained by 1.6059 support, GBPUSD rebounded from 1.6078, and formed a cycle bottom on 4-hour chart. Range trading between 1.6078 and 1.6250 is expected in a couple of days. Key resistance is at downtrend line from 1.6546 to 1.6441, as long as the trend line resistance holds, one more fall to re-test 1.6059 support is still possible. However, a clear break above the trend line will indicate that the fall from 1.6546 had completed at 1.6078 already, then another rise towards 1.6745 previous high could be seen.

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    Daily Forex Analysis

    Indonesia’s Emerging-Market Growth Story

    Indonesia’s Emerging-Market Growth Story

    by Tony D’Altorio, Investment U Research
    Monday, June 20, 2011

    Global investors are catching on to the fascinating story of Indonesia. As Asia’s fifth-largest economy and its third most-populous nation – with 240 million people – more than half of that population is under the age of 30. And today, thanks largely to a boom in commodities, Indonesia’s economy is humming right along…

    • Visitors to Indonesia can easily see the hustle and bustle of the local economy.
    • The country’s ports are running all out, feeding demand for coal, palm oil and other commodities (mainly from Asia).
    • And economic growth is expanding far beyond the main island of Java to many of the country’s outer provinces.

    The spreading of wealth to rural provinces is creating a burgeoning middle class. So it’s no wonder that businesses of all sorts are springing up all over Indonesia to service these new consumers.

    And foreign investors poured a record $16.1 billion into the country last year. That’s twice the level five years ago and nearly four times the amount a decade ago.

    This money pouring into the Jakarta stock market led to a 133 percent rise in the market over the past two years, and it continues to outperform other markets in the region.

    But will its run, and that of the Indonesian economy, last?

    Indonesia’s Sustainable Economic Growth

    Many analysts, understandably, still have doubts about investing in Indonesia. The country has been here before.

    In the late 1980s and 1990s, the country was an emerging markets favorite among global investors. But that was shattered by the 1997 Asian financial crisis, which saw the country’s banking system plunge into crisis right along with its neighbors. Indonesia defaulted on its debt, and the economy contracted by 13 percent.

    Things certainly changed, though. Even during the global recession in 2009, Indonesia’s economy still grew by 4.5 percent, aided by strong domestic demand. Its sovereign bonds were upgraded to one step below investment grade, and an upgrade to investment grade looks almost certain.

    Some investors are worried that much of Indonesia’s good fortune today rests too much on one commodity – coal. Indonesia is the world’s biggest exporter of thermal coal.

    However, that really shouldn’t be much of a concern. Demand for this commodity remains very high thanks to continued high oil prices, renewed safety concerns about nuclear power and other factors. None of these factors look likely to change in the near future.

    Indonesia’s Infrastructure – A Work in Progress

    But that’s not to say Indonesia isn’t sorely lacking in some areas. Take infrastructure, for example. Around 40 percent of Indonesians still live without electricity.

    The government says it needs $150 billion for roads, bridges, ports, airports and power plants. But Indonesia can only afford a third of that on its current limited state budget.

    In particular, transportation is a glaring weakness of the Indonesian economy. Transportation costs account for 14 percent of total costs for manufacturers because of the inefficiencies. This number is poor, and not only when compared to developed countries, but to other developing countries, too.

    And help isn’t coming anytime soon, either. The proposed $17-billion Sunda Strait bridge connecting two of the main islands – Java and Sumatra – isn’t expected to be completed until 2025. The delays in building the bridge again emphasize the difficulty of trying to link together a country made up of about 17,000 islands.

    What the Indonesian government needs to do is expand its budget. Public debt to gross domestic product for Indonesia is only at 27 percent. That’s an enviable position, especially compared to most countries around the globe, but perhaps it’s too low in the light of the country’s infrastructure needs.

    Indonesia’s infrastructure needs point to the fact that it’s very much a work in progress. But one that’s still profitable for investors. Companies directly involved in the build-out of Indonesia’s infrastructure are just one obvious example.

    Good investing,

    Tony D’Altorio

    Professsor: Bankers can learn from Islam

    Joe DiVanna is a renaissance man, 400 years too late.

    When he is not writing a new book (2,000 words a day is his goal each morning), he leads Maris Strategies, a cambridge-based consultancy that helps banks all over the world better meet the demands of their customers.  Joe is an expert in Islamic Banking and has authored, among others, The Future of Retail Banking and The Rise of Islamic Finance.

    Joe is also an expert in historical masonry and architecture and leads the King’s College Chapel Research Project. Earlier in his career he has worked with organizations as diverse as Viacom-MTV and DuPont.

    Legal information

     

    Video courtesy of en.jyskebank.tv

    Hungary Central Bank Holds Interest Rate at 6.00%

    The Magyar Nemzeti Bank held its benchmark base rate unchanged at 6.00% despite inflation rising above its target.  The Bank said: "Inflation is likely to be above target in the short term, due to cost-push pressures stemming from the rise in commodity prices. However, owing to the disciplining effect on price and wage-setting of the persistent weakness in domestic demand and high unemployment, the 3% inflation target can be achieved at the end of 2012 by maintaining interest rates at their current level over a sustained period."


    Previously the Bank also held the interest rate at 6.00% in May, after raising it 25 basis points in January this year.  Hungary reported annual inflation of 3.9% in May, down slightly from 4.7% in April, and 4.5% in March.  Hungary's Central Bank has a medium term inflation target of 3%.

    www.CentralBankNews.info

    One in Three Homes for Sale in This Housing Market

    real estateI live in a rural town where a neighboring plot of mixed farmland on 36.5 acres is going for about $4,600 an acre. There are also several homes and smaller bits of land for sale in the area. I always keep an eye out for places that come on the housing market.

    We bought our slice of paradise (8.3 acres with a farmhouse, barn and other buildings on a dead-end road) last Thanksgiving, so I have an interest in how well our new home is holding its value.

    So far, so good…

    But I fear that other neighborhoods aren’t doing as well as we are.

    According to Zillow.com, Wisconsin’s home prices have dropped 5.5% in the past year. Not the best news, but certainly not the worst, either… Michigan homes have lost 12.4% and Minnesota a whopping 13.2%!

    Of course, not all counties are stabilizing.

    On Saturday, I was driving through a small but affluent suburb of Milwaukee called Fox Point. The lawns were fresh cut, trees trimmed, cars washed and flowers wonderfully bright. Most homes had at least two cars, one of which was from a luxury brand like Mercedes or Lexus.

    But what struck me most was the number of homes for sale. I was driving down Lake Drive between Good Hope Road and Bradley Road. It’s about a three-quarter mile span.

    At least one in three homes was for sale.

    This town is in Milwaukee County, and the county has seen home values drop 14.3% in the past year. Over the past five years, the average home price has fallen from $140,000 to $100,000.

    Realtor.com lists 73 homes for sale in the Fox Point area. The town is only 2.9 square miles.

    Some homes are listed for over $1 million, while others are listing for under $300,000. The size of the home and lot are huge factors, and in this established neighborhood, there’s a lot of variety.

    But more than 10% of the homes listed in this area have already reduced their price once.

    Yet some of the talking heads are saying to watch for a turnaround in the housing market. Home prices for 16 of the biggest metro areas have climbed to $246,000 from $224,900. And while this is good news, homes are still spending 140 days on the housing market.

    Does this mean it’s time to swoop in?

    Buying a home is still a cheap deal, if you can find a bank willing to loan to you. Credit is still pretty tight for consumers with less-than-perfect scores. And despite the weak numbers from the housing market, now might be the time to buy.

    Not only because of the possibilities of rental income, as Jared told you about last Tuesday, but because of a new wave of potential home buyers.

    A Wells Fargo report says that there are 51.5 million people in the U.S. between the ages of 20 and 31. These folks are called “millennials,” and there more of them than there were baby boomers in 1977. The report says 66% of millennials that don’t own a home see themselves buying a home in the next five years.

    This kind of demand can really push home prices higher.

    Another reason why buying a home now might be a good idea? Interest rates have started inching higher.

    After nine weeks of falling, the interest rate for a 30-year fixed mortgage jumped slightly to 4.5%. Analysts are predicting higher rates from here on out. Waiting to buy could cost you more money down the road.

    A 30-year fixed loan for a $300,000 home with 20% down and an interest rate of 4.5% will give you a monthly payment of $1,528.54. You will pay almost $198,000 in interest over the life of the loan.

    But if interest rates go to 5%, your payments jump to $1,600.87 a month. Not that much different… until you look at the amount of interest you pay over those 30 years.

    At 5%, you will pay more than $223,800 — a difference of more than $25,800. At 6%, you’ll pay $278,000!

    The difference in interest rates is kind of like a teeter-totter. At some point, you’ll be paying more in interest over the life of your loan than your home is worth. Buying at a lower rate can clearly save you tens of thousands of dollars.

    (Sign up for Smart Investing Daily and let me and fellow editor Jared Levy simplify the market for you with our easy-to-understand articles.)

    Just four years ago, rates were at 5.75%.

    Once homebuyers come back into the housing market, demand could also push rates higher.

    Buyers want deals, but they also want a stable value. They don’t want homes to drop another 14% over the next year.

    And if you look at certain markets and certain homes, prices are stabilizing. I want to be clear: Looking at specific markets isn’t really cherry-picking… It’s comparing apple to apples. According to the raw data, home prices in April 2011 fell by 7.5%.

    But this figure includes “distressed sales,” things like foreclosures.

    Excluding distressed sales, prices fell by 0.5%.

    That’s a big difference, and in stable neighborhoods, this figure is much more relevant. If you’re currently renting, now could be a prime time to buy.

    As Jared told you in his article, residence rental rates are up 1.3% over the past year. Analysts like Greg Willett, vice president of MPF Research expect rates to climb 5% this year and another 5% next year.

    Don’t expect home prices to rebound quickly, or even start rebounding nationally in the next year or so. It will be a slow turnaround — kind of like a huge oil tanker. It will take time. But for those of you in certain circumstances, now could be one of the best times to become a homeowner.

    Having the money for a down payment, with good credit, and the desire to get out from under climbing rent sounds like the perfect combination to me.

    Editor’s note: Just as those “millennials” — all 51.5 million of them — hold the fate of our housing market, across the globe they have even more power. As the force behind this year’s “Arab Spring,” this freedom-starved generation is fighting mad.

    See what the latest “Day of Rage” means for you in Justice Litle’s latest free report.

    Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com.

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  • World Entrepreneurs in Monte Carlo

    This TV programme, named “Danmark i Vækst” (Denmark – a growing country), broadcast the final rounds of Ernst & Young’s ‘World Entrepreneur Of The Year 2011″ competition in Monte Carlo.

    Thomas Ross focuses on what it takes. He talks to three innovative and charismatic business people – all country winners. It is characteristic of them all that they turn the economic crisis to their advantage – and they have put their own dollars on the line.

    But right now, in the entrepreneur sky, the shiniest star of them all is Olivia Lum from Singapore.  jyskebank.tv was the first news medium in the world to obtain an interview with her. Diane Forman, jury member and CEO, explains to us what makes Olivia Lum an outstanding entrepreneur. A fantastic story.

    — and being an entrepreneur one must master the art of mingling and speedy networking without being a bull in a china shop.

    Editors: Flemming Helsted and Thomas Ross. Producer: Lars Fuchs. Cameramen: Preben Hjort and Jeppe Svendsen. [email protected]

     

    About Olivia Lum:

    Group CEO and president of Hyflux Limited, from Singapore, was last night named the Ernst & Young World Entrepreneur Of The Year 2011 at an awards ceremony held in Monte Carlo’s Salle des Etoiles. Olivia was picked from among the 49 country finalists vying for the title, each of whom had already been named the Ernst & Young Entrepreneur Of The Year in their home countries. This year saw more female finalists – six in total – than ever before.

    Olivia founded Hyflux in 1989 with two staff and start-up capital of $US15,000. Today, Hyflux has become one of the world’s leading desalination suppliers. It is publicly traded with revenues of US$450m, employing more than 2,300 people in operations and projects in Southeast Asia, China, India, the Middle East and North Africa. (Kilde: Ernst & Young.)

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    Dice Have No Memory… and Neither Do Most Investors

    Dice Have No Memory… and Neither Do Most Investors

    by Alexander Green, Investment U’s Chief Investment Strategist
    Monday, June 20, 2011: Issue #1538

    Today we stand at a unique crossroads. There are good reasons to be optimistic about the future of the economy, the financial markets and our standard of living. And good reasons to be entirely pessimistic, too.

    Today we’ll discuss both since understanding our precarious economic condition is the key to successfully navigating the financial markets in the months and years ahead.

    Let me begin with the case for optimism. It’s called the profit motive. And though folks on one side of the political aisle tend to see it as gauche, selfish and exploitative, over the last few hundred years it has managed to lift the world out of poverty and create unparalleled prosperity in the West. (And now many developing countries are experiencing the transformative power of privatization, deregulation and economic incentives, too.)

    Entrepreneurs and business people everywhere – forever in pursuit of a dollar – are eager to meet your needs and create new ones. (After all, who pined for an iPhone, a Miracle Bra, or a 60-inch plasma TV a decade ago?) Every day, businesses compete tooth and nail for our benefit (and theirs) by making products and services that are better, faster, less expensive, or more efficient.

    As there’s no limit to man’s imagination, there are no limits to the economic prosperity that free minds and free markets can create.

    There is, however, a fly in the ointment. And it’s bigger than Jeff Goldblum. It’s called the public sector.

    President Calvin Coolidge – the last president with whom I entirely agreed – used to say that if you see a problem coming down the road you shouldn’t worry. Nine times out of 10 it will run into a ditch before it gets to you.

    But mounting public debt and unfunded liabilities (currently amounting to more than $534,000 per U.S. household) aren’t going to fall into a ditch, however much we may wish it. Rather they’ll hit us headlong. And it won’t be pretty.

    Investors are (finally) beginning to recognize this. Everywhere you go, people openly fret about the tsunami of federal debt that threatens to swamp the financial markets and our standard of living.

    What should you do? You might start by listening to the folks who correctly predicted and profited from it.

    For example, 11 years ago my friend and colleague Bill Bonner beat the drum loudly for his “Trade of the Decade:” Sell the dollar and buy gold. At the time, gold was selling for around $264 an ounce. Today it sells for roughly $1,500. And the greenback? Let’s just say you rarely hear Americans bragging about all the bargains in Switzerland.

    Of course, many money managers and investment gurus now claim that they foresaw the financial crisis. Many have selective memories. Yet more than a year before the crisis broke, Bill published his runaway bestseller Empire of Debt: The Rise of an Epic Financial Crisis.

    The book made fortunes for some readers… and saved the fortunes of others. However, the problems Bill foresaw in the public sector have only worsened in the past few years. Fortunately, he has a new book out, Dice Have No Memory, a selection of essays that paints a sobering view of our financial future.

    This is a book worth reading, even if you don’t agree with it. Perhaps especially if you don’t agree with it.

    Investors (and human beings generally) have a natural tendency to read only views they already subscribe to. That can be a mistake. To make good investment decisions, you need to expose yourself to intelligent viewpoints on every part of the spectrum.

    And I can guarantee you’ll enjoy reading Bill’s. Whether he’s describing the ineptitude of the Fed, the War on Terror (“the first fighting war against nobody in particular ever proposed”), or some hot investment system de jour, his essays are unfailingly smart, funny and wise.

    I’m an optimist at heart. Bill isn’t. I think the strengths of business can ultimately overcome the stupidity and ineptitude of government. Bill is less sanguine, to put it mildly.

    Dice Have No Memory is a pleasure to read and belongs in every serious investor’s library. Not just because Bill Bonner’s views are well argued and witty, but because history may very well prove him right… again.

    Good investing,

    Alexander Green

    P.S. Dice Have No Memory is now available at bookstores nationwide. Or you can purchase it from Amazon now for 34 percent off the cover price. For more information, click here.

    My Technical Analysis: Are Markets at a Tipping Point and Ready to Rally?

    By Chris Vermeulen, thegoldandoilguy.com

    Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.

    Let’s take a quick look at the SP500 hourly chart covering the month of June.
    As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.

    There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.

    Let’s take a look at the financial sector:
    As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.

    The other main ingredient to a higher stock market is the technology sector.

    Looking at the technology sector:
    Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.

    Weekend Trading Conclusion:
    In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.

    Get these trading reports free each week here: http://www.thegoldandoilguy.com/trade-money-emotions.php

    Chris Vermeulen

    Gold Prices Rise on Greek Debt Concerns but US Inflation Threatens Gold’s Bullish Run

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    Spot gold prices have been rising over the past week as a safe-haven play with the ongoing Greek debt crisis. Today’s failure by the European finance ministers to come to an agreement for the release of the next batch of aid pushes the final decision out until July which may add to spot gold demand. However, traders should be eyeing the recent rise in US inflationary numbers which could support the US dollar and pressure spot gold prices in the medium-term.

    Spot gold prices moved higher as a delay in additional Greek bailout loans had traders moving into safe haven assets such as the US dollar and gold bullion. After the first day of negations in Luxembourg European finance ministers neither were unable to come away with any concrete progress towards the release of additional loans for Greece to stave off a default nor were any steps taken for an increased to the previous bailout. Discussions have ranged for a new EUR 120 bn bailout fund to shore up Greek finances in 2012. The prolonging of bailout talks and a lack of a political solution to the Greek debt crisis may serve to boost demand for gold in the near term on a safe haven bid.

    Looking more towards the medium term one risk to the bullish trend in spot gold prices is a rise in US inflationary pressures. This past week US inflation data slipped quietly under the radar due to the heightened tensions in in the euro zone. Data last week showed US CPI rose 3.6% y/y during the month of May. This stands in sharp contrast to the 2.7% increase in during the month of February. The Fed favorite core CPI also ticked up to 1.5% from 1.2% during the same three months which was above market expectations. The relatively heightened level of inflation may force the fed to readjust its outlook for the Fed Funds rate. Thus in turn would be a positive for the US dollar and a negative for spot gold prices.

    Read more forex trading news on our forex blog.