EURUSD continued its downward move from 1.4696, and the fall extended further to as low as 1.4073, the subsequent bounce could be treated as consolidation of downtrend. Resistance is at 1.4300, as long as this level holds, we’d expect downtrend to resume, and another fall to test 1.3969 support is possible. However, a break above 1.4300 will indicate that a cycle bottom has been formed at 1.4073 on 4-hour chart, and the fall from 1.4696 has completed.
By Elliott Wave International
“Successful market timing depends upon learning the patterns of crowd behavior. By anticipating the crowd, you can avoid becoming a part of it.”
This quote is from the opening paragraphs of the free Elliott Wave Basic Tutorial. It’s critical to your understanding of how markets really work.
You might wonder what’s so wrong with being part of the crowd. Unfortunately, the crowd usually shows up after a majority of the market move has occurred, when it feels ‘safe’ to join in the group. Then the crowd hangs on as the market turns and the losses pile up. Think back to 2008-2009. How many people do you know that rode the market right back down and got out closer to the bottom than the top?
To be a successful individual investor, you must understand what it means to take risks when the probabilities are with you and shun risk when they’re not. Robert Prechter’s method of analysis, the Elliott Wave Principle, can help you do just that.
I encourage you to learn more about this method in Elliott Wave International’s free Basic Tutorial. It’s broken up into 10 lessons across 50 pages, so it’s easy to read and review at your leisure.
About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world’s largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private around the world.
Article by JW Jones, optionstradingsignals.com
“The paranoia gripped us, The rain turned engines to rust
The panic set in like a cancer to our hearts; Spreading through
We bet on finite genius; Or prayed for God to save us
But there was no antidote, Disease tore us apart
We left bodies in the fields, So numb that we forgot how to feel.”
~ Rise Against: Endgame Lyrics ~
The price action in U.S. financial markets on Wednesday was the culmination of fear and disease. Fear was represented by a breakout in the Volatility Index (VIX) and the disease was related to the sovereign debt crisis unfolding in the Eurozone. The violent reaction by the Greek citizenry to proposed austerity measures paired with grumblings coming from multiple Eurozone nations ignited fear among traders and investors alike.
I am not an expert on debt instruments, but it seems that there is a considerable amount of systemic risk within the debt structure of the Eurozone. When the notional derivatives such as credit default swaps are factored into the equation the risk to the global financial system intensifies significantly. The real question is who is holding the counterparty risk on the other side of the Greek debt? Even if the Greek situation is resolved without default, what is going to happen to Spain and Portugal’s debt?
The solvency of many of the Eurozone nations has come under question and the price action in the Euro currency is indicative of the fear present among market participants. I believe that the economic disaster that is unfolding in Europe currently will eventually manifest itself stateside. Austerity measures either through higher taxes, monetization of our public debt, and a complete restructuring of entitlement programs is likely to occur. However, in the meantime domestic markets will struggle to gain their footings in the face of a strong U.S. Dollar. The strength of the U.S. Dollar Index represented by the ETF UUP on Wednesday helped place selling pressure on U.S. equities and commodities alike. The daily chart of UUP is shown below:
If the U.S. Dollar continues to rise, the impact the increase in value of the Dollar will have on U.S. financial markets could be debilitating for equities. Poor economic data, continued housing problems, and the political uncertainty surrounding the debt ceiling all make for a potentially dangerous situation for U.S. capital markets. With this much fear and uncertainty in the marketplace and volatility stemming from a variety of issues related to the Eurozone, investors are fearful. The spreading disease of the sovereign debt contagion is rapidly infecting global financial markets and if handled inappropriately could drastically alter the entire capital market construct.
Instead of worrying about all of the fear and uncertainty in the market place, I look at market internals, market cycles, fundamentals, and technical analysis as guides for shaping my approach to trading. We are on the verge of a major inflection point for financial markets, specifically equities. While it might surprise readers to know, I am leaning towards a near term bottom in the S&P 500. The S&P 500 could rally to the 1,305 (SPX) price level (20 Period Simple Moving Average) which represents an increase of 3%. It is also feasible that we may witness a test of the 50 period moving average on the daily chart of the S&P 500 (SPX)which would represent an increase from Wednesday’s close of over 5%. Markets do not move in a straight line. While investors and traders may expect a breakdown in price action, rarely is the crowd correct.
The daily chart of the S&P 500 with its annotations shown below illustrates my thought process as it relates to near term price action for the index:
If price action breaks below the March pivot lows a panic induced selloff could begin and the next leg of the secular bear market will likely be underway. We may have already initiated the secular bear with the recent downturn, but I will remain neutral until the March pivot lows are broken. If price action breaks through the March lows and we see multiple days with daily closes below the 1,250 (SPX) price level I will become very bearish. The chart below illustrates the key price levels if the SPX breaks down:
While many readers may find this interesting, today members of my service at OptionsTradingSignals.com were able to lock in gains on an SPY position we initiated late last week. I initiated a SPY 125 Put Calendar spread which I converted to a double calendar spread on Tuesday. The position will produce profits if price action on the SPY remains between around $123.50 / share and $130.21 / share at the close this Friday (June Expiration).
During the nasty selloff today, the implied volatility of the SPY Double Calendar Spread was juiced and we were able to take profits on the position and lock in a 13% gross return based on maximum risk. We have the remainder of the position on currently with stop levels in place. If price cooperates, the trade offers a potential return of around 20% near the close this Friday.
Calendar spreads work great in an environment where volatility levels are rising and they profit from time decay (Theta) which is a mathematical certainty. Recently the service has been producing solid gains for members using calendar spreads during this choppy price action. While I like to use other trade constructions, calendar spreads have produced outstanding risk / reward opportunities for astute option traders and I will not hesitate to use any tool that is working in a particular market climate.
A Brief Trading Lesson
Members of my service know that I regularly watch a variety of underlying indices and sectors to get a feel for the broad market. Besides the VIX, one of the most critical ETF’s for traders to monitor is the financials. If you are new to trading or are trying to learn, it is critically important to understand that the S&P 500 has an arduous time rallying if banks are selling off.
In contrast, when the financials are holding up well or are working higher and the broader tape is trading flat or slightly in the red it offers a clue that the broader market may be preparing to move higher later that session or the following day. Yesterday (Tuesday) the financials were warning traders and investors into the close that today could be troublesome. The daily chart at the close on Tuesday shows the financial ETF XLF’s recent price action:
The ugly close for financials was a warning and investors and traders who did not pay attention to the financials had a rough day today. The only long position that I was holding today was a long GLD position. Gold held up nicely today and we have some nice gains for the trade, but the key point to make is that by noticing the price action in the financials late Tuesday afternoon prevented me from initiating a poorly timed long trade.
Conclusion
Given the amount of uncertainty and risk associated with current price action in the S&P 500, I would urge readers to monitor risk closely and review open positions. While I do not necessarily believe a horrific selloff or a Black Swan event is waiting in the shadows for unsuspecting traders and investors, it is impossible to rule out a breakdown of the key pivot lows from March of this year. I am leaning toward the mindset that a short to intermediate term bottom may be forming, but I will not be doing any of the heavy lifting.
I will wait patiently for signs that price action is going to reverse before getting involved. Trying to pick tops and bottoms is a fool’s game, particularly when the game is changing rapidly based on news coming from Europe which can dramatically alter the tape. Risk is extremely high at inflection points such as the one we are currently near. Some of the best traders I know are successful because they refrain from trading when price action is volatile and risk is abnormally high. Sometimes sitting on the sidelines and listening to Mr. Market talk can be the best trade of all!
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by Justin Dove, Investment U Research
Thursday, June 16, 2011
Boeing’s Current Market Outlook (CMO) set a positive tone for the airplane industry as they gear up for the 2011 Paris Air Show.
Boeing (NYSE: BA), usually conservative in future estimates, released a bullish forecast Thursday. The report estimates that jet sales will reach $4 trillion over the next 20 years. That equates to 33,500 jet sales between now and 2030. It’s also 2,600 more than they estimated last year for a period ending 2029.
Growing demand in Asia and increasing demand for more fuel efficient aircrafts, especially single-aisle aircrafts, were the two biggest factors for the uptick.
Boeing reports that air travel increased by 8 percent in 2010 after falling by 2 percent in 2009. They don’t seem to be worried about any turmoil around them as seen in this excerpt from the CMO:
[BLOCK] “Although volatile fuel costs, political upheaval in the Middle East and North Africa, and unresolved government debt in many industrialized economies create risk of a renewed downturn, commercial aviation has weathered such shocks to the system in the past. Recovery has followed each event as the industry reliably returned to its long-term growth rate of approximately 5 percent per year.”
It’s important to note that the forecast is not just for Boeing, but the airline industry as a whole. Boeing stock is already seeing gains as a result of the news and it’s likely that other manufacturers and carriers may benefit as well.
Good investing,
Justin Dove
J.C. Penney Takes a Bite Out of Apple
by Justin Dove, Investment U Research
Thursday, June 16, 2011
It’s amazing how one man can change the price of a stock so rapidly these days.
J.C. Penney (NYSE: JCP) saw its stock spike up 17.5 percent Tuesday on news that Ron Johnson will be leaving Apple (Nasdaq: AAPL) to become the retail giant’s next CEO.
Johnson is best known as the brains behind the Apple Store, which has become a resounding success in retail. Now he aims to tackle what could be his biggest challenge yet.
J.C. Penney was hit hard in the 2008 recession. The retail giant saw a 52-week high of $51.42 fall to as low as $13.95 per share. It has since rebounded and remained fairly consistent at approximately $30 per share.
The shares leveled off a bit on Wednesday to $34 after closing at $35.37 on Tuesday. It’s too early to tell if the addition of Johnson is truly worth the spike in J.C. Penney’s value, but here are some points to think about:
We probably won’t see any of Johnson’s direct effects within J.C. Penney for some time. But, it will certainly be interesting to see how this plays out.
Good investing,
Justin Dove
The financial markets had a horrible day yesterday. There’s no way of sugarcoating it. The Dow closed below 11,900 and both the Nasdaq and the S&P 500 ended about 1.75% lower.
Know what started to climb in after-hours trading?
Grains… Agricultural commodities like corn, wheat and soybeans. This is good news for grains. They had been sliding for a number of days because of lower energy costs. Some stabilization could mean investments in grains are in for a bounce.
I do think corn and wheat will climb from here. Jack Scoville of Price Futures Group is predicting tight corn supplies by September, and that the USDA will need to lower production estimates for wheat.
This news hasn’t filtered down yet.
You may remember me talking about two agricultural investments back in January… The iPath Dow Jones UBS Grains ETN (JJG:NYSE) and the PowerShares DB Agriculture ETF (DBA:NYSE). Both invest in agricultural commodity futures. The JJG was focused on grains exclusively, but the DBA can hold lots of different agricultural commodities.
Right now, the majority of DBA is made up of coffee futures. This isn’t the same mix as when we first talked about DBA, and the ETF is down almost 5%.
It might be time to take this money off the table.
But JJG is a different story.
As of May 31, 2011, this was JJG’s portfolio:
JJG is also down since January — about 4%. But if grains get a bounce here, and grain prices start climbing, this is the investment you want to be holding, rather than DBA.
But here’s the thing to watch. JJG’s chart looks a lot like a futures chart for soybeans. Take a look.
Here’s JJG:
And here’s a chart for soybean futures:
Soybeans have been swinging back and forth for the past six months. One of the reasons for this has been low demand from the investment sector in favor of higher corn investments.
What this means for JJG is that any momentum from a jump in corn has been hampered by waffling soybean prices. On June 30, the USDA will release its Quarterly Stocks and Acreage update. That report could have an impact on where soybeans head from here.
Until then, we’re going to keep JJG on our list unless we see its share price drop to $51. At that point we’ll reevaluate.
P.S. It’s a bit hard to talk about corn and wheat being “down” and ready for a bounce. Wheat is up more than 25% from this time last year. Corn is up an amazing 78% in a year. These kinds of price increases have huge consequences… We’ve seen food riots and even uprisings that have overthrown governments.
This kind of upheaval isn’t over by a long shot. The world is on the edge of a food shortage, and to get ahead of this crisis, you have to have a plan. Safe Haven Investor editor Kent Lucas has one, and everyone should read his letter to get prepared for a food crisis. You can access this letter here.
Editor’s Note: I want to issue a correction from Monday’s article. Our topic was the OPEC meeting and the in-fighting between some members. Notably, Saudi Arabia and Iran. But Iran wasn’t acting against Saudi Arabia alone. Other OPEC countries in the region were also standing against Saudi Arabia’s call for increased crude oil production.
But in my article, I lumped Iran in with the Arab countries that voted against higher crude oil quotas. An email from Smart Investing Daily reader M.F. brought this to my attention. Iran is not an Arab nation — it’s Persian. I apologize for the mistake. Thank you to the reader who wrote in.
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Cash in on Mobile Transactions with NXP
by Marc Lichtenfeld, Investment U’s Senior Analyst
Thursday, June 16, 2011: Issue #1536
Every so often, when a new technology appears, it becomes blatantly obvious that it will change the way we live, even before it becomes widely adopted.
Anyone who was around during the early days of the automobile had to realize the freedom to move that it would bestow on people.
People paying attention to the beginning of the internet had to know that it would change the way people communicate, conduct research and how congressmen get into trouble for lewd behavior.
And today, a new technology is on the verge of breaking into the mainstream that will change the retail and restaurant industries forever… and bring happy returns to early investors…
Near Field Communications Technology
I’m talking about Near Field Communications (NFC). On Tuesday, my colleague David Fessler explained how NFC smartphone technology could replace your credit cards in the near future. And now I’d like to tell you why and how you can follow the trend on this breakthrough technology…
NFC technology allows your smartphone to act as your wallet. You can store all of your credit card information, checking accounts, frequency award cards and even coupons on your phone.
Here’s an example of how it will work when it goes mainstream:
Most importantly, all of this is done securely.
Google (Nasdaq: GOOG) is the pioneer of this product with its Google Wallet, which just launched on Android phones. Other companies are likely to join the fold soon. When it’s rolled out, you will be able to use it at places such as Best Buy (NYSE: BBY), CVS, Subway, 7 Eleven, Foot Locker (NYSE: FL) and Whole Foods (Nasdaq: WFM), among others.
As my colleague, Justin Fritz, wrote in Wall St. Daily, “Mobile payments in the United States alone could reach $56.7 billion by 2015.”
There’s no confirmation yet on when Apple (Nasdaq: AAPL) will offer NFC technology through its mobile platform. But there has been speculation it could come as soon as the iPhone 5.
NXP Semiconductor: Google’s NFC Chip Producer
A company that’s poised to take advantage of this new trend is NXP Semiconductor (Nasdaq: NXPI). NXP is a Dutch company that makes the chip that essentially runs Google Wallet and ensures that transactions are secure.
The Google Wallet deal will double the company’s NFC chip sales. And NXP’s CEO Rick Clemmer recently said that every time he talks to Google, they want to double their orders.
That’s a lot of doubling. Which brings me to the stock.
Shares of NXP Semiconductor sold off in the recent market slump – and also in conjunction with the announcement of the Google Wallet – an unsurprising sell-the-news reaction.
The stock is down 31 percent from its high of $35.32 in late April.
Where does the stock stop falling? Hard to say. Right now, the chart looks terrible. A bearish double-top pattern may be in effect. That would be confirmed by a break of $24 to the downside.
But wherever it stabilizes will likely be a good spot to pick up some shares, as the company will be at the forefront of a revolution in the way people spend money.
It’s expected that 472 million smartphones will ship in 2011, an increase of 55 percent. Already, three quarters of the world’s population own a cellphone. Half of the people in Africa access the internet via their mobile phone.
While the smart wallet will take a little bit of time to ramp up, you can see the enormous global opportunity that exists. There will certainly be innovations to the current technology and new players will emerge. But for right now, look for buying opportunities in NXP Semiconductor as it could very well become the Intel (Nasdaq: INTC) of the next decade.
Good investing,
Marc Lichtenfeld
Senior Strategist Ib Fredslund Madsen attended the yearly BCA Conference in London.
Hear what the international investors focus on and how they see equities and commodities moving from here.
Video courtesy of en.jyskebank.tv
Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.
Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.
