AUDUSD continued its downward move yesterday, and the fall extended to as low as 0.9663. Resistance remains at he downward trend line on 4-hour chart, as long as the trend line resistance holds, downtrend could be expected to continue after a minor consolidation, and next target would be at 0.9600 area, only a clear break above the trend line could indicate that the fall is complete.
As evidenced by the poor showing for German bonds at today’s Bundesbank bond offering, it is obvious for all to see that the debt contagion tide is now threatening Germany’s coastline.
Of the 6 billion euros ($8.1 billion) in German sovereign debt offered for sale, nearly half was withdrawn due to lack of interest. For bonds that did attract buyers, yields were pushed higher; 10-year bonds alone rose four basis points to 1.96 percent. Not surprisingly, the euro struggled falling to $1.3350 by mid-morning in New York. Should weak demand and rising yields persist in future debt auctions, German officials will be forced to reconsider Germany’s place within the Eurozone.
Chancellor Merkel has publically and consistently maintained Germany’s commitment to the preservation of the Eurozone. Nevertheless, the Chancellor has not wavered on her demand that countries receiving emergency funding must also commit to bringing deficits in line with Eurozone membership rules. As seen with Greece in particular, this means the imposition of very unpopular government spending cuts and the introduction of new taxes and other fees to generate revenue.
Needless to say, those countries finding themselves in this position have not been keen on adopting these “austerity” requirements. After all, in one form or another, three European government leaders have fallen in recent weeks due to the backlash of the population forced to accept these stringent measures.
Be that as it may, Merkel continues to advocate for this approach while sharply condemning the creation of a “communal” Eurozone bond as recommended by some officials. The idea is that a bond backed by the entire Eurozone could be offered instead of individual sovereign debt in order to raise funds for those countries forced to pay exaggerated rates to attract investors.
But with today’s auction, this avenue may no longer be an option.
If German sovereign debt – the highest- rated of all the Eurozone countries – is indeed falling out of favor as suggested by today’s auction, how can bonds backed by the entire region, including the problem economies, expect to do better? More to the point, what does this new reality mean for the future of the Eurozone?
Make no mistake, Merkel has always understood that Germany’s economy was vulnerable to the malaise spreading through the periphery economies. This is precisely why the Chancellor has argued against participating in a Eurozone bond. But with the disappointing results of today’s auction serving as a warning, lawmakers may be forced to take a stronger stance to protect Germany’s interests even if this is detrimental to the Eurozone’s future prospects.
The ultimate form of control that Germany could take would be to withdraw from the Eurozone and return to its own currency. Legal issues and other concerns notwithstanding, a return to the deutsche mark would enable Germany to manage its own currency and remove itself from the debt crisis engulfing the Eurozone.
Some day we may look back at this auction as the one event that really marked the beginning of the end of the Eurozone.
Scott Boyd is a currency analyst and a regular contributor to the OANDA MarketPulse FX blog.
Kazakhstan’s international energy image is now that of one of the world’s rising oil exporters, an extraordinary feat given that, two decades ago its hydrocarbon output was beyond insignificant when the USSR collapsed. The vast Central Asian nation, larger than Western Europe, has now quietly passed another energy milestone.
Kazakhstan produces 33 percent of world’s mined uranium, followed by Canada at 18 percent and Australia, with 11 percent of global output. Kazakhstan contains the world’s second-largest uranium reserves, estimated at 1.5 million tons. Until two years ago Kazakhstan was the world’s No. 3 uranium miner, following Australia and Canada.
Together the trio is responsible for about 62 percent of the world’s production of mined uranium.
According to Kazakhstan’s State Corporation for Atomic Energy, Kazatomprom, during January-September, the country mined 13,957 tons of uranium. “The volume of uranium mining in the Republic of Kazakhstan (for January – September) comprised 13,957 tons, which is 11 percent higher than the same period last year.” Even more impressive, Kazatomprom’s revenues soared 72 percent year-on-year. Kazatomprom is the state-owned Kazakh national operator for the export of uranium, as well as rare metals, nuclear fuel for nuclear power plants, special equipment, technologies, and dual-purpose materials.
To put Kazakhstan’s accomplishment in context, a mere five years ago Kazakhstan produced 5,279 tons of uranium.
While the March disaster at Japan’s Fuskuhima nuclear complex has caused several European nations to reassess their commitment to nuclear power, Kazakhstan’s regional markets seem assured in Asia’s rising economic powerhouses China and India. While Beijing has reacted to Fukushima by ordering thorough inspections of the nation’s nuclear power plants, China’s Commission of Science Technology and Industry for National Defense in its 11th Five-Year Plan for the Nuclear Industry announced China intended to produce 40 gigawatts of nuclear power electrical generating capacity within a decade, even though nuclear power currently accounts for just 1.4 percent of China’s electrical power generation.
If China follows through with its ambitious nuclear power plant construction plans the country will need an estimated 44 million pounds of uranium annually, as by 2020 the country will have a total of 77 planned and proposed new reactors. Of China’s 11 current nuclear power plants, the oldest, Qingshan-1, only came online in 1991.
India’s nuclear ambitions parallel China’s. While nuclear power currently accounts for only 3-4 percent of the country’s electrical output, India has 19 planned and proposed nuclear power reactors on the drawing board.
But the specter of the Japanese nuclear crisis has even overshadowed Astana’s optimism.
Speaking at the Minex conference in Astana on 5-7April, Kazatomprom president Vladimir Shkol’nik stated that the Fukushima debacle would not greatly influence the Kazakh state atomic company’s plans.
Despite Shkol’nik’s optimism, immediately after the Fukushima disaster the world uranium spot price plummeted from over $70 per pound to just $49 per pound, but has since rebounded to roughly $55 in November.
But Kazakhstan is moving beyond the mere mining of uranium to producing nuclear fuel rods. On 4 November French Industry and Energy Minister Eric Besson signed a contract with the Kazakh government allowing France’s Areva to open a nuclear fuel plant with Kazatomprom. A statement from Besson’s office noted, “This deal commits to the creation in Kazakhstan, the top global producer of uranium, of a nuclear fuel production plant dedicated to the Asian market. The construction of this plant could start as soon as the feasibility study is completed by the end of the first quarter of 2012.” According to the agreement, the facility will consist of a new production line at Kazakhstan’s ULBA metallurgical plant that will be 51 percent owned by Kazatomprom and 49 percent by Areva.
And flush with cash, next year Kazatomprom may buy into the Russian Federation’s Urals Electrochemical Integrated Plant (UEIP), the largest uranium enrichment facility within Russian State Nuclear Energy Corporation Rosatom. Last month Rosatom CEO Sergei Kirienko told journalists, “We are involved in purely technical procedures now, taking into account the organization and relevant restrictions (of a closed nuclear facility). We are moving within a set timetable. We have a plan – to complete all work in 2012. And we should begin working with Kazatomprom in 2012.”
Earlier this month, the International Energy Agency released its 2011 “World Energy Outlook,” which states that if the world is serious about global warming,it should consider the continued use of nuclear power to reduce greenhouse gas emissions. With Kazakhstan’s oil exports currently running at 1.74 million barrels per day and the nation being now the world’s largest uranium miner, it would seem that Astana is going to continue to rake in the cash no matter what energy policies the world adopts in the short term.
Source: http://oilprice.com/Energy/
By. John C.K. Daly of http://oilprice.com
The Central Bank of the Republic of Turkey held its benchmark 1-week repo rate at 5.75%. The Bank said: "Recent data releases suggest that the rebalancing between the domestic and external demand is ongoing as envisaged. With the credit growth decelerating to more reasonable levels, the desired increase in private savings has already started to take place. Accordingly, the improvement in the current account balance is expected to become more significant in the final months of the year."
The Turkish central bank last cut the benchmark rate by 50 basis points when it held an emergency meeting in early August, the bank also cut its benchmark interest rate by 25 basis points to 6.25% in January this year. The Turkish central bank also adjusted required reserves in late July. Turkey reported annual consumer price inflation of 7.7% in October, compared to 6.7% in August, 6.3% in July, 6.2% in June, 7.2% in May, 4.26% in April, and 3.99% in March, and above the Bank's full year inflation target of 5.5%.
By Nathan Slaughter, globaldividends.com
This best-in-class-play has been able to quadruple its profits and triple its payouts to investors in the span of just one year.
In the last issue of Dividend Opportunities, I touched on several of the opportunities available to income investors in the energy industry. It just takes knowing where to look.
You see, we recently discovered that more than half of the 21 best income stocks of the past decade come from the energy sector. But since most of the energy investments on that list are not household names, it occurred to me that many investors may not even know the sort of opportunities that are waiting out there.
So in the weeks and months ahead, I’ll be bringing you some more insight on my favorite “energy+income” investments that you may not be aware of.
For example, one of my top-rated stocks for subscribers to my Energy & Income advisory is a best-in-class player from a lesser-known energy niche — oil refineries.
The company enjoys distinct advantages that have enabled it to quadruple its profits and triple its dividend in the past year, even while some of its competitors are closing up shop.
What’s been driving the company’s profits is something called a “crack spread.” Put simply, the crack spread is the difference between what the refinery paid to get raw oil and the money it will be paid for its refined product. In short, the greater the margin… the greater the refinery’s profit.
Refiners on the Gulf Coast and East Coast pay around $115 per barrel for Brent crude, most of which is imported from West Africa, the U.K., Russia, and Venezuela.
But Valero (NYSE: VLO), the nation’s largest independent refiner, is fortunate enough to have access to cheaper oil from the Eagle Ford Shale in south Texas — and has been paying roughly $20 less per barrel.
That gives the company a big edge over its competitors who have to use more expensive crude from overseas. As a result, Valero’s bottom line has exploded on its increased profit margins.
For the third quarter ended September 30th, Valero reported net income of $1.2 billion, or $2.11 per share. That’s a powerful 297% increase from the $303 million earned this time last year — almost quadruple the amount of profit.
Higher throughput volumes do deserve some of the credit. With demand for refined products on the rise, the company is running 2.6 million barrels through its refineries every day — 389,000 barrels more per day compared to the third quarter of 2010.
But more important are the fatter crack spread margins that are really juicing the bottom line.
Twelve months ago, Valero was pocketing $8.13 in gross profit for every barrel of refined product it shipped. But the spread between the costs of raw materials coming in and the sales price of finished products going out has widened dramatically. So as of mid-November, that margin had soared to $13.24 per barrel.
Subtract out operating expenses, and Valero is earning a net profit of $8.16 per barrel — up from just $2.92 a year ago.
While others are abandoning their refining operations — like Sunoco (NYSE: SUN) — or spinning them off as separate companies to reduce the drag on their bottom lines — like ConocoPhillips (NYSE: COP) — Valero has gone on a shopping spree, absorbing properties in Louisiana and the U.K. at discounted prices.
And in a bold vote of confidence for expansion projects slated to come online in 2012, Valero’s board just tripled the firm’s quarterly dividend.
Valero now pays a $0.15 dividend — up from $0.05 earlier this year — for a 3% yield. I know that on the surface a 3% yield is not going to entice most income investors, but by raising its dividend by a factor of three, Valero is signaling its commitment to rewarding investors.
On top of that, there’s no reason this industry leader should be trading at just 5.1 times earnings and for just 70% of its book value. Sooner or later, the market will have to recognize Valero’s accomplishments and re-price the stock accordingly.
[Note: I purchased shares of Valero for my real-money Energy & Income portfolio earlier this month. With the low valuation, rising profits, and a tripling of the dividend, I think Valero is the best-in-class play. If you’d like to learn more about the other dividend-paying energy stocks I’m finding, be sure to watch this presentation. Within it, I’ve also included the names and tickers of the top 21 income stocks of the past decade, including the 12 high-yield energy stocks that dominate the list.]
Good investing!
Nathan Slaughter
Chief Investment Strategist
Energy & Income
Disclosure: StreetAuthority owns shares of VLO and COP as part of the company’s various $100,000 “real money” portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” model portfolio.
Source: ForexYard
The EUR was sent to a 6-week low versus the USD after multiple bearish events came one after another. The final straw was a weak bond auction by Germany.
After being sent lower overnight following a poor Chinese PMI survey and reports the Dexia bailout will need to be restructured the selling of the EUR increased. Disappointing European PMI surveys point to a contraction in European GDP. Both the manufacturing survey and services surveys came in below the 50 boom/bust level. Industrial new orders for the month of October collapsed by -6.4%, more than twice the drop the market was expecting.
The final straw came when Germany failed to auction all EUR 6 bn of 10-year bunds. The auction only drew EUR 3.44 bn with a yield of 1.98%. A weak bond auction from Germany highlights the transition of the European debt crisis from the periphery to the north as ultra-safe German bonds are now being influenced by the market stress.
The EUR came under pressure following the auction with the EUR/USD trading as low as 1.3370. Support is located at the October low of 1.3145. Initial resistance is found at 1.3480 followed by the November 18th high of 1.3610.
Read more forex trading news on our forex blog.
Forex Market Analysis provided by ForexYard.
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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.
Why Dividends Are Safer Than Fixed-Income Investments
by Marc Licthenfeld, Investment U Senior Analyst
Wednesday, November 23, 2011: Issue #1649
You know you’re a market junkie when, after a long week of writing about the markets and watching practically every one of your stocks’ ticks, the first thing you do Saturday morning is devour the business newspapers.
That’s me. And since I’m the Editor of The Ultimate Income Letter, I was like a kid on Christmas morning this weekend when Barron’s cover story was about how investors can find yield in this low interest rate environment.
I’ve been reading Barron’s for 20 years and think they do a nice job.
But the advice in this week’s cover story was so off the mark my mouth was agape like a voter who just heard that those in Congress are allowed to trade on very sensitive non-public information.
The Barron’s article detailed 11 types of investments that can help generate above-average yields, including several fixed income ideas. While I believe bonds warrant a place in a well-rounded portfolio, I would be very hesitant to add any new bond positions unless they’re shorter term in nature.
Interest Rates Are Low
Interest rates are at historic lows. To get two percent on a Treasury, you need to lock up your money for 10 years. Buy a five-year Treasury and you’ll take home a whopping 0.91 percent.
Perhaps interest rates stay at these low levels for a while. It’s hard to imagine they can go much lower. The chances are better that three and certainly five years from now, rates will be higher. As a result, bond prices will fall.
Here’s why. If you buy a two-percent 10-year bond today at par, 100, what would happen to demand if, next year, new 10-year Treasuries carry interest rates of 2.5 percent? In order to be able to sell your two-percent bond, you’d need to lower the price. No one is going to pay full price for a two-percent bond when they can get 2.5 percent in the open market.
Some of the ideas in the Barron’s article might make sense if you’ve owned them for a few years already and are enjoying the above average income they spin off. But to buy them now is like buying a house where you know there’s a sinkhole in the front yard.
Other Examples
Let’s take a look at what’s wrong with some of the recommendations in the article.
Closed-End Bond Funds – It’s a tough time to buy bonds right now, but it’s a horrible time to buy bond funds. At least when you buy a bond, you’ve got a good shot at getting your money back at maturity. But with a bond fund, there is no maturity and when rates go up, the value of the bonds held in the fund go down.
Even if you’re in a fund trading at a discount, the likelihood of making money in a rising interest rate environment is fairly slim.
High Yield Bonds – If interest rates rise, high yield bonds will get crushed, particularly those that mature in a longer timeframe.
In both of the above cases, if you’re going to buy corporate bonds, you’re better off buying those with very short maturities. Oxford Club bond maven Steve McDonald writes about this very topic in the upcoming issue of The Ultimate Income Letter. If you want to see what Steve has to say, click here so that you’ll be sure to receive the next issue.
Municipal Bonds – The fears about muni defaults are overblown. According to the Nelson A. Rockefeller Institute of Government at the University at Albany, state tax revenue was up 8.6 percent in the fiscal year for 46 states and the most recent quarter was the sixth straight quarter of growth.
Also, Standard & Poor’s recently reported that “muni” bond defaults were down 69 percent in 2011.
Personally, I like municipal bonds as their after-tax returns beat Treasuries. However, I would take the same approach to them as I would to other bonds – stay away from funds and buy individual bonds. And only buy those with shorter maturities – one to three years.
I suspect rates will stay stable or even fall in the next 12 to 24 months, but should eventually rise over the long term. You don’t want to get caught holding any bonds that mature in 10 to 30 years if rates start climbing in the future.
Equipment Leasing – Firms buy groups of contracts signed by companies that are leasing heavy equipment such as drilling rigs or railroad cars. It’s similar to buying a mortgage-backed security in that the assets are pooled, bundled and then sold to investors.
Yields are decent in the six-percent to eight-percent range currently.
However, this is a terrible idea for most investors. The investment is a bit esoteric for most people and really requires a significant amount of work to understand just what you’re getting into and checking out the broker selling it. It’s not like you can call up Schwab and buy an equipment-leasing direct investment. Specialized investment firms offer them and should be scrutinized thoroughly.
Immediate Fixed Annuities – The only idea I hated more than the equipment leasing suggestion was that of immediate fixed annuities. With a fixed annuity, you send a chunk of money to an insurance company and then you receive a fixed payment from then on for the rest of your life.
If you live long enough, you’ll make more than you contributed. Barron’s quoted Steve Horan, Head of Private Wealth at the CFA Institute, who said, “Some investors are going to die early and since the insurance company isn’t going to have to make their payments, they use them to benefit those still living.”
Isn’t that similar to a Ponzi scheme? I don’t like my payments relying on someone else’s misfortune. I’d hate to be reading a newspaper story about a senior citizen getting hit by a bus and thinking, “That’s terrible, but I hope he was in my insurance company’s fixed annuity pool.”
Rather than sending your money to an insurance company, who will then pay generous commissions to the broker who sold you the annuity, invest the money yourself and take out what you need each year.
To get decent yield today, have a combination of quality dividend paying stocks and some bonds in your portfolio – though if you’re adding bonds, be sure they’re shorter-term maturities.
For long-term investors, I prefer dividend paying stocks that increase their dividend on an annual basis. By choosing the right stocks, you should be able to stay ahead of inflation with increasing income every year as well as participate in capital appreciation when the stock price goes up over the course of time.
Good investing,
Marc Lichtenfeld
Article by Investment U
London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 23 November, 09:00 EST
U.S. DOLLAR gold bullion prices slid to $1685 an ounce Wednesday morning in London – 6.5% down on the November high – having briefly moved back above $1700 a few hours earlier.
“Negative sentiment surrounding the Eurozone sovereign debt crisis and concerns that some economies are heading for a ‘double-dip’ recession continues to lift market uncertainty and consequent choppy conditions,” says a note from Swiss gold bullion refiner MKS.
“The turmoil still going on in financial markets and the Euro Dollar swap rates are still fairly high,” adds Credit Agricole analyst Robin Bhar.
“Gold may still be a casualty of that…the bullish factors for gold haven’t really disappeared, it’s more positioning pushing it down.”
Stocks and commodities also fell – while UK Gilts were the only major government bond to see prices rise, with German bunds hit by a disappointing debt auction and longer-dated US Treasuries slipping following last might’s release of the latest Federal Reserve minutes.
Silver prices meantime slid to $31.40 per ounce – still down for the week, but 2.3% above Monday’s low.
German government bond yields rose this morning following what some analysts called a “failed auction” of 10-Year bunds.
Germany sold just under €3.9 billion of 10-Year bunds – at an average yield of 1.98%. The maximum target was €6 billion – meaning the bid-to-cover ratio was only 0.65.
“This auction is nothing short of a disaster for Germany,” one analyst told news agency Bloomberg.
“I cannot recall a worse auction,” agrees Marc Oswald, strategist at Monument Securities
“If Germany can only manage this sort of participation, what hope for the rest?”
The Euro dropped 0.6% against the Dollar immediately following the auction – though it remains 1.4% above where it started October, an despite the ongoing Eurozone crisis remains up against the Dollar in 2011.
“As Eurozone banks and other Eurozone entities lose access to funding markets abroad, they are forced, at least partly, to sell foreign assets,” explains a note from Morgan Stanley.
“Balance of payments data show that Eurozone residents sold foreign portfolio assets heavily in the summer with the selling intensifying in August…this creates the rather counterintuitive result that stress in funding markets abroad induce repatriation flows that support rather than hurt the Euro.”
Some non-Eurozone European currencies, however, have been hit hard. Poland’s Zloty, for example, is down 12.5% against the Euro since the start of the year. Poland’s central bank has intervened four times in the last three in an effort to support the currency.
Back in Germany, manufacturing activity continued to decline this month, according to provisional purchasing manager index data published this morning. Germany’s manufacturing PMI fell to 47.9 – down from 49.1 last month (a figure below 50 indicates contraction).
China’s provisional PMI, released by HSBC today, also shows contraction in manufacturing – falling to 48 this month from 51 in October.
In a speech to the Bundestag this morning, Germany chancellor Angela Merkel restated her opposition to the idea of jointly-issued ‘Eurobonds’, ahead of today’s publication by the European Commission of a discussion paper on the subject.
“I don’t find it particularly fitting that we are now once again conducting [this discussion] in the middle of the crisis,” said Merkel.
“In the long term, it isn’t… the answer to this crisis.”
The Commission’s green paper suggests the possibility of states pledging gold bullion, among other assets, as collateral on any jointly-issued debt.
“In order to increase acceptance of the Stability Bond,” it says, “the quality of the underlying guarantees could be enhanced. Member States could provide seniority to the debt servicing of Stability Bonds. Furthermore, Member States could provide collateral, such as cash, gold reserves which are largely in excess of needs in most EU countries, as well as earmarking specific tax receipts to servicing of Stability Bonds.”
Italy, for example, has 2451.8 tonnes of gold bullion – worth around €100 billion at current gold prices – according to World Gold Council figures.
“It is my absolute view that in the next two years, you will see Italy use its gold to once again plug some of the holes in their budget, because they are going to have to,” Pierre Lassonde, chairman of gold mining firm Franco-Nevada, told the London Bullion market Association’s conference in Montreal in September.
In her speech, Merkel also warned against criticism of the European Central Bank for not taking a bigger role in the crisis.
“The European currency union is based… on a central bank that has sole responsibility for monetary policy…I am firmly convinced that the mandate of the European Central Bank cannot, absolutely cannot, be changed.”
Here in the UK, the minutes from the Bank of England Monetary Policy Committee’s latest meeting – at which it voted to maintain its asset purchase program at £275 billion – have caused some analysts to lower their expectations for more quantitative easing in Britain.
“I thought we’d see some dissenting votes from Adam Posen and perhaps one other for more QE,” says Ross Walker, UK economist at RBS.
“The conclusion is they’re less dovish than expected…I think the probability of more QE January has been reduced significantly…there’s maybe greater clarity in the sense that February is now looking more likely and anything before February is much less likely.”
Over in the US meantime the minutes of the latest Federal Open Market Committee meeting, published last night, show that all but one member of the FOMC was in favor of refraining from additional stimulus measures, such as quantitative easing.
“Any such accommodation would likely be more effective if it were provided in the context of a future communications initiative,” the minutes said.
The Fed has today announced stress tests for the largest US banks. It will test their loan portfolios against a deep US recession – and will also model for a European shock for those with large trading operations. The announcement comes less than a month after brokerage MF Global filed for bankruptcy following losses on Eurozone sovereign debt positions.
JPMorgan Chase was reported this morning close to completing a deal to buy MF Global’s seat on the London Metals Exchange for £25 million.
MF Global is alleged in its final days to have covered its own position using funds from customers’ accounts – including that of ‘Martial Artist of Trend Forecasting’ Gerald Celente, who was buying gold through MF Global using futures contracts.
“The amount of money MF Global should have segregated for customers may be short by $1.2 billion or more,” bankruptcy trustee James Giddens said yesterday.
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
By Chris Vermeulen: www.TheGoldAndOilGuy.com
The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.
Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.
Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.
What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.
This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.
On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…
Market Sentiment Trading
I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. If you want to learn more about how to trade market sentiment and panic selling you can read my strategy which was published in Futures Magazine.
Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.
Chris Vermeulen
www.TheGoldAndOilGuy.com – Index, Commodity and Currency Trading Alerts
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.
