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Timing & trends

"A Huge Buying Opportunity"


Posted by Mark Leibovit - VR Trader

on Tuesday, 07 August 2012 11:28

GOLD- ACTION ALERT - BULL

Gold rallied yesterday as the Dollar fell. Gold rose 8.00 to 1611.60. But, why do I get the feeling that the rug can be pulled out from under us at almost at anytime? If you've been following the circus at the CFTC and Bart Chilton's pilgrimage to get to the bottom of what appears to be blatant manipulation of the silver market (as well as gold), you know traders are watching very carefully. Chilton said yesterday (despite the weekend story from London's Financial Times that the CFTC was going to drop the investigation) "I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver. There have also been silver and gold market anomalies outside of the silver investigation window that have raised, and continue to raise, market concerns." As you know, there is a strong inference that the manipulation is being done at the bequest of the U.S. Government and JP Morgan is simply a 'broker' taking orders. I cannot imagine the U.S. Government being exposed here simply because they would argue it can't happen due to 'national security issues' and the whole matter would simply be hushed up. Though silver could rally on the anticipation of a positive outcome (the government is exposed), more than likely silver bulls will be disappointed and the market could nosedive to new lows instead.

Though seasonal studies and my own Annual Forecast Model along with current bearish sentiment (especially in the gold mining shares) suggest we should remain overall optimistic (forgetting the risk of a Fall shakeout). It's like building a mental bomb shelter you never use. If you believe as I do that we cannot discount the viciousness of our adversaries, Bernanke and Geithner could attempt to drive gold toward 1300 using the 'phony' paper market at the COMEX/CME in order to discredit gold as a viable alternative to progressively worthless Dollars. With gold suppression schemes underway for decades (gata.org has the documented proof, if you care to read it), nothing is really new here. It appears 1520 on the low end and 1635-1650 on the upper define near-term trigger points for the bears and the bulls. In silver 26.00 has been surprisingly holding, while the upside breakout would have to be over 31.00-32.00 in my opinion.

Should we see a waterfall decline in either gold or silver, we have to be prepared to back the truck up for a huge buying opportunity. The availability of physical metal, however, at severely discounted 'phony' prices engineered in the paper market may be a big problem. Do you think physical holders of gold and silver are going to sell for worthless paper currency at bargain basement prices? Good luck. You might get a few coins, but don't hold your breath.

Recall, gold hit an all-time record high of 1922.20 on September 6, 2011, but fell to a 6-month low of 1521.80 on December 29. These are the two important benchmarks that traders and investors are focusing on at this time. Gold stocks are a special opportunity because by certain valuation metrics, they are cheaper than their 2008 lows and are as cheap as they have ever been. The 12-year bull is going to continue, driven by central bank purchases, currency destruction, movement away from the U.S. Dollar as the world's Reserve Currency and the general momentum of a bull market.

 

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Stocks & Equities

Good Strategy & Three Good Trades


Posted by Tyler Bollhorn of StockScores

on Tuesday, 07 August 2012 08:22

This week's Market Minutes video discusses how to know when the market is likely to produce good trades, check it out by clicking here.

There are many who consider trading the stock market to be a form of gambling. Quite truthfully, the way many people trade the stock market it is a form of gambling. Legal, easily accessible and perhaps more addictive than a slot machine, I have seen many people suffer great financial loss in the pursuit of easy market profits. How is it that trading can be gambling for some and a legitimate income source for others?

Because, for most, the value of the outcome of their trades in not known before the trade is made. We all understand that what happens with stock price is uncertain but that does not mean it is not predictable. A gambling trader may hope that he or she makes money on their trades but the professional trader knows what he expects to make on the trade. They know the expected value of the trade.

Suppose you devise a trading system that says buy any time the 20 day moving average crosses above the 40 day moving average and the volume is at least double the 20 day volume average (I have no idea if this is a good strategy, I doubt it so don't try trading it). You then test your trading strategy along with some rules for exit and find that, over a sample of 300 trades, the average profit was $410 and the average loss was $230. Profits happened 67% of the time so, of course, losses occurred 33% of the time (again, all hypothetical).

The pro trader recognizes this as a money making system (it should be noted that the statistics above are not all that a person needs to consider when assessing whether a strategy is effective, I just want to keep it simple for this discussion). The expected value of a trade is as follows:

Probability of profit times the average profit - the probability of loss times the average loss so for this example;

0.67 times $410 - 0.33 times $230 = $198.80.

The trader who does this analysis finds that this simple strategy is expected to make them $198.80 each time they make a trade. While they do not know if the next trade will be profitable or not, they can predict what the profit should average out to over a large sample of trades, provided that what has happened in the past continues to happen in the future.

So, let me now ask if you know the expected value of the trades you make?

If you answer no then you may be a gambler. I say may because some traders may not have tested their rules to know the expected value but have still proven in their actual trading history that their strategy has a positive expected value.

In short, if you have no idea if your trading rules actually work or if you don't even have a set of rules, relying instead on gut feel, then you are gambling at the stock market casino. Sadly, this casino will not comp you a room or give you free drinks when you play.

Successful trading involves taking risks; we are probably never certain of what the outcome of our next trade will be. Taking risk is necessary if we are hoping to make a return. However, there is a difference between taking risks and being reckless.

Think about what it means to be reckless. I like to mountain bike, race cars and fly planes; all things that most consider to be risky. But when I am on my bike, I don't try to do 75 foot gap jumps like Matt Hunter, I don't go 200 mph in to a corner like Lewis Hamilton, I don't do wing to wing aerobatic maneuvers like the Snowbirds. I work within my abilities and limits and in doing so, avoid letting risk turn in to recklessness.

Buying a stock without knowing the expected value of the trade is reckless, it is gambling. Additionally, what is a simple risk for one person may be reckless for another. You have to know what your limits are and work within them. I may trade a strategy which has a positive expected value and not be reckless but if the experience required to execute that strategy is beyond your limits then trading it for you would be reckless.

If you want to be a successful trader you have to stop gambling and make sure you are trading with an expected outcome that is positive. You need to work within the limits of your skills and experience and avoid being reckless.

I did a number of Market Scans on Stockscores.com tonight to find stocks that had decent charts, including the Abnormal Breaks and Stockscores Simple strategies. Here are a few stocks that I think are worth keeping an eye on, their charts show good potential.

1. GSS
GSS broke out from a pennant pattern today with strong volume and abnormal price action. This move takes it through its downward trend line, making the chart a good turnaround candidate. Support at $1.09.

one

2. WAL
WAL is breaking to new highs for the year and has a very good long term weekly chart showing signs of a turnaround. Support at $8.85.

two

3. GPOR
GPOR breaks from an ascending triangle pattern after breaking its long term downward trend line a few weeks ago. The Sentiment Stockscore has recently crossed above 60. Support at $19.50.

three

 

References

 

  • Get the Stockscore on any of over 20,000 North American stocks.
  • Background on the theories used by Stockscores.
  • Strategies that can help you find new opportunities.
  • Scan the market using extensive filter criteria.
  • Build a portfolio of stocks and view a slide show of their charts.
  • See which sectors are leading the market, and their components.

    Disclaimer
    This is not an investment advisory, and should not be used to make investment decisions. Information in Stockscores Perspectives is often opinionated and should be considered for information purposes only. No stock exchange anywhere has approved or disapproved of the information contained herein. There is no express or implied solicitation to buy or sell securities. The writers and editors of Perspectives may have positions in the stocks discussed above and may trade in the stocks mentioned. Don't consider buying or selling any stock without conducting your own due diligence.

 

 



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Gold & Precious Metals

Gold "Popular Again"


Posted by Ben Traynor - BullionVault

on Tuesday, 07 August 2012 07:30

Despite Worries Over Indian Monsoon, But Overall Market "Lacking Conviction"

 

THE SPOT MARKET cost of buying gold climbed to $1616 an ounce Tuesday morning in London, its highest level so far this week, as commodity prices and stocks markets also edged higher, with the exception of the FTSE which was hit by allegations that one London-listed bank has hidden "secret transactions" from US regulators.

"Gold appears to be enjoying increasing popularity again," says Commerzbank's Commodities Daily note.

"There would appear to be brisk buying interest on the market below [$1600]...which should provide the price with a safety net."

The US Dollar gold price has remained within 3% of $1600 for virtually all of the last two months.

"The market as a whole lacks conviction," says Marc Ground, commodities strategist at Standard Bank.

"The little confidence that was forming will most likely have been destroyed by last week's disappointment [from the lack of action by the Federal Reserve and European Central Bank]."

"We continue to like precious metals, even as central bank event risks have been largely removed until September," says a note from Societe Generale.

"Further disappointment with politically driven 'growth agendas' should confirm the need for even stronger monetary solutions to reignite nominal growth."

The price of buying silver meantime rose to $28.12 an ounce – up 1% so far this week – while on the currency markets the Euro held steady near one-month highs above $1.24.

Major European stock indices were up on the day by lunchtime, with the exception of the FTSE in London, which was hit by a fall of more than 20% in Standard Chartered shares after the bank was accused by the New York State Department of Financial Services of violating US law by dealing with Iran.

"For almost ten years, [Standard Chartered] schemed with the Government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion," says the New York State Department filing, which describes the London-headquartered bank as a "rogue institution".

Standard Chartered last night issued a statement saying it "strongly rejects the position and portrayal of facts made by the New York State Department of Financial Services."

In India meantime, the "sputtering" monsoon is set to hit gold buying ahead of the forthcoming wedding season, traditionally associated with strong demand for gold, the Wall Street Journal reports.

"In India, the monsoon is another negative factor [for gold]," the WSJ quotes Michael Shaoul, chairman of Marketfield Asset Management, which looks after over $2.5 billion. Shaoul also says India's relatively high interest rates also give people an incentive to keep cash in savings account rather than convert it into gold bullion.

The Rupee has lost over 20% of its value against the Dollar over the past 12 months, a factor that has contributed to record Rupee gold prices in recent weeks. In addition, India's government has twice increased import duties on bullion since the start of 2012.

"We're all aware of the current conditions in India," says Ani Markova, co-manager at AGF Precious Metals Fund, which manages $600 million.

"But India hasn't been a strong player in the market this year...I think China is driving the bus."

In the six months to the end of March China overtook India to become the world's biggest source of demand for buying gold, according to World Gold Council data. China's imports of gold bullion from Hong Kong however – regarded by many as proxy for overall imports – fell 10% in June compared to a month earlier, official Hong Kong government statistics published last week show.

Ben Traynor

BullionVault

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.



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Energy & Commodities

Contrarian Buy: 79% Upside in Norwegian Oil


Posted by Steve Sjuggerrud's Daily Wealth

on Tuesday, 07 August 2012 05:03

f you're an oil billionaire, who do you turn to for advice? 

Oil billionaires Gordon Getty and T. Boone Pickens have turned to a man named Kurt Wulff…

Kurt is "in his sixth decade of analyzing opportunities in the oil and gas industry," according to his online bio. He doesn't seem to be slowing down…

At DailyWealth, we love his work. He actually provides much of his work – for free, after a delay of a couple weeks – on his website www.McDep.com.

A few weeks ago, he wrote up a Norwegian oil company as a "Contrarian Buy."

I'm talking about oil and gas producer Statoil.

Kurt pegs Statoil's fair value at $44 per share – 79% higher than its share price today. Statoil also pays a near-4% dividend.

The company has made "a string of new discoveries on top of growing production from past discoveries," Kurt explains.

The story is not limited to the oil off the coast of Norway either: "… other prospects in the U.S. and Canada may contribute 20% of corporate production by about 2020." 

Your downside risk is limited, as Statoil has "modest debt" and is based in (and taxed in) "one of the financially strongest countries in the world." 

Kurt's biggest reason for concern at the time of his initial write-up in June was that Statoil's shares were in a downtrend. But fortunately, that has changed.

In DailyWealth, we prefer to see some semblance of an uptrend – as confirmation that our idea is on the right track – before we pile into an investment idea. We like the fact that Kurt Wulff thinks the same way.

Shares of Statoil bottomed for this year in June, the same month of his write-up. The shares have been in an uptrend since. The danger of buying into a downtrend has passed… It appears Kurt will get this one right.

On a risk-to-reward basis, you can set up a smart trade in Statoil with the odds stacked in your favor. For example, you can set your stop-loss at the June lows (the closing low for 2012), which is only about 10% down from today's price. Meanwhile, your upside potential – if Kurt is right – is about 79% from here.

If you're a regular DailyWealth reader, you know some of my colleagues have expressed their concerns about oil prices – and the risk that oil prices may fall… But by using a 10% stop-loss, you will be out of the trade if Kurt is wrong.

So you have 10% downside and 79% upside. The setup hardly gets better.

Check out Kurt Wulff's work at www.McDep.com. Poke around at his income ideas… learn about his "McDep ratio"… and read his Statoil write-up.

I am no expert in oil and gas… But I like Kurt's work… the uptrend is here… and the risk-to-reward profile here is right. Check it out.

Good investing, 

Steve

Further Reading:

You can find the "oil bear" argument in a recent essay from Matt Badiali. "I believe whatever happens, oil still is facing a drop to $60," he writes. "And given the global situation, oil could easily sink to $50 per barrel… or even $40 a barrel." Read more here:The Big Problem for Energy Investors.

direct mail_for_the_contrarian_marketer



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Bonds & Interest Rates

The Not So Super Hero


Posted by Peter Schiff - Euro Pacific Metals

on Monday, 06 August 2012 16:24

"Without question, if the Fed had not stimulated the economy with zero percent interest rates, two rounds of quantitative easing and operation twist, the initial economic contraction would have been sharper.  But such short-term pain would have been constructive".

The past week provided clear lessons not just in how central bankers have a limited ability to positively influence the economy but also how they are limited in their capacity to deliver the shortsighted policy actions that investors currently crave. The developments should provide new reasons for investors and economy watchers to abandon their faith in central bankers as super heroes capable of saving the economy.

The employment report released on Friday confirmed that the U.S. economy is stagnating at best and actively deteriorating at worst. While the numbers of jobs created in July was actually better than many economists expected, it was still far below the levels that would indicate a growing economy.  But more important than the official unemployment rate (which ticked up to 8.3%) or the number of jobs created, is the number of people who have left the workforce out of frustration or despair. This number continues to head higher. The labor force participation rate, which is the percentage of healthy working age Americans who actually have jobs, is at one of the lowest points since women first started working en masse in the 1970’s.  It’s also instructive to add back into the unemployment rate those who want full time jobs but who have had to settle for part time work. This figure, reported under the “U6” category, currently stands at 15.0%. This is just a 12% decline from the 17.1% high seen December 2009.  In contrast the “official” (U3) unemployment figure has declined 17% from its peak.

In explaining these bad results, most economists simply look at the stimulating effects of monetary and fiscal policy,not at the problems that those measures create. As a result, it is assumed that not enough stimulation, in the form of quantitative easing or federal deficit spending has been applied to the economy. The next logical assumption is that if the measures of the past few years had not been applied, we would have seen much weaker results over that time. In other words, no matter how bad things are now, defenders of the status quo will always describe how bad things “could have been” if the Fed hadn’t stepped in. This counterfactual argument gets increasingly threadbare as the years wear on.

Rather than admit that its policies have failed, the Fed statement last week gave all indications that it will continue with its current inflationary policy to the bitter end. These are the same errors that inflated the stock and real estate bubbles and ultimately resulted in the 2008 financial crisis and our continuing economic malaise. Without any fresh ideas,Fed press releases have become a Groundhog Day repetition of the same pronouncements and diagnoses. Oddly, many market watchers are frustrated that the Fed has not telegraphed that more stimulus is forthcoming. While it should be obvious that our current “recovery” is dependent on monetary support, it should be equally plain that the Fed can’t actually admit that fragility without spooking markets. To be clear, QE III is coming, but the markets should not expect Bernanke to supply a precise timetable.

Without question, if the Fed had not stimulated the economy with zero percent interest rates, two rounds of quantitative easing and operation twist, the initial economic contraction would have been sharper.  But such short-term pain would have been constructive.   By not taking away the cheap-money punch bowl, the Fed has delayed the pain and prolonged the party. But to what end?  So far all we have received is a tepid phony recovery that has sown the seeds of its own destruction.

In contrast, real economic restructuring would have resulted if the Fed had withdrawn its monetary props.  This would have paved the way for a robust, sustainable recovery.  Instead, the Fed helped numb the pain with unprecedented (and apparently permanent) liquidity injections. Its actions merely exacerbate the underlying imbalances that lie at the root of our structural problems, and thus act as a barrier to a real recovery.  So long as the Fed fails to learn from its prior mistakes, the phony recovery it has concocted will continue to fade until we find ourselves in an even deeper recession thanthe one we experienced in 2008.

Those who believe that artificially low interest rates are needed now,fail to see the price that will be paid down the road.  By keeping rates too low, the Fed continues to lead an overly indebted economy deeper into the financial abyss.  However, its ability to maintain rates at such low levels is not without limits.  Just as real estate prices could not stay high forever, interest rates cannot stay low forever.  When rates finally rise, the extent of the economic damage will finally be revealed. 

The sad fact is that no matter how impotent and dishonest Fed officials become, their elected rivals on Capitol Hill (who control the fiscal side of the equation) have become even less significant.  The complete lack of any political conviction to take steps to confront our fiscal imbalances means that Ben Bernanke and his cohorts are seen as the only cavalry capable of riding to the rescue.  But no matter how often they blow their bugles,our economy will continue to deteriorate until we stop waiting for a savior and instead fight the battle for prosperity ourselves.


Peter Schiff's new book, The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country is now available. Order your copy today

For in-depth analysis of this and other investment topics, subscribe to Peter Schiff's Global Investor newsletter. CLICK HERE for your free subscription. 

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