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Wednesday, July 23, 2014

Review of Gold


Pants Down
Traders recognize that a downside break of the 45 degree trendlines introduce bearish chasers into the trend. An upside breakout of the -45 degree trendline from the 2011 high has the opposite effect.  Investors, less reactive than traders and generally irritated by fickle nature of traders, should see a cause building phase contained within well-established downtrend that could last as long as 2015.

Confusion about what to buy and where to hide against tomorrow's risks grows with each passing day.  This setup makes another flash crash inevitable.  Investors and traders must follow trend concentrations to prevent getting caught with one's pants down completely.

Chart: Gold priced in Major Currencies


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Review of Natural Gas

Natural Gas
Natural gas prices continued their slide as cooler-than-normal temperatures have extended into July and are expected into August. Forecast calls for continued mild temperatures, 10 to 15 degrees below normal to extend across much of the US. The cooler than normal summer for much of the US has reduced demand and allowed stockpiles to be replenished by ample supply.

Injections of gas into storage have surpassed the five-year average for 13 consecutive weeks. Inventories were 26 percent below the five-year average in the week ended July 11, compared with 55 percent at the end of March.

What is the invisible hand doing while most are selling?


Headline: Natural-Gas Prices Fall to Near Eight-Month Low

Natural-gas prices slid to a nearly eight-month low as another sweep of unseasonably cool weather across the U.S. is expected to keep a lid on demand.

Gas prices have slid 24% since mid-June as cooler-than-normal temperatures have reined in the use of power-thirsty air conditioning. In the hotter months of summer, rising electricity consumption has spurred power plants' natural-gas demand. This year, the lack of that additional demand has resulted in a rapid buildup of natural-gas supplies, which has weighed on prices.


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Review of Nasdaq Composite

Nasdaq Composite jumped the creek of resistance (07/08 gap) yesterday on contracting volume (chart); its propensity to lead the broader market increases the importance of this jump. Normally a close above resistance on contracting volume (without force) would be labelled as false breakout, but the rally in US stocks has been anything but normal since 2007.

Volume, also referred to as liquidity, has been contracting steadily for years. Investors, fearing confiscation and policies hostile to investments and investing, have been withdrawing from the traditional 'grid' for years. This trend is illustrated by a steady decline in volume NYSE and NASDAQ exchanges.

Adaptive traders have learned to associate low volume breakouts as signal for continuation.  That is, until confidence breaks and volatility rises in a few years.  Until then, traders recognize the breakout - REV(E) leading price to new highs as defiance of the bearish calls yet again (chart).

Chart: Nasdaq Composite


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Tuesday, July 22, 2014

Path of Least Resistance in US Stocks


While the path of least resistance is down, it doesn't mean that the long-awaited and ill-timed bear market has begun.  Those playing probabilities, not opinion, are closely monitoring force behind the trend at resistance and support.

Continuation of the downtrend needs to be confirmed by price smashing through support with force.  While the bears control the trend, they have been unable to accomplish this so far.  Trends that cannot break support with force often reverses (unexpectedly) and attempt to do the same to resistance.  Richard Wyckoff made this observation nearly a hundred years ago without the aid of computers.

Chart: Nasdaq Composite


Timing a turn in stocks will be confirmed by the trend in bonds until confidence breaks.  Confidence has yet to break.

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Blindly Follow the Fed's Intentions and Forecasts at Your Own Risk

Blindly follow the Fed's intentions and forecasts at your own risk. Central banks, insightful and smart, did not ascend to their positions because of their ability to time the movement of capital and markets. Central bankers made similar cautionary observations in 1927 and 1996 (chart).  

Chart: Large Cap Stocks Capital Appreciation Index (LCSCAI) and Volatility (VIX)


Headline: Don’t Ignore Janet Yellen’s Stock Market Warnings

Janet Yellen is taking a lot of flak for speaking her mind.

Last week, the Federal Reserve released a biannual policy report just as Yellen, the Fed’s chair, began testifying to Congress on the state of the U.S. economic recovery, the outlook for inflation and what’s happening in financial markets these days.

What Yellen had to say on the last of those factors sent many folks into a tizzy. The Fed views valuations in some parts of the market — especially for smaller social media companies and biotech stocks — as being “substantially stretched,” even after a “notable downturn in equity prices for such firms early in the year.”

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Merging Fiction with Fact

Humans are notoriously short-term orientated in terms of actions and memories. While the world tries to merge fiction with fact in the MH17 crash to benefit their agendas, don't expect may to acknowledge similar mistakes made in the past. It may even surprise some who's been involved.

Headline: Airliners that have been shot down

As unthinkable as shooting down an airliner with hundreds of passengers is, it has happened before. Among the most notable cases in recent decades were an Iranian plane shot down by the US Navy and a South Korean airliner destroyed by a Russian fighter jet.


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Monday, July 21, 2014

Review of US Stocks

US stock rally which has consistently ignored bearish expectations for years have produced only five corrections since 2011. These corrections are defined as negative readings in long-term close oscillator (LTCO) within general trend of positive readings (LTCO greater than zero) have been relatively short duration and low volatility events. A typical correction, for example, is generated when the LTCO crosses below the zero, thus, generating a 'negative finger' within a general trend of positive readings. These fingers which vary in duration from a couple of weeks to several months are marked as red lines within the green box in the chart below (chart 1).

Chart 1: SP 500 (SPX) And Trend Oscillators (ITCOandLTCO)




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