Gold vs. S&P 500

Gold vs. S&P 500 – Where is the Value?

This past week we received the final 4th Quarter GDP number which came in at 0.39%. The total 4th Quarter growth was terrible, plain and simple. Based on the performance in the equity markets that we have seen thus far in the 1st Quarter of 2013 investors would expect strong GDP growth. However, the only thing spurring stock market growth is the constant humming of Ben Bernanke’s printing press.

The real economy and the stock market are no longer strongly correlated. Essentially, they are meaningless. How do you evaluate risk when Treasury linked interest rates are artificially being held down by the Federal Reserve? How do you evaluate earnings growth estimates when most government based statistics are manipulated or “smoothed” to perfection?

My final argument to anyone who is a true believer that the stock market is representative of the economy is a very simple premise. If the stock market is the economy, how does the stock market evaluate small business earnings growth when most small businesses are not publicly traded? It is a simple question, but I have yet to find a sell side analyst that can work around it with facts.

To back up this information, here is a chart courtesy of www.zerohedge.com that demonstrates the S&P 500’s price action compared to economic data and overall macro risk.

The chart above clearly depicts the divergence between the macroeconomic data and the performance of the S&P 500 Index. Yet the sell side continues to scream that stocks are cheap, earnings are going to ramp up later this year on insane S&P 500 earnings growth expectations, and the consumer is going to remain strong even though payroll taxes have increased and the “wealthy” are paying more in taxes.

Even amid those concerns, no one knows for sure what the impact that Obamacare and the various new taxes associated with it will have on the business community. Again, the only thing driving growth is directly linked to the Federal Reserve’s balance sheet expansion. The chart below is courtesy of the Federal Reserve’s website.

On August 8, 2007 the Federal Reserve’s total assets were $869 billion dollars. As can clearly be seen today, according to the Federal Reserve the central bank’s total balance sheet has grown to over $3.2 trillion dollars. The increase is on the verge of rising exponentially. With QE, QE2, QE3, Operation Twist, Extended Operation Twist, and now with QE 4 in Perpetuity this trend is certainly unlikely to shift.

At this point in time the Federal Reserve is printing roughly $85 billion dollars each month to purchase Treasury securities with a focus on the long end of the maturity curve. As primary dealers of Treasury securities process these flows the money eventually finds its way into riskier assets that offer higher rates of returns through balance sheet machinations at large money center banks.
It has proven that the flow of the Federal Reserve’s printed monies are more important than the total money stock for a variety of reasons and inflation according to the government’s data is under control ex food and energy.

However, how are people supposed to survive without food and energy in today’s world? The last time I went to fill up my gas tank or to purchase food prices have gone up significantly. According to the 1990 version of consumer price reporting, real consumer inflation is running around 6% currently and shadowstats.com has the following comparison.

Unfortunately the 1980 based inflation numbers are even uglier, which based on Shadowstats’ data chart would place consumer inflation at nearly 10%. The calculations being used by Shadowstats.com are based on the government’s OLD ways of calculating inflation. The calculations were adjusted over time and today the data is completely manipulated by not including items that typically experience the largest levels of inflation.

Normally I talk about price action, probability based option trading, and technical information. However, before investors consider buying stocks near the all-time NOMINAL (non-inflation adjusted) highs, why not simply consider the backdrop of the total economic situation.
Central banks around the world are printing money at an alarming rate and their balance sheets are growing to levels not seen in human history. Interest rates are being manipulated to levels that are historically at record lows or near record lows based on real inflation data.

Macroeconomic indicators are issuing a cautionary tone with significant divergences showing up in many areas. Earnings expectations for the S&P 500 in the 3rd and 4th Quarter of 2013 are extreme and borderline ridiculous.

So before jumping headlong into equities based on some sell side analysts recommendation or even worse, a financial advisor who is more interested in his/her commission than they are about producing gains consider the following comparisons.

S&P 500 Index (SPX) Price Chart – 1 Year Price History

Gold Futures Spot Price Chart – 1 Year Price History

Clearly paper gold represented by gold futures is no substitute for physical ownership, but when one considers the fundamental backdrop for gold versus the S&P 500 Index, it should be clear which asset is offering the most value at current price levels. It does not require any inserted trendlines or oscillators, it should be clear which asset is expensive and which asset is cheap based on the real long-term economic fundamentals.

Article contributed by JW Jones from Technical Traders

SP500 Wave Pattern

Final Stages of The Advance on SP 500-The Wave Pattern

Over at our TheMarketTrendForecast.com service we have been projecting  a potential rally pivot at 1552-1576 for many weeks now.  The recent drop to 1485 although harrowing, was a normal fibonacci re-tracement of the last major rally leg to 1531 pivot highs.  We believe that this 5 wave advance 1343 pivot lows is nearing an end based on mathematics and relationships to prior waves 1-3.

At 1569 the SP 500 would mark a perfect fibonacci relationships to waves 1-3 for this final 5th wave to the upside.  In the big picture, we are still working higher off the 1010 pivot lows on the SP 500, and this rally takes 5 full waves to complete. We think we are near wave 3 highs, and wave 4 correction would be up next, followed by another thrust to highs if all goes well this year.

That all said, a multi-week correction and consolidation wave 4 pattern is likely once we pivot at 1552-1576.  We should expect this correction to retrace anywhere from 80-100 points on the SP 500, but one week at a time.

 

Article contributed by Chris Vermeulen from Market Trend Forecast

The currency wars

The currency war: now and then

Global currency wars worries have resurfaced in recent weeks, mainly because of Japanese action on the yen. In order to understand the meaning of this so-called war, we would have to go back in time to the 1930's. Back then, the currency wars scared economists as they had a big part in the Great Depression in the 1930's. The damage done to global financial markets in that period took several decades to repair, and a repeat of this nightmare cannot be ruled out completely. However, there are large differences between the 1930’s and nowadays and the results of what is happening may differ as well. In the past, it seems like currency wars were defined as any policy that is intentionally designed to drive down the value of a currency, whether by local inflation or an exchange rate decline. It is quite the same thing in the long run since a rise in inflation relative to other countries will eventually be fully reflected in a lower exchange rate.

So what about today's currency wars? The conclusion of what happened back then was that a currency war which results in an equal currency devaluation, along with monetary easing, would probably have been much less damaging than the direct trade and exchange control retaliations which actually occurred in the 1930’s. Currency wars could still develop into direct trade wars, though even if they do not, they could lead to other problems like commodity inflation and asset price bubbles in the emerging economies, though so far, we are not seeing a repeat of the 1930’s.

Goldman Sachs bank support this opinion, stating that "this configuration of asset market moves - the real rate declines, steepening in nominal curves, currency depreciation and the pattern of domestic equity sector outperformance - is  more consistent with a bout of monetary easing that is expected to prove expansionary, rather than a currency war interpretation".

American economist Paul Krugman also believes that what is going on today is all a currency war misconception. According to Krugman, it would be a very bad thing if policy makers take it seriously, as "the stuff that’s now being called “currency wars” is almost surely a net plus for the world economy. In the 1930’s this was because countries threw off their golden fetters, they left the gold standard and this freed them to pursue expansionary monetary policies".

G-20 and the currency war

The Group of 20 finance chiefs sharpened their stance against governments trying to influence exchange rates. Two days of talks between G-20 finance ministers and central bankers ended last week with a commitment not to “target our exchange rates for competitive purposes”. This stance is stronger than the one they took three months ago and might affect Japanese officials to stop publicly giving guidance on their currency’s value. Today the yen is near its lowest level against the dollar since 2010, while policy makers are trying to calm concerns that some countries might be trying to weaken their exchange rate in order to encourage export and by that, the economic growth. According to the G20, and contrary to the opinions of GS and Krugman noted above, the risk is a 1930’s style of devaluations and protectionism. Bundesbank President cited that “Politically-motivated devaluations can’t sustainably improve competitiveness; they don’t solve structural problems and they set off reactions”.

We shall mention Japan once again, as the Bank of Japan Governor Masaaki Shirakawa said: “The Bank of Japan’s measures have been and will remain targeted at achieving a robust economy through stable prices". In the G20 meeting, Japanese officials denied driving down their currency, and according to them, its fall was a byproduct of their effort to accelerate the Japanese economic growth rate.    

More we shall mention that the IMF Managing Director said that the talk of currency wars is overblown, and Federal Reserve Chairman Bernanke said: "the U.S. has deployed domestic policy tools to advance domestic objectives and bolstering the U.S. economy will support world growth".

Economic releases and events of the week

• Monday: Eurozone Finance Ministers Meet in Brussels
• Tuesday: EU-27 Finance Ministers Meet in Brussels, Eurozone Services PMI, Eurozone Composite PMI, U.S. ISM Non-Manufacturing (all for February), Eurozone Retail Sales (January, expected to slightly increase)
• Wednesday: Eurozone GDP 4th quarter (expectations for a decrease of 0.6%), U.S. Federal Reserve Releases Beige Book
• Thursday: ECB Main Refinancing Rate, Draghi to hold a press conference after Rate Decision, U.S. Trade Balance January (expectations for an increase in the deficit)
• Friday: Germany Industrial Production, U.S. labor market data - unemployment rate and Change in Nonfarm Payrolls

Gold, Oil & the SPX Trends and Setups

Over the past year my long term trends and outlooks have not changed for gold, oil or the SP500. Though there has been a lot of sideways price action to keep everyone one their toes and focused on the short term charts.

We all know that if the market does not shake you out, it will wait you out, and sometimes it will even do both at the same time. So stepping back to review the bigger picture each week is crucial in keeping a level trading/investing strategy in motion.

The key to investing success is to always trade with the long term trend and stick with it until price and volume clearly signals change of trend. Doing this means you truly never catch the market top nor do you catch market bottoms. But the important thing is that you do catch the low risk trending stage of an investment (stage 2 – Bull Market, Stage 4 Bear Market).

Let’s take a look at the charts and see where prices stand in the grand scheme of things for gold, oil, energy and stocks…

Gold Weekly Futures Trading Chart:

Last week I talked about how precious metals were nearing a major tipping point and to be aware of those levels because the next move is likely to be huge and you do not want to miss it or even worse be on the wrong side of it.

Overall gold and silver remain in a secular bull market and hav gone through many similar pauses to what we are watching unfold with them over the past year. As mentioned above the gold market looks to be trying to not only shake investors out but to wait them out also with this 18 month volatile sideways trend.

A lot of gold bugs, and gold investors of mining stocks are starting to give up which can been seen on the charts when reviewing the price and selling volume for these investments. I am a contrarian in nature so when I see the masses running for the door I start to become interested in what everyone is unloading at bargain prices.

Gold is now entering an oversold panic selling phase which happens to be at major long term support. This bodes well for a strong bounce or start of a new bull market leg higher for this shiny metal. If gold breaks below $1500 – 1530 levels it could trigger a bear market for precious metals but until then I am bullish at the current price.  I do think we could see another spike lower in gold to test the $1500- $1530 level this week but after that it could be off to the races to new highs.

Crude Oil Weekly Trading Chart:

Oil had a huge bull market from 2009 until 2011 but since then has been trading sideways in a narrowing bullish range. I expect some big moves this year for oil and technical analysis puts the odds in favor for a higher price.  If we do get a breakout and rally then $130 will likely be reached. But if price breaks down then a sharp drop to $50 per barrel looks like the next stop.

Utility & Energy Stocks – XLU - XLE – Weekly Investing Chart

The utility sector has done well and continues to look very bullish for 2013. This high dividend paying sector is liked by many and the price action speaks for its self… If the overall financial market starts to peak then these sectors should hold up well because they are services, dividend and a commodity play wrapped in one.

 

SP500 Trend Daily Chart:

The SP500 continues to be in an uptrend which I am trading with until price and volume tell me otherwise. But there are some early warning signs that another correction or a full blown bear market may be just around the corner (Selloff in May??).
Again, sticking with the uptrend is key, but knowing what could happen in the coming months gives you some time to start looking for some great shorting opportunities for when the trend changes. Your transition from long positions to short positions should be a simple measured move in your portfolios and not a panic reaction.

Weekend Trend Conclusion:

In short, I remain bullish on stocks and commodity until I see a trend change in the SP500.
The energy sector is doing well and looks bullish for the next month or so.

Gold and gold miners, I feel they are entering a low risk entry point to start building a new long position. Risk is low compared to potential reward so depending on how things unfold this week I may start to get active in this sector.

Keep in mind that when the price of a commodity or index trades near the apex of a narrowing range or long term support/resistance level volatility typically increases as fear and greed become heightened. This creates larger daily price swings so be prepared for some turbulence in the coming weeks while the market shakes things up.

If you like my work then be sure to get on my free mailing list to get these each week on various investments for investment ideas at www.GoldAndOilGuy.com

Article contributed by Chris Vermeulen

Polarity in the European economy

Polarity in the European economy, German economy improves while further deterioration is recorded in the French economy.

Europe's composite PMI (preliminary estimate) dropped unexpectedly in February to a level of 47.3, compared to 48.6 in January and expectations for a rise to 49.0. The decline, following three months of increases, signals the expectations for further economic contraction in the first quarter of 2013.
France's composite PMI continued to decline to a level of 42.3 (42.7 in January) and it indicates a further quarterly contraction of the second largest economy in Europe. Germany's composite PMI declined to a level of 52.7 (compared to 54.4 in January), but its relatively high level is still encouraging.

More in Germany, The ZEW and IFO surveys also indicate the expected recovery of the German economy during the first quarter of 2013, following a quarterly sharp drop of 0.6% during the fourth quarter of 2012. The Business Climate of the IFO survey rose for the fourth consecutive month to its highest level in ten months. The IFO survey examines managers’ expectations in the manufacturing and services sectors. The ZEW survey, which examines investors' assessments of the economic situation in six months, jumped to its highest level since April 2010.

To summarize our comments regarding the European economy, we note that the European Commission lowered last Friday its forecast for growth in 2013 to a level of 0.3%, compared with the previous forecast in November 2012 to an expansion of 0.1%. According to the new forecast, the German economy will grow in 2013 by approximately 0.5% and the French economy by 0.1%. The Commission expects the French deficit will be higher than the government's target (3.7% of GDP compared to a target of 3.0%), another indication for the growing concerns of the developments of the French economy.

Fed signals a possibility for a sooner than expected end of QE3

Is the Fed changing its approach? The Fed's January interest rate decision minutes indicated the committee members’ change of approach. According to the protocol, "many participants also expressed concerns about potential costs and risks arising from further asset purchases". Moreover, the minutes revealed that some participants argued that it might be time to reduce the volume of purchases, regardless of the pace of recovery in the labor market, while examining "the efficacy and costs of such purchases". Until recently, markets assumed that the Fed would continue the program of bond purchases until the unemployment rate drops to a level of approximately 7.0%, but now there is a big question mark around that assessment. According to the minutes, the Fed will examine the asset purchases in its next meeting in March, with hopes that Fed Chairman, Ben Bernanke, will provide more insight regarding the move next week, during the semi-annual Congressional testimony. We note that immediately after the publication of the minutes, U.S. stock indices fell sharply, the dollar strengthened and Treasuries yields actually declined. All that in light of the risk increase in the markets and despite fears that the Fed will reduce the volume of U.S. debt purchases.

U.S. politicians continue to wrestle on the issue of the automatic cuts ("sequester") which are supposed to apply at the beginning of March. If no compromise is reached soon, some transverse automatic cuts will take effect, totaling at approximately $85 billion in 2013 and approximately $1.2 trillion over the next decade.

President Obama held a press conference last week to increase the political pressure on Republicans. Obama required the approval of Republicans (who control the Congress) to postpone budget cuts. Obama stressed that these cuts “are not smart, they are not fair, they will hurt our economy and they will add hundreds of thousands of Americans to the unemployment rolls". Recall that the U.S. Budget Office estimates that the U.S. economy will grow this year by 1.4%, mainly due to taxes increases in the beginning of the year and the expected spending cuts.

Economic releases and events of the week

• Sunday: general elections in Italy on Sunday and Monday
• Monday: U.S. Conference Board Consumer Confidence for February
• Tuesday: Fed Chairman two-day semi-annual congressional testimony starts, U.S. Durable Goods New Orders for January
• Wednesday: Eurozone Consumer Confidence Indicator - final estimate for February, Eurozone Economic Sentiment Indicator for February, ECB's president Speaks in Munich
• Thursday: second estimate for U.S. GDP growth in the fourth quarter of 2012, expectations for a growth of 0.5% vs. -0.15 in the preliminary data
• Friday: U.S. Personal Income and Personal Spending, both for January, U.S. ISM Manufacturing PMI for February, Germany Retail Sales for January, Eurozone Unemployment data for January, Manufacturing PMI in the Eurozone and China - final estimate for February

Gold in cyclical low

GOLD should be completing a cyclical low in February

Over the past 5 calendar years we have seen GOLD either complete an intermediate cyclical top or bottom in each February.  My forecast was for February of 2013 to be no different and for Gold and Silver to make trough lows this month.  With that said, I did not expect the drop in GOLD to go much below $1,620 per ounce at worst, but in fact it has. Where does that leave us now on the technical patterns and crowd behavioral views?

First let’s examine the last 5 years and you can see how I noted tops and bottoms in the chart below:

That brings us forward to todays $1,573 spot pricing and trying to determine where the next move will go. To help with that end, some of our work centers on Elliott Wave Theory, along with fundamentals and traditional technical patterns of course.  In this case, the recent action around Gold has been very difficult to ascertain, and I will be the first to admit as much.  With that said, one pattern we can surmise is a rare pattern Elliott termed the “Double Three” pattern.  Essentially you have two ABC type moves, and in the middle what is dubbed an “X” wave, which breaks up the ABC’s on each end of the pattern.  For sure, if we add in traditional technical indicators along with sentiment, we can see very oversold levels coupled with the potential Double Three pattern and probably start getting long here for a trade back to the 1650’s as possible:

Obviously this chart shows oversold readings in the lower right corner using the CCI indicator. That said we would like to see 1550 hold on a weekly closing basis to remain optimistic for a strong rebound.

Article contributed by David A. Banister of Market Trend Forecast

Consider our free weekly reports or a 33% discount by going to www.MarketTrendForecast.com

Gold and Silver Nearing MAJOR Long Term Support

Gold and silver along with their related miners have been under a lot of selling pressure the last few months. Prices have fallen far enough to make most traders and investors start to panic and close out their long term positions which is a bullish signal in my opinion.

My trading tactic for both swing trading and day trading thrive on entering and exiting positions when panic trading hits an investment. General rule of thumb is to buy when others are extremely fearful and cannot hold on to a losing position any longer. When they are selling I am usually slowly accumulating a long position.

Looking at the charts below of gold and silver you can see the strong selling over the past two weeks. When you get drops this sharp investors tend to focus on their account statements watching the value drop at an accelerated rate to the point where they ignore the charts and just liquidate everything they have to preserve their capital.

Gold Bullion Weekly Chart:

The price and outlook of gold has not really changed much in the past year. It remains in a major bull market and has been taking a breather, nothing more. Stepping back and reviewing the weekly chart it’s clear that gold is nearing long term support. With panic selling hitting the gold market and long term support only $20 - $30 dollars away this investment starts to look really tasty.

But if price breaks below the $1540 level and closed down there on a weekly basis then all bets are off as this would trigger a wave of selling that would make the recent selling look insignificant. And the uptrend in gold would now be over.

Silver Bullion Weekly Chart:

Silver price is in the same boat as its big sister (Yellow Gold). Only difference is that silver has larger price swings of 2-3x more than gold. This is what attracts more traders and investors but unfortunately the masses do not know how to manage leveraged investments like this and end up losing their shirts.

A breakdown below the $26.11 price would likely trigger a sharp drop back down to the $17.50 level so be careful…

Gold Mining Stocks – Monthly Chart:

If you wanna see a scary chart then look at what could happen or is happening to gold miner stocks. This very could be happening as we speak and why I have been pounding the table for months no to get long gold, silver or miners until we see complete panic selling or a bullish basing pattern form on the charts. We have not seen either of these things take place although panic selling is slowly ramping up this week.

There will be some very frustrated gold bugs if they take another 33% hair cut in value…

Precious Metals Trend and Trading Conclusion:

In short, the precious metal sector remains in a cyclical bull market. That being said and looking at the daily charts the prices have been consolidating and are in a down trend currently. Until we see some type of bottoming pattern or price action form it is best to sit on the side lines and watch the emotional traders get caught up and do the wrong thing.

The next two weeks will be crucial for gold, silver and miner stocks. If metals cannot find support and close below the key support levels things could get really ugly fast. If you would like to receive my daily analysis and know what I am trading then check out my newsletter at:


Article contributed by Chris Vermeulen 
 www.TheGoldAndOilGuy.com

Recession in Europe and Japan, improvement in the U.S.

The improvement in the U.S. economic data continues

Most of the data released in the past week regarding the U.S. economy were encouraging. We negatively note that the industrial production declined in January by 0.1% (versus expectations for +0.2%), however December and November data were revised upward. The Empire State manufacturing expectations survey of the New York area rose unexpectedly to its highest level in 9 months (+10.0 versus -7.8 in January). We emphasize that the positive indication from this survey is compatible to the increase recorded in the last two months in the manufacturing purchasing managers’ indices in the U.S. (ISM Manufacturing and “Markit” PMI), an evidence for the expected improvement of the American manufacturing sector in the coming months.

In reference to the American consumer, we positively note the rise in the University of Michigan consumer confidence index for February (which rose to its highest level in the last three months), the decline in the initial jobless claims, and the increase in U.S's retail sales in January. A slowdown was recorded in the volume of private consumption: retail sales rose in January by 0.1%, following an average monthly rise of 0.5% in November and December. Nevertheless, the figures are still encouraging, especially when taking into account the concern that the taxes increases (in the beginning of the year) significantly affect the volume of private consumption.

On the negative side, we shall note that an internal email of a senior in Walmart from February 12th leaked to a Bloomberg journalist last Friday. That email revealed that the net sales recorded in early February this year were the lowest in the last seven years, probably as a result of increasing the U.S. Payroll tax.

The U.S. earnings season is coming to an end (about 79% of the companies included in the S&P 500 index have already reported their results), and the summary so far points to a recovery in the U.S. business sector. Nevertheless, we note that the volume of growth in revenues (year-over-year) remained relatively moderate compared to the level recorded in late 2011 and in the first quarter of 2012.

Growth figures for the fourth quarter indicated the recession prevailing in Europe and Japan

Europe: last week's biggest news was the publication of the fourth quarter's growth data. We briefly note that a sharper than expected contraction was recorded in Germany (-0.6% in quarterly terms), France (-0.3%), Spain (-0.7%) and Italy (-0.9%). We note that the Eurozone economy shrank for the third consecutive quarter, and by the sharpest rate recorded since the first quarter of 2009 (quarterly rate of -0.6% in the fourth quarter, compared with forecasts to -0.4%). Regarding the Eurozone's future growth, the expectation surveys published in the last two months indicate a slight improvement in companies and consumers' assessments of the future growth, though the level of the expectations surveys remained relatively low, and still points to expectations for further contraction of the Eurozone economy.

Japan: the negative trend recorded in the global economy during the last quarter of 2012 affected the Japanese economy as well, which shrank, for the third consecutive quarter, to a level of -0.1% (quarterly rate) compared with a quarterly growth forecast of 0.1%. World leaders turned to the new Japanese government to stop trying to weaken the Japanese Yen, after it weakened by 15% against the dollar since early November 2012. However, the recession prevailing in Japan will probably continue to support a continued aggressive monetary and fiscal policy of the Japanese authorities, in order to accelerate the growth rate of the Japanese economy.

Emerging markets: the economic contraction recorded in most of the developed markets during the last quarter of 2012, led to the slowdown in the growth rate of emerging markets. The GDP data of Poland and Russia pointed to a more moderate pace of economic growth, while in Hungary and the Czech Republic a relatively sharp economic contraction was recorded.

Economic releases and events of the week

Tuesday: ZEW Germany assessment of current situation, NAHB Housing market Index in the U.S., Both expected to increaseWednesday: U.S. Housing Starts and U.S. Building Permits for January, Fed's Minutes from Jan. 29 Federal Open Market Committee (FOMC) Meeting, Eurozone Consumer Confidence Indicator for February, slight increase expected
Thursday: Eurozone February's Preliminary manufacturing PMI, U.S. Existing Homes Sales for January, Philadelphia Fed Business Outlook Survey for February
Friday: IFO Germany Business Climate February

IMF 2013 global economic growth forecasts

The International Monetary Fund (IMF) slightly lowered its forecast for global economic growth in 2013 to 3.5% (versus 3.6% forecast in October), and in 2014 to 4.1% (vs. 4.2% in October). The growth rate in 2012 stood at approximately 3.2%. In reference to the expected moderate growth in the next year, said the chief economist of the IMF: “It’s clear that financial markets are ahead of the real economy. The question is whether they are too much ahead or not… What we know is that it always takes some time for financial markets’ optimism to feed to the real economy and at this stage there are still obstacles to it.

The IMF economists estimate that the Eurozone's economy will contract in 2013 by 0.2%, compared to the previous forecast (October) of a 0.2% growth. The IMF warned that the Eurozone still poses a major risk to global economy. Nonetheless, they predict that the economic situation will improve and that in 2014 the Eurozone's economy will grow by 1%.

The IMF economists slightly cut their forecast for the U.S. economic growth in 2013 to 2% (vs. 2.1% forecast in October), but, at the same time also raised their economic growth forecast for 2014 to 3% (vs. 2.9% forecast in October). The fund said: “U.S. politicians have to insure that the country gets through the debates regarding raising the debt ceiling without severe fiscal restraints. Politicians must agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.
The IMF did not change their estimates regarding the Chinese economy - a growth of 8.2% this year and 8.5% in 2014. The fund's chief economist said that "It’s not the rates that we saw before the crisis, but these rates are long gone”, but added that things are generally fine.

To summarize the global economic situation we note the phrase that the IMF managing director, Christine Lagarde, has coined: "We stopped the collapse, we should avoid the relapse, and it's not time to relax".

Positively, we should note that most of the economic data published this week in the U.S., Europe and China were encouraging. We mainly note the rise in the Purchasing Managers indices in January (PMI).

Regarding the European economy, we note the significant improvement recorded last week in most of the expectation surveys. However, expectation surveys continue to show the expectations for further contraction of the European economy in the coming months, even if at a relatively moderate pace (compared to the anticipated contraction in the fourth quarter).

Highlights regarding Global economy

The U.S. Congress voted last week in favor of a temporary increase of the U.S. "debt ceiling", which will allow the government to continue to operate until May 19th. However, the debate about the future fiscal adjustments that has raged between republicans and democrats may increase uncertainty in the financial markets in the coming months (towards the decision to raise the debt ceiling permanently). In addition, if U.S. politicians will do not reach an understanding regarding the automatic budget cuts (sequestration), then transverse cuts of $110 billion will take effect in early March.

More on the positive side, the ECB announced last Friday that the volume of loans repayments granted within the Long-term refinancing operations (LTRO) auctions was higher than expected, further evidence for the improvement in the liquidity of the financial system in Europe. European banks have decided to return to the ECB 137 billion euros, out of a total of 1.04 trillion euros that the ECB lent in two LTRO auctions, compared with estimates for a repayment of 84 billion euros.

Economic releases and events of the week

• Monday: U.S. durable goods new orders
• Tuesday: January U.S. conference board consumer confidence, expectations for a slight decrease
• Wednesday: U.S. GDP for Q4 Quarterly rate (expectations for +1.2% vs. 3.1% in Q3), U.S. Fed rate decision, U.S. Personal Income and Spending (both for December), Eurozone Economic Sentiment Indicator and Consumer Confidence Indicator (both for January)
• Thursday: December Germany retail sales for, expectations for an annual decrease of 1.3%
• Friday: Eurozone employment data (expectations for a slight increase in the unemployment rate), U.S. employment data (expectations for stability in the unemployment rate and an addition of 160 thousand jobs in January), Purchasing managers' indices (PMI) of the manufacturing sector in the U.S., China, and the Eurozone

Content provided by:  AnyOption

Precious Metals & Miners Making Waves and New Trends

The precious metals sector has been dormant since both gold and silver topped in 2011. But the long term bull market remains intact. As long as we do not have the price of gold close below the lower yellow box on the monthly chart then technical speaking precious metals should continue much higher.

Large consolidation periods (yellow boxes) provide investors with great insight for investments looking forward 6-18 months upon a breakout in either direction (up or down). The issue with investing during these times is the passage of time. One can hold a position for months and sometimes years having their investments fluctuate adding extra stress to their life when they really do not need to.

Once a breakout takes place a powerful rally or decline will start putting an investors’ money to work within days of committing to that particular investment compared to money invested waiting months for the breakout and new capital gains to occur.

Gold Price Chart - Monthly

Gold Price Chart - Daily

The chart of gold continues to form a large bull flag pattern with a potential 3 or 5 wave correction. If price reverses this week and breaks above the upper resistance trend line then it will be a 3 (ABC)  wave correction which is very bullish. But there is potential for a full 5 wave correction which is still bullish, but it just means we have another month or two before metals bottom.

Gold Miner Stocks – GDX ETF Chart – Daily

Gold miners do not have the sexiest looking chart. It was formed a strong looking bull flag but has continues to correct and is not nearing a key support level. This level could act as a triple bottom (bullish) or if price breaks below then it would be breaking then neckline of a massive head and shoulders pattern which points to 50% decline. I remain bullish with the longer term gold trend until proven wrong.

Silver Price Chart – Daily

Silver remains in a long term bull market much like the monthly chart of gold shown earlier in this report. Silver continues to work its way through a large bull flag pattern with a positive outlook at this time.

Silver Miner Stocks – SIL ETF – Daily Chart

Reviewing the precious metals sector it seems that silver miners have the sexiest looking chart. All price patterns are showing strength and are in proportion to one other. If this chart plays out to what technical analysis is pointing to then we could see the precious metals sector put in a bottom and rally within the next week or two. And if this is the case then silver miner stocks should provide the most opportunity going forward.

Precious Metals Trading Conclusion:

In short, what you need to focus on is the yellow consolidation box on the monthly gold chart. A breaking in either direction will trigger a massive move that should last 6-18 months. Until then long term investors can simply sit back and watch the sector while they put their money to work in other active sectors.

From a short term traders point of view, that f mine. I am looking for a signs of a bottom on the daily chart to get my money working earlier to play the bounce/rally that takes place and actively managing the position until a breakout occurs. The charts overall are not that clear as to when a breakout will take place. Metals could start to rally next week or in a few months and all we can do is wait for a reversal to the upside before we get active.

Knowing the big picture trends and patterns at play along with major support and resistance levels (breakout levels) is crucial for success and piece of mind.

Article contributed by Chris Vermeulen from www.TheGoldAndOilGuy.com


 

Wrangling of debt limit continues

Republicans and Democrats continue to wrangle regarding raising the long-term debt limit. President Barack Obama called the Republicans in congress to increase the country’s debt limit without preconditions, and emphasized that another conflict regarding fiscal issues, may lead to an extreme response of the financial markets. In addition to that, Obama said that the Republicans shouldn’t expect a "ransom" in the form of spending cuts for their agreement to raise the debt limit. The White House stated that it has no backup plan to pay the government's bills so the meaning of the congress not raising the debt limit is leading the nation into default.  During the weekend, Republicans announced that on Wednesday they would vote for a temporary increase of the debt limit, and emphasized that raising the long-term debt limit would be possible only if the government performs an equivalent amount of spending cuts.
Rating agency Fitch has mentioned this week the importance it attributes to the way they handle the crisis. More they mentioned is that it seems like Washington elites haven’t yet learned the lesson of the last fight over the debt limit in August 2011, when the Republicans and Democrats hesitancy eventually damaged the business confidence.
Most of the data published this week was quite encouraging. The recovery trend in the real estate market continues, jobless claims fell sharply, and private consumption increased at a sharper rate than expected in December. Nevertheless, we negatively note the rising pessimism reflected by the expectation surveys regarding the future of the American industry and the drop recorded in the Consumer Confidence Index.
Regarding U.S. monetary policy, Fed Chairman Ben Bernanke spoke at the University of Michigan and did not say that the Fed intends to terminate or slow down bond purchases. Bernanke emphasized that the double role given to the Fed (stabilizing inflationary pressures while supporting the labor market) justifies using aggressive monetary measures.

Economic data from Europe and China

Europe: Eurozone economic data point to the contraction of the European GDP in the fourth quarter. A third consecutive monthly decline was recorded in the volume of industrial production in the Eurozone, the German economy contracted by 0.5% in the fourth quarter, and the volume of bad debts in Spain keeps breaking the record. Positively, we’ll note the increase in the Eurozone's exports in November (+0.8%). The relatively sharp appreciation of the Euro could harm the recovery of the European exports, as marked by the Eurogroup chairman, Jean-Claude Juncker, that the Euro currency is dangerously high. On the other hand, one of the ECB members said he believes the current level of the Euro is not expected to threaten the European economy.
China: the batch of data published over that past week indicates an increase in the rate of growth of the Chinese economy. GDP in the fourth quarter rose by 7.9% year over year, compared to expectations for +7.8%, and a growth of +7.4% in the third quarter. The recovery in the growth rate in the fourth quarter was driven by a jump in infrastructure spending by the government, which began to grow in mid-2012, when concerns regarding the depth of the economic slowdown started to grow. Exports stabilized towards the end of the year, and china's large trade surpluses contributed to the positive momentum.
Additional data released on Friday pointed to an increase of 20.6% in the investment in fixed assets in 2012, compared with an increase of 20.7% (annual rate) on the first 11 months of the year. The industrial production rose by 10.3% in December and retail sales rose by 15.2% in December, vs. 14.9% in November.

Economic releases and events of the week

Monday: Eurozone finance ministers Meet in Brussels.
Tuesday: EU-27 Finance ministers meet in Brussels, ZEW Germany Assessment of Current Situation for January, U.S. Existing Homes Sales December (both expected to slightly increase). Draghi speaks at in Frankfurt.
Wednesday: IMF to release world economic outlook update, Eurozone Consumer Confidence Indicator for January, expected to increase slightly.
Thursday: Preliminary manufacturing PMI for January in China, Eurozone PMI (expected to increase from 46.1 to 46.6), Eurozone Preliminary services PMI for January (expected to increase from 47.8 to 48.0).
Friday: Germany – IFO Business Climate for December, which examines the economic assessments of the business sector; current expectations are for a slight rise in business confidence.

Content provided by:  AnyOption

How to Trade Options Around Company Earnings

The hallmark of a professional option trader is the ability to use a wide variety of trade structures in order to exploit opportunities to profit from specific situations the market presents. One of the opportunities routinely presented multiple times yearly is the impending release of earnings.

Underlying the logic of earnings trades is the stereotypic pattern of increasing implied volatility of options as earnings approach. This pattern is so reliably present that experienced options traders can recognize the approximate date of an impending earnings release by simply perusing the implied volatility of the various series of upcoming options.

As a real time example of this phenomenon, consider the current option chain of AAPL which will report earnings after the market closes on Wednesday, January 23. (Click on each image to enlarge)

As can clearly be seen, the front weekly options, the first series in time following the impending earnings release, has dramatically elevated implied volatility as compared to the series expiring later.

It is because the release of earnings routinely causes reversion of the elevated implied volatility toward its historic mean value that a number of high probability trades can often be constructed surrounding earnings.

I thought it would be instructive to review a recent earnings trade I made in order to see how this consistently observed collapse of implied volatility works in practical terms.

EBAY was scheduled to report earnings after the market closed on Wednesday, January 16. As the price chart below reflects, EBAY had recently rallied and was trading in the price range circled in red.

At the time of the upcoming earnings release, there were only a few days of life left in the
January options which would expire the following Friday afternoon. The then current implied volatility situation can be seen in the option chain displayed below.

Note the elevated implied volatility in the January options as compared to the February options. The value is around twice that of the February options and clearly demonstrates this routinely observed spike as we also have seen above in the case of AAPL options.

My operating assumption was that EBAY would trade down slightly following earnings. This was wrong. As we will see however, proper trade construction resulted in a nicely profitable trade despite incorrect price prediction.

After considering a number of potential trades, I decided to use a short strangle in an attempt to capture the collapse of implied volatility. As a brief review, remember that a short strangle is a two legged position and consists of both a short out-of-the-money call and short out-of-the-money put.

Because my price hypothesis was that EBAY would sell off a bit, I weighted the strangle to the downside slightly by selling different quantities of puts and calls. The P&L graph of the position I took late Wednesday afternoon is displayed below.

The earnings were a bit better than anticipated and resulted in a modest price increase. I was able to exit the position shortly following the market open on Thursday morning for a profit of 6.45% based on the margin encumbrance required to maintain the position under Regulation T rules.

The results of this trade illustrate two critically important points for the new options trader to
understand clearly. First, my price assumption was wrong but the trade was still profitable. For those used to trading stock this may be almost an unbelievable result since in the world of stock trading there is no margin of error for an incorrect price assumption.

The second point is closely linked to the first. The second assumption in this trade was that
implied volatility would decrease substantially. This did in fact happen, the implied volatility of the 55 strike calls decreased from the 69.9% shown above to a post earnings release of 23%.

It was this volatility collapse in both the puts and calls that resulted in the profitability of the trade. Had I used my same price assumptions and constructed the trade using stock, the trade would have been a loser. We invite you to try our service to see how proper trade construction and position sizing can result in a high probability of success.

Article contributed by JW Jones of Options Trading Symbols

For more Option Trading Tips, visit Swing Trading Options

Weekly Metals, Oil, Dollar and Index Price Analysis

The US stock market was closed today for Martin Luther King, Jr. Day, and the inauguration. There does not seem to be much price action to take place on the Canadian or futures market today.

Pre-Market Analysis Points:

• Dollar index is giving mixed signals this week. Short term chart looks bullish for another couple of days but overall it is trading within a large bear flag and near resistance.
• Crude oil is trading lower by -0.50% but remains in a strong uptrend and bull flag. $97-$98 looks like the next upward thrust target.
  
• Natural gas is trading higher 0.87% touching our upside target of $3.60 this morning. It could keep climbing to $3.70 which is the next target but it looks as though its ready for a pause.
• Gold and Silver are trading flat. Last week they held up at resistance but have yet to breakout. They could do it this week but until we the trend shifts with volume to support the move and miners to also show strength I will remain on the sideline.
• Bonds are trading flat and giving off mixed signals much. The 60 minute chart is bullish with a bull flag, while the daily chart is bearish.
• SP500 index remains in a bull market grinding its way higher each week without a decent pausepullback to get long. Technically we could see a 3-4% pullback any day and the market would remain in an uptrend.

Contributed by Chris Vermeulen of ETF Trading Gold Newsletter

EU improvement is not reflected in markets yet

The improvement in Europe's financial markets has not yet been reflected in the real economy. Economic data regarding the Eurozone continues pointing to the recession prevailing in the continent, and expectation surveys indicate the further contraction expected. However, the deterioration recorded in these surveys has recently stopped, along with the sharp decline in the probability for the Eurozone's dissolution. The essentials of the data published were the following:

• The Eurozone unemployment rate continues to soar to new heights and rose in December to a rate of 11.8%.
• A sharp decline in German exports and imports in November (-3.7% and -3.4% respectively).
• A second consecutive monthly increase in the Eurozone's Economic Sentiment index. We'll note that the low level still indicates the expectation for further deterioration of the European economy.

Despite the recession, the debt yield of peripheral countries continued to fall sharply. The ten-year bonds yields in Spain and Italy fell by about 17 basis points and 13 basis points respectively. The ten-year bond yield in Spain fell this week to below the 5% threshold for the first time since March 2012. Among the reasons which supported further yield declines we note the Japanese finance minister's message that Japan will start buying European bonds (which will be issued by the ESM, European Stability Mechanism) and other Euro denominated sovereign debt, as part of the new government's strategy to weaken the Japanese yen while supporting the European economy.

Last Thursday, during the press conference following the rate decision, chairman of the ECB, Mario Draghi, said that the decision to leave the interest rate unchanged was received unanimous, as opposed to the differences that arose among the members of the committee in the previous interest rate decision, that the debt crisis continues to subside, and that the deterioration reflected in the leading indicators has stopped. Draghi noted that the positive developments in the financial markets are not yet reflected in the real economy, and that the growth forecast's risk is that it still tends to the downside. We note that towards the weekend the Euro strengthened (against the dollar) in light of the decline in the probability for an interest rate cut in the Eurozone in the coming months.

Improvement in the U.S. and China

Economic data from last week regarding the U.S. economy reveals a relatively sharp rise in the U.S. trade deficit in November, a fact that will detract from the U.S. GDP in the fourth quarter. There was a sharp decline in  exports in October, that increased in November by 1.0%, to a level indicating an annual increase of 3.3% (vs. an annual pace of +1.2% in October). Imports rose sharply in November by 3.8%, and increased annually by 2.5% (vs. an annual pace of -0.7% in October).

In China: the CPI (Consumer Price Index) rose by 2.5% in the past year, compared to an annual pace of 2.0% in November and slightly above expectations. On the other hand, the PPI (Producer Price Index) fell by 1.9% in the past year. In the Bottom line, it seems that inflation in China is stable and relatively low.
In addition, we note positively that the higher than expected increase in the Chinese exports and imports gave financial markets hope that the trend of moderation in the rate of Chinese economy's growth has stalled, and that in the near future the growth rate will reaccelerate. Chinese exports rose over the past year by 14.1%, compared to annual increase of 2.9% in November, and Chinese imports rose by 6.0% compared with annual stability recorded in November.

Economic releases and events of the week

Monday: Eurozone Industrial Production, expectations for slight increase 
Tuesday: N.Y Empire State Manufacturing Survey, U.S. Retail Sales
Wednesday: U.S. Industrial Production (expectations for slight increase), U.S. Federal Reserve Releases Beige Book 
Thursday: Philadelphia Fed Business Outlook Survey (expectations for a slight increase to a level of 5.6), U.S. Housing Starts, U.S. Building Permits for December 
Friday: Collection of important data regarding the Chinese economy, University of Michigan Survey of Consumer Confidence Sentiment for December

Taking Advantage of Recent Lows in the Volatility Index

To review quickly, the implied volatility of an options series is reflective of the aggregate market opinion of the future volatility of a given underlying asset. In terms of the Volatility Index, the price is the current market opinion of the future volatility in the S&P 500 Index over the next 12 months.

As are all attempts to predict the future, this value does not always reflect accurately the actual volatility as it plays out prospectively, but at a practical level it is the best we can do. As sage philosophers have long noted, “the future isn’t what it used to be.”

The importance for traders is the well established and generally known inverse correlation between prices for the given underlying and the measure of implied volatility, in this case our VIX value. What is typically less known is the fact that levels of implied volatility correlate even more closely to the velocity of the price move of the underlying asset in question. 

Because rapid price moves occur far more frequently to the downside, it follows that the general correlation between price and implied volatility is inverse. A fundamental characteristic that
underscores the logic of this trade is the strong tendency of the VIX to revert to its recent mean. While this is not a certainty, it is unquestionably a high probability outcome.

For professional traders, much of the focus of hedging activity has recently moved to establishing protective positions in this index rather than such older techniques as buying out-of-the-money protective index puts. However there are some well recognized pitfalls in this approach that lay in wait for the retail trader not aware of some of the nuances inherent to this approach.

One of the major risks in trading this product derives from the fact that the options are based on the value of VIX futures. Because there is no mandatory mathematical linking of the value of these futures in the several available expiration months as is routinely present in the options series with which most traders are familiar, a huge and not generally recognized risk exists. 

The founders of one of the major retail options brokers have repeatedly cautioned that the single major cause of irreparable account ‘blow ups” they witnessed were the result of time spreads, aka calendar spreads, in this VIX product.  This is the result of the ability of the various expiration months to move without mutual correlation in response to significant market events.

The result of this observation is the practical consideration that time spreads in the VIX must never be traded. No calendar spreads must ever be considered when trading the VIX. Failure to follow this admonition will subject your account to risk far beyond what you consider to be remotely possible. Simply put, “Don't do it.”

So what trades in the VIX carry reasonable and definable risk? A wide variety of trades including those with both defined and undefined risk is feasible. Such trades include verticals, butterflies, condors, and simple long and short options.

Long time readers know that I strongly prefer to structure positions to include at least a component of positive theta within my trades. Positive theta simply means that the spread has a component that will benefit from the passage of time. Let us consider a modified butterfly position; this position is commonly termed a broken wing butterfly.

First, let us review the current chart pattern of the VIX:

As can clearly be seen in the chart above, the VIX is at multi-month lows, and perusal of even longer term charts confirm this value is at multi-year lows. Given this situation, the probability of a move upwards toward its recent mean is overwhelmingly high.

In order to give sufficient duration to our trade, I would like to look at a butterfly structure
approximately 3 months into the future in order to allow for mean reversion of the VIX.

The P&L chart for our broken wing April put butterfly is displayed below:

As can be clearly seen, the trade structure has no upper bound of profitability and the risk to the lower side is the total amount paid to establish the butterfly. As such, this is a defined risk trade that will profit from a reversion of the VIX to its mean.

We welcome you to try our service to see more high probability trades that capitalize on current market conditions. Over the past two years, the service's performance track record has steadily beaten the S&P 500 Index while taking significantly less risk.



Article contributed by JW Jones from Option Trading Signals

Congress passed the “Fiscal Cliff” short-term solution

After the drama surrounding the fiscal cliff (tax hikes and budget cuts that were scheduled to take effect in early 2013), the U.S. House of Representatives approved on Wednesday a bill that prevented the "fall off the cliff". We emphasize that the understandings between the Democrats and the Republicans prevented an immediate entry of the U.S. economy into recession and led to sharp increases in global stock markets immediately after the agreement announcement. However, it is important to remember that there is still much work to be done in order to solve the U.S. fiscal problem, since the agreement reached reveals several of problems.



The first problem is that spending cuts were postponed. Current agreement focuses mainly on taxes while tough government spending cuts decisions were postponed and U.S. leaders will need to discuss and solve the budget cuts in two months, since in early March lateral budget cuts of 110 billion Dollars will automatically take effect.

The second problem is that the "debt ceiling" was not raised. In a few weeks the U.S. government's debts would reach the limit allowed by U.S. law, $16.4 trillion, and the government won't have an option to continue raising money in the markets. We should note that the debate regarding raising the "debt ceiling" is expected to be severe. It is likely that the Republicans who "lost" the fight over the fiscal cliff exploit the "debt ceiling" issue to force further budget cuts on the Obama administration, especially in the medical insurance and social security programs. On the other hand, President Obama stated that the budget cuts will not be negotiated with the Republicans and in order to solve the "debt ceiling" he requires a tax reform rather than cuts.

The debate regarding raising the "debt ceiling" will be the fifth debate in the past two years concerning U.S. fiscal issues. In each of the latest discussions, policymakers reached a solution, though at the last minute.

Rating agencies reaction: after the agreement was reached, Moody's declared that further steps must be taken in order to keep the U.S credit rating at its current level. Moody's noted that "Our ratings stance is to wait and see what the outcome of all of this is in the next few months, before we make any decision on the rating outlook or the rating itself. This is an important step, but it is the first step only", and added that "a lack of further deficit reduction measures could affect the rating negatively". S&P noted that the deal reached does not affect the 'negative' credit rating outlook of the U.S., and policymakers have a lot of work on their hands.

 

Global Economy: improvement in U.S. & China, recession in Europe & Japan

Last week was characterized by the PMI (Purchasing Managers' Indices) published worldwide. The Global manufacturing PMI rose slightly in December to a level of 49.8. While the PMI indicates expectations for further industrial expansion in the U.S. and in China, in Europe and Japan it indicates expectations for further economic contraction. In addition to the PMI, we note below the main data released last week.

U.S.: most of the economic data published in the U.S in the past week were positive. The U.S. labor market data (NFP) for December indicated that the recruitment of workers in the private sector was not affected by the fiscal cliff concerns, as net funding in the private sector was relatively higher than expected. In addition, the number of orders to U.S. factories (excluding transportation) increased during the past three months at an annual rate of 9.9% (compared with an increase of only 1.2% last year), and the ISM Non-manufacturing increased sharply than expected to its highest level since February 2012.

Europe: economic data coming from the Eurozone continues to point the recession. The Eurozone final PMI estimate for the industrial sector indicated a slight decrease, to a level of 46.1. The corresponding index of the service sector actually increased relatively sharply in December to a level of 47.8 (vs. 46.7 in November), which supported an increase in the composite PMI of all sectors in the Eurozone to 47.2 (vs. 46.5 in November). Despite the increase, the weighted index continues to stay under the threshold of the 50 points for the 11th consecutive month, and its level indicates the expectations for further contraction of the economy in the Eurozone.

Economic releases and events of the week

A batch of important data will be published this week, such as:

• Tuesday: Eurozone Consumer Confidence Indicator for December (expectations for no change) Eurozone Economic Sentiment Indicator for December (expectations for a slight increase), Eurozone Retail Sales for November and the Eurozone Unemployment rate (expectations for a slight increase to 11.8%)
• Wednesday: Germany Industrial Production for November
• Thursday: ECB interest rate decision (expectations for no change)
• Friday: November Trade Balance data for the US and China, China's inflation data (CPI, PPI)

Content provided by:  AnyOption

A Technical Update on the Mini-Crash in GOLD

Let's make one thing clear; nobody I know including myself predicted that Gold would drop from 1690 to 1625 inside of 48 hours this week. That was not in the charts and so I won’t even pretend I was going to see that train coming through the tunnel.

With that said, let's try to let the dust settle but take a look objectively at some possibilities.

1. We all know that some FOMC minutes released did in fact cause some major downside in GOLD based on potential for eventual end to QE in the US down the road. It did cause stops to trigger, probably some margin calls, and then more stops creating a mini crash of near 4% on the Metal.
2. The ABC pattern appeared to be completed at 1634 last week, especially when we rallied over 1681 pivot. A brief dip to 1625 spot took place this morning early, and we now trade again around the 1631 pivot.

What are the technical options?

Well if we stick with traditional Elliott Wave Theory, we can see a potential 3-3-5 pattern still unfolding and wave 5 of C is now in play. 3-3-5 patterns have 3 waves down, 3 up, then 5 down to complete the entire ABC Structure.

To confirm this, we will want to see GOLD bottom here fairly soon in wave 5 of C.

Below is the updated chart of GLD ETF showing you this pattern. It's the best I can do right now. I will keep you updated as things unfold. To be sure, I count this as cycle year 13 in the Gold bull market and I had Gold peaking in June of 2013 at 2280-2400 ranges per ounce, but we will have to see now if that is still valid or not based on whether this C wave can hold and reverse hard soon.

Contributed by David Banister from Market Trend Forecast

Growth forecasts for 2013

For the last review of 2012, we will present the economic growth forecasts for 2013 by leading institutions. Generally, the latest forecasts present a gloomier picture of global economy than ones from prior months do. Worldwide economic situation does not seem to get any better as, per IMF, "prospects have deteriorated further and risks increased".

• IMF: the International Monetary Fund global growth forecast for 2013 was revised downwards to 3.6%. IMF’s Chief Economist, Olivier Blanchard, said in the annual IMF World Bank meeting in Tokyo: “Low growth and uncertainty in advanced economies are affecting emerging market and developing economies through both trade and financial channels, adding to homegrown weaknesses”. Note that the IMF emphasized that its forecast was dependent on two crucial policy assumptions, that European leaders will get the Eurozone crisis under control and finding a solution for the fiscal cliff by the end of the year. A failure in achieving one of the above would lead the actual growth to be much lower.
• OECD: the Organisation for Economic Co-operation and Development cut its growth forecast for 2013 (for the 34 member countries’ economies) from the 2.2% forecast in May to 1.4%.  Pier Carlo Padoan, OECD chief economist, warned that the risk of a serious global recession cannot be ruled out: “Over the recent past, signs of emergence from the crisis have more than once given way to a renewed slowdown or even a double-dip recession in some countries”.
• ECB: the European central bank cut its growth forecast for 2013 to -0.3%, (compared to the September +0.5% forecast), following a growth forecast of -0.5% in 2012. The ECB president, Mario Draghi, said that weak Eurozone activity is expected to continue into next year, as leading economic indicators reflect the weakness of European economy. At the same breath, Draghi provided a more optimistic outlook, saying that a gradual recovery should start later in 2013, due to the expected increase in global demand and the positive effects of low interest rates in European economy.

Why balance of risks tends down

All leading organizations foresee a lower than expected global growth rate in 2013. The question on everyone’s mind should be why the balance of risks tends to the downside, meaning the actual growth rates might be even lower. Several factors may impair the growth rate of the global economy in 2013 and endanger the leading organizations' forecasts in the coming year, including the following:

• Uncertainty regarding politicians' actions: governments around the world, especially in Europe, have taken action for the sake of the stabilization of financial markets. After world's central banks have provided some kind of "safety cushion" for investors, its time the governments will start implementing pragmatic decisions which should lead to the stabilization of global economy. In this context, we note the IMF's words that "A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component". According to IMF's economists, the answer to that depends on how policy makers in Europe and the U.S. will deal with their short-term economic challenges.
• The fiscal multiplier and governments' austerity policies: most developed countries governments (excluding Japan) committed to take budgetary austerity measures, which are expected to hit global growth. That is even when taking into account that the planned tax hikes and the budget cuts in the U.S. (fiscal cliff), scheduled to the beginning of 2013, will be delayed. The fiscal multiplier is a measure of how changes in the fiscal policy (such as spending and taxation) would affect growth. According to recent calculations conducted by economists at the IMF, it currently stands at 1-1.5, meaning austerity measures that amount of 1% of GDP, derogate about 1.0%-1.5% of that country's GDP. In addition, the IMF estimates that austerity measures in the G-20 economies in next two years will exceed those recorded at 2012.
• Further decline in household and companies leverage: firms and companies in the financial sector will be another obstacle for the growth of global economy.

Two main austerity measures approaches

There are two ways to approach the economic policy:

• The Keynesian approach wishes to increase public spending by increasing the deficit during recessions, in order to stimulate the economy. To encourage public spending the government would usually reduce taxes.
• The non-Keynesian approach argues that the most important step for future growth would be to reduce the government's debt by tough austerity steps in order to reduce debt yields in the financial markets and make it easier for the country to raise more debt since Lower bond yields reduce the cost of borrowing.

Which approach is better for managing the debts crisis? The new Japanese government's approach is based on opposite principles than those applied by European politicians (led by Germany) in their struggle against the debt crisis, a very expansionary fiscal policy in Japan compared with the strict austerity policy in Europe. It will be interesting to examine the results of Japan's new economic experiment against Europe's old one which hasn’t yet been proved successful.

Content provided by:  AnyOption