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