The Morgan Report publisher says a tightly held silver supply putting pressure on prices as the macroeconomic climate fails to improve.

David Morgan, publisher of The Morgan Report, a monthly newsletter that covers economic news, currency and precious metals, believes that silver will be persistent this year in trying to break through its resistance of $50 an ounce. A tightly held silver supply, continued sovereign debt concerns in Europe and a strong appetite for the white metal at the start of the year are factors that he says will make silver a leader in the commodity sector in 2012. HAI Managing Editor Drew Voros recently caught up with Morgan to discuss what’s in store for the silver market this year.

Hard Assets Investor: Silver is starting out 2012 strongly. Is it following gold or is it blazing its own path?

David Morgan: Silver is following gold, but if you study silver carefully, there are times when silver leads and gold lags.

A quick example was last year. We saw silver basically double from around the $25level to $48, in a matter of months. That ended about May 1. Gold did a similar parabolic move, but not quite the percentage gain that silver outlined, but it did it later in the year. So who went parabolic first, silver or gold? Well, in this case, silver did.

HAI: Why do you think silver’s volatility was more intense last year than gold? Was it the drop-off in industrial demand?

Morgan: No it wasn’t. It was purely the momentum players, the guys that sit in front of computer screens all day who see a momentum move. They know it’s a small market. They know they can get extreme leverage in the market and they can use derivatives. And that, of course, causes the price to continue further down.

HAI: Yesterday Jan. 11, 2012 we saw a large spike in silver sales and price attributed to Sprott Asset Management making a big purchase for its physical silver exchange-traded fund. Are some of these ETFs driving the metals markets?

Morgan: They do, absolutely. But relative to what’s mined in the silver sector, which is about 750 million ounces on an annual basis, the 9 million ounces purchased were not really that large. But what that indicates strongly is that the flow is tight. In other words, there are not all these warehouses full of silver. Supply is in tightly held hands. It’s all held either for investors longer term and/or by industrial users that don’t really stockpile very much. What yesterday’s purchase shows is that whatever comes out of the pipeline has got a lot of people waiting at the end of that pipeline.

HAI: Do you see more silver funds coming to the market, or is there a risk here that we’re going to get saturated?

Morgan: At some point all markets get overdone. And, as bullish as I am, silver probably will at some point. I do see more silver funds coming in. In fact, I’m actually aware of a couple that are being formed as we speak. There will be more demand. But I think the big question implied is, when will it stop? The answer to that is the global financial system is in such dire straits right now, that more and more people are gravitating to the precious metals. And that trend will continue, which implies more ETFs, more hedge funds, more silver mutual funds, more holding companies and everything else throughout the sector.

HAI: Where do you see the strongest industrial demand for silver coming from?

Morgan: Solar is No. 1 right now and is growing rapidly, almost exponentially. It will level off probably by 2014.

HAI: Where do you think silver is headed in terms of price this year?

Morgan: I’m on record saying $60 by the end of the year. And it will probably take all year to get there. The key is to get through that $50 psychological barrier. It’s probably going to take a couple of tries. And I do believe at some point it will. Once it does that, you could see silver go up from $50 to $60 in a matter of two weeks. That’s the kind of move silver is capable of making.

HAI: Let’s talk a little bit about miners. Have the silver miners been as undervalued as some of the gold miners?

Morgan: It depends on a case-by-case basis, but you’re right. The silver mining industry has got the biggest premium in the sector. A good silver miner producing silver at the top of the market in the last bull market sold at 50-to-1 P/E price-earnings ratio, whereas gold miners were selling about at 35-to-1 P/E. So silver carries a premium. And you see that throughout the sector. There are some very undervalued mining stocks, including some silver stocks in this juncture.

HAI: What is some advice you would offer someone who’s thinking about getting into silver for the first time? What kind of entry point would you suggest?

Morgan: I would say get both gold and silver. There is a program I’m associated with: www.SilverSaver.LLB1 com. That program is a dollar-cost-averaging program. Just put in the same amount every month and don’t worry about it. If the market goes down, you’re buying more silver. If the market goes up, you’re buying less silver. It’s a great professional way to handle any market, especially a volatile market like the silver market.

HAI: Do you prefer bullion or coins?

Morgan: I prefer coins. I think you want small denominations. That would serve you best in exiting the market, because you have a small unit, you can sell just part of your holdings. Once you get to the bullion, then you’re making bigger decisions. Is it 100 ounces at a time? Is it 1,000 ounces at a time? I try to get everyone to start with coins. But it depends on the individual. If you’re a well-heeled investor and committed to the silver market, you should have a mix of both.

HAI: What coins would you recommend specifically?

Morgan: One rule is to buy as much silver as you can per dollar invested, which implies getting silver rounds, which are privately minted silver coins, not government minted. The government-minted coins are exactly the same in weight and content, which is 0.999 silver. But they have the government stamps on them, which puts a big premium on those.

If you get one any of these private mints, it’s the same exact thing, except it’s not a government mint that’s stamping it out. Nonetheless, it’s just as pure, just as fine, the same weight. But again, it comes down to the individual. Someone says, “No, no, I’ve got to have a government stamp on my coin.” Well then, do that. You’re just going to pay more.

HAI: The U.S. Mint said there was a record amount of silver coins purchased in the first two weeks of the year. What was behind that?

Morgan: Silver is becoming a more popular investment, so a lot of these dealers will buy huge amounts of freshly minted 2012s. They’ll slab them, which means put them in a plastic holder, and get them graded, and then put a huge price tag on them. As far as I’m concerned, it’s a big rip-off. They then sell them for $100 each, when there’s $30 worth of silver in the coin. So that’s part of it right there

HAI: Let’s talk a little bit about asset allocation. What do you recommend when it comes to precious metals?

Morgan: I recommend 20 percent into metals, but it also depends on your age. Because the younger you are, the more risk you can take. If you’re age 60 years or older, half of that would be in physical metal. The 10 percent remaining is done like this: About 70 to 80 percent of that goes into top-tier, cash-rich unhedged mining companies; about 20 percent goes into midtiers; and the remaining 10 percent is spread out among junior miners.

HAI: Do you, at times, recommend selling silver?

Morgan: Absolutely. I got out of silver at $48/oz. on that move up last year, but not all of my position. But it’s very nice to capture $19 on the move to $48, which is basically what I did.

So I do trade, and I do invest. And they’re different topics. One is to make money and go back into cash. The other is just to buy and hold for the long term. Not everybody can do both. But I’ve been doing it for years and years, and I’m comfortable with that methodology.

(Follow David Morgan at www.silver-investor.com)

It’s little wonder that so few people in the United States and Europe can think straight about basic economics with the constant flow of misinformation coming from the media and universities.  Here’s an interesting piece out of Scotland from an Oxford and Harvard trained editor titled “When inflation could be good for you.”

This one is interesting because it contains a bit of a head fake to start off.  When I first saw the title, I expected an immediate launch into an economic fallacy, but its author actually states the opposite:

“So could an inflationary inoculation work in economics, providing strong medicine for a serious economic ailment?

“With our economics strongly influenced by the experiences of the 1970s, the answer tends to be ‘no’. Inflation feeds on itself, workers chase higher wages to keep up with prices, costs spiral, companies lose the confidence to invest, and anyone on a fixed income – notably, pensioners – are the ones who suffer most.”

I guess by leading off with a little bit of truth, readers are expected to let their guards down in order to accept the information that follows.  When he states that “the the answer tends to be no,” we are immediately back on alert that fallacies are soon to follow.

But first he gives another nugget of truth:

“While interest rates remain at a historic low, with the base rate still at 0.5% and expected to stay there for a while yet, that means a negative real interest rate.

“To put it simply, the interest you get on holding money in a savings account is not enough to stop the value of your savings eroding.”

But he then uses this to conclude that a real negative interest rate policy is good because it encourages people to consume and not save their money.

“If inflation is officially encouraged to go a bit higher, real interest rates would fall, and people’s expectations of falling value of their savings could encourage them not to save but to get consuming again.”

So here we are again with the classic fallacy that consumption is the basis for economic growth. The idea that the only thing standing between us and a rip roaring economy is that we just need to stop saving and buy stuff. And if we really want to be prosperous, then we go into debt to buy stuff that we don’t really need.

This is, of course, complete nonsense.  Savings and production are the basis for economic growth. Standards of living are raised via increased productivity.  The more efficiently goods can be produced, the lower their cost. Wealth and financial independence are achieved by being productive and consuming less than you produce, not the opposite.

If this concept is not intuitively obvious, I highly recommend reading the first part of Irwin Schiff’s cartoon book “How an economy grows and why it doesn’t (Download PDF)“.  Schiff derives from first principles – or actually three men on an island – how an economy actually grows. Once you “get it,” the hazy concept of economic growth comes into sharp focus.

Ultimately the cry for more consumption is another attempt to kick the can down the road and extend the Ponzi central banking/fiat money scheme.  Particularly if we can extend it long enough to bail out the Too Big to Fails:

“Then, why-oh-why would we want to penalise thrift and savings, to encourage consumer demand, when excessive consumerism is precisely what got us into this mess?

“The answer is that – to misuse a political slogan from 2010 – we’re all in this together. Responsible behavior may have to be penalised so that savers, alongside everyone else, can get out of the current economic predicament.”

And there you have it.  If we allow our failed banking system to actually go bankrupt, it would result in a major recession.  So in order to muddle through this, the banks must be made whole again at the expense of the prudent folks who lived within their means.

And just in case those folks start getting any ideas about opting out of this arrangement, he states that:

“There’s not a savings product on the mainstream market that matches the current rate of inflation.”

But the last time I checked, gold has been doing exactly that and more for the last eleven years.

Tracy Weslosky:          Happy New Year, David.  It’s our first Currency Countdown for 2012, how are you today?

David Morgan:           I’m well, thank you, Tracy.

Tracy Weslosky:          Well let’s talk about what’s happening with the Euro.  I’d like to start about the bonds and the impact from the collapse of the Euro.  Where do you want to begin? 

David Morgan:           The overall conditions in Euro, in my view and many commentators is the Eurozone continues to deteriorate, and we’re in a situation where you just cannot get this group of individual countries banded together for political purposes on an economic basis that it is equal for everybody.  It’s impossible, and the markets are bearing that out.  So strength in one area, weakness in another, and that will continue.  As the old adage goes, a chain is as strong as its weakest link.  The weak links are several.

You’ve got Spain, Italy, Greece, and others, Ireland.  And they’re basically in a depression, these countries.  And there’s all kinds of people literally in the streets.  So even though France might look good today, and Germany might look good today and the last week or so and there’s all kinds of commentary about resolution of problems and the ECB coming to the rescue.  In my view it’s a smoke screen; things are deteriorating basically before our eyes. 

Tracy Weslosky:          Yes let’s talk about smoke screens.  And in particular the impact on bank lending; I would suspect that’s one of the examples of how this is affecting all of us.  Can you talk to us about banks and their lending and how they’re going to cope with all of this?

David Morgan:           Well that’s the crux of the problem.  The basic situation is extremely similar to what happened in the 2008 financial crisis in the United States.  And to be specific, what happened at that point was that inter lending– bank to bank loans were not being performed.  What that means is that bank A didn’t trust bank B which didn’t trust bank C.  Well all these banks are interconnected, but none of them were trusting each other, and the whole system is based on confidence.

So at the last minute, so to speak, and the Fed didn’t waste any time, came in and said “Okay, bank A, B, C, D what we’ll do is we will eat your toxic paper and we will substitute Treasury bills, Treasury notes, Treasury bonds for that paper” and trading continued because all these banks were willing to trade their toxic waste assets for government backed paper.  And the system did not fall over the cliff.  

We’re in a similar situation the Euro; the interbank lending for all practical purposes has ended.  These banks don’t trust each other.  You don’t know what the loan rates are, and you don’t know what the discount rate’s going to be in the future.  You don’t know how much the interest rate will be pushed up.  Basically you just don’t have any confidence between Eurozone countries.  However, you still have the ECB, the buyer of last resort similar to the Federal Reserve in the United States.  And so even though this over subscription to the French last bond program, which is currently going on, I think that’s more of a, again, smoke screen meaning that the powers that be are there saying “Yeah, yeah we want buy French debt.”

Sure they do.  Well fine, the real truth of the matter is that these banks are scared to death.  They don’t trust each other, and that further deteriorates the system.  So I think we’re getting near the end game here. 

Tracy Weslosky:          I want to talk about the Asian markets and how they’ve been impacted.  It seems that the press is starting to see a correlation; what do you think?

David Morgan:           Global markets have been global for some time.  I mean regardless of the different currencies, everybody is tied together.  I mean without the export ability of China, and the ability of the Westernized nations, Europe as well, to be able to export funny money to the producers you’re not going to have world trade.  So we’re all interconnected.  And we’re all connected to the U.S. dollar, although that has been lagging of late, meaning more and more we’re seeing Russia and China say “We will trade with each other without going through the dollar first.”

It happened again recently with other countries and China.  Some entities and nation states are going to use the Yuan directly and peg some of their trades in the Yuan without going to or pegging to the dollar.  So you’re seeing more and more undertones in the real world where trade will continue but the dollar isn’t used as the supreme currency, and that trend will continue. 

Tracy Weslosky:          Hitting the ground running in 2012 I’m reading all kinds of documents and e-mails on the impact of reflation, and how this is going to cause a beautiful boomerang in the resource sector.  Can you tell me if you agree with that or what everyone’s talking about?  Do you think you could define that a little better for our listeners?

David Morgan:           I think I can help.  I’ll add to it.  The defaults are going on left and right.  The depression is real in a lot of the European Union, and especially in Eastern Europe.  And I think the analogy and even one of the leaders of one of the main banking sectors has used the word “depression” recently.  What happens during these defaults is really one of two things.  One you default on the currency as we’ve talked about.  Or two you can default on your ability to pay back.

And as we’ve discussed on Currency Countdown three weeks ago, when Greece was repositioned at about 50 percent, in other words their bonds were subject to a 50 percent hair cut; they’re now worth half what they were previously.  That’s a default or partial default on the bond itself.  And the other way is that you default on the currency where it isn’t trusted anymore, and that I think is the route that we’re going to see come to the fore especially in the United States.  

So what takes place is the currency becomes worth less and worth less, and finally it’s worthless or perceived to be going to worthlessness.  And at that point there is a huge rush in anything tangible. 

Tracy Weslosky:          I want to ask you about gold and what’s happening with gold right now and for the new year.  I thought I’d throw this in.

David Morgan:           Well gold is the main barometer for economic health on a global basis.  And we’ve had an 11 year run in gold for consistently 11 years in a row the road to gold prices continued to increase year over year over year.  I believe that trend is still in place, and I believe for 2012 we’re going to get a new nominal high.  If you take the inflation adjusted high of $8.50 January 21^st, 1980 and you project it forward to today using government numbers, which are suspect in my view, you would come out with roughly $2,400.00 gold. 

I think you’re going to see $2,400.00 gold by the end of 2012.  And all that says is that it’s back to its old time high in real terms.  So in other words, $2,400.00 equals $850.00, again using government numbers, which again are a bit suspect but that’s the case.  And so then I think after that we’ll go up from there.  Now obviously I’m making a forecast here, and it could be off but we’ll see.

I really do think that over the next two to three years that as this unwinds further, meaning the global economies and this currency problem continues, you’re going to see a huge flight in to the precious metals, silver included.  And a lot of people are going to wake up to the fact that – be it Canada, be it the United States, be it South America or in Asia somewhere, that their savings are being deteriorated and you need to protect yourself.  You need to get something of value that will hold value.  And since the global economy is much more inner connected than ever before, and the access to precious metals is greater than its ever been before, I think it’s will be the mother of all bull markets in the precious metals.  But we’re not there yet, but we’ve certainly built the foundation to build upon to get to that place.  So I look for huge increases in real purchasing power for gold and silver over the next few years.

Tracy Weslosky:          David, thank you so much for joining me today on Currency Countdown.

Experienced traders recognize that volume typically dries up going into the holiday season. Light volume and the holiday seasonality generally push equity prices higher. The discussion of whether Santa Claus comes to Wall Street has arrived in earnest.

I do not envy Santa as he has the most arduous task of determining if Wall Street was naughty or nice. I suppose it depends on whether he reviews recent performance, or if past performance comes into play. Clearly coal will likely be found in a few stockings soon enough. If I were John Corzine, I would not expect to get a lump coal, but something far worse potentially.

In all seriousness, the bullishness has gotten pervasive in the media and economic data points such as unemployment and consumer credit have improved according to the government. One way to gauge investor sentiment is to look at the weekly advisor sentiment numbers courtesy of Bloomberg and Investor’s Intelligence.

According to this week’s advisor sentiment numbers, advisors who are bullish advanced to 47.4% from 44.2% last week. Bearish advisors dropped to 29.5% from 30.5% from the previous week. The 29.5% bearish data point matches a level that has not been seen in nearly 4 months. Bullishness has clearly become the leading expectation in the marketplace.

Only one asset has the opportunity to be “The Grinch” and ruin Christmas on Wall Street. If the U.S. Dollar rallies sharply, risk assets are certain to get hammered lower. In addition to the bullish tenor of market participants, most market pundits and gold bugs believe strongly that the U.S. Dollar is doomed fated for lower prices.

When I look at the long term momentum of a stock or commodity contract I will look at a monthly chart and plot the 12 month moving average against the price action. While it seems simple, equity and futures positions adhere to the 12 month moving average quite closely in many cases. The analysis is very simple as prices above the 12 month moving average equate to bullishness and prices below the moving average predict lower prices. The monthly chart of the Dollar Index futures is shown below:

As can be seen above, the Dollar Index futures are showing strength currently. The 12 month moving average is starting to flatten out which is also a bullish indicator. When looking at the daily time frame we can see that price action is trading inside a wedge pattern and is bouncing higher off of support:

An additional catalyst that could push the U.S. Dollar higher is the economic tragedy that is Europe. European political leaders need to come up with a series of strong solutions that will stabilize their economic crisis otherwise the Euro will weaken further. A weakening or potentially crashing Euro will push buyers back into the U.S. Dollar. This would in turn place downward pressure on equities and commodities.

S&P 500

On Thursday the S&P 500 flushed over 2% lower by the close as the European Central Bank disappointed investors with an expected 0.25% rate cut and no new bond purchase announcements. The bulls will tell you that the Thursday the week prior to monthly option expiration usually is volatile and price direction is generally in the opposite direction of the primary trend. We will find out next week whether that axiom holds true. The daily chart of the S&P 500 is shown below:

The strength of Thursday’s move is not going to easily be reversed. The European leaders need to shock the market with tangible decisions and launch a major offensive against their growing fiscal issues. If European leaders disappoint investors, the reaction to the news could be a violent selloff that leaves bulls flatfooted next week.

Those who are leaning long in size should consider that their trading capital is being leveraged on the hope that European leaders can come to a groundbreaking agreement. I will be in cash watching the price action in the S&P 500. However, once the dust settles and others have done the heavy lifting, I will likely get involved with a directional trade. Until then, I am just going to ponder if I were Santa, would Wall Street get a present or a lump of coal?

Get these weekly reports and trade ideas free here: www.Optionnacci.com

JW Jones

By Chris Vermeulen: www.TheGoldAndOilGuy.com

The months of November and December are the second strongest back to back months for the financial markets. Many traders and investors use this time of the year to reap big gains as they close the year out. The fact that most traders and investors are sitting in cash and underweight stocks in their portfolio’s leaves me to believe a Santa Clause rally is just around the corner. Reason being is everyone has cash on hand to buy stocks because they are selling their positions in this pullback we are in right now. I know traders well enough, they will buy back into the market trying to catch the holiday rally in the coming weeks.

Subscribers and myself have been short the SP500 for a couple weeks after watching the broad market become overbought and sentiment levels became overly bullish with greedy pigs thinking they could buy stocks after a massive month long rally that had not pullback. Once the selling started you would either get you head handed to you or you were going to make a killing buying leveraged inverse ETFs.

Those who arrived late to the rally are the ones selling out of their positions this week. The interesting thing about this week’s market condition is that I have not seeing any real panic selling in stocks, and I’m not seeing the volatility index spike in value yet.

What does this mean? Well it means we could actually see another big dip in the market which should last 1-2 days and then we get a sharp reversal to the upside.

Take a look at the SP500 & Volatility index below:

This chart allows us to get a feel for fear in the market. Me being a contrarian trader, I focus on market sentiment extremes. When the masses are losing money hand over fist I’m generally on the other side of that trade with open arms. Trading off fear is one of the easiest ways to trade the market. That is because fear is much more powerful than greed and it shows up better on the charts. Spotting panic selloff bottoms is something that can be traded successfully if you know what to look for and how to trade them.

On the chart you can see the pullbacks in the SP500 which triggered a panic selling spike in my green indicator. What I look for is a pullback in the SP500 and for my panic selling indicator to spike over 20. When that happens I start watching the volatility index for a spike also. The good news is that the volatility index typically rises the following day making my panic indicator more of a leading one…

/> Market Sentiment Trading 

I could write a 20 page report going into depth this with topic, but that’s not the point of this report. Just realize that the stock market is likely going to put in a bottom very soon and likely end with a STRONG panic selling washout this week or next. If you want to learn more about how to trade market sentiment and panic selling you can read my strategy which was published in Futures Magazine.

Prepare for a sharp drop in the market which should kick start a holiday rally in the next few trading sessions.

Chris Vermeulen /> www.TheGoldAndOilGuy.com –Index, Commodity and Currency Trading Alerts

By JW Jones – OptionsTradingSignals.com

The current trading environment is one of the most difficult that I can recall in recent memory. Risks abroad regarding the European sovereign debt crisis is keeping market participants on edge as headline risk seemingly surrounds traders at every turn.

In addition to the risk posed by Europe, the market’s reaction to the Congressional Super Committee’s upcoming statements also poses risks. As it stands now, the media is reporting that the committee is in gridlock and has yet to compromise. The deadline for the Super Committee is Wednesday, November 23^rd. The gridlock leads to uncertainty, and Mr. Market hates uncertainty. High levels of uncertainty corresponds with increased volatility levels, thus caution is warranted.

Recently I have been actively trading around the wild price action, but I have been utilizing smaller position sizes in light of the elevated volatility levels. In addition to the smaller position sizes, I have been aggressively taking profits and moving stops in order to protect trading capital.

This past week, members of my service enjoyed two winning trades. We were able to lock in gains on a SPY Put Calendar Spread for a nice 20% gross gain. On Friday we closed a USO Put Calendar Spread for a gross gain of 17%. These trades were relatively short term in duration, but the gains they produced were strong.

Both trades took advantage of increased volatility which resulted in enhanced profits. If volatility remains elevated going forward which I expect, these types of trades will offer great risk / reward going forward. Volatility is an option traders friend, and this past week members of my service were able to lock in some strong gains with relatively muted levels of risk.

Gold Futures

I have not written much about gold recently as I have honestly not seen a great deal of opportunity in either direction there. The price action has been quite volatile, but this past week we saw gold futures sell off sharply. I believe the explanation for the selloff is partially due to strength in the U.S. Dollar. The daily chart of the U.S. Dollar Index is shown below:

/> The recent selloff in gold can likely be attached to the increase in margin calls around the world as a likely consequence of the MF Global bankruptcy. Uncertainty surrounds the commodities market as the collapse of MF Global has interrupted traditional capital flows and broad based volume around the world. The MF Global situation continues to provide a negative headwind for financial markets in general.

I continue to be a long term bull regarding precious metals as nearly every central bank is either printing money deliberately or is increasing the money supply through quantitative easing. With multiple calls coming out of Europe over the weekend for the European Central Bank to print money to monetize European sovereign debt, it may not be long before the ECB begins their own quantitative easing program. In the long term this can only mean higher prices for gold.

Right now the short term looks bearish for gold as the daily chart of gold futures shows gold tested near the top of a recent rising channel and failed. The selloff was strong, but  a pullback here makes sense from a technical perspective. The daily chart of gold is shown below:

The longer term time frame continues to remain technically positive for the yellow metal. As long as gold prices hold in their multi-year rising channel, higher prices remain likely. Right now the $1,500/ounce price level needs to hold as support if the bulls are going to remain in control in the long term time frame. The weekly chart of gold futures shown below illustrates the long term rising channel:

Right now we are in a seasonally strong period for gold. I am going to be watching closely in coming weeks for a solid entry point to get long the yellow metal for a longer term time frame. Right now the short term remains bearish, but the longer term is bullish from technical and fundamental viewpoints.

S&P 500

The S&P 500 Index sold off sharply during the past week. In my most recent article, I discussed two key price levels to monitor to the downside. The key support levels were the 1,230 and 1,190 price levels respectively. The bulls need the 1,190 area to hold as support to give them any chance for a “Santa Claus Rally” into year end.

Last week the S&P 500 Index closed below the 1,230 support level meaning the 1,190 area has to hold. Otherwise, we could see a sharp selloff into the end of the year. The daily chart of the S&P 500 below illustrates the key support levels:

The S&P 500 looks vulnerable to the downside presently. However, headlines coming out of Europe and/or the Super Committee this week could push prices higher. The key pivot line remains around the 1,257 price level on the daily chart. If the bulls can regain the 1,257 price level on a weekly close a test of 1,290 will become more likely. However, as long as prices remain below 1,230 and 1,257, the S&P 500 is vulnerable to additional downside.

I would not be shocked to see the S&P 500 push higher this week to work off short term oversold conditions. Truncated weeks result in lower than average volume which generally favors the bulls. However, in this environment anything could seemingly happen. Risk is high in either direction.

Subscribers of Options Trading Signals have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out my OTS service at optionstradingsignals.com and join the hundreds that are taking home the profits.

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This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.

Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.

I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.

I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip-flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so-called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?

Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that  financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip-flop my position without first declaring that I was wrong.

When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.

After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short-term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:

What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:

Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer-term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.

Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?

The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so-called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.

The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write-downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write-down. The long-term unintended consequences could be severe and are unknown at this point in time.

In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.

With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:

Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.

The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:

In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.

In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”

Subscribers of OTS have pocketed more than 150% return in the past few months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at http://www.optionstradingsignals.com/specials/index.php and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

By: JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.