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)

David A Banister- www.MarketTrendForecast.com

The market has been in the process of a near 13 Fibonacci week corrective rally since the October 4^th 2011 lows at 1074 on the SP 500.  So far the highs reached on the initial rally of 218 points were in October at 1292.  That has remained the high water mark as we have consolidated over the last many weeks.  I expect the market to complete this counter-trend ABC bounce during the Dec 27^th-29^th window, followed by a good sized correction into Mid-January ahead of the earning season.

The patterns that I am seeing are based on crowd behavioral “Elliott Wave” analysis that I perform at my TMTF and ATP services, and this analysis now favors a 70% probability of a bearish decline beginning very shortly to the 1150’s area on the SP 500 index.  To wit, Investment Advisors in recent surveys have over 45% Bulls and only 30% bears with typical tops forming around 47-48% Bulls in surveys.  In addition, the rally has been on light volume and recent action seems to be forming a rising “bearish wedge” pattern at the same time.

Reversals in the market often come when few expect it whether they come near bottoms or tops.  My most recent forecasts called a bullish turn after Thanksgiving Day when most were bearish in the 1160’s on the SP 500 index.  We then rallied 109 points to a 1267 high, which we are re-testing now.  As we recently pulled back into the low 1200’s, I again said to watch for a major market turn on Dec 20^th. We then immediately rallied so far into the 1270 area from the 1203 lows.

Below is a chart I sent to my subscribers on Dec 24^th, having projected a continuing rally into the 27^th-29^th window of trade.  If you’d like to benefit from our market turn calls and crowd behavioral based pattern analysis on the SP 500 and Gold and Silver, check us out at www.MarketTrendForecast.com to sign up for our FREE FORECAST or GET 33% HOLIDAY DISCOUNT ON OUR PREMIUM GOLD AND SILVER FORECASTS.

I think you will admit that we are in the middle of one major crazy financial mess.  The part that makes things really crazy is that it’s not just in the United States anymore but rather serious global problem which if not handled properly could change the way we live our lives going forward or possibly even spark some type of war, hopefully things don’t get that crazy… But I do know one thing. Fear is the most powerful force on the planet and people do some crazy things when they are backed into a corner.

Anyways, on a more positive tone… today China decided to help provide more liquidity for the financial system along with the central banks. This news triggered a monster rally in overnight trading making the market gap up sharply at the opening bell. This news did hit the US dollar index hard sending it sharply lower but the question remains “Will today’s news be a one week hiccup in the market?” If Euroland starts printing money it will likely send the dollar higher and stocks lower for 6- 12 months.

Just today I was joking with Kerry Lutz of the Financial Survivor Network about how each country should just give each other country a second chance. Wipe the dept clean and start over knowing this time around exactly how each country truly operates at a financial level allowing everyone to avoid a repeat of this BS. Some countries will get off way better than others because they would get so much dept wiped clean but isn’t it better than years of problems and possibly wars over food, gold, guns, oil and Canadian water? – EH

You can read the rest of the article here… 

http://bit.ly/uEhO8b

David Banister- www.MarketTrendForecast.com

Back on October 3^rd, I penned a public article forecasting a major low in the SP 500 to occur around 1088.  The SP 500 had been declining from the 1370 highs this May and was in the 1130’s and nearing its final descent in a corrective pattern.  The next day, the market bottomed intra-day at 1074 and closed north of 1100.  Since that time, we have rallied impressively to a high of 1292, with a strong pullback to 1215, and now what I believe is the finally rally to a major top formation.

This current rally is part of a normal retracement of the 1370 highs to 1074 lows that similarly occurred in the 2008 rally off the first major market drop.  One would expect this rally to take a few months to complete from October 4^th and likely peak sometime between now and Christmas in the 1292-1320 ranges as outlined below.

First you must understand that my forecasts are largely based on human behavioral patterns and not economic news or European headlines.  The crowd commonly buys and sells in the same fear and greed swing patterns over and over again throughout history.  Once you understand these patterns, you can make pretty strong educated guesses on the direction and pivot highs and lows within a few percentage points.  Other than those wave patterns, there are other indicators I use to confirm what I think I’m seeing, so let’s review:

1.  The bullish Percent Index readings are now at 72%, which typically is an area that marks a rally high in the markets.  These indicators tell you how many of the SP 500 stocks have bullish point and figure charts.  Typically a reading over 70% is way overbought and all bulls are on board, and a reading below 30% is the opposite.   The market bottomed this summer twice on August 8^th and October 4^th as these readings were sub 30%.  The market topped in July at 1356 as this reading was over 70%. With my wave patterns and this reading now again over 70%, it’s a strong warning of an imminent reversal.
2. Sentiment Indicators are now back to full on bullish.  In the most recent AAII survey, we have nearly 46% of those polled bullish, up from an extreme low of 24% in early October near the market lows.  In addition, the Bears in this survey are at a near extreme low of 24% of those polled, leaving the ratio at almost 2 to 1 bulls.  This is another warning flag.

The Bullish Percent Index chart is below with some notations: />

Longer term, my best view right now is that this is a counter-trend bounce off the 1074 lows that will give way to another big down leg.

Here is my reasoning:

First, look at the SP 500 chart. I show the congestion zone from 1275-1300.  My Fibonacci and wave targets have been 1292/93-1306 for a few weeks; we hit 1292/93 once and fell hard.  The market is trying to work back up there in this final E wave up I think.  So far 1274-76 were hit (One of my targets) and we will see if it can run to 1292/93 and the final is 1306-08.

This is a B wave rally or wave 2 rally off the 1074 lows. We are in a bear cycle bounce.

From March of 2009 (I forecasted a market low on Feb 25th 2009), the market rallied from 666 to 1370 in 3 clear waves, ABC. Those are corrective patterns of a bear market. The market topped at .786% of the 2007 highs to 2009 lows at 1370 with Bin Laden’s death, a seminal event. 

Since then— 5 waves down (impulsive) to 1074 marked a 38% retrace of the Bear rally that went from 666 to 1370.

This is a counter-trend rally from 1074 to 3 potential pivot areas. 1292 (which I forecast and already hit), 1306-1308, and max 1320. 1306-08 is probably the max in my views.

Why?

A wave: 1074-1233 wave A from October 4th lows.  (I forecasted a bottom on October 3rd)

B wave:  1233-1195 wave B (A mild .236% retrace of A wave)

C wave: 1195- 1292, 1308, 1320 wave C  (Where wave c is either .618, .71, or .786 of wave A (159 points 1074-1233))

This recent pattern in a more microcosmic view is much like the ABC rally from 666 to 1370. There the A wave was huge and went from from 666 to 1221.  The B wave 1221-1010; and then the C wave 1010-1370.  That C wave was only 64% of the A wave.  All of those pivots, 1010, 1221, 666, 1370 etc. have Fibonacci relationships to prior market highs and lows.

I’m looking for this current counter-trend rally to mimic the nature of the 2009-2011 ABC Rally.  That means this final pattern up now we are in from 1195 pivot would be much less substantial than the rally from 1074-1233.  That is why I look for 1292-1306 ranges (same forecast I had weeks ago) as a top between now and Christmas at best.  At any time this market could top and crack, so I’m laying it out as best as I can.

Bottom Line: Market is trying to complete a counter-trend rally which so far peaked at 1292/93 and is struggling to get back up there or maybe a tad higher before the markets lose strength.  Many indicators short term are peaking as well, and everyone should be on guard.  If you’d like to be forewarned of major tops and bottoms in Gold, Silver, and the SP 500 with outside the box thinking, check us out at www.MarketTrendForecast.com for a great offer.

Our normal price is $327 per year, however, in the spirit of the holiday’s and the upcoming “Black Friday” shopping day, we are offering an early Holiday Present with a large discount of $100 off the annual price for just $227 for the first year of your TMTF subscription.

With all eyes on the unemployment report and Europe, the CME Group’s PR Department nearly created an all out panic with their announcement after the market close on Friday relating to futures maintenance margin. The original statement was vague and I was quite concerned until I checked out the CME Group’s web-page and the PR Department sent an update clarifying their position. At this point I think the crisis has been averted, but this is just another reminder that we live in “interesting times.”

Keep in mind that if the CME starts raising margin rates across the board for futures contracts in order to protect themselves stocks and commodities could collapse. Silver recently has is margin rates increased and silver since then dropped 25% in value. So imagine if they raised the rates for more commodities…

The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood. In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting  just a couple hours to 24 hours in length. Aggressive trading which small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.

Right now it is hard to say where price action in the broader indices heads in the short-run.  One headline out of Greece or Italy could dramatically alter economic history. In the intermediate term I remain neutral to bearish for a number of reasons. One indicator I follow is the bullish percent index on the S&P 500 which at this point is arguing for lower prices.

The chart below illustrates the S&P 500 Bullish Percent Index:

As can be seen above, the S&P 500 Bullish Percent Index is presently at an overbought status. When looking at the relative strength and full stochastics indicators one would argue that a pullback is warranted. Historically when the S&P 500 Bullish Percent Index is this overbought, a pullback ensues which ultimately sees the S&P 500 Index selloff. The more arduous task is trying to determine just how deep the pullback on the S&P 500 Index might be.

It is critical to point out that while I do believe a pullback is likely, I will not rule out a rally into the holiday season. Much of the near-term price action is going to be dictated by headlines coming out of Greece and the rest of Europe. In addition to Greece, Italy is also starting to see increased concern regarding an unsustainable fiscal condition. Depending on how the European Union handles the varying degrees of risk in the near term, we could see price action react violently in either direction.

With the market capable of moving in either direction, I wanted to point out some key price levels which should act as clues regarding potential future price action in the S&P 500. The two key support levels to monitor on the S&P 500 Index are the 1,240 and 1,220 price levels.

The daily chart of the S&P 500 Index below illustrates the price levels:

For bullish traders and investors the key price level to monitor is the recent highs on the S&P 500 around the 1,290 area. The weekly chart below demonstrates why this price level is critical and which overhead levels will offer additional resistance should the recent highs be taken out to the upside.

SP500 Weekly Chart Analysis:

While I am neutral in the intermediate to longer term presently, in the short run I have to lean slightly bearish simply because of the future headline risk and also because a major head and shoulders pattern has been carved out on the hourly chart of the S&P 500 Index. This type of chart pattern is synonymous with bearish price action.

The hourly chart of the S&P 500 Index is shown below:

Right now I remain slightly bearish, but should the head and shoulders pattern fail and/or we begin to see multiple positive reactions to news coming out of Europe a strong rally into the holiday season is likely. Unfortunately all we can do is monitor the key price levels and wait patiently for Mr. Market to tip his hand.

Until we see a breakout in either direction, we could see price action inhabit the 1,220 – 1,290 price range for several weeks before we get any more clarity of future direction. Until I see a breakout, I will remain relatively neutral with a slight short term bias to the downside based on price patterns in the shorter term time frames. This is a tough market to trade in, and I don’t want to get chopped around or do any heavy lifting. I’m going to focus my attention on high probability, low risk trade setups until directional biased trades make more sense.

In closing, I will leave you with the thoughtful muse of the late Texas Congresswoman Barbara Jordan,

“For all of its uncertainty, we cannot flee the future.”

Market Analysis and Thoughts By:

Chris Vermeulen – ETF Trading Videos & Trade Alerts

JW Jones – Options Trading videos & Options Alerts

This material should not be considered investment advice. Under no circumstances should any content from this article 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.

The past couple weeks have been tough for most investors. The recent light volume rallies which have taken place in gold, oil and stocks has been generating mixed signals for technical analysts like myself. In order avoid a large draw down on your trading capital you must focus on the long term intraday charts.

What is a long term intraday chart you ask? It is simply a 4 or 8 hour candlestick or bar chart. For example the charts below in this report are 4 hour charts. So each candlestick represents 4 hours. />   /> Why should you use these long term intraday charts instead of say a daily chart? There are four main reasons for this:

1. If you used a daily chart then this information would be condensed showing you the daily high, low, open and closing prices. While the 4 hour futures chart shows you large multi intraday chart patterns that most traders would never see…  Patterns not seen by the average investor have a higher probability of working in your favour. Also these patterns are much larger than just normal intraday patterns which you see on the 5, 10, or 60 minute charts. Remember the larger the pattern the more potential profit there will be.

2. These longer time frames allow us to follow gold, silver, oil and stock indexes around the clock 24/7 using futures contracts. Think about it… regular trading hours from 9:30am – 4pm ET only allows you to see 1/3rd of the price action each day. That means you are only seeing parts of larger patterns while the 24/7 contracts show you ALL Price Action.

3. The last reason you must use futures charts is for the volume readings. Futures show real volume levels which can be used for trading. So the volume you see on ETFs will not have the proper volume levels for that specific commodity or index. More times than not it almost the opposite…

4. My last reason for trading long term intraday futures charts is because the price of the underlying commodity or index moves true while the ETFs which try to shadow these commodities generate false breakouts and breakdowns on a regular basis. Watch my video about this here: http://www.thetechnicaltraders.com/ETF-trading-videos/TTTOct19Oil/index.html

Let’s take a look at the charts…

Gold Futures Contract – 240 Minute (4 Hour) Chart

Gold finally broke down from the bearish rising wedge which it had been forming through late September until mid October. I know the majority of traders, investors, and financial newsletters have already positioned themselves either long or short the metal as they anticipate the next major move.

I will agree that a large move either up or down is just around the corner but what sets me apart from others is the fact that I don’t bet my hard earned money when the odds are 50/50. I don’t pick tops or bottoms; rather I wait for a clean break out or low risk entry point. Only then will I take action. Until the blue box on the chart has been broken with some type of retest I will continue to observe and analyze the chart of gold.

Crude Oil Futures Contract – 240 Minute (4 Hour) Chart /> /> The past month crude oil trading has been very profitable for subscribers and me. We shorted crude oil using an inverse etf in September which moved over 20% in our favour within a few trading sessions. And just last week we shorted it again for a 7.5% move in less than 24 hours.

Overall I am still bearish on oil but have moved to cash until I see another high probability setup unfolding. The recent price action in crude oil makes the odds about a 50/50 bet as to which way it will break next. This is why I have moved back to cash and pocketed the quick gain.

SP500 Exchange Traded Fund – 240 Minute (4 Hour) Chart /> /> This chart is not the SP500 futures contract. This is just the SPY ETF but what I wanted to show was how the market was showing mixed signals. The past couple weeks price has been broadening and this can be taken two different ways…

More times than not it is seen as a bearish pattern and price generally falls afterwards. But in rare situations which I think we could be experiencing now this broadening price action can be very bullish, meaning much higher prices ahead. So I continue to observe and prepare for a possible trade setup.

Weekend Gold, Oil and Stocks Trend Conclusion:

In short, I feel the market is on the verge of a strong move. The problem is that price action, market sentiment and economic news are all giving mixed signals…

The best position right now is in cash and if something unfolds this week to our favour, then we will get involved but I am not going to take a 50/50 guess on what the next move is until the odds are in favour to one side or the other.

August until now (October 24) the SP500 is down -3.7% and Gold is up 1.1%, Silver is down 20% and oil is down -7.2. Subscribers of my newsletter have pocketed over 38.5% in total gains using my simple low risk ETF trading alerts.

Get My FREE Bi-Weekly Trading Reports and Videos by joining my free newsletter here: www.GoldAndOilGuy.com /> Chris Vermeulen

October 20, 2011 /> David A. Banister- www.MarketTrendForecast.com

Back on October 3rd I wrote a public article forecasting a major market bottom at around 1088 on the SP 500 index.  I surmised we were about to complete a 5 wave move to the downside that commenced with the Bin Laden highs of 1370 in early May of this year.  The following day we bottomed at 1074 intra-day and closed over my 1088 pivot and continued higher as we all know.  That brings us to the recent highs of 1233 intra-day this week, a strong 159 point rally off the 1074 lows in just a few weeks.

Markets I contend move based on human behavioral patterns, mostly because the crowd reacts to good or bad news in different ways depending on the collective psychology of the masses.  There are times when seemingly bad news is ignored and the markets keep going higher, and there are times when very good news is also ignored and the markets go lower. This is why I largely ignore the day to day economic headlines and talking heads on CNBC, as they are not much help in forecasting markets at all.

Using my methods, I was able to forecast the top in Gold from 1862-1907 while everyone was screaming to buy.  I was able to forecast the April 2010 top in the SP 500 well in advance, the bottom last summer, and recent pivot tops at 1231 and 1220 amongst others.  All of this is done using crowd behavioral theory and a bit of my own recipes.  That brings us forward to this recent rally from 1074 to 1233, which as it turns out is not all that random.

The rally to 1233 will have taken place within a 13 Fibonacci trading day window which ends today.  In addition, the rally is leading into the end of Options Expiration week which tends to mark pivot highs and pivot lows nearly every single month.  Also, at 1233 we have a 61% Fibonacci retracement level of the 1010 lows of July 2010 and the 1370 highs of May 2011.  1233 was my “Bear line in the sand” I gave out a few months ago to my subscribers as a likely bull back breaker.  In essence, the market is having trouble breaking the glass ceiling at 1233 for a reason; it’s a psychological barrier for investors now.

Near term, I expect the market to have another sharp correction to work off the near 160 point SP 500 rally that has taken hold in just over two weeks and again on 13 Fibonacci trading days as of today.  In addition to that, we should follow copper as it tends to be an extremely good indicator for the SP 500 index long and short term. /> Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

Right now, Copper has dropped 8% this week while the SP 500 levitates on a magic carpet ride within a 30 point range.  Copper looks like it has begun a 5th wave down, which will likely take it to the $2.70’s per pound from $3.46 last week on its recent bounce from $2.99.  Below I offer a few charts showing the projected copper pattern and also one showing the SP 500 relating to Copper.

In any event, we are due for what I call a “B wave” correction of sentiment in the SP 500 and market indices, which should take the SP 500 to the 1149-1167 ranges minimally, and perhaps set up another entry for a C wave to the upside.  Caution is warranted near term is my point.  If you’d like to receive these types of regular updates during the week covering Gold, Silver, and SP 500 and more, check us out for a coupon or free weekly update at www.MarketTrendForecast.com

In May of 2010, immediately following the flash crash many investors started to become bearish (nervous) regarding their position in gold and equities. Once the general public became aware that the stock market could fall 10% in a matter of minutes, investors became very cautious. Suddenly protecting their capital and current positions was at the forefront of their investment process.

A couple days later the market recovered most of its value, but it became clear that investors were going to sell their long positions if the market showed signs of weakness. It was this fear which pulled the market back down to the May lows and beyond over the next couple months which caused investors to panic and sell the majority of their positions. It is this strong wave of panic selling that triggers gold and stock prices to form intermediate bottoms. Emotional retail traders always seem to buy near the top and sell at the bottom which leads to further pain.

Now, fast forward to today…

This past August we saw another selloff similar to the “Flash Crash” in May of 2010. (I warned followers that gold was on the edge of topping and that stocks would take some time for form a base and bottom – Click Here To Read) Over the past couple months gold, silver, and stocks have been trying to bottom but have yet to do so. /> Just a couple weeks ago we saw gold, silver, and equities make new multi-month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

Just a couple weeks ago we saw gold, silver, and equities make new multi-month lows. This has created a very negative outlook among investors which I highlighted in red on the chart below. Since the panic selling low was formed just recently we have seen money pile back into gold and stocks (more so stocks).

This strong bounce or rally which ever you would like to call it may be the beginning stages of a major bull leg higher which could last several months. Before that could happen, I am anticipating a market pullback which is highlighted with red arrows on the chart below.

Chart of SP500, Gold and Dollar Index Looking Back 18 Months

Reasons for gold and stocks to pullback:

• Stocks are overbought and generally retracements of 50% or 61% are common following large rallies.

• The dollar index looks ready to bounce which typically means lower gold and stock prices.

• Gold continues to hold a bearish chart pattern pointing to lower prices still.

Weekly Trend Trading Ideas

A few weeks ago I warned my followers that stocks and gold are forming a bottom and that we should be on the lookout for further confirmation signs. I also mentioned that I was not trying to pick a bottom, rather that I was looking to go long once the odds were more in my favor.

This is a potentially very large opportunity unfolding and there will be several different ways to play this. However, right now I continue to wait for more confirming indicators and for more time to pass before getting subscribers and my own money involved.

From August until now (October 17) the SP500 is down -6.3% and gold is down -8.1%. Subscribers of my newsletter have pocketed over 35% in total gains using my simple low risk ETF trading alerts.

I can email you my bi-weekly reports and videos by joining my free newsletter here: www.GoldAndOilGuy.com

Chris Vermeulen

The past few months have been very difficult to navigate for retail investors and institutional money managers. The huge week to week price swings and increased volatility have made the current market conditions exceptionally difficult to maneuver. Day traders are about the only group of market participants that outperform during periods such as we have seen since the beginning of August.

Before I jump into the analysis, I would like to point out to readers that the S&P 500 Index (SPX) has rallied from 1,075 on October 4th to 1224.50 on October 14th. The S&P 500 has rallied almost 150 handles or 14% from the lows to Friday’s close in 10 calendar days. As an options trader and a market participant, I trade the market that I see, not the market that I want. With that said, ask yourself this question: Does a healthy financial construct rally 14% in 10 calendar days?

To put the recent price action into perspective, since the beginning of the year 2000 the S&P 500 would have had a poor track record on an annualized basis when compared to the past 10 calendar days’ trough to peak performance. Only in the years 2003, 2006, 2009, & 2010 would an investor have been able to best the previous 10 calendar days’ performance (Performance data courtesy of Wikipedia). The most amazing thing about the recent price action is that the S&P 500 Index is still underwater for the year even after rallying roughly 14%.

At this point two scenarios are likely to play out. One scenario involves a rally on the S&P 500 towards the key 1,250 – 1,270 resistance zone which is outlined on the chart below. The recent price action in the S&P 500 has been volatile and at this point it has gone nearly parabolic. The daily chart of the S&P 500 Index is shown below:

The resistance level shown in the chart above outlines the key 1,250 – 1,270 resistance zone that will be tested if the S&P 500 can breakout above the 1,230 resistance level. However, it is critical for traders to recognize that probabilities are starting to favor the short side. Let me explain.

If the S&P 500 is able to rally into the 1,250 – 1,270 level it would represent a gain of less than 4%. The bears will vigorously defend the S&P 1,250 – 1,270 resistance zone and it is unlikely that price action will be able to take out that resistance zone on the first breakout attempt.

With only 4% upside, the odds of some sort of correction are favorable at this point in time. Whether the correction begins early next week or whether we have to wait until the key resistance zone is tested, sellers will step back into the driver’s seat in the not-so-distant future.

McClellan Oscillator

A few data points that exemplify the overbought status of the S&P 500 are shown below. The first indicator is the McClellan Oscillator that my trading buddy Chris Vermeulen pointed out to me.

50 Period Moving Average Momentum Chart

The momentum chart shown below courtesy of www.barchart.com illustrates the number of domestic equities trading above their key 50 period moving averages:

Both charts above are warning signs that this rally is starting to get a bit overheated. I would point out that the past two times the McClellan Oscillator and the momentum chart peaked a nasty selloff occurred shortly thereafter. The one point that I would like to make clear to readers is that each time both indicators peaked prices eventually went much lower.

The evidence would lead astute traders to believe a top was near. The more arduous details about the future of the S&P 500’s price action revolve around where the topping formation will be. Will the S&P 500 find resistance on a second test of the key 1,230 resistance level?

The other scenario would involve higher prices next week that eventually reach the key 1,260 – 1,270 area on the S&P 500. Will price work roughly 4% higher before confirming a top at the key breakdown level that initiated the selloff back in August?

Conclusion

I am of the opinion that a topping formation or pattern is likely near, but the location of the top is unknown to me presently. More importantly the forthcoming selloff resolution will be very telling about the current trend of the marketplace.

The most constructive price action that we could see would be a selloff that results in a higher low on the daily chart. If that type of price action plays out a new bullish run could begin. However, if we form a top and price action breaks down below recent lows it would not be surprising to see another lower low form which would put the trend squarely in favor of the bears.

The most important aspect of coming weeks will not necessarily be where a top forms, but if and when a selloff begins. Ultimately the depth, momentum, and ferocity of the selloff are more important than where the topping pattern begins.

At this point I have no purely directional trades on the books, but I am developing a laundry list of shorts that make sense. After all, volatility has declined quite a bit and puts are starting to get a whole lot cheaper!

In closing, a top is likely in the cards in the near future. However, the strength and momentum of the forthcoming selloff will tell the real story about the future direction of stock prices. The next few weeks should be quite interesting!!

Subscribers of OTS have pocketed more than 150% return in the past two 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.

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.

Obama still doesn’t get it – Government can’t create economic growth, only prevent it.

Can I make a small request? Before we go throwing more good money (American Jobs Act) after bad (American Recovery and Reinvestment Act of 2009) can we review some basic economics?

Let’s start with what economic growth is and what it isn’t. Contrary to what the evening news would have you believe, GDP is not a measure of economic growth, as GDP is positively impacted by reckless government deficit spending. Politicians like this fact because all they have to do to claim success – in the short term – is to waste more money than the last guy. To date, no president has been more successful in this regard than Obama.

So what is economic growth really? Very simply, economic growth occurs when the overall productivity of society increases. In other words, the average individual’s labor produces more goods and services than it did previously. As more “stuff” is produced by the same amount of people, that “stuff” becomes more affordable. On average, the standard of living increases. That it positive economic growth.

The key to maximizing this productive output is to correctly align capital with the needs of the market. The good news is that this is exactly what the free market does all by itself. Profit is the critical signal that directs resources to where they are needed the most. Excessive profits indicate that demand has greatly outstripped supply. And it is these excessive profits that attract competing capital to provide additional supply and lower prices. Hence the old axiom, high prices are the best cure for high prices.

Another wonderful attribute of a free market is that those who are most skilled at increasing productivity are rewarded with the most new capital to deploy. Those who prove to be incompetent in such endeavors are swiftly punished through insolvency, as no new capital comes their way.

I consider the electronics and computer industries to be the closest thing to a free market that exists today. At least in part because government bureaucrats are unable to keep up with its complexity and rate of change.

Take a look at those who run Apple Computer. They have been extremely successful at aligning their capital investments to produce what the market wants. As a result, the market rewards their competence with additional capital to deploy. Each year they use these new resources to provide better products at lower prices. Each year they create sustainable, long term jobs. The economy and society benefit from their success.

Now let’s compare this to how the government creates jobs: Step 1) borrow money. Step 2) create make work projects. Step 3) pay people to complete said projects.

There’s really only one thing that you need to understand to shatter the whole myth of government induced economic prosperity: Governments have no wealth of their own. Any money the government has, must either be collected through taxes, borrowed, or printed. But regardless of the exact mechanism, all wealth possessed by the government is capital that is deprived from the private sector.

Had this capital been allowed to remain in private hands, it would have eventually made it to those who have the demonstrated skill at creating real economic growth (increased productivity). This leads us to a fundamental understanding; the mere act of creating jobs has no fundamental link to economic growth.

It is a trivial matter for government to provide 100% employment. This is exactly what the communist Soviet Union did. However, it suffered from virtually no real economic growth. Their standard of living was horrific compared to capitalistic countries.

And so we find ourselves on the path to a reduced standard of living, as each year, more and more private capital is miss-allocated to feed such political boondoggles as the American Jobs Act. If Obama had only a modicum of economic knowledge, he would understand that the greatest thing the government could do for the economy would be to slash its spending and simply get out of the way.