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February 28, 2011

GBP/USD – Another Bullish Approach of Resistance

Filed under: Technical Analysis — Tags: , , , , — admin @ 6:57 pm

Price action on GBP/USD (a daily chart of which is shown) as of Monday (2/28/2011) has continued its rangebound consolidation, roughly trading between key support around 1.6000 and key resistance around 1.6300, that has been in place since the beginning of the month. Having made a significant bullish push today, price action has once again risen to attempt yet another re-test of the key 1.6300 resistance. For more technical analysis on this currency pair, please click here for Monday’s (2/28/2011) Chart of the Day.

James Chen, CTA, CMT
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What’s the surprise?

Filed under: Central Banks — Tags: , — admin @ 5:34 pm

We will hear from Bernanke and Trichet this week. What surprises could they have in store for the market?

In Trichet’s case, the surprises are almost exclusively tilted toward the dovish side. He and the rest of the ECB have set the stage to tilt monetary policy toward a more hawkish direction with the market anticipating the first hike in the next two-three meetings. Should he seek to temper the market’s anticipation, that would be a surprise and would undermine the euro.

Bernanke? He’s full of surprises…He could just as easily signal he wants to restrain QE2 as announce QE3…

I imagine he will stick with the stance that while the economy is recovering it is not recovering quickly enough to rapidly shrink the unemployment rate, so he will stick to the status quo and complete the $600 bln of QE2…

Old Rates for New Zealand

Filed under: Forex Strategies — Tags: , — admin @ 4:48 pm

It’s month end and there are going to be all sorts of associated wobbles but, overall, stresses are lifting and there appears to be a reversal of Middle East inspired moves, perhaps as punters look to strap risk on ahead of expected equity inflows for the new month. It would appear that 80% of Libyan oil fields are in “rebel” hands and that they are starting to export from Tobruk again and we are pretty sure that Saudi could replace any Libyan shortfalls. So really Tripoli could look like Baghdad in 2004 and it really shouldn’t do anything to oil. But a quick question – when does the “rebel” title get exchanged for “authorities”? Because “rebel” always seems to imply minority and it appears that the rebels are now the authorities of most of the country.

So, metals are moving up, equities had a good close in NY followed by a reasonable response in Asia and it’s only Europe that has had a shot at trading the down side. In fact equities have done really well considering how much bad news has been thrown at them. Just like AUD/USD, which despite all sorts of normally negative muck is trading only just below its highs. We have also been pondering the price action in Ags, with Cotton tracing out the sort of chart that is gappier than Mike Tyson’s teeth at A GAP conference in Bank Tube station, with shortages by textile manufactures causing the latest squeeze. TMM are hoping that fresh supply relieves any pressures to use recycled cotton before we are forced to wear belly-button-lint blue/grey shirts.

But today we would like to have a look in more detail at what is going on in NZ where the debate is raging about the impact of the Christchurch Earthquake…

Readers will recall that TMM were strongly of the view that the Queensland floods in Australia were, if anything, net growth positive due to the fact that infrastructure rebuilds usually entail the replacement of older plant machinery etc with more modern and more productive versions. Furthermore, they represented an inflationary supply shock to an economy already growing above trend, with a likely looser fiscal stance adding to underlying inflationary pressure. Although, for childish political reasons, the Australian government decided to introduce a tax to help pay for the cost of rebuild, along with redistributing current expenditures, it remains the case that a fiscal policy response to natural disasters is the appropriate one given the ability for such policy to be (a) targeted centrally and more directly, and (b) more immediate in terms of action than monetary policy which, beyond an immediate impact upon confidence (in demonstrating that policymakers are on the ball), works with a longer lag via credit creation and is more dependent upon individual businesses exhibiting demand for loans.

But what about if the economy is *not* already growing above trend? It’s certainly possible to argue that a second earthquake in 5 months could be a body blow to the economy via the consumer confidence channel. To date, the recovery in New Zealand has been somewhat, err, tepid, joining the UK in putting in a negative quarter of GDP. Perhaps, then, punters are correct in pricing in 32bps of easing over the next two RBNZ meetings, with 30bps for March alone? It’s hard not to draw parallels with the Fed’s rate cuts in the aftermath of 9/11, rather than with their hikes in the aftermath of Hurricane Katrina. But even before September 2001, the front-end had priced out a great deal of tightening and was beginning to price in an extension of the Fed’s cutting cycle as it was clear that the economy was falling into recession, so TMM is not sure that is necessarily the perfect analogy.

But what is clear is that the RBNZ decision is very much a function of the economy’s underlying state. Today’s Business Confidence survey provides some grounds for optimism that after the recent “soft patch” that activity was beginning to pick up. The below chart shows the 3month moving average of the NBNZ Activity Outlook (white line) vs. the 4-quarter lagged YoY GDP data (orange line), and suggests that prior to the earthquake that GDP was likely to accelerate to around 4% or even higher over the coming months. Similarly, the surge in Milk prices and Ags in general underline the significant strength in the Agriculture sector on the back of external demand.

To date, one of the weaker areas of the economy has been consumption – primarily, TMM presume, due to September’s earthquake. TMM’s model of Retail Sales based upon Consumer Confidence, Consumer Credit growth, Wage growth and the RBNZ’s survey of expected wages 1yr ahead (see chart below – orange line; actual Retail Sales – white line) suggests that sales should have been running at around 3.75-4% YoY. The divergence in Q4 of last year is presumably a combination of the effects of last September’s earthquake and general statistical noise. Certainly, one would expect consumer confidence to fall and drag the model projection lower, but it’s not obvious that it would plumb the lows at the high of the financial crisis. Even if it did, the other inputs to the model aren’t flashing warning signals which would lead TMM to worry about a complete collapse in consumption…

…And TMM’s Inflation-Expectations augmented Taylor Rule (see chart below, white line; RBNZ cash rate – orange line) for the RBNZ seems to imply that policy is already exceptionally loose. While it’s certainly possible to argue that the RBNZ could hold off tightening in the face of the disaster, it’s not necessarily obvious that easing would be a particularly sensible thing to do.

However, TMM recognise that the RBNZ have been walked into a corner given that the market has priced in such a great deal of easing, with the press and local economists calling for as much as a 50bps cut. Given that central banks generally do not like to surprise markets to the downside, especially during crises, TMM are forced to conclude that even though the underlying economy actually looks as though it was in the process of reaccelerating, that the most likely outcome in March is a 25bps cut. However, with a good deal more priced in (see chart below: OIS forwards – red line; 3m Bank Bill forwards – purple line; spot OIS – blue line), for the brave, a pay position in the March RBNZ OIS or a long NZD position might be worth a punt. TMM are too chicken to do the former, and instead elect to sell their old nemesis AUDNZD.

How’s I’m setting up the EUR/USD (distribution!) exhaustion

Filed under: Currency Charts — Tags: , , , , — admin @ 3:43 am

The fundamentals surrounding the euro last week have not necessarily been bearish although the price action reflects significant slide against the dollar as the EUR/USD traded lower towards 1.3700, which was in fact support from yesterday’s session. The talk out of the ECB has actually been somewhat hawkish and this in my opinion accounts for the run-up within the distribution trading range on the daily chart.

2-27-2011 6-21-01 PM.jpg

My expectations for EUR/USD prices to remain within the range stem from my interpretation of the current market trend which is sideways, volatile and therefore likely to exhaust the floor and ceiling. This is distribution in a nutshell.

The EUR/USD had been trending higher for a short while until the U.S. Dollar Index began to attract buying support between 77.20 and 77.00. This floor in the dollar in turn created a ceiling on the EUR/USD. The transition out of the uptrend on the EUR/USD was courtesy the dollar’s bounce from 77.00 which began on January 31.

The sideways range on the daily is identified by the “twelve to two o’clock” angle of the 34EMA Wave. This then allows me to use a 21/1/3 Stochastics to confirm whether or not the EUR/USD is overbought or oversold as prices reach the top and bottom of the range.

The move lower is reliant on the dollar continuing to bounce from 77.20 – which it has done successfully thus far today.

This set up is a classic distribution fade or “inside-the-range” short entry that will remain valid as long as the bears can maintain selling pressure at and below the February 2 high at 1.3861.

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PSEi – More Bad Days To Come??

Filed under: Forex News — Tags: , , , — admin @ 3:22 am

philippine stock exchange composite index, PCOMP, PSEI, phisix, philippines economy, ron acoba, stock market trading, descending channel

The past 3 months weren’t particularly well for the Philippine Stock Exchange Composite Index despite all the positive hype that the Philippine economy has been getting as of late. The PCOMP or PSEi, being a leading barometer of the Philippine economy, has been telling a different story. As you can see from its chart above, the index has been steadily losing ground as it has been trading within a descending channel since it peaked at a high of 4,413.42 back in November 4, 2010. Since then it has already lost around 15.53% when it closed to 3,737.04 last Friday (February 25, 2011).

So the question that a lot people are asking is, “where will the index now?”

Well, I’m sorry to break the ice but in my technical point of view, the index and most of the listed stocks could face some more selling pressure in the days to come. You see, the index had already broken its primary uptrend (the one which could be traced back to to its bottom back in March 2009). Moreover, the last major support that should prevent it from falling further, which is its 200-day moving average, was also recently breached last week for the first time in almost two years! The index has now been trading below the said moving average for three straight days. Hence, if it does not rally past it in the next few days, then most likely it would head lower. Even it it does rally, a heavy resistance at the 4,000.00 level and the channel’s resistance could still weigh on the index. On the even bearish note, a move below last week’s low of 3,705.58 could send it down to 3,600.00.

Given the index’s present trend, which is downwards, and the uncertainty in the markets due to the political turmoil in the Middle East, I think it is prudent that we at least lighten up our long positions. At these times, it is better to stay away with our money intact for awhile and just re-enter the market again when everything has cleared already.

More on …

A Unique Formation in Crude Oil Prices — Should You Buy Here?

Filed under: Forex News — Tags: , , , , , — admin @ 3:22 am

By Jared Levy, Editor, Smart Investing Daily,

This has been a turbulent week on the geopolitical front, triggering waves in the stock market and sending the price of crude oil through the roof. While the stock market corrects itself (as we anticipated), the price of crude oil seems to be creeping ever higher, putting upward pressure on the price of fuel and energy. Worse still is the serious effect this could have on the economic recovery that everyone has been banking on.

A couple of weeks ago I showed you a way you could partially hedge some of your fuel costs with the rise in crude oil prices. But higher gasoline prices at the pump are only part of the problem for most of us. A continued rise in crude oil will wreak havoc on the prices of many things that we need to live and work.

There are three questions I want to address today:

  1. Are prices moving higher?
  2. What the heck is the difference between Brent Crude and West Texas Crude?
  3. How can you profit from a potential move in either?

Where Does Crude Oil Go From Here?

From a technical perspective, you have to be careful here if you are going long. The prices of West Texas Crude (and Brent crude) have almost gone parabolic. A “parabolic” move comes from the mathematical term “parabola,” which describes even curvature from a point called the apex.

For us non-math folks who are simply looking at price charts, a parabolic move means the asset (in this case the price of oil) is exploding higher, on increasing volume and in much bigger percentage moves than usual. This is extremely abnormal. Buying anything after its price has “gone parabolic” increases the risk of a sharp pullback in the near term.

The chart formation looks like a bit like a steep parabola; take a look at the shape of the arrow!

Crude Oil Continuous Chart
View Larger Chart

The price of crude oil recently jumped from $84 to $100 in about four days; it broke its recent resistance of $92 and exploded on huge volume. A $16 rally in four days is extreme. I know this by looking at the average trading range (ATR), which tells me what the typical movements are. The normal WEEKLY price moves in crude oil are less than $5 — a third of what we’ve seen in the past four days. Another factor is that volume is double its recent average.

As for the next move in oil, look for a pullback in the short term, maybe back to the $95 level (we saw a small reprieve yesterday), but with the long-term fundamental demand strong, geo-political unrest in the Middle East and the summer driving season upon us, bet on $120 oil in the next six to eight months.

(Investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let me and my fellow editor Sara Nunnally simplify the stock market for you with our easy-to-understand investment articles.)

Brent Versus West Texas

Now, when we talk about oil, we’re mainly talking about West Texas Intermediate (WTI) oil. But there are other types out there, and there seems to be a great amount of confusion (and hype) concerning two specific types of oil: WTI and Brent crude. Let me try to clarify. Recently, Brent crude prices have been higher than WTI, but that is not always the case; there are many factors that can influence the price relationship between the two. Also keep in mind that that prices usually won’t get too far apart, because of the ability to ship oil from one place to another to take advantage of prices.

West Texas Crude (WTI for short)

In North America, WTI is traded on the NYMEX under the ticker “CL.” It is the most common measurement that we use HERE to track the price of crude oil. It is also considered “light, sweet crude” and is generally refined in and around the Americas. ALL the futures contracts for WTI oil are traded on the NYMEX and all are delivered and settled in Cushing, Okla. There are pipelines and storage tanks in and around Cushing that help distribute and store oil. When there is a glut in storage, prices generally go lower, when there is a big reduction in the amount of oil in storage, prices may go higher.

Brent Crude (Also called London Brent, Brent Blend, Brent petroleum and North Sea crude)

Brent crude blend prices actually account of two-thirds of the world’s oil supply. Most of Brent crude oil comes from the North Sea, hence the name. Brent crude is traded on the ICE (IntercontinentalExchange) and on the NYMEX (Ticker “LO”) as well. Brent oil fuels Europe and Asia and is delivered in several areas. Brent provides a pricing benchmark for most of Europe and Asia in the same way we use WTI.

Both WTI and Brent are priced in U.S. dollars

There are actually dozens of different types and blends of oil around the world. WTI and Brent prices are simply popular benchmarks for big oil companies and traders to use. Don’t get too caught up in the struggle between the two. Right now, because of Middle East tensions heating up and Canada’s oil sands sending supply to Cushing, Okla., the price of WTI is lower than Brent, but they are indeed highly correlated.

How Can You Profit?

The most efficient way to invest in the price of oil is to purchase futures contracts directly. Of course, there are things you need to know before doing so and you must have a futures account and understand the risks.

For those of you who are not ready to start your futures trading career just yet or can’t decide if you should buy Brent or WTI, I have a solution. There is an ETF that contains the “pick and shovel” oil companies. These are the guys that get the oil out of the ground and sell it to refiners. If the price of oil (Brent or WTI) is on the rise, these companies are usually following right along. It’s called the Oil Services HOLDRS (OIH:AMEX), and you can buy and sell it just like a stock with regular commissions.

Right now, the long-term prospects for oil look good and the Oil Services HOLDRS is a great alternative way for the average investor to participate. You can view the holdings and learn more here.

If I’m on target with my prediction for oil to hit $120 in the next six to eight months, I wouldn’t be surprised to see the Oil Services HOLDRS knocking on $200′s door. And for traders out there, the Oil Services HOLDRS does offer options.

Editor’s Note: This coming crisis could blow a 950% profit your way! The U.S. wants to use “green technology” to decrease our dependence on oil. But China has a 97% monopoly on a natural resource that is vital to green technology… and we’re about to experience a serious shortage! Learn which companies could solve this crisis and hand you 950% gains in as few as 24 months in this exclusive investment report.

About the Author

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

EURUSD pulled back from 1.3837

Filed under: Forex News — Tags: , , , , — admin @ 3:20 am

Being contained by 1.3861 resistance, EURUSD pulled back from 1.3837, suggesting that lengthier consolidation of uptrend from 1.3428 is underway. Deeper decline towards the lower border of the price channel on 4-hour chart could be seen. As long as the channel support holds, we’d expect uptrend to resume, and another rise towards 1.4000 is still possible. However, a clear break below the channel support will indicate that sideways consolidation in a range between 1.3428 and 1.3861 is being formed, then next target would be at 1.3450-1.3500 area.


Daily Forex Forecast

FX Charts to Watch This Week

Filed under: Technical Analysis — Tags: , , , — admin @ 3:05 am

“The riskiest thing you can do is get greedy.” – Lance Armstrong
Hello. This week will be quite busy, some of the key events in the Forex Calendar being the RBA Interest Rate Decision on Tuesday, Bernanke’s Testimony, Trichet’s speech, the ECB Interest Rate Decision, the US ADP Nonfarm Employment Change, the Initial Jobless Claims and, of course, the NFP and Unemployment Rate at the end of the week.
Let’s take a look at some charts worth watching this week. I will post more in the coming days.
Last week’s recovery may continue as the upside is still under pressure and Friday’s pullback from Read More

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Article Source | Post tags: AUDUSD, Ben Bernanke, ECB, EURUSD, Interest Rate Decision, RBA, Trichet, unemployment, USDCHF, USDJPY, USDPLN

How spending cuts hurt the economy — dueling estimates

Filed under: Business — Tags: , , , , , — admin @ 12:21 am

NEW YORK (CNNMoney) — The big spending cuts proposed by House Republicans could weigh on economic growth and jobs, but forecasts vary widely.

Economist Mark Zandi of Moody’s Analytics said Sunday that if all $61 billion in proposed cuts for the rest of this year were enacted, the economy’s growth could be reduced by half a percentage point. Many forecasters expect the economy to grow at around 3.5% this year.

By the end of the year, Zandi said, those spending cuts could cost the economy between 400,000 and 500,000 jobs.

“I think it’s premature to engage in that kind of budget cutting,” Zandi said. “We can’t do that, I don’t think, until the economy is off and running.”

Zandi was speaking on CNN’s State of the Union with Candy Crowley.

But economist Douglas Holtz-Eakin said that cuts would have a much smaller impact on growth: 2 to 3-tenths of a percentage point. “It’s a rounding error,” said Holtz-Eakin, who was a top economist in the George W. Bush White House and also served as director of the Congressional Budget Office.

Instead, said Holtz-Eakin, who was also on State of the Union, the budget cuts could ultimately have a positive impact by reducing the fear of increases in interest rates and taxes that deficits can cause.

The proposed spending cuts are “tiny,” relative to the $15 trillion U.S. economy, said Holtz-Eakin. “The notion that somehow doing the right thing in this amount is going to harm us is just misplaced.”

4 new threats to the economy

Zandi agreed that we need to address the deficits – just not yet. “We are not creating enough jobs to bring down unemployment. We need to have all the juice we can get to make sure that’s happening before we go through these budget cuts.”

Last week, Goldman Sachs economists said the impact of budget cuts could be far worse: 1.5 percentage points to 2 percentage points in the second and third quarters.

On Friday, economic growth in the fourth quarter of 2010 was revised sharply lower, to 2.8%, driven largely by budget cuts by state and local governments. To top of page

When Fund Managers Fake It

Filed under: Investing — Tags: , , — admin @ 12:01 am

In the fund industry , there may be no bigger insult than to call a portfolio manager a “closet indexer.” It implies they’re too cowardly to pick stocks, choosing instead to hug the index they’re supposed to beat. But offensive or not, their ranks are growing – at the expense of investors who pay for their guidance.

While it’s difficult to know just how many index funds are posing as actively managed funds, the number is clearly rising, according to research by Antti Petajisto, a visiting professor of finance at New York University. Closet index funds claimed about 31% of all stock mutual fund assets at the end of 2009, the latest data available – up 60% from 2006, according to Petajisto’s research. It’s also far more than the assets invested in pure index funds, which are significantly cheaper than actively-managed funds, and therefore tend to outperform funds run by closet indexer.

So what does a closet index fund look like? Take a peek at the Prudential Large-Cap Equity Fund (PTMAX), and you’ll find some familiar names – Exxon Mobil, Apple, General Electric, Chevron, Microsoft, and dozens of other stocks in the S&P 500 index. You’ll also notice returns that are nearly identical to the index — that is, until you subtract the hefty 1.48% management fees. (A Prudential spokeswoman declined to comment.)

The Prudential fund is just one of dozens that move in lockstep with the broader market. Most funds, especially those that invest in big companies, do this to some degree. The average actively managed mutual fund in Morningstar’s large-cap blend category is 96.7% correlated to the S&P 500. But of the 514 actively managed funds in the category, 79 track the index almost exactly. And that means they’re almost guaranteed to underperform, because “you’ll get the market return – less the fees,” Shannon Zimmerman, the associate director of fund analysis at Morningstar.

Consider: The average expense ratio in the large-blend category is 1.01%, compared to the 0.18% charged by the Vanguard 500 Index Investor fund (VFINX), or the 0.09% charged by the SPDR S&P 500 index ETF (SPY). That means if your actively managed fund matched the S&P 500’s 15% return in 2010, you likely trailed the index by more than a percentage point after expenses.

Not surprisingly, fund managers take exception to the implication they’re indexing. Robert Flanagan, the president of fund company First Investors, says that while the First Investors Blue Chip Fund (FIBCX) has been 99% correlated to the S&P 500 over the past three years, it’s “not an S&P 500 index fund.” He explains that because of the fund’s conservative strategy it outperforms in bear markets — it beat the S&P by 5.9 percentage points in 2008 — but lags in bull markets. Scott Glasser, co-manager of the Legg Mason Clearbridge Appreciation Fund (SHAPX), says that while his fund has been highly correlated to the S&P — and charges an expense ratio of 1.05% — it is more conservative than the index and has outperformed its benchmark over the past three-, five- and ten-year periods. “This fund may have higher fees, but it’s earned those fees over time,” he said.

So how can you check to see if a fund is merely an index in disguise? A metric called “R-squared” measures how closely a fund is correlated to its index – the closer to 100 that number is, the closer the fund will track its benchmark. Zimmerman says an R-squared of more than about 98.5 would be at the high end for a large-cap fund, and would be a sign of a fund that might just be replicating index performance. It would be worth considering ditching a fund that’s that highly correlated to an index, particularly if its expenses are high, Zimmerman says.

But correlation to an index isn’t the only way to judge if a fund’s active management is worth paying for. Comparing a fund’s performance to its benchmark index will help investors determine if correlation is meaningful or coincidental, says Tom Roseen, a senior research analyst at Lipper. For example, the First Investors Blue Chip Fund (FIBCX) has been 99% correlated to the S&P 500 over the past three years, and more than 98% correlated over the past five and ten years, while underperforming the index over all those periods, and charging a higher-than-average 1.46% in expenses. And eventually, whether underperformance is due to the combination of closet indexing and high fees or just poor stock picking, it’s a good signal to investors that their investment may not be worth its price.

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