Next Big Trade In Search Of Bull Markets

29Jul/110

Choppy Market Action Continues

Just like the mess politicians are making with the debt ceiling debate, the stock market continues to trade in a choppy fashion for 2011.  Currently we are in the third pullback in the giant trading range that's been in effect all year.  Measured by the S&P 500 the trading range has been only 100 points wide ranging from 1260 to 1360.  July is going to be the first month this year where we don't get a strong window dressing rally to end the month, no doubt aided by our bungling politicians.

One of the major rotations this year was out of commodities, which had huge gains from 2010 to March 2011, and into the defensive sectors of Consumer Staples, Health Care, and Utilities.  The market seems to have continued to prefer the defensive sectors since the rotation as they have held onto most of their gains so far.  Meanwhile the CCI commodities index has continued to consolidate sideways since the March top.

The table below shows 16 stock market sectors and the performance so far for 2011 is split down the middle with 7 sectors higher, 7 lower and one flat.  Along with the defensive sectors the better performers have included Oil Services, Retail, Commercial Real Estate and Tech.  The Homebuilders, Brokers, and Financials, which drove the market into the 2008 financial crisis, are the worst performers so far this year and have helped hold down the overall market.

Showing just how fragmented this market is the Nasdaq 100 has been a big winner since the end of June and is at the top of its trading range, but the Semiconductors have done exactly the opposite and are at the bottom of their trading range.  The financials and brokers are still holding above their July lows after having trended lower all year.  Homebuilders just made a new low for the year.

The Volatility Index has hit new highs since the March pullback and the momentum in volatility is currently still accelerating to the upside.  Usually the pullback doesn't exhaust itself until the momentum in volatility burns itself out which is nicely shown by watching the TRIX momentum indicator.


Watching the volatility index will probably provide clues as to when this pullback will end.  Looking past the pullback, it's critical that the financials, brokers, and semis don't continue and make new lows for the health of the overall market.  The eventual breakout from this trading range of 2011, whether to the upside or downside, will depend on the movements of individual sectors and especially the more influential ones.

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26Jul/110

Mark Hulbert: How Should Investors Play Debt Talks?

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26Jul/110

Rob McEwen: Gold To $2000 By Year End

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25Jul/110

Frank Barbera: Foreign Market Woes Foreshadow Rough Second Half

Frank Barbera thinks weakness in the Australian and Brazilian stock markets could be a sign of trouble for U.S. markets.

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25Jul/110

Jim Rogers: U.S. Has Already Lost Its AAA Rating

Jim Rogers still says he's long the dollar at least for the short term.  He's still pessimistic on the U.S. fiscal situation for the long term and believes the current debt debate is just a political charade.

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22Jul/110

Michael Burry: The Story Behind Shorting The Housing Bubble

This is a good look into the story of Michael Burry and how he shorted the housing bubble.  His story was also discussed in the books The Big Short and The Greatest Trade Ever.

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21Jul/110

Andy Schectman: Silver Out Selling Gold 65 To One

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21Jul/110

Dave Skarica: Gold To Rise As The Dollar Weakens

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20Jul/110

Where Are The Euro Shorts?

If you simply looked at a chart of the Euro over the last year or so, and didn't know about all of the problems facing the European Union, you could conclude that the Euro was just experiencing a pullback in an ongoing uptrend.  That's how good the technical action in the Euro has been given the considerable problems it has been facing.  From the recent May high in the Euro at 149.40 to the July low of 139.50, the Euro is down a mere 6.6%.  This pullback so far isn't even as big as the pullback in the Euro at the end of 2010.

The Euro has been rising ever since the end of the first wave of the Euro crisis that began in October 2009 and ran until May 2010.  The first Euro crisis was a much more severe downtrend.  It took the Euro down about 20% from over 150 to under 120.  The Euro was not able to have many positive weeks during that multi-month move to the downside.

The massive downtrend in the Euro helped drive a big upleg in the dollar over the same period.  But just like the Euro hasn't been as aggressively sold off this time around, neither has other major foreign currencies.  The next series of charts highlights the period of the first Euro crisis on charts of the Pound, Yen, Canadian Dollar, Australian Dollar, Swiss Franc, and New Zealand Dollar.  Note that all of those currencies experienced sideways to downward trends during the same period as the Euro crisis, which helped drive the dollar higher.

Currently the Swiss Franc and New Zealand Dollar are making new highs against the U.S. Dollar.  The Yen, Australian Dollar, and Canadian Dollar are getting close to making new highs.  If those three currencies breakout once again against the dollar then trend followers need to take heed that this current situation is much different than the previous Euro crisis.  The currency markets could possibly be signalling that the U.S. Dollar downtrend would resume.  Taking a look at the current chart of the dollar shows an ascending triangle pattern on the weekly chart, with a breakout level of 76.  The dollar has failed twice so far to hold above 76 during the rally from May so that clearly is an important technical level.

The 76 level also coincides with the 30-week moving average that the Stage Analysis trend following method uses.  Currently the dollar is still technically in a Stage 4 downtrend, which it has been for most of the past decade besides a few major countertrend rallies.

So to summarize the Euro still has yet to come under the same magnitude of pressure it did during the last crisis.  If the shorts in the Euro fail to get aggressive and foreign currencies continue to be resilient against the U.S. Dollar then a continued U.S. Dollar downtrend could be on the horizon.

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18Jul/110

John Stephenson: Gold Miners Should Start Outperforming Gold

John Stephenson talks about the recent underperformance of gold miners vs. bullion but believes miners should start to outperform again.

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18Jul/110

Jim Rogers: Silver Is Going Much Higher

This interview occurred about a week ago with Jim Rogers.  He is still strongly bullish on silver over the long term and believes global currency debasement is going to continue to produce upside potential for precious metals.

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