Market Movers 8/24/11

For the week of Aug 22, 2011

To view Anne Franklin’s media updates, click links below.

CME Group – Video:  8-18-11
Anne Franklin, Price Futures Group – Equities under pressure from negative Philly Fed number on the back of credit woes in Europe  Click Here

First Business – Trader Talk:  8-19-11
http://www.firstbusinessnews.com/videos.php?video=be9c00a4b36c498f932e7ef4c8e6b8aa

 

ECONOMIC OVERVIEW

Last week was an extraordinary week for Gold as this market posted a $149.00 gain in 5 days!!!!  Gold’s gone vertical and is rising exponentially.  What does this tell us about the global economy?  It screams of fear and caution.  Gold is a bad news barometer, the ultimate monetary rebel that rejects the established order.  It’s interesting to note that both Venezuela and Switzerland are repatriating the gold they hold internationally and bringing it home.  Many say that this market is a bubble wait to burst, but in truth they have saying that since gold hit $350.  We are now at $1850 which is an astonishing move of over 530% higher over 7 years which is an average of 75% a year.  Those who have accumulated gold over the last decade have won the prize.  The Shanghai Gold Exchange raised gold margins for the second time in August.  This combined with an extremely overbought market (on a technical basis) and psychological conditions triggered and outside day reversal.  First stop is 1750 which was reached today.  There is a possibility that the market could push down to 1700 and then 1645 before it is all said and done.  All markets are awaiting the comments from Bernanke that will come out of the Jackson Hole meeting.   Gold is 120% above its nominal 1980 high and silver is 16% below it.  The inflation-adjusted silver price could exceed $100 oz. 

This environment makes for great opportunities to pick up gold or silver on retracements.  With all this volatility, this market will experience sharp retracements.  As you know from the previous newsletter, I had a level of 1740 for a potential target area in gold.  Needless to say the market far and away exceeded our levels by reaching a high of 1919 basis the Oct contract.  Target levels and risk management are an important part of our trading model.  This will allow for traders to manage positions accordingly with their level of risk exposure.  We also participate in option based trades and they can be a viable substitute for the futures contract.  Lower equity traders should consider options to help manage overnight risk.  For more information on trading models and strategies, please feel free to contact my office at 312-264-4364 or email me at afranklin@pricegroup.com.       

Gold ~ Daily  Chart

Silver ~ Daily  Chart

Moody’s strikes again!!!  They downgraded Japan from Aa2 to Aa3 citing the government’s inability to bring down its deficit.    Sounds like a familiar story around town…right?  Rumor has it that Germany may not be far behind, but mind you this is only a rumor so far.  The cost of insuring Euro land bank debt is at a record high.  Merkel is saying “NO†to the Euro Bonds, but some have indicated that a change in Euro lands constitution would open the door for a gold-backed Euro bond.  Looking at the chart below, it’s easy to see that the Euro FX has been lacking direction as they fumble about with solutions.  On a technical basis, the Euro is resting against resistance at the 145.00 level.  Our retracement levels worked perfectly, but a break in one direction or the other is needed to look for longer term positions.  For now selling against the resistance has worked for shorter term trades. 

Euro FX ~ Daily 

Growth across the board has slowed and even China’s manufacturing dropped in August.  US homes sales are in the tank and it could be the worst in 50 years.  The Philadelphia Fed survey was a disaster coming in at -30.7 which was the lowest since March of 2009 when it posted at -30.8 and the S&P Index was trading at 665.75.  Nobody is sure what Bernanke will say on Friday, but the market certainly thinks it may be QE3.  However let’s think about this clearly.  Has QE1 and QE2 done anything?     “They’ve already created trillions more currency units. Most of these are currently sitting in banks rather than circulating. That’s partly because people are afraid to borrow and banks are afraid to lend, but also because the Fed is paying banks interest to keep what are considered to be excess reserves locked up. So these trillions of dollars that were created to bail the banks out are sitting there, but they’re not going to sit there forever. Once those dollars start circulating in the economy, prices will rise rapidly. The other way for prices to really explode would be for the foreigners holding some six or seven trillion hot-potato dollars to start dumping them. With the U.S. government clearly unable to deal with its debt and the consequent credit rating downgrade – which was both inadequate and long overdue – those foreigners are getting pretty nervous holding dollars. Almost any sort of financial calamity could spook some central bank into exiting its dollar position wholesale. And once one of them starts, the race will be on, because no one is going to want to be left holding the bag. These are two time bombs that are ticking away right now – the trillions of dollars outside the U.S. that could come pouring back in, and the trillions of dollars inside the U.S. that were created to paper over the leading edge of the storm. Either of those things could bring on the end of the dollar as we knew it, and both may well happen at once…

S&P Index ~ Daily 

CURRENT TRADES 

Upon Request –  afranklin@pricegroup.com

Once a trade is closed out, it will no longer appear under the weekly “New Tradesâ€.  It will be added to a summary of all open and closed positions, which is sent as a timely email update to subscribers. To subscribe, please email afranklin@pricegroup.com or call 312-264-4364. 

TECHNICAL OVERVIEW

In addition to using long-term fundamentals and economic data to determine risk parameters and target levels, Market Movers also uses technical indicators for the trade recommendations entry. This information includes the weekly levels for all of the markets.

*All markets are subject to change.  For daily updates on a select group of markets, which include S&P, NASDAQ, 30-yr Bond, 10-yr Note, Euro, Australian Dollar, Gold and Crude Oil, please email afranklin@pricegroup.com or call 312-264-4364.

Questions? Ask Anne Franklin today at 312-264-4364

Subscribe to receive Weekly Newsletters via Email