They Bail we Buy…
Gold & SP500 Psychology: They Bail, We Buy
by Chris Vermeulen
Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.
However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market’s current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.
It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite – all in a controlled manor. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.
I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.
Rule # 1 – When in Doubt, Stay Out!
There are two types of traders:
- Herd Mentality Trader – Someone who trades off fear and greed buying near tops and panic selling out at the bottom with the masses.
- Black Sheep Trader – A trader who stand apart from the masses and trades opposite to the “herd” during extreme levels.
Last weeks market action really allowed us to see which way the masses were moving. The extremely high selling volume and sharp price decline notified us that the market was trading off FEAR. And, last Thursday we actually saw PANIC which tells us the balance of the market (retail investors, John Doe’s, The “Herd”) were exiting their positions.
When we see this happen, it’s generally a good time to start scaling into long positions, as most of the down side has already happened.
I have been talking about an ABC retrace pattern for the indexes and gold for some time and last week we got just that. An ABC retrace is when we have 3 waves which are, down, small up, then another leg down.
In short this wave breaks the uptrend of higher highs and lows, as it forms a lower low telling novice traders to sell and go short. This is what causes the high volume and sharp sell offs.
Below are a few charts showing the 2009 July lows and where we are now, February 2010:
For charts click here:
SP500 – Daily Trading Chart
SP500 – Daily Trading Chart
SP500 – Daily Trading Chart
SP500 – Daily Trading Chart
Intraday Price Action – If you want to see some exciting intraday trading charts check out the setups last week: http://www.thegoldandoilguy.com/articles/how-to-trade-intraday-gold-and-sp500/
Market Psychology Trading Conclusion:
Most get involved with the stock market because it looks like something they can quickly learn and start making money from home. But it doesn’t take long before they quickly realize there is more to trading than meets the eye.
While trading looks easy from a glance, in actuality I think its one of the toughest jobs out there.
Why? Well, this is what you are up against:
- You are trying to predict something that is unpredictable
- You are trading against millions of other highly skilled traders
- You are trading against automated computers with complex algorithms
- You are trading with your hard earned money which causes fear and greed
- You must accept losing trades as that is part of the business
- You must trade with a proven trading strategy and follow the system
- You must understand money management and apply it to every trade
- You must truly love the market cause it will break you down mentally
I don’t want to say you must be a contrarian, but in reality you must do the opposite of the masses during times of extreme price behavior.
These extremes happen on a daily basis when trading intraday charts and every 4-6 weeks when looking at daily charts. The toughest part is to pull the trigger when emotions are flying high in the market and you are looking to do the opposite. It takes several trades before you even start to get comfortable doing this.
I hope this helps shed some light on market psychology.
If you would like to receive my Trading Newsletter and Analysis please visit my website: www.GoldAndOilGuy.com
AIG-Gate:The World’s Greatest Insurance Heist
AIG-GATE: THE WORLD’S GREATEST INSURANCE HEIST
By Ellen Brown
February 5, 2010
www.webofdebt.com/articles
Rumor has it that Timothy Geithner is on his way out as Treasury Secretary, due to his involvement in the AIG scandal that is now unraveling in hearings before the House Oversight and Reform Committee. Bob Chapman writes in The International Forecaster:
Each day brings more revelations of efforts of the NY Fed and Goldman Sachs to hide the details of the criminal conspiracy of the AIG bailout. . . . This is a real crisis on the scale of Watergate. Corruption at its finest.
But unlike the perpetrators of the Watergate scandal, who wound up looking at jail time, Geithner evidently has a golden parachute waiting at Goldman Sachs, not coincidentally the largest recipient of the AIG bailout. At least that is the rumor sparked by an article by Caroline Baum on Bloomberg News, titled “Goldman Parachute Awaits Geithner to Ease Fall.” Hank Paulson, Geithner’s predecessor, was CEO of Goldman Sachs before coming to the Treasury. Geithner, who has come up through the ranks of government, could be walking through the revolving door in the other direction.
Geithner has been under the House microscope for the decision of the New York Fed, made while he headed it, to buy out about $30 billion in credit default swaps (over-the-counter derivative insurance contracts) that AIG sold on toxic debt securities. The chief recipients of this payout were Goldman Sachs, Merrill Lynch, Societe Generale and Deutsche Bank. Goldman got $13 billion, roughly equivalent to its bonus pool for the first 9 months of 2009. Critics are calling the New York Fed’s decision a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been put through bankruptcy proceedings in the ordinary way. In a Bloomberg article provocatively titled “Secret Banking Cabal Emerges from AIG Shadows,” David Reilly writes:
[T]he New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve. This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank.
The beneficiaries of the New York Fed’s largesse got paid in full although they had agreed to take much less. In a November 2009 article titled “It’s Time to Fire Tim Geithner,” Dylan Ratigan wrote:
[L]ast November . . . New York Federal Reserve Governor Tim Geithner decided to deliver 100 cents on the dollar, in secret no less, to pay off the counter parties to the world’s largest (and still un-investigated) insurance fraud — AIG. This full payoff with taxpayer dollars was carried out by Geithner after AIG’s bank customers, such as Goldman Sachs, Deutsche Bank and Societe Generale, had already previously agreed to taking as little as 40 cents on the dollar. Even after the GM autoworkers, bondholders and vendors all received a government-enforced haircut on their contracts, he still had the audacity to claim the “sanctity of contracts” in the dealings with these companies like AIG.
Geithner testified that the Fed’s hands were tied and that the bank could not “selectively default on contractual obligations without courting collapse.” But if it was all on the up and up, why all the secrecy? The contention that the Fed had no choice is also belied by a recent holding in the Lehman Brothers bankruptcy, in which New York Bankruptcy Judge James Peck set aside the same type of investment contracts that Secretaries Paulson and Geithner repeatedly swore under oath had to be paid in full in the case of AIG. The judge declared that clauses in those contracts subordinating other claims to the holders’ claims were null and void in bankruptcy.
“And notice,” comments bank analyst Chris Whalen, “that the world has not ended when the holders of [derivative] contracts are treated like everyone else.” He calls the AIG bailout “a hideous political contrivance that ranks with the great acts of political corruption and thievery in the history of the United States.”
If you tell a lie big enough and keep repeating it, said Joseph Goebbels, people will eventually come to believe it. The bailout of Wall Street initiated in September 2008 was premised on the dire prediction that if major counterparties in the massive edifice of derivative contracts were allowed to fall, the whole interlocking house of cards would collapse and take the economy with it. A hijacked Congress dutifully protected the derivatives game with taxpayer money while the real economy proceeded to collapse, the financial sector choosing to put their money into this protected form of speculative betting rather than into the more mundane and risky business of making loans to struggling businesses and homeowners. In the end, $170 billion of federal funds went to AIG and the banks feeding at its trough. Meanwhile, a survey of state finances by the Center on Budget and Policy Priorities think tank found that state governments face a collective $168 billion budget shortfall for fiscal 2010. If the money used to bail out AIG and the banks had been used to bail out the states instead, the states would not be facing insolvency today.
There is no law against gambling, but there is a law against fraud. In Watergate, a special prosecutor was appointed to bring criminal charges; but times seem to have changed.
Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include Forbidden Medicine, Nature’s Pharmacy (co-authored with Dr. Lynne Walker), and The Key to Ultimate Health (co-authored with Dr. Richard Hansen). Her websites are www.webofdebt.com, www.ellenbrown.com, and www.public-banking.com.
Where Will Gold Bottom in this Corrective Cycle?
Where Will Gold Bottom in this Corrective Cycle?
Feb 4, David A. Banister- www.activetradingpartners.com
Around two months ago I advised my Partners to look for Gold to drop to the 1040-1070 area in US dollars. This followed my projection in early August of a Gold rally from 900 to 1250 before the next top, and I was close as we hit $1,225 and rolled over. This correction so far in Gold is normal in a bull market, and is intended to knock everyone off the back of the bull. The bull likes to make sure as few people as possible are along for the ride.
Currently we are seeing a strong counter-trend rally up in the US Dollar. Investor’s should keep in mind that the dollar index is simply a mathematical calculation against a basket of other currencies. In this case, 57% of that formula is the Euro. The Euro has had a dramatic correction and is likely to continue to drop due to problems in Greece and other countries. This makes the dollar look better on a relative basis, but investors should remember this is largely cosmetic. Deficits continue to balloon, debt ceilings are raised, and the US Treasury has to rollover a significant amount of Treasury Bonds this calendar year. Traders and Investors over-react to the rallying dollar and start selling off Gold and Silver as fast as they can. However, at some near term point, Gold is likely to firm up and bottom regardless of the dollar rally. There has been no fundamental shift in the US Dollar or it’s merits in my opinion, and in fact, the recent economic events are only making Gold look more attractive relative to other world currencies. This pullback is required to work off the excessive optimist we saw in early December.
Most recently on January 22nd, I wrote an update to my December 4th forecast for Gold. In that update I mentioned that Gold was in a “C wave” down, and would likely bottom around 97-102 on the GLD ETF. You can read the entire article here:
http://activetradingpartners.com/articles/2010/01/gold-continues-in-c-wave-down-dave-banister-jan-22/
A pullback in Gold to the 102.50 area on the GLD ETF would fill a “Gap” in that chart, and represent a normal bull market 50% correction of the last swing. A further decline to the 97-98 area on the GLD ETF would represent a 61% Fibonacci re-tracement of the entire rally from April 2009 into December 2009. This correction in my opinion could continue into early March or May of this year, before the next leg up begins. Gold investors are advised to scale into Gold as 1040 US is hit, and all the way down to $980. At that point, the bull will continue to new highs as the smart money will be accumulating the gold dips in my opinion over the next 30-90 days.
David Banister
David Banister is the Chief Investment Strategist and founder of www.activetradingpartners.com. David uses his unique methods of forecasting major market turns in addition to Gold, Oil, Sectors, and individual stocks with counter-intuitive methods he has developed over twenty years of investing.
October Interview with Ellis Martin
Ellis Martin: We’re joined now by the silver guru, David Morgan, of The Morgan Report. David, welcome back to The Opportunity Show.
David Morgan: My pleasure, Ellis.
Mr. Martin: How have the precious metals markets changed in the last five to ten years, David?
Mr. Morgan: I think we can look at it kind of sector by sector, but I think one of the big things that’s changed is the amount of interest in the markets. First, just look at the number of Web sites that are devoted to the precious metals today, versus how many were available when I started, say, ten years ago or so. In the silver arena there was Ted Butler, Frank Sanders, and me. I’m sure there were other people, but as far as fairly well known personalities, we were “it.” Today, you have many, many people in the sector. In fact most of them who have come up strongly, I know personally: Sean Rakhimov at silverstrategies.com; Kenny Parsons, Silver Bear Café; my friend Mike Maloney, goldsilver.com. . . . And Jason Hommel has come on; he was one of my early subscribers, as a matter of fact. So, a lot more interest in the sector, a lot more Web sites devoted to the sector. That is just one area that significantly shows increase in not only knowledge but interest in this area.
Mr. Martin: You really stand out amongst that group, though. You’ve received a lot of press lately. How do you account for that, without sounding self-indulgent?
Mr. Morgan: Well, staying on the theme about what’s changed in the last several years, it’s again interest in the market. The aspect I just mentioned, Web sites, is really one of the smaller arenas. The big arena is the metal itself. This is where you’ve seen the advent of the ETFs that have come on to the scene here in the last several years—primarily the gold ETF initially, and then there was some quandary about whether there would be a silver ETF. I wrote several articles (silverinvestor.com archives), expressing that whatever is good for gold is good for silver, that eventually a silver ETF would exist. Lo and behold, there’s not only one now, there are several.
So this has brought a great deal more buying pressure into the market, because most of the fund managers or managed money in the ETFs are restricted from buying the commodity. If you’re managing money, your mandate is that you can buy any stock out there. But, in fact, there are certain limits on the stocks that you can buy. You can’t buy a lot of penny stocks in most cases. Any stock that meets particular criteria you can buy, but you cannot buy anything in the futures markets. And since the ETF is basically a commodity that trades as a share, you’ve now got a huge interest in this market and that has definitely brought a lot more attention to the gold and silver markets.
So how do I stand out? I think that there are always people on these financial channels looking for input and I’m one name among many that’s recognizable. I’ll get a phone call inviting me to appear on a show, be interviewed, or whatever. I’ve been at it for a while, and that’s created some name recognition for me and I’m glad to get the publicity, but there are several of us who do this, and that’s great. I appreciate your comment, Ellis, and I do work very hard as you know, but there’s a lot of good stuff and several sources to choose from. The truth of it is that all of us in the industry pretty much read each other’s work. I read several of the other writers and sometimes they spawn new ideas, sometimes they don’t, and sometimes they’re contradictory to your thinking. You know, that’s all good. It all makes the world go round and helps to sharpen my thinking. I welcome all of it.
Mr. Martin: I’m a retail investor . . . I’m taking a look at the silver ETF, I’m taking a look at silver bullion, and I’m looking at silver stocks. Aside from possibly investing in all three, how would you help me make my decision without telling me what to do, David?
Mr. Morgan: My thinking is very simple. The first thing I want out of my investment in this sector is something that I feel stands alone outside of the system. The only things that do that are coins in hand or bullion in hand. So my first purchase, and I recommend it from the start, is to have the physical gold or silver in hand.
Once that’s accomplished I like to see some safe leverage, if there is such a thing. Whenever there’s leverage involved it means higher risk and that’s a fact. But I have learned during the thirty years I’ve been doing this that the best risk-to-reward profile is actually in the top tier, cash rich, unheard mining shares. As long as you do it for cash—in other words, buy the shares without margin—you’re pretty safe. Not that these prices don’t go up and down, but you get sometimes equal leverage to a futures account without the risk of a futures account, where you put up minimum margin and as soon as the market goes against you, you get a margin call. So I like the mining equities. I divide them into two sectors: top tier companies, where we put serious money for serious companies; and speculative, where you put in a little money to win a lot. That’s how I have advocated investing or speculating in the sector from the get-go, and I continue on that theme.
On the ETFs, I’m neutral to positive on them. I mean certainly this is more of a realm for the institutional investor, the hedge fund manager, or very, very wealthy retail clients. I don’t think it’s the best choice for your average investor, although it’s a very easy one because it’s a stock and you can just click your mouse (if you have an electronic trading platform) and buy or sell the shares. So from a liquidity standpoint, they’re excellent. But I don’t think that would be my first choice.
Mr. Martin: It’s not necessarily your choice of highest return in the long term, is it?
Mr. Morgan: No. I think the highest return that can be proven so far in this bull market has been in the mining equities. However, if you did it right, the highly leveraged options or futures market can certainly make a great deal of money in a very short period of time.
We had Silver Standard recommended when it was under a dollar; it’s been as high as $40.00, and now it’s in the $20.00 range. So if you bought Silver Standard at $20.00 a few years back, you watched it go down to about $5.00 last November then back up to $20.00 now, so you’re even. Pan American was under $2.00, and it’s done about the same as Silver Standard. Many of these stocks have had huge gains. The problem is that a lot of people came into the sector, and for the last couple of years these stocks have been basically flat.
These markets climbed a wall of worry, all global markets do. There are these long pauses or hesitations, what I like to refer to as consolidation periods. Once those consolidation periods end, and I believe we’re ending now, you get ready for the next leg up.
Mr. Martin: We’ll continue our conversation with the silver guru, David Morgan, in the next segment.
How and Why to Buy And Invest in Palladium
How and Why to Buy And Invest in Palladium
Jan 20, 2010 George Daleiden
Acquire Coins, Bullion, Mining Stock, Futures, Exchange Traded Funds
Palladium is a rare precious metal used in catalytic converters, jewelry and many high-tech products. Its unique properties will help usher in the hydrogen economy.
By any definition palladium is a rare and valuable metal. Yet it does not customarily enjoy the cachet and prestige of gold, silver and platinum. That may change, as investors learn of its unique and promising attributes.
