Mr. Market has had an appetite for S&P 500 bears for several months now. In each instance in which the bears think they are going to get away, Mr. Market draws up his high powered rifle and drops the bears just before they can comfortably return to their caves. Just when the bears think they have escaped and are home free, Mr. Market reminds them who is in charge.

However, Mr. Market’s appetite for oil bears has diminished tremendously over the past week as the U.S. Dollar and geopolitical news coming out of Egypt pushed oil prices lower. Mr. Market’s appetite is always changing it would seem, but right now he is enamored with S&P 500 bear meat and not really that interested in the oily bear meat. The question remains whether his tastes will change in the near term, or if he will continue to turn S&P 500 bears into fodder and steak.

S&P 500

With all metaphors and short stories aside, the price action in the S&P 500 for the past several months has been devastating for bears. Going back to November of 2010, every key resistance level ended up being taken out by the bulls and prices pushed higher and they push higher still. Last Friday’s close pushed prices to new recent highs and in time prices may challenge long term overhead resistance levels. The table below shows just how extended the equity market is:

As can be seen above, 82.73% of all stocks are currently trading above their 200 period moving average and over 68% of equities are above the 20 and 50 period moving averages. While this certainly does not mean that prices are going to rollover, it is hard to refute the conclusion that prices in the equity market are overbought.

A quick glance at the SPX daily chart reveals the recent price action.

It is obvious when looking at the SPX daily chart that prices are extended to the upside in this bull market run. However, as I pointed out in a recent article the distance between current price action and the 200 period moving average is significant. There is a total of 167.79 SPX points between Friday’s close at 1329.15 and the 200 period moving average at 1161.36. Based on Friday’s closing price a reversion to the mean (200 period moving average) would produce a decline of around 12.62%. The SPX weekly chart is shown below:

It is worthy of note that the May 2008 swing high of 1,440 coincides with the upper band of the rising channel that is obvious when looking at the weekly chart of SPX. While price action may or may not get to SPX 1,440 during this bullish run higher, it is likely not coincidental that both key trend lines coincide at the same price point. The intersection of the long term rising trend lines corresponding with the upper band of the current rising channel and the 1,440 swing high may be something of import, or it might turn out to be nothing. However, it certainly is an eery coincidence on the chart if you believe in coincidences.

I am still convinced that stocks need to pullback at some point if they are to continue higher. Consolidation or a 5-10% correction would likely be healthy for the market and might prove to be a launchpad for another thrust higher in price. From the underlying strength in the domestic market, a correction or pullback will likely be an opportunity to get long barring price breaking down through the lower level of the rising channel located on the weekly chart.

I am not sure that I am going to get involved in the short side if we see bearish price action in coming weeks, instead I will likely be looking for opportunities to get long equities at more attractive prices. Right now risk to the downside appears to be increasing as the S&P 500 continues to probe higher.

Light Sweet Crude Oil

Oil prices surged when Egyptian protests intensified and have sold off recently as President Mubarak has stepped down and demonstrations have turned into nationwide celebrations. In addition, the U.S. Dollar has strengthened considerably the past few days which has also put price pressure on oil. The daily chart of light sweet crude oil futures is illustrated below:

Oil price are hanging onto a key support level by a thread and price action in the coming week could see prices push lower through the support area and an eventual test of the 200 period moving average. I am not considering a short in oil, but I am looking at lower prices as a solid risk / reward long entry. I am going to be patient, but envision building a longer term trade using options to profit from a possible rally after putting in a clear bottom.

Right now, price could hold above current support levels and bounce higher, but I think the more likely scenario is a brief bounce early this week and then a flush out lower running stops and reaching panic level selling. As is customary for my trading methodology, I will be looking to buy into panic selling should that take place, however at this point I am not interested in getting involved just yet. I intend to remain cautious and will patiently wait for a low risk, high probability trading setup to emerge. Until then, I will be watching the price action from the sidelines letting others do the heavy lifting.

Conclusion

While it may be bear season in the equity markets as Mr. Market continues to punish the ursine, the oil futures market has produced a new home and a new river for eager bears to feed. The question continues to remain how long will Mr. Market punish the short traders in equities while rewarding them in the oil futures pits. Mr. Market may be losing his appetite for bear meat in equities and he might just decide to feast on some bears covered in oil. Time as usual will be the final arbiter, but for right now I’m sitting on the sidelines waiting for Mr. Market to tell me his next order.

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JW Jones

The equities market reversed to the upside Wednesday posting a light volume broad based rally. Remember light volume tends to have a neutral to upward bias on stocks, But it was mainly the sharp drop in the dollar which spurred stocks and commodities higher.

Today’s bounce was not much of a surprise for several reasons…
• Overall trend is up, one day sell offs are generally profit taking
• Panic selling on the NYSE tipped us off that the market was oversold
• I don’t think they will let the market fall before the November election
• Intermediate cycle is turning up this week, 3 weeks of upward momentum…

US Dollar Index – 4 Hour Chart

The dollar put in a big bounce this week filling its gap window… Remember most gaps get filled with virtually every investment vehicle so when you see them remember this chart….

SPY ETF – Daily Chart

SP500 has been riding the key moving average up and Tuesday’s sell off tagged the 14MA along with extreme market internal readings telling intraday traders that a bounce is about to take place.

Gold Futures – Daily Chart

You can see gold has done much the same… A sharp profit/stop running sell off, which took the price back down to support. We took a long position to catch this bounce and hopefully a larger move going forward.

Market Sentiment Readings

Tuesday’s pullback was a great reminder of just how over extended the equities market was. These heavy volume sell offs are typical in a bull market. Without regular pauses in price, traders tend to place trailing stops moving them up each day. With traders chasing stocks higher bidding them up instead of waiting for a pullback we get a very large number to stop orders following the price up each day. Then, it’s only a matter of time before a key short term support level is broken at which point the flood gates open and everyone’s stops turn to market orders flooding the stock exchanges with sell orders causing a rapid decline and panic selling. This is exactly what happened on Tuesday which I show in the chart below.

Understanding how to read market internals provides great insight for short term traders looking to make quick high probability trades every week… Market internals are just part of the equation but very powerful on their own with proper money/position management. Both of these intraday extremes were bought on Tuesday in the advanced chatroom (FuturesTradingSignals.com).. We quickly booked profits and moved our stops up in order to protect our capital as the market surged higher.

Mid-Week Market Trend Analysis:

In short, the US Dollar is still in a down trend overall. The Fed’s I would think will continue to hold the market up into the election. It works well for them… they print money which devalues the dollar, and in return boosts stocks and commodities, plus they get trillions of dollars to spend… I’m sure its like kids in a candy store over there.

While everyone is trying to pick a top in this over extended market I think it is crucial to stick with the overall trend and to not fight the Fed. Using the key moving averages on the daily chart as shown in the charts above, continue to buy on dips until the market closes below the 20 day moving average at which point you should abandon ship.

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Chris Vermeulen

Investors around the globe are concerned with the economic outlook, not only with the United States but with virtually every country. This has caused not only investors but banks and countries to start buying gold & silver in order to be protected incase of a currency melt down in the coming years.

While the majority is concerned about the eroding economy, we have seen the opposite in the financial market. Gold and equities have risen… That being said the volume in the market remains light simply because the average investor is no longer putting money into the market for long term growth. Instead individuals are now focusing on saving and paying down debt.

That being said we all know light volume market conditions allow Wall Street powerhouses to bid the market up. Not to mention with quantitative easing taking place I’m sure that has also helped the market of late. While we don’t know for sure that QE is taking place as we speak, the sharp drop in the dollar and strong move up in gold are pricing this into the market.

Let’s take a look at some charts…

HUI – Gold Stock Index

This long term monthly chart of the HUI index provides valuable trading signals for both gold stocks and gold bullion. As you can see below this index is trading at a key resistance level after forming a bullish 3 year Cup & Handle pattern. The next 1-2 months for the precious metals sector will be interesting as it tries to break above key resistance. I would really like to see the HUI:GLD ratio break to the upside to confirm if the breakout occurs.

SPY – Daily Long Term Trend

The broad market looks to be forming a short term topping wedge. If this is to occurI expect it to take several weeks to play out. Looking at the chart if we use Fibonacci retracements along with trend line support we can get a feel for where this pullback should correct to.

That being said the broad market breadth and internals seem to be holding up indicating higher prices over the long run. While the short term price action is overbought and I expect a pullback to form, my analysis is pointing to higher prices as we go into year end.

UUP – US Dollar Daily Price Action

Although the majority of investors have a bearish outlook on the economy, we have seen a large price appreciation in equities and precious metals. This is largely due to the fact that the US dollar is quickly getting devalued. Simply put, as the dollar drops, it helps boost commodities and stock prices.

While a rising stock market is great to see, at some point the dollar will become so cheap that it will start to have a very negative affect on the US economy, commodities and stocks. Being from Canada it has always been more expensive to take holidays in the United States, and I remember paying $1.50-$1.70 for every $1 green back. But now the dollar is almost at par making holidays very affordable. The big question/concern is when will they ease off on the printing? At the rate which they are printing the greenback will be at par with peso… well not that extreme but you get the point Eh!

Weekend Market Conclusion:

As we all know the market has a way of making sure the majority of traders miss major turning points. The saying is, “If the market doesn’t shake you out, it will wear you out” and it seems we are getting the later…

The never ending grind higher in precious metals has not had any big shakeouts, rather its wearing out any short positions before rolling over to take a breather. As for the stock market, we are getting much of the same thing as the market grinds higher day after wearing out the shorts before rolling over.

That being said, there is more at work here than just regular market movements. With the light volume in the market we know there is price manipulation and QE (quantitative Easing) which is helping to boost prices and exaggerate market movements.

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Let the volatility and volume return!

Chris Vermeulen

Shorter term, economic development and corporate earnings are often relatively inconsequential for the stock market. Why? Economic changes are superimposed by changes in the fundamental valuation of the stock market. That means investors’ perceptions and their willingness to pay for risk and income streams are unsteady. Over time, investors are paying very different prices for the same earnings or dividend streams.

Fundamental Valuations Are Fluctuating Wildly

Look at the following charts showing the S&P 500 since 1926, the Price-Earnings-Ratio (PER) and the Dividend Yield. As you can see, both fundamental ratios have been fluctuating wildly. The PER was as low as 7 and as high as 20-something.

During the stock market bubble of the late 1990s the PER even rose to more than 40. And during the past quarters the PER rose significantly higher. Obviously investors came to the conclusion that the dramatic slump in corporate earnings, especially in the financial sector, was an extreme outlier which should not be taken into account to value the stock market.

S&P 500 Index, Kurs-Gewinn-Verhältnis, Dividendenrendite, 1926 bis 2010

Source: www.decisionpoint.com

These severe fluctuations mean that dividends, earnings, and cash flows are fetching very different price tags in different times. A simple example may demonstrate my point: Suppose the PER is as low as 7 and the stock market index is at 100 points. Keep earnings constant, but let the PER rise to its upper range at 21. Now the index rises from 100 points to 300 points. Let’s go a step further to a bubble PER of 42. In this case, the index doubles to 600 points. Same index, same companies, same earnings, but very different Price-Earnings-Ratios lead to this bandwidth of 100 to 600 points. And this bandwidth has been a reality in the past 30 years!

This example makes clear how secondary the economic background and even corporate earnings are to analyze and evaluate the stock market. But there is one major exception to this rule: Recession.

You Better See Recessions Coming

Whenever a recession is in the offing, you have invaluable economic information at your hand. This information is extremely important for the stock market and for your investment strategy. Why? Every recession has been accompanied by a severe stock bear market. That’s why I constantly look at my leading economic indicators, which enabled me to predict the recessions of 2001 and 2007-2009.

Right now they do not yet forecast an imminent recession. Hence, in the current situation it is ideal to painstakingly analyze the latest economic data release du jour. It may be fun to do so for those inclined. But it doesn’t help you in forecasting the stock market. I rate this regular data release ballyhoo as noise you can easily ignore.

History tells us that the economy is vulnerable to a renewed and relatively swift turn for the worse.

That doesn’t mean I do not follow economic development. But I am only interested in deciding whether the incoming data is starting to point to the end of the current economic rebound or not. Everything else is inconsequential.

We are living in a post bubble world. And history tells us that the economy is vulnerable to a renewed and relatively swift turn for the worse in this environment. After all, this rebound is the result of massive governmental stimulus, bail outs and market manipulation by the Fed.

It follows that this rebound is dubious and fragile. But even in this scenario the leading economic indicators will pick up some deterioration before the next down wave gets started. Currently, they are doing nothing of the sort.

Best wishes,

Claus

About Money and Markets

For more information and archived issues, visit http://www.moneyandmarkets.com

Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

The rally out of the `06 bottom to the February `07 mini crash is a classic example of a runaway move (chart below). Note the brief measured corrections. Needless to say, if something like this develops soon, one doesn’t want to get caught on the bearish side of the tracks.

Not only is it getting late in the cycle but multiple other signs are springing up suggesting this rally is starting to run on fumes. Sentiment is starting to skew extremely bullish (contrary indicator), there are signs that institutions are starting to take chips off the table, and breadth is deteriorating.

It’s also not possible to rack up trillions and trillions of dollars of compounding debt and have a strong currency. Hey let’s face it, we don’t live in never, never land. Magic just doesn’t work in the real world.

I think the dollar is probably about to get smacked in the face by reality again.

Anthony Cherniawski

The Practical Investor, LLC

March 16, 2010

The picture above is a basic outline of the broadening top formation as described by John J. Murphy in his book, “Technical Analysis of the Futures Markets,”(pp. 150-152) published in 1986.

He summarizes, “First of all, the broadening formation is a relatively rare pattern.  When it does appear, however, it’s usually at an important market top.  It looks like an expanding triangle with three successively higher peaks and two declining troughs.  The wider price swings are accompanied by gradually increased trading activity.  The resolution of the formation is signaled by the violation of the second low (point 4) after the completion of the third peak (point 5).”

While John compares the broadening formation as a triangle in reverse, I would like to compare it as the inverse of an ending diagonal or wedge formation.  While some broadening formations have a horizontal axis, many have a diagonal axis and fall in the same category.  It is the opposite of a diagonal pattern where volume diminishes as the pattern develops.  In this case, the volume tends to expand with each price swing, giving the appearance of market support for each breakout.  Traders get the surprise of their lives when the market promptly reverses in the other direction.  John Murphy says, “This situation represents a market that is out of control and unusually emotional.”

Let’s look at the major indices to see how this pattern has developed.

What may come as a surprise to many, there are two probable broadening formations in the Industrials.  I call them the parent fractal and the child fractal, an extension of the parent.  The numbers are meant to correspond with the pivots points on the broadening formation, but could also be interpreted as Elliott Wave labels as well. If the Elliot Wave rules apply, we are given a natural limit on point (wave) 5 of 10,881.  Currently, point 5 is lower than point 3 and may not be required to exceed it.   This would be considered a truncation and may increase the probability for a bearish outcome.

The SPX shows a similar profile as the INDU.  Although point 5 has not reached the upper trendline, it has exceeded point 3, which implies that completion is very near.  Applying the Elliott Wave Principles, the natural top for point (wave) 5 may not exceed 1165.

The NDX reminds me of a reverse-engineered ending diagonal.  Both the parent and child fractals have a diagonal tilt that adds credence that the end may be near.  Again, the Elliott Wave Principles suggest that point 5 may not exceed 1957.00.  If this is so, then a reversal may be imminent.

Finally, the Russell 2000, the index which is most loved by speculators, is also nearing completion.  It has a natural target of 705.00, based on guidelines for zig-zag waves.  There is no assurance that this target will be met.

As a further note, the Russell 2000 has rallied 98% from its 2009 low.  The NDX rallied 85.7% from its low last March.  The S&P 500 rallied 73.5% and the Industrials rallied 65.8%.  This indicates that the participation by all investors has been robust.  Since the broadening formation indicates an unusual amount of public participation, it could now be said that the average investor is “all in.”

Many analysts will agree with John Murphy’s comment that, “This situation represents a market that is out of control and unusually emotional.”  In fact, I have been told, “There is something wrong with this market” a number of times by other traders.  The final climax of point 5 may mark the end of this phase of “irrational exuberance” by many investors.

Downward momentum is gaining as Crude has lost 2.9% in the last 2 sessions. We are expecting this move to drag prices in May to $76/77. As we voiced in our commentary this morning exit ALL longs in distillates until this correction runs its course which should pressure heating oil and RBOB 15-20 cents. Natural gas is still searching for a bottom but we like buying at these levels. We advised new entries to scale into May futures and we still like 50 cent call spreads for June thinking a trade back above $5 will play out in the next 3-5 weeks.

We’ve been fooled before as most followers know but the indices are looking heavy. We’ve yet to redeploy money short futures on a position trade but if the Fed meeting leads to selling we will most likely get short once again with clients. Some clients still hold their June ES and SP puts and are down but we are confident that these positions will be profitable. Sugar was off by just over 1% but we are operating under the influence that the lows last week will hold. The intra-day sell off in OJ was nice but not enough to get us interested in longs. We feel May needs to trade closer to $1.30 to buy a buyer for clients. We expect cotton prices to trade lower but we suggest waiting for a close below the 20 day MA at 80.35 in May for confirmation.

We suggest waiting for more upside in Treasuries to be a seller…maybe the Fed will aid in that. We advised clients to add to their July call options and long s in December futures in corn today. May soybean oil lost an additional 2% today; clients will look to exit tomorrow or the next day on a move closer to 38.00.  We suggest waiting for an interim top before jumping in front of the freight train we call live cattle; prices made new highs again today. Gold and silver were marginally higher but “Doctor Copper” was off almost 2%. On a settlement below $3.29 (today’s low) look for an additional 10-15 cents. Monitor the action in the dollar to help trading the other currencies. The line in the sand is the trend line at 80.00 on the June contract.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

Markets seem to waiting for some type of catalyst to determine the direction of the next leg.

Inside day in Crude oil as prices hover around $82/barrel. For new entries we still like the idea of $5 put spreads but we would start looking at the June as opposed to May contract. If currently in the May we would try to buy back the bottom leg; we have suggested for clients to buy back their $70 puts and that would leave them long the $75 puts.

A disappointing day for longs in natural gas as yesterday could prove to be just a head fake. Clients remain long via April futures and June call spreads as prices were off 2.4% today.

As of this post indices are at the high of the day; we think we are close to an inflection point but we’ve been wrong for the past 2 weeks. If the S&P closes above 1148 exit short futures at a loss.

Fourth consecutive down day in sugar but we are assuming yesterday’s low at 18.82 in May will serve as support. May cotton has lost 3.8% in the last 5 session and closed below the 20 day moving average for the first time since February 8th. We are expecting another 2-4 cents and will then be advising clients to lift shorts.

Corn was flat on the day while wheat was a small loser and soybeans giving up almost 3%. A larger crop from South America could pressure soybeans another 30-50 cents.

Clients are long July soybean meal and down but we are looking for prices to rebound within that time frame, we may average in next week. Additionally they own puts in May soybean oil and should be able to book a profit next week on a move under 39.00 in May. Trail stops down if you are short lean hogs; if the 9 day MA gives way we should see a trade under 70.00 cents in April.

Mixed bag in metals; we are still anticipating a trade lower in gold, silver, and copper before we see any substantial upside.

The Commodity currencies (Kiwi, Aussie, Loonie) look vulnerable; clients remain short the Loonie expecting a trade under .9500.

I can virtually guarantee that what I’m about to suggest isn’t on anybody’s radar screen. But before I share my prediction, a little background analysis is in order.

There have been seven previous bull markets that were born in the depths of vicious bear markets similar to what we just went through. Each one of those bulls racked up impressive gains during the initial thrust out of the final low. Throwing out the `32 to `37 bull as an anomaly not likely to be repeated, the average gain for the first two legs of bulls with similar DNA as our own has been between 41% and 73%. After the second leg each one of these bulls underwent a mild corrective pullback of 8% to 14%.

I’ve been looking for that pullback since December and we obviously got it from mid January into early February.

Next I’m going to put up a long term chart of the S&P from the `02 bottom to present so we can make some comparisons for what should and should not happen in a “normal” bull market…if there is such a thing. Both bulls were born on the back of massive liquidity injections by the Fed. So it’s not surprising they have followed a similar path…well at least up to now.

Generally we will see the most aggressive moves at the beginning and the end of a bull market. At the beginning smart money piles into perceived value. At this stage of the game retail traders are still too shell shocked from the bear to trust the rally.

Finally towards the end of the bull, retail investors will panic into the market on fears of getting left behind sending the market surging higher. This is of course when smart money is unloading their shares.

You can see that the `02 -`07 cyclical bull followed this script almost to a T. The sharpest rallies occurred from March `03 to early `04 and then again as the market surged out of the `06 bottom into the final top in October of `07.

The cyclical bull we are in right now is about to morph into a completely different animal than just about any other bull market in history.  And most certainly this bull will not fit in the same category as the `02-`07 bull. I think we are about to bypass the second phase of a normal bull market and jump straight to phase three, the ending stage.

This is a bull spawned by the printing of literally trillions and trillions of dollars by central banks around the world. You can see by examination of the chart above that this bull has been much more aggressive than the last one, rallying over 70% in its first 10 months.

The recent move to new highs by the Russell, Mid Caps, and Nasdaq suggests that the third leg of the bull is now underway. As most intermediate term rallies last 20-25 weeks trough to trough and this rally is on week 4, we probably have at least 10 to 15 weeks left before we can expect a top.

Now keep in mind that this has transpired while the dollar has been rising. As a matter of fact, the dollar is the key element in what I’m about to suggest.

So next, let’s take a look the dollar.

I’ve marked the last two major 3 year cycle lows with a blue arrow. Now to understand where I’m going with this you need to understand the concept of left and right translated cycles.

A left translated cycle is a cycle that tops left of center. For instance, if the rally out of a 3 year cycle low were to top out in less than 18 months we would consider it left translated. Generally speaking the majority of cycles that top in a left translated manner move below the prior cycle low.

You can see in the chart (above) that the 3 year cycle that began in December of 04 did in fact top in less than 18 months.  As expected it broke to new lows at the next 3 year cycle low in `08.

We are currently in the same position in this 3 year cycle as it has obviously topped in a left translated manner. As such, we should expect to see the dollar break to new lows by the next major 3 year cycle low due sometime in 2011.

Now if we zoom in a bit I’ll tie this together with how it relates to what I think is brewing in all asset markets.

There’s no doubt the rally in the dollar over the last three months has been violent (the most violent rallies occur in bear markets). However, as you can see from the chart below, so far the dollar has not been able to move above the peak of the last intermediate cycle.

We now have a failed intermediate cycle in the making. If the dollar fails to break the June `09 highs and continues to roll over it is in jeopardy of succumbing to the secular bear trend again.

Next I’m going to note that last week was the 14^th week of the dollar rally. The intermediate cycle in the dollar rarely lasts more than 20-25 weeks so not only is the dollar getting deep into an intermediate cycle and in jeopardy of topping at any time but it’s also contending with the multi-decade resistance level at 80.

Not only that, but sentiment has now turned to extreme bullishness for the dollar and extreme bearishness on the Euro. That is a recipe for running out of buyers of dollars and a prescription for a violent short covering rally in the Euro.

Now remember, the stock market has been rallying despite the dollar. Oil is over $80 despite a strong dollar. Copper is only about 15% from all time highs despite a strong dollar. Gold, the strongest commodity of all, is holding well above the prior bull market high of $1025 in defiance of a strong dollar.

All asset classes are now wound up as tight as a drum. If, or should I say when, the dollar begins the trip down into the next intermediate cycle low all assets are set to explode higher.

As hard as it is to believe I think there’s a very good possibility that the third leg of this cyclical bull could match the first leg and tack on 200-300 points in the next few months.

I think virtually everyone underestimates the effect that the multi-trillions of dollars the Fed has pumped into the system is going to have on all markets.

Unfortunately that’s probably the single worst thing that could happen for two reasons.

First, I’m afraid that not only will the stock market surge higher but so will the commodity markets in an inflationary explosion. It was $147 oil and $4.00+ gasoline that eventually broke the back of the global economy in `08 when it was already reeling from a bursting credit and real estate bubble.

Second, I’m afraid the average investor is going to fall for the hype that the Fed has “fixed” all of our problems. If the S&P is trading north of 1400 it’s going to appear that the coast is clear.

Nothing could be further from the truth, so when the market tops and rolls over into the next bear phase virtually no one will recognize what’s happening and everyone will again get sucked down into the depths of the bear.

Only this bear will be much worse than the last one.

This bear won’t be caused by problems in the credit markets. No, this bear is going to be driven by structural problems in the currency markets and soaring inflation. Unfortunately we aren’t going to fix a currency crisis by printing money. Money printing is going to be the cause of the crisis in the first place.

The only asset class that is going to offer any protection in this environment is commodities. And the one sector that will thrive in a currency crisis is the precious metals.

Not only will gold and silver outperform in the pending inflationary surge, but they will protect investors during the inevitable crisis that the Fed’s insane monetary policy is going to unleash next year.

Toby Connor

Gold Scents

A financial blog with emphasis on the gold bull market.

This phrase is coined for the college basketball tournament but I think it is an accurate description of what to expect as a trader this month. At its highs today oil was less than $3/barrel from making new highs on the year. Being bearish for the last 1-2 weeks has made our clients NO $ but we still feel a trade to $75/76 is imminent. We are not disputing a trade in summer is likely up to $90 but first a correction. We still favor $5 put spreads.

Natural gas should finish down 3.5-4.0% lower on the week. That is not too bad! Clients have a small long position in April futures and June call spreads and at the moment are all under water. We expect the next 2 weeks to be better to us in energies; that means crude down and natural gas up.

Are you kidding me that we only lost 36,000 jobs and unemployment did not change? The equity market is being propped up by the powers that be and if the free market determined prices we would be at least 10% lower. Clients are down on their June ES puts but will stay the course being they have over 3 months time.

Sugar closed up 2.4%; we suggest being long May and July via options looking for a move back to 26 cents. For the first time in 4 weeks cotton will finish lower; clients are positioned to take advantage of a set back to 75/76 cents in May.

Treasuries were hit hard today and we do think more downside is likely in the coming months but we still feel one will get the opportunity to put on shorts from higher levels. If the recovery is underway which I question and there is more talk of the Fed raising rates traders should re-visit the idea of short Euro-dollars. The charts look like in the next few sessions

Agriculture will trade lower. Aggressive traders could use that to get short while I would prefer getting long from lower levels. USDA report out next Wednesday. Our current positions for clients in Ag include long corn, long soybean meal and short soybean oil.

We have no positions in lean hogs with clients but it appears a double top could be forming around 74 in the April contract; that level acted as stiff resistance in mid-January as well. Live cattle finished about 1 penny higher on the week; clients remain short expecting a trade back near 89 cents in April.

We caution any exposure in gold as we could see a $50 move either way. If lower we would suggest buying the dip. May silver closed at the 100 day moving average today about 15 cents off its highs. We like being long but would prefer to open fresh longs on a set back to $16.50. If we do see a retracement that holds we would think the next leg up would lift prices to near $18.50 mid-summer.

Clients were advised to take profits on their Yen shorts today as prices have peeled off 3 cents in the last 2 sessions. We advised those still interested in currencies to get short the Loonie. We are looking for a move in the Loonie back under 95 cents. We are operating under the influence that stiff resistance comes in at .9750/.9800.

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial.  Past performance is no guarantee of future trading results.

Matthew Bradbard
MB Wealth Corp.
(954) 929-9898
(954) 929-9993 fax
matt@mbwealth.com
www.MBwealth.com

Please do not place any trade orders via email as they will not be executed.

Trading in commodity futures and options involves substantial risk of loss. Past performance is not indicative of future results.