Revisiting the Nasdaq Composite Index

I refer to my post of March 11 where I mentioned that the Nasdaq index was at a critical juncture: the index had to break out above the downtrendline that had started in 2000 to be able to continue its move higher. We are now seeing that a fake breakout occurred: the index went above the trendline for about a month but then reversed its rising trend. See the monthly chart above. We are now getting the indication that the secular bear market that started in 2000 might be on its way to continue.

Portfolio update

Sold VXX at $34.23

I refer to my post of May 19. I had bought VXX (the tracker that follows the performance of the VIX, the CBOE Market Volatility Index, that reflects the "fear" present in the market) at $28.38. Today the price of VXX jumps higher; I sell it at $34.23, making a 20.6% return in just 2 days and increasing the portfolio with $2,062.
I believe the VIX is due for a pullback tomorrow. I may decide to enter again in VXX later. Stay tuned.

The VIX index now stands at 44.61 (see weekly chart below). During the October 2008 crisis, the VIX had reached a level of 83.

US Dollar index: an update

I refer to my post of May 9. I mentioned that my profit target for the USD index was $86-87, corresponding to the upper side of the rising wedge technical formation: see weekly chart above.
We have now reached that price level as the US Dollar index is currently at $86.28 and even reached a high of $87 two days ago.

On the daily chart below, we can see that the stochastics and relative strength index (RSI) technical indicators are in the overbought zone and are starting to go down: this is a potential sell signal. I know some of you have bought the PowerShares DB US Dollar Index Bullish Fund (ticker: UUP), an ETF that tracks the USD index. I think the time has now come to take some of your profits off the table. This sell signal would be deactivated in the event the USD index would break out above the resistance that appears on the weekly chart and stay there for some time.


If the USD index starts to go down in the weeks to come, this would help the price of commodities (energy and agricultural) to start to rebound. Commodities (to the exception of precious metals) have indeed been in a bearish trend lately as they are inversely correlated to the US dollar.

Note that the US dollar and gold - contrary to what typically happens - have been moving together the past few weeks as more countries pop up on the radar for serious financial issues. This is helping to boost both the US Dollar and gold as investors around the world start buying what seems to be safety.

Portfolio update

Bought CDE at $15.8

Buying a position in Coeur d'Alene (CDE) on the NYSE at a price of $15.8 for a total of $5,000. Stop loss: $14.0

Coeur d'Alene (www.coeur.com) is one of the world's leading silver mining company. It is also a significant gold producer. It has mines in Bolivia, Mexico, Chile, Argentina, Alaska and Nevada.

CDE is trading below its book value of $24.82, has over $300 million in revenue and revenue growth last quarter of over 147% on a year-to-year basis.

I am betting on a continuation of the increase of silver and gold prices this year that would then benefit to Coeur d'Alene stock price.

Bought VXX at $28.38

I bought yesterday on the New York Stock Exchange the iPath S&P500 VIX Short-Term futures (ticker: VXX) at $28.38 for a total of $10,000. Stop loss: $21.0.

The entry signal was given by the two moving averages (20 and 50 days) crossing each other with a high volume.

Goal is to make some profits out of the increased volatility currently affecting the stock markets by taking a position in an instrument that provides access to equity market volatility through the CBOE Volatility Index (the "VIX Index"). More info on VXX here.

Stopped out of MOO at $38.0

Video predicting hyperinflation in the USA

Gold, silver and goldmines

Daily chart of the SPDR Gold Trust ETF that follows the price of gold:
1) Resistance of $1200 was broken. Price is now at $1235
2) Gold is already 26% higher year-to-date
3) The parabolic rise of the past few days makes it very risky to buy gold now: a sudden and powerful decline could occur at anytime. I will wait a price pullback before considering an entry.

Such price increase reflects inflationary expectations further to European Central Bank's decision to purchase government bonds to try to solve the Greek crisis, future potential sovereign debt crisis in other countries of the EU, and in general decline of confidence in paper currencies

Not only private investors are amassing gold bullions, the central banks around the world also continue to buy gold: see article in the Businessweek of May 13.

Gold accounts for only 1.6% of the Chinese central bank $2.4 trillion reserves, which is a lot less than the percentage of reserves held at other central banks around the world. So expect to see an increase of gold reserves by China central bank in the years to come. Gold consumption in China may increase a lot within the next 10 years due to demand from investors and jewelry industry. Chinese consumers are high savers and are looking to gold to protect their wealth. See article of March 30 in The Independent.

Gold in various currencies:

The charts of the silver ETF (ticker: SLV) and the goldmines ETF (GDX) look similar to the gold ETF described above. However for GDX, the resistance has not been broken yet.

Performance of stock market indices around the world

Below we highlight the year to date performance of the major stock market indices for more than 80 countries around the world. The G-7 countries have black borders while the BRIC countries are shaded in blue.

After trading higher for the first 4 months of the year, global markets started going down in late April and early May on sovereign debt concerns.

Some emerging markets have done really well in 2010. Ukraine is the best performing country with a 52.92% increase. Other countries in the top 3 include Estonia (+46.64%) and Nigeria (+33.59%).



Source of this ranking: bespokeinvest.com

Some readings this week

- Rogers, Faber advise paring investments as US stocks slump (Bloomberg, May 7): Investors should “be very careful and cut back” on their holdings if they have any “doubt,” Rogers said. While a bankruptcy for Greece will be a “good thing” for the country and the euro, it may result in “great instability” for markets as investors worry about contagion in other economies including the U.K. and the U.S., he said. Faber also advised investors to consider reducing their positions on any rebound in share prices.
Rogers, who predicted the start of the global commodities rally in 1999, favors so-called hard assets including silver on expectations of further “currency turmoil” in 2010 and 2011

- Computer trading is eyed. Debate turns to absence of circuit breakers, market makers as mystery plunge is probed (Wall Street Journal, May 8):
Traders parsing the mystery of Thursday's stomach-churning stock-market plunge are focusing on whether rapid-fire computer trading, coupled with the market's complex trading systems, triggered a free fall that appears to have begun with an order to sell a single stock.

- Gold and silver: the only game in town 2010-2011 (Financial Sense, May 12)
There are numerous reasons both fundamental and technical as to why the precious metals complex will surge over the next 18 months. The sector’s surge will be reinforced by the lack of an obvious trend in most other markets. Gold, Silver and the mining stocks will surge while other markets languish.

Civil And Criminal Probes Launched Against JP Morgan For Silver Market Manipulation

I refer to my previous post of April 21, 2010 related to a whistleblower exposing JP Morgan's silver manipulation scheme.

Last week, US federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market.

The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.

The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice's Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.

Read more: http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM#ixzz0nRzJNDZK

Market Volatility Index (VIX)

Fear is back in the markets: the past week, the volatility index surged higher (+86% in 5 days !) and is now above its 40 week moving average.
It is possible to trade the VIX index using the iPath S&P500 VIX Short-Term Futures (VXX). See chart below.

SPDR Gold Trust ETF (GLD)

I refer to my posts of September 22, 2009 and November 11, 2009: At that time gold price had made a break out above $1000. My target was $1200-1300 at the time.

Today gold trades at $1208 and has gone up in parallel with the dollar index. Current fear in the financial markets about sovereign debt crisis in some European countries acts as a catalyst to boost gold price.

Above is the weekly chart of the SPDR Gold Trust ETF (GLD): this tracker acts as a proxy to the price of the gold bullion.

EUR/USD chart analysis

Monthly chart of the EUR/USD: the "big picture"
The euro is in a downtrend; next support? around 1.25. If it breaks below, next target is the parity with the dollar.

S&P500 index

I refer to my post of April 30, 2010: I had raised a red flag because of the price divergence between the Shanghai index and the S&P500 index. The past week has seen a big drop of the markets around the world: the S&P500 index lost 6.4% in the week and is now touching its 200 day moving average. The resistance stands at the level of 1200.
On Thursday the panic was in the market as the S&P500 lost 9% in almost 10 minutes before recovering to a loss of 3.2% at the end of the day.

Weekly chart:

Daily chart:

As you can see on the daily chart above, the S&P500 now stands at the same level it was at the end of last year. After trading up more than 9% year-to-date on April 23, it took only a couple of days to get rid of months of hard-earned gains.

The situation on the European stock markets is much worse: the Eurostoxx 50 index lost 11.2% during the week and is now 16.5% below the price it had reached at the end of last year.

This panic caused the US dollar and Gold to raise strongly as they are seen as the safe heavens in the current circumstances.

US Dollar index

I refer to my posts of February 7, 2010, December 23, 2009, and November 29, 2009.
I gave a buy advice on December 23, 2009, when the USD index was at 75 with a target of 86-87. Four months later, the USD index now stands at 84.59 (see above chart).