Traders' Library Blog

Traders’ Library on the iBookstore

If you are one of the thousands with an iPad, iPhone, or iPod (or maybe you are getting one over the holidays) then we have great news!  We just got 4 of our titles up on the iBookstore: 

1. The Three Secrets to Trading Momentum Indicators

2. Simple Steps to Trading Discipline: Increasing Profits with Habits You Already Have

1. 3. Iron Condor: Neutral Strategy for Uncommon Profit
3. 4. Volatility Indicators: Techniques for Profiting from the Market's Moves

Now you can read wherever you are!  We are working on getting more of our titles available,  I will be sure to keep you all updated!

Treasury futures might be bottoming, but one more flush?

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Click here to purchase the "Option Spread Advangage" DVD by Carley Garner and Trader's Library!

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December  3rd, 2010

A decisively Treasury bullish employment report triggered a sharp rally in bonds and notes, but the reaction proved to be temporary.  A gangbuster rally on the news, was gradually faded by traders throughout the day.  Thus far, Treasury rallies have been at the hands of short covering and thus once a majority of the buy stops are run the market simply runs out of buyers.  As a result, small speculators seem to have become comfortably short the note market...and this is often the precursor to a large rally. 

Remember, most traders lose money and the odds are most dismal for those with smaller trading accounts.  This group of trader is often the most fickle (quick to get out).  Therefore, if the average retail trader is comfortably short red-flags begin raising...and traders might  be better off looking for a reversal as opposed to following the trend.   

Treasury traders appear to be reluctant to be long the market ahead of next week's large auction.  The Treasury will be issuing large amount of securities on Tuesday (3-year notes), Wednesday (10-year notes) and Thursday (30-year bonds).  If you recall, the last round of uctions didn't go particularly well and therefore the market seems to be anticipating a repeat.  However, we feel like the jump in yields will lure some safe haven buyers next week's auction.   

We mentioned this yesterday, but feel as though it is important...During the month of December, the Euro is typically strong and the dollar weak.  Accordingly, we feel as though fluctuations in the currency markets will ultimately favor the Treasury bulls in the coming weeks. 

Fed induced rally

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Carley will be speaking at the Trader's Expo in Las Vegas, entry is complimentary with expo registration.  Click here to sign up!

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 November 3rd, 2010* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.  Charts provided by Track 'n Trade, Gecko software. **Seasonality is already factored into current prices, any references to such does not indicate future market action.

 "Helicopter Ben" delivered on Wednesday by announcing another $600 billion in Treasury purchases through the second quarter of next year.  At $75 billion a month being injected into the economy, it's hard to fight against the Fed machine. 

The equity market reaction to the news was relatively volatile and indecisive but by the close of trade it was clear the market was satisfied.  However, we could see some buyer's remorse going into the weekend.  Although earnings have been good and the recovery is underway, a large part of this rally has been at the hands of artificial influence.  At some point investors might begin to second guess themselves. 

With that in mind, we still don't believe that being overly bearish will pay off in the end.  Short entries should be done on sharp rallies and the bears mustn't overstay their welcome.  For instance, if you took our ideas from the previous newsletter of selling the S&P futures near 1195, the NASDAQ near 2156 and the Russell near 718 you could have done rather well had you been savvy enough to take profits, or at least trail tight stops, as the market plummeted.  Had you taken our entry points only to watch the market rally back in your face, you likely suffered psychological damage.

Fed's QE2 not enough for 30-year bond futures traders

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Carley will be speaking at the Trader's Expo in Las Vegas, entry is complimentary with expo registration.  Click here to sign up!

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November 3rd, 2010

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.  Charts provided by Track 'n Trade, Gecko software. **Seasonality is already factored into current prices, any references to such does not indicate future market action.

 

Most analysts were predicting the Fed to announce another round of quantitative easing in the amount of $500 to $700 billion and the central bank split the difference.  Today's FOMC announcement included a pledge to buy $600 billion in Treasuries through the end of the second quarter of 2011 at a pace of about $75 billion per month.  For the most part, this had already been priced into the markets and was more of an expectation than a gift.  The statement also revealed that 90% of the Fed's Treasury purchases would focus on the 2.5 to 10 year maturities and very little will be put into the longer end of the curve.  Accordingly, the long bond suffered at the hands of mass liquidation.

 The New York Fed said it would temporarily "relax" a rule limiting the Fed ownership of any particular security to 35%.  The new interpretation of the rule will enable the Fed to purchase securities beyond the threshold in "modest increments".  Bill Gross's description of the program as a ponzi scheme isn't too far off...

Negative TIPS hangover in Treasury Futures

 

 

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Carley will be speaking at the Trader's Expo in Las Vegas, entry is complimentary with expo registration.  Click here to sign up!

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October 26th, 2010

Negative TIPS hangover in Treasury Futures

 

Treasury bond and notes suffered on Tuesday at the hands of "OK" economic data and follow through selling left over from yesterday's 5-year TIPS auction.  If you recall, the Treasury reopened 5-year note TIPS (Treasury Inflation Protected Securities) at a negative yield for the first time in history! 

TIPS have been in rally mode for some time and the buying has been exaggerated by speculation of the Fed's next round of quantitative easing, known by most as QE2.  Although investors have found comfort in the idea of fixed income backed by the credit worthiness of the government, it is clear they are also seeking some protection from inflation via TIPS.  In a roundabout way, those holding long Treasury note positions can hedge their bets through the purchase of TIPS.  Should inflation rear its ugly head, the TIPS "should" take some of the heat off price pressures felt in more traditional coupon securities.

The Federal Reserve implemented another phase of its POMO (permanent Open Market Operations) today.  Specifically, they purchased $2.5 billion worth of maturities ranging from 2011 through 2040.  The Fed's current tentative Treasury buyback schedule ends on November 8th but they are expected to announced a new round of purchases at next week's Fed meeting. 

Most are looking for the next round of buying to be about $500 billion in size,  but some estimates are calling for as much as $2 trillion.  Our guess is, the markets have likely priced in a half a trillion but if the Fed opts for the last bazooka, the markets might not be fully prepared. 

The correlation between the Yen and Treasuries held true during the session.  As we pointed out yesterday, the correlation coefficient between the Yen and the December 30-year bond futures is in the mid-90's.  If this correlation stands, it could weigh down the long bond a little more before a reversal can occur. 

Investors still buying dips along with POMO

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Carley will be speaking at the Trader's Expo in Las Vegas, entry is complimentary with expo registration.  Click here to sign up!

 

Can't make it to the Trader's Expo?  Sign up for our next complimentary webinar to learn more about credit spreads and iron condors.  Click here to register!

 

October 26th, 2010

 

 

Investors still buying dips along with POMO

 

If you are an avid reader of the "Stock Trader's Almanac" you are likely aware of the fact that we have officially entered what is known as the "Best Six Months" of the year.  You might also know that historical stats suggest the best time to be long stocks within the presidency cycle is the first quarter of the midterm year and the first quarter of the pre-election year.  In addition, history suggests the markets have out-performed when there is a Democrat in the White House and a Republican controlled Congress. 

 

What does all of this mean?  Investors maintaining a buy on dips mentality will likely face better odds of success than one that is fighting the statistics in the coming months. 

 

With all this in mind, chasing markets higher can be (more often than not) a recipe for disaster.  With the U.S. dollar ripe for a rather large short covering rally, it might be possible for equities to suffer from corrective trade at some point in the near-future.  This move has been a long time coming...we haven't given up on it, but warn those that have gotten complacent in the currency markets (and thus commodities) there could be some ruffled feathers when the somewhat inevitable technical trade takes hold. 

 

Excerpt from yesterday's newsletter for those of you that missed it:

 

 

Bond and note futures soar

 

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September 22nd, 2010

 

 

The ten year note has quickly made its way back to a 2.5% yield following yesterdays FOMC announcement.  The note yield hasn't spent much time below 2.5% (ever); however, the long bond looks to have some room to move and this could mean December note futures trading as high as 126'27 which could mean the cash market yield trades into the low 2% range. 

 

The Fed might not have mentioned QE2, but the market seems to be counting on it.  After all, they left the door wide open to just about anything by declaring they are "...prepared to provide additional accommodation if needed to support the economic recovery." 

 

Goldman Sachs economists are predicting the central bank will announce at the next meeting its intention to purchase at least $1 trillion of Treasuries...and the market knows this and seems to be in the process of pricing it in.  However, before the bulls get too excited...it is important to remember that more often than not, Treasuries seem to rally more on talk of Fed asset purchases than on the action itself.  In fact, it isn't uncommon for longer-dated government securities to struggle during the scheduled security buying. 

 

From a technical point of view, the 10-year note has reached our initial target of 125'25 and clearly hit a wall.  However, the 30-year bond is yet to reach our first resistance of 134ish and we "feel" like momentum could take the long bond to a bit above 135, this could drag the note up with it.  Therefore, we recommend any bearish positions on the note be taken with caution and preferably a hedge as there could be more gains ahead before the buying runs out of steam. 

 

Keep in mind, our technical objectives are counting on near-term weakness in equities but even if stocks maintain stability it is possible for the Treasury complex to move a bit higher...but at a measured pace.

 

Stock index futures biggest decline in weeks, wasn't so big

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September 22nd, 2010

 

Stock index futures suffered the biggest daily loss since September 7th; that is hard to swallow given the close of the December S&P which was a decline of just five handles.  We have to admit, after the major indices were rejected by (or near in some cases) our technical resistance areas, we were expecting the slide to be a bit more dramatic.  This leaves us wondering if the corrective move will be much shallower than we originally thought. 

 

Given the lack of selling, it seems as though the market has hit the facebook "like" button on the Fed's pledge to do whatever it takes to aid the sluggish recovery...and even promote inflation.  However, taxpayers have deep pockets but not unlimited resources and the central bank can't buy debt forever.  At some point, investors will be reminded of this and the rally will take a breather. 

 

In yesterday's newsletter we mentioned we were due for a trend-change in economic data and tomorrow we will know if the tides have turned.  We start the day with weekly jobless claims, but the focus will likely be on existing home sales and leading indicators later in the day.  With prices so frothy, bad numbers could be a good reason for the bulls to lock in profits.

 

For now, we are sticking with a sell rallies mentality.  If the current move, is the breather we are talking about...the December S&P should see 1105 (filling a previous gap) and likely even 1092ish before finding credible support.  If not, resistance lies at 1148 and then again near 1156. 

 

The Russell has been the market leader in past reversals, whether it be bullish or bearish.  Today's trade saw a considerably more selling pressure in the small cap index relative to the NASDAQ or the S&P.  In the past, this has worked against equities and could pull the other indices down in the next day or two.  Support in the December Russell lies at 636ish with resistance in the 668/673 range. 

Repeat of the last quarterly futures and options expiration?

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September 17th, 2010

 

 

This week's trade has mirrored that of the June expiration; several sessions of consolidation, following a dramatic rally.  If you recall, the last time around the "Monday after" saw a dramatic gap up on the Sunday night open only to sell off into the close...and for the next 2 weeks for that matter.  We can't help but think we could get a repeat.  Accordingly, we can't rule out 1136ish in the December S&P early next week as traders finally square their option expiration headaches...but it also means such pricing would be a "solid" place to be bearish. 

 

Of course, it is also possible that the Thursday night highs were the highs of this move all-together.  If you have been reading this newsletter, you know that we have been noting signs of a possible reversal and pointed out the possibility of a "crazy spike high to the low 1130's", before rolling over.  Was that it for the rally?

 

There are many arguments in favor for the bulls, but as we all know, timing is everything and I am not convinced that the markets will be able to overcome some of the near-term obstacles.  For instance, seasonal tendencies are calling for a pullback, many of the large speculators (smart money?) have gone short and added to their short positions this week, and market sentiment has gone from being overly bearish to overly bullish. 

 

As we mentioned on Wednesday, the markets seemed to want to hover into expiration simply because that is what would cause the most pain to the most people...and it did.  Those with short calls, or hanging onto short September futures into the last minute were likely squeezed hard enough in the last few weeks to make them reconsider trading.  What will be even more painful for "most", will be watching the market move lower next week without them...assuming it happens.   Just in case you missed it from yesterday:

 

If you haven't watched the movie "Floored" I highly recommend it.  Although it is rather racy and even shocking, it takes a good look at the reality of trading futures and options.  The reason I bring it up, is there is a particular quote that goes something like this (this is a highly edited version, yet I still apologize); "The market is a prostitute; it screws as many people as it can for as much money as it can". 

 

The point is, the market shouldn't be taken for granted.  It is bigger than all of us, and in order to survive we must look at things in a way that most don't.  After all, most active traders lose money...so if we are analyzing and forming the same expectations as nearly everyone else, we are probably wrong. 

 

We are sticking with the idea that the markets are starting to get a bit toppy, look for resistance in the S&P in the mid to high 1130's, should we get a repeat of the quarterly expiration rally to fish the last of the buy stops.  Similar resistance in the Russell lies at 660ish.    

 

Back and fill Thursday in stock index futures?

 

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September 1st, 2010

 

What are the true costs of trading futures and options?  Carley Garner and Karen Gibbs discuss.... http://www.aweber.com/archive/decarleystock/.MPm

 

Although this month is known as "Black September" because of its propensity to provide negative stock returns, the first trading day of September has now posted gains in 12 of the last 15 occasions. 

 

It is also important to realize that despite media banter about dismal performance in September, the average broad market loss is less than 1%.  The bears will tell you that in September of 2009 the markets were coming off a rough August, not unlike what we are seeing play out in 2010.  Similarly, investor sentiment was pointing toward doom and gloom and market commentators warned of rocky September seasonals.  Yet, the market found a low on September 2nd and rallied nearly 80 handles.  Can we get a repeat of last year?  We think everything is lining up to pave the way.

 

The major indices were vastly oversold and due for a relief rally, the question now remains whether or not it can hold gains...or more importantly continue higher.  Things look good to us, if you recall in yesterday's newsletter we noted

"It took a while to sink in, but I think the market eventually saw the Fed minutes as market supportive.  The committee maintained a relatively stable to optimistic outlook on the economy as well as pledged to take further steps if necessary.  In addition, they are dead set on keeping interest rates low...and isn't that what corporate America needs to fund operations and make money?"

 

Some back and filling is likely necessary and the S&P faces strong resistance near 1080, we doubt the move is over.  It is highly likely that this rally caught some large bears standing in front of the bus and they will be looking for opportunities to get out.  This means than any pull-back could be met with another round of short covering.  Assuming tomorrow's jobless claims and Friday's employment report (referred to as an "unenjoyment report" by our open outcry execution desk) are respectable the September S&P futures contract could be going for just under 1100 and if we get a string of good news...1130 could be on tap. 

 

If you are trading the NASDAQ, 1830 is the pivot but the next resistance will be 1873.  Like the others, the Russell faces immediate resistance near 624, but if follow through the next resistance will be about 650.

 

Stock index futures bulls might have pulled it off

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August 27th, 2010

 

Are long options better protection than stop loss orders? Carley and Karen Gibbs discuss...http://www.aweber.com/archive/decarleystock/U4vm

 

 

It has been a long and hard week for stock market optimists.  Bad news after bad news has put unrelenting pressure on equities but today's trade might offer enough momentum to fend off a slide in the S&P to the 1,000 area. 

 

Second quarter GDP was revised lower as expected, but the news wasn't as bad as most had anticipated and more importantly what the markets had priced in.  As of now, it is believed that the U.S. economy grew at a rate of 1.4% last quarter as opposed to what many believed would be much worse.  Also helping the bulls were comments by the Fed chair ensuring that the Fed would be ready to step in and defend against a weaker economy if necessary. 

 

As we have been noting in this newsletter, the market feels too bearish.  Retail investors have pulled their money out of stock funds in droves and there seems to be very little interest in putting it back to work anytime soon.  In fact, according to the American Association of Individual Investors, the number if individual investors that have a bullish outlook on the stock market in the next six months has plunged to 21%.  This is the lowest reading since March of 2009 and we all know what happened then.   I hate to say it, but once all of the weak hands are out, it is often the time to begin looking for a rally. 

 

In yesterday's newsletter, we were calling for a bounce to the 1065 area, and today we got what we were looking for but it will take some follow through buying early next week to confirm a near-term bottom.  I hope some of you were able to capitalize on our advice of trying to get long the S&P on a dip to the mid-to-low 1030's; the low prints weren't see and the 1037 print was quick...

 

Going into Monday, it seems as though we could get a bit of digestion from the rally.  Aside from seeing a 25 plus point run in the S&P from Friday's low, historical statistics suggest that the next to last trading day of August tends to see a struggling market.  According to the Stock Trader's Almanac the S&P has closed positive only twice in the last 13 years. 

 

We see resistance in the September S&P futures near 1065 and then again just under 1070.  In the meantime, support lies at 1050 and 1034. 

 

If you are trading the NASDAQ or the Russell, we have revised our upside targets to 1835 and 624.  If the markets take another big dip down, look for support near 1756 and 596.  We still lean toward buying weakness. 

 

Momentum Indicators now available on KINDLE!

Marketplace Books and Traders’ Library are very excited to announce The Three Secrets to Trading Momentum Indicators by David Penn is now available on Kindle through Amazon! 

 

The world of publishing is changing and so is the way people want to read!  No longer are all people fixated on holding a book in their hands and flipping through the pages; now they want to read on their computers, smart phones and e-readers, with acess right at their fingertips.

 

We would love to hear your feedback on eBooks vs print! 

 

 

Inside David Penn's new book, you'll get:

 

-An explanation of Candlesticks—the best way to see momentum,
-The mistakes traders often make with indicators and how to avoid them,
-Tactics for using momentum with breakout, reversal, and swing trading,
-And, the inside scoop on the king of all momentum indicators—Stochastics.

 

This exciting new format puts you at the controls of the charts, providing easy access from any reference in the text. Plus, you get complete definitions of vital terms right at the click of your mouse. There is no faster trading signal than price action properly interpreted—so get your copy of this money-making guide and start benefiting from momentum now.

 

Download it to your kindle now!

 

** Send us proof of purchase and receive 3 free eBooks!

 

How I Trade: 2 Minutes With a Successful Trader

Tom is a private trader who prefers to stay under the radar. However, contributor Tim Bourquin sat down with him recently and asked him about his trading methods and strategies that he uses to make profitable swing trades. Here he discusses why he keeps so many open positions at one time and how he uses his profit & loss spreadsheet to determine which positions to add to and which positions to close.

Tim - TraderInterviews.com: Tom, you've been trading for many years and have said you are constantly refining your techniques to adapt to the current market conditions. What's working for you right now?

Tom: Well, I was one of those "dot com" traders back in the late 90s, when WorldCom was $120 and Yahoo was also several hundred dollars per share. Every year since then it seems I've had to adjust my trading strategies slightly to make the right trading decisions. Over the last year or so, one of the strategies I've worked on perfecting is tape reading and looking for momentum breakouts. I've also been looking a lot at sector internals to find the strongest stocks within the strongest sectors. That's not new, of course, but I have slightly different twist on the typical momentum traders. I look for two-day highs and two-day lows that are backed up by strong volume. My experience has been that if a stock is moving strongly in one direction and continues on that path for a second day, it will typically rest a bit the morning of the 3rd day and then, as long as volume remains strong, it will again head in that same direction for a short time. The pullback on the third morning of this short-term trend will allow me time to secure a long or short position in anticipation of this continuation. I set my stop just below the high or low of the previous day - but not too close as to not get "washed and rinsed" with all the other traders that have placed orders at that level. Nearly 60% of the time, once those stops have been tested, it continues in the direction of the last two days and it's good for at least one to two points.

Tim - TraderInterviews.com: Have you found certain stocks that this strategy works particularly well with?

Tom: That's one of the things I've also been working on in the past 12 months. I could certainly setup real-time scans to find all the stocks that are achieving two-day highs or lows accompanied by strong volume, but I've found a better way. I keep very small positions open in about 300 of my favorite trading stocks - $200-$300. Of course, that may mean a single share or just a few shares depending on the price. Then I simply sort my P&L by gains and this allows me to see which stocks have achieved gains or losses over a two day period. I then pull up charts for those gainers and losers and see which meet my criteria. I then simply add to my long or short position in those stocks. This allows me to enter a position with very small risk. I also am very disciplined, on the long side, about only adding to those positions that are in the top five when I sort for percentage gains. If a stock is not in that top five, I won't add to the position. It's my way of sticking to my personal rule of only buying stocks that are making higher highs and selling stocks that are making lower lows - even if only on a two-day basis.

Tim - TraderInterviews.com: Interesting. Most traders seem to work on buying a low in the hope that it will reverse.

Monthly Market Outlook Webinar with John Person

What: Free Exclusive Webinar

When: Wednesday, August 4, 2010 | 8:30 PM EST

Where: Click here to register!

John Person will be having his monthly market outlook - some of you already know how John’s Techniques have helped many traders identify large market moves and profit handsomely! This time will be no different John promises not to pull any punches. John will:

· Cover some of the market sectors that best perform in different economic phases.

· Cover stocks and commodities picks that perform best during specific times of the year from a seasonal perspective.

· Show you how to use ONE of his powerful price indicators available to determine whether you should be BUYING dips or SELLING rallies.

· AND as if all of these factors weren’t enough, John will introduce you to another factor and force of trading – Norman Hallett of The DISCIPLINE OF TRADING.

As part of John’s efforts to complete a session with SOLID information and training, John has asked Norman to participate on giving our subscribers some of his powerful views on this subject to help our clients put better emphasis on the way they trade.

Well… when you have a Master on Trading and a Master of Mental training the forces are with YOU!

Register now!

Interview with Mark Larson

Sinclair Noe on KFNN 1510 Financial Radio interviewed Mark Larson, author of 12 Simple Technical Indicators That Really Work.

Take a listen!

How to Take Money from the Markets

Steve Palmquist, one of our great blog contributors, has a new book coming out next month.  Here is a sneak peek from How to Take Money from the Markets: Creating Profitable Strategies Plus Six Ready-to-Use Systems.

 

Chapter 7: Market Adaptive Trading

 

Trading is about being positioned to make profits if a stock, or the market, does the usual thing in a given situation. If we find that a specific price or volume pattern is most often followed by price increases in bullish markets, then we focus on taking long positions when we see the pattern form during a bullish environment. If we find that another pattern is most often followed by price declines during a bearish environment, then we focus on taking short positions when we identify the pattern in bearish market conditions. There is no way to predict the future and know what the outcome of any particular trade will be. We can, however, discover what the most likely outcome of a trading pattern is over hundreds of trades in similar market conditions, and thus have a reasonable expectation that over a number of trades, in similar conditions, profits may be realized.

 

The market has three basic modes: bullish, bearish, and trading range. It really can not do anything else. There is no way of knowing what the market will do next year, or over the next five years, and it is odd that so many people gamble their life savings based on some stranger’s prediction of future market direction. Listening to market forecasters is basically “hold and hope.”

 

Hope is not a trading strategy.

Click here to continue reading...

 

Download to read the rest of Chapter 7 and take a look at the Table of Contents and Index.

Yesterday's late sellers were today's early buyers

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June 15th, 2010

 

Join us for a FREE webinar hosted by PFG Best on July 29th at 3:30 pm Central to discuss "Futures Market Slang" : http://pfgbest.com/webinar/eventSummary.asp?skey=337713234

 

Monday's horrendous close had the bulls nervous and the bears salivating, but despite a lack of positive news or obvious catalyst Tuesday belonged to the bulls. 

 

I recently read an internet blog that shared the same pessimistic reality that I have spoken about in this newsletter from time to time.  It stated that based on the open interest of calls and puts in the SPY (the ETFy version of the S&P 500 index) the S&P would need to be a little above 1100 at expiration to cause the most pain to the most speculators and this is what the blogger expects to happen.

 

Unfortunately, I agree; I believe the markets have a tendency to cause the most amount of pain to the most people.  Don't forget that beating the market is a tough game...greedy investors chased Madoff and his 12 to 13% annual track record straight into prison, so expecting "easy" money is unrealistic.  I am not saying that profitable and lucrative trading isn't possible, but it is my job to point out that as a trader it is important to be able to accept the good with the bad.  That said, although our conclusions were made via different analysis relative to this blogger, the outcome is the same. 

 

We have been looking for the S&P to trade into the 1120's and maybe as high as 1130.  Today's test of the 200-day moving average (near 1108) puts us well on our way.  However, President Obama will be addressing the country tonight and he has been called by some un-named CME floor traders "Mr. Sell Signal".  Therefore, if you have caught this up-move don't get greedy holding out for 1130...look to tighten stops and take some risk off of the table.  Assuming we break 1108, the next resistance will be 1117 and then again near 1127.  There are likely many buy stops above and this should translate into an extension of the rally but he bulls shouldn't get comfortable.

 

If you are trading the NASDAQ, resistance lies near 1905 and again near 1930. 

Resistance in the Russell continues to be 661 but we think that 675 will be seen sooner rather than later.

 

3 Ways To Play Sovereign Debt Crisis

3 Ways To Play Sovereign Debt Crisis

As the sovereign debt crisis continues to take its toll on Europe and fails to linger away, currencies continue to deteriorate, government bond yields continue to rise and stock markets remain volatile.  Depsite the fear that this crisis has brought on, there are four ways one can play it.

Japan

Many believe that the next country to be hit by the crisis is Japan.  Traditionally, the Japanese Yen and Japanese bonds have been a safe haven in times of uncertainty; however, this is no longer the case.   According to a study conducted by Moody’s, Japanese government debt is estimated to be more than 200 percent of the nation’s gross domestic product (GDP), which puts limitations on the government’s ability to spend and implement additional fiscal stimulus plans to stimulate a much battered economy. 

In regards to interest rates, the Bank of Japan needs to keep interest rates at or close to zero and continue its asset-purchase program to curb the effects of deflation and worsen the overall health of its economy.  To make things even more challenging in the Asian nation, Japan’s demographics are highly unfavorable.  The Japanese population is aging and shrinking, which eventually will result in the labor force retiring and cashing in on government bonds, which is likely to result in the Japanese government borrowing more at higher yields from more prospering countries.  

With the future looking relatively gloomy for Japan, some possible plays include the ProShares UltraShort MSCI Japan (EWV), which aims to seek twice the inverse daily performance of the MSCI Japan index.  A second play includes the ProShares UltraShort Yen (YCS), which allows one to bet against the Japanese Yen.  EWV closed at $47.29 on Tuesday and YCS closed at $20.65 on Tuesday.

Corporate Bonds: A New Safe Haven

By Kevin Grewal, Editor at www.SmartStops.net

As companies continue to outperform Wall Street’s expectations, bonds issued by non-financial companies are the most expensive they have been since the start of credit debacle and investors are starting to shun away from Treasuries turning to corporate debt.

According to Bank of America Merrill Lynch Index data, Chevron Corp.(CVX) and Johnson & Johnson (JNJ) led a drop in U.S. industrial company debt yields to 130 basis points more than similar-maturity Treasuries.   Additionally, the overall U.S. corporate bond market is up 1.3% this month and is expected to post its fourth straight month of gains.  In comparison, U.S. Treasuries have returned a mere 0.4 percent for the month, after witnessing a decline of nearly 0.85 percent the month before. 

Another indicator that corporate bonds are gaining appeal is overall corporate credit risk appears to be declining.  The Markit CDX North America Investment Grade Index Series 14 continues to increase as it gained 1.2 basis points, reaching a level of 89.4 yesterday.  The index is known to be used as hedge against losses on corporate debt or a way to bet on corporate creditworthiness.  Increases in the index generally indicate deterioration in investor confidence and decreases in the index indicates improving investor confidence.  Overall, the consensus behind corporate debt is that it is likely to outperform credit-default swaps. 

Four Reasons Google Is Attractive

By Kevin Grewal, Editor at ww.SmartStops.net

Despite the continued hype behind its competitor’s innovative products, and its withdrawal from China, Google (GOOG) may be worthy and for good reason.

The search engine giant’s emergence into the mobile device world through its Nexus One and Android software stack which includes an operating system has been a hit.  Recently, Google announced that 60,000 cell phones equipped with Android are shipping on a daily basis.  Additionally, advertising on the Android continues to increase.  According to advertising firm AdMob, U.S. ad impressions on Android devices have increased from 27% in November to 42% in February and worldwide ad impressions have increased by 2%.  What makes Google even more appealing on this front, is that it appears to be taking advertising share from Apple’s iPhone, which has seen declines of ad impressions from 55% to 44% during the same time frame.  Furthermore, Google’s mobile phone can be found on Verizon (VZ), Sprint (S), AT&T (T) and T-Mobile’s platforms.  

A second factor that is likely to support Google’s strength is its upgrade to its online package of word processing and spreadsheet programs, Google Docs.  The changes, which were introduced on Monday, include several editing tools for word processing and quicker ways to fill cells in spreadsheets, which will enable it to directly compete with Microsoft (MSFT) Office.  The beauty behind Google Docs is that all of its applications are hosted over the Internet, whereas Microsoft’s software is typically installed on individual’s computers or workspaces.

Another factor likely to bolster Google’s attractiveness is the recent talks about developing a tablet device based on its Android operating system software.  The New York Times recently reported that Google has been working with numerous hardware makers to construct the perfect tablet device to compete against Apple’s iPad and the Amazon (AMZN) kindle.