Silver - an Update to Sunday's Post

On Sunday evening, I wrote a short piece on silver that prompted a number of comments and several emails.  All of the comments and questions are good....even the critical ones by anonymous posters, so I decided to write this follow-up article to address everyone's points.

And yes, I still feel the same about my $100 per ounce silver call!

Euro Falling Off a Cliff

Remember a couple of days ago when I said that all is not well with Ireland, despite the relief rally we saw in the Euro?  Well the market is now in full agreement and has been all morning, as reaction to the Irish bailout over the weekend, coupled with additional uncertainty in Spain & Portugal, not to mention a very weak auction for Italian bonds at around 5:00 AM EST, have resulted in a veritable beat-down for the EU currency.  Currently trading at just south of $1.3100.   Charts are posted below....

Hi-Ho Silver, Away!

 Those who know me well have often heard me speak about precious metals, and silver in particular.  I have also mentioned a time or two that the silver market has been heavily manipulated, kept artificially low by the likes of JP Morgan and HSBC, who together, control 85% of the COMEX and London exchanges for this metal.  While I have mentioned these facts a time or two, I never really harped on them much because I didn't want to sound like a conspiracy theorist.  Well, the times do be a changing, my friends.  JPM and HSBC are now under investigation (finally!), the spot price of Silver is up roughly 50% since the beginning of September, and I think this is just the beginning of a much larger move.  If things continue as they have, I think we could actually see $100 per oz and perhaps much more.

Thanksgiving Week Update

I've been on business travel the past few days and have had limited time to trade or post, but so far, it has been a continuation of thebattle between Bennie B. and the rest of the world.  On the one hand, Europe is starting to seriously unravel while N. Korea lobs missles at S. Korea and China keeps blowing asset bubbles, all of which are putting pressure on stocks.  On the other hand, you have Ben and the Fed buying up Treasuries like they were going out of style, in a vain attempt to keep the stock markets rising and the dollar dropping.

So far, it looks like "the rest of the world" is prevailing, and with no more POMOs on deck until after Thanksgiving, it looks like we may end the U.S. trading week on a sour note.  Let's take a look at a few charts and see where we stand....

AKS - Getting Ready for a Big Move?

I wrote this post on Thursday and forgot to publish it, but the information is still timely and a play that I'm still considering for my own portfolio.

Last year around this time I made some fantastic profits (over 500%)  trading call options on AKS, as the underlying stock price traded from $15 to $25 in less than 10 weeks.  Since April, the stock has gotten absolutely hammered, currently trading around $13.20, but the charts are indicating a big move could be right around the corner, and the options are pretty cheap.  I know that it's going to sound really out of character, but I think I feel a bullish play coming on.....the set-up and my thoughts below.....

Quantitative Easing Explained

This video has been out for about a week now and has been making the rounds on various financial blogs.  Not only is it a humorous presentation of QE2, the explanations are provided in very simple terms, specifically for the majority of us out there who don't hold a PHD in economics. It would be even funnier if it wasn't true.  Please view and distribute to friends & family. 



To forward, you can copy/paste either of the following links into an email.

http://singlemalt-trader.blogspot.com/2010/11/quantitative-easing-explained.html

or     http://www.youtube.com/watch?v=PTUY16CkS-k

CNBC Headline: "Wall Street to Soar as GM Returns"

Welcome to the biggest pump-job of the 21st Century 

You know, it almost makes me sick to my stomach when I see headlines like this.  All week, the mainstream media has been talking up GM and their return to the stock market....like it's a good omen or something?  Hello???  GM was a poorly managed company that for decades produced sub-standard products by leveraging the half-hearted efforts of an insanely overpaid, union-coddled work-force.  Is it any wonder that they failed?   The fact that they were bailed out with our tax dollars is still a sore point with me, but to celebrate their return to the stock market like the homecoming of  a victorious General (no pun intended) borders on ludicrous.

Mark it down - SingleMalt is going on record saying that an investment in GM is a sucker's bet. 

Profit Taking and Reassessing

As the saying goes, no one ever went broke taking profits.  That may be true, but you can certainly sell yourself short by taking them too soon, and right now, I'm wondering if I did just that on my short Euro position yesterday.  Here's the thing, though.  I also try to maintain a level of discipline in my trading, which includes another old saying:  Plan your trade, then trade your plan.  So what was the plan?  If you go back a couple of days to this blog entry you'll see it.  My take profit target was the 50% fibonacci retracement at $1.3462.  We ended up reaching that target yesterday, so I hit the profit button.  

Below I'll provide a recap of the Euro trade, with a look at what was happening then and what we're seeing now, and my thoughts on the overall market via the S&P 500.

Lines in the Sand and Other Updates

Well it's only noon time, and already it has been an interesting day.  Today's POMO of $5 Billion, plus $7.9 Billion on Monday and $7 Billion on Friday brings us up to almost $20 Billion in new Ben Bernanke quantitative easing, something that he claimed was supposed to be driving the market higher, yet the S&P is currently trading at 1175, down significantly from Friday's open at 1209.   It is way too early to gloat, but I do need to chuckle a bit at the CNBC pundits who were recently squawking about how the market couldn't do anything but go up from here.  And to be clear, we could very well still see a nice Santa Claus rally into the end of the year, but short term, we may be seeing a bit of that sell-off I thought would be coming, post the Fed announcement on 11/3.

Euro Update

Earlier this morning I posted on a number of things, including a current EUR/USD short position that I'm holding.  I got a comment from someone asking what my take profit target is for this play, and since I can't post charts in the "comments" section of the blog, I'm providing this update. 

Below is an updated daily chart, and you'll see where I've added a fibonacci retracement grid to the run-up that began in September.  We've been hovering around the 38% retracement for the past few trading days, and my initial thought when re-entering a short position here was to target the 50% retracement level, which would net me another 300 pips in profit. 

As can be seen in the above, we'll probably see some central bank buying to defend the intermediate lows put in last Friday at 1.3573, but once we break through this level, we should see 1.35 and below in quick time. 

Below is the same, but on a 5 minute scale, highlighting the action from today.  As you can see, 1.3580 saw some buying to put a temporary halt to the sell-off that began 2 hours ago.  I'm not sure how aggressive this buying will be, so have moved my stops now to 1.3650, just in case the ECB is feeling froggy and wants to jam the shorts. 

I'll update more later if I see any significant changes.

The Week Ahead

More questions than answers, I'm afraid.  The economic data being reported this week is pretty light, which puts QE2 squarely in the spotlight.  Last Friday's POMO was the first $7 Billion injection since the Fed announcement on November 3rd, and much to the dismay of Big Ben Bernanke and the POMO bulls, it was pretty much a flop - at least in terms of being able to drive the market higher.  In this post we'll take a look at:

1.  The S&P 500

2.  A few currencies

3.  A quick look at Cisco, post earnings

Then wrap things up with what we could see in light of ~$25 Billion in POMO, the continuing situation in Europe, and of course...the much anticipated IPO of General Motors later in the week.

QE2 vs. European Sovereign Debt Crisis

"Luck O' The Irish"  I've been talking about this for a few weeks now, and in yesterday's post highlighted the blowout in spreads for Irish sovereign debt.  Below are just the headlines from RAN Squawk, and I would expect that we see more follow-up from Bloomberg, Reuters and CNBC later in the day.

Last time this happened with Greece, we saw the Flash Crash and several months worth of selling.  Will that happen again?  Not if Ben Bernanke and the Fed have anything to say about it.  First POMO of QE2 should now be in process, with $6 - $8 Billion ready to hit the markets later this morning from the primary dealers.  Will be interesting to see how this day ends....markets are all in the red and at low of day as I type....

11-12 10:17: Bunds fall on RTRS reports Ireland to recieve emergency funding from European Union

11-12 10:17: Eurozone sources say assistance to Ireland does not foresee any debt restructuring or 'haircuts' for bond holders

11-12 10:16: Eurozone sources say 'very likely' Ireland will get EU financial assistance programme

11-12 10:15: Eurozone sources say Ireland in talks to receive emergency funding from the EU

A Storm Brewing for Equities?

I don't have a lot of time to post today, and no, I'm not forecasting a crash, but I did make mention of a couple things in my last few posts that could throw a monkey-wrench in the works for those who are convinced that the latest Ben Bernanke cash injection makes this a zero risk, stocks-can-only-go-higher market.  One point that I was very clear on, in fact my whole post was on the topic:  it is all about the dollar.  If you aren't keeping track, the dollar has been rising...across most currencies...for pretty much the last 4 or 5 trading sessions.  Yes, I know, 4 up days does not a rally make, but considering how badly the dollar has been trounced for the last 5 months, it bears watching.

The other thing I cautioned everyone on was the situation in Europe, in particular, another blow-up like we saw with Greece earlier in the year.  Well look out, because Ireland is back on the front burner with their sovereign debt spreads now blowing out at a record 700+ basis points to the Bund.  At that level, there are only two possible outcomes - sovereign default, or bailout....and likely within the next 5 trading days.   The Euro has been getting hammered as a result, down about 600 pips since last week against the USD.   Keep an eye on the Ireland situation, and the next domino, Portugal. 

If that wasn't enough, Insider Selling hit an all-time high this past week, as corporate officers and execs exercise their stock options and dump shares worth $4.5 billion...click here for the ZeroHedge piece from earlier today.  To be clear, this alone doesn't mark the top of a market, but I'll leave you with this thought.  If Bernanke's QE2 is really going to make it impossible for stocks to go down, why are CEO's and senior executives cashing in their shares in such quantity instead of riding the wave of supposedly guaranteed profits?  I don't know either, but it's certainly enough to give me pause.  Whatever the case, QE2 officially begins with tomorrow's POMO, $6 - $8 billion in Treasuries on deck, with $110 billion in total to be monetized between now and December 9th.

The Elections and QE2 are in the Bag - What Now?

From Phil's Stock World - this pretty much sums it up....

"After putting over $2Tn into our Dead Parrot Economy since the crash and getting no response, Bernanke is upping the ante with another $600Bn round of Quantitative Easing ON TOP OF the ongoing $250-$300Bn round of POMO commitments for a total of about $110Bn per month dumped into the economy between now and the end of Q2.  This represents a 10% increase in the money supply over 8 months and, therefore, a planned 10% decrease in the purchasing power of your dollar-denominated assets or, to put it bluntly – a 10% tax on everything you own.

That is the joke of this country.  People sit there arguing about whether or not to extend a tax cut that will cost 3% of a year’s salary while the Fed, with no electoral oversight, is simply taking 10% of your LIFETIME savings – AGAIN!  They did it last year, they did it this year and now they promise to do it next year too.  That’s 30% folks! "

What can I say?  He's absolutely correct, and the sad part about it is, most Americans are completely oblivious to this concept. 

QE2 - Today's the Big Day

Well, there is QE2 and then there is The QE2....I think the one pictured here to the left is infinitely more desireable, but the consensus opinion is that Bernanke's version of QE2 is all but guaranteed later this afternoon.  The only question remaining is how much will it be?  Consensus seems to be leaning towards $500 Billion over the next 6 months, or just shy of the $100 Billion/month that I spoke about in my previous post, but keep in mind, QE2 is incremental to any POMO activities, which have been going off at a rate of $20 - $30 Billion per month since September, and are expected to continue in the near future.  

So what are the implications?