Silver Wheaton has had a pretty strong pullback right into support over the last few days. I was fortunate enough to sell some of my position, and write calls against my position above $10.50. I have been an advocate of the stock in the past, riding it from its lows to the recent highs. I still continue to like this company. I like the long term fundamentals of precious metals, and in particular silver more than gold.

Today spot gold traded below $920, which has been decent support over the last week, but when GLD tried to break through 90 on the downside, it quickly reversed and took out the morning highs. I really like SLW in front of this $7.50 level. Gold is still in a bull market, and the longer we can consolidate above $900, the more explosive the move will be to the upside.

I’m playing this two ways:  Buying the stock outright, and selling put spreads.  Most recently I sold $10 September puts and bought $7.50 puts, and expect to make the spread in them in the coming months.

SLW

The SPY was finally a little weaker this week, as the range moved down slightly, starting the week at 94, moving down to 91, and closing at 92. This coming week, the levels I will look at are 93 as resistance, and 90 as support.

Some of this week’s links:

An interesting look at the possible moves the Fed will make in the upcoming months. Really good read, this could give you some insight on possible scenarios that could play out.

A clip from 1994 regarding the Internet. It’s funny to hear how it was regarded just 15 years ago. We’ve come a long way in a pretty short period of time.

An interesting article on Bill Gross in the NY Times. I’ve got to side with Barry Ritholtz on this one. I think Bill Gross has had an agenda for too long, and every time he talks you have to wonder what his real motive is.

Goldman Sachs is on track for record bonuses this year. Probably one of the most ridiculous things I’ve read in a while. Nine months ago the company effectively bailed out Goldman by bailing out AIG, and now the company is paying record bonuses? This is absurd.

A little alphabet soup accounting. The Fed is taking on an awful lot of obligations.

What a week for the bulls! Talk about a strong week. Right from the start on Monday morning, the market was bid up. It seems that all news is good news at this point, and above the resistance at 88, it looks like mutual funds have started buying into the move they missed off the lows, after the dismal year that was 2008. On Thursday we saw our first sign of weakness, but the release of the stress test results caused another spike up in the market on Friday. We closed right by the week’s highs, so we’ll have to see what happens at the 93 level this upcoming week. Above there I would be looking for the SPY to have a little bit of trouble at the 94.50 level.

So let’s take a look at a few important articles from the week:

An interesting chart of the Dow priced in relation to gold. When you look at this chart, you see that priced in terms of gold, we’ve been in a bear market for the last 10 years.

Some speculation on the possibility of the dollar collapsing as the Chinese begin to move away from it. As I’ve said before in this section, this is a long term fundamental shift to keep an eye on.

A lot of chatter going around about the vanishing consumer credit. People with almost perfect credit scores are being denied credit. For a market that has rallied sharply on the GDP number which showed that consumer spending looks to be showing signs of life, this isn’t exactly what you’re looking for.

A really good analysis on NYSE high-low volume off the lows compared to the 2003 bear market end. Something is odd when the high-lows have basically flatlined since the March lows. Furthermore, correlation is still running high in the markets.

All traders are always seeking to improve. But we’re not always asking ourselves the right questions to get to that next level. Dr. Steenbarger has helped re-shape some problem focused questions into solution focused questions.

A very interesting week. The SPY continues to linger around just below the 88 level, consolidating near the highs. Tuesday’s action after the Fed announcement increased volatility, although we haven’t really gone anywhere. Wednesday morning, it looked like the bulls were regaining control of the tape, but were not able to close the week above the critical 88 level. One thing I’ve noticed in the price action this week: Although the SPY looks like it’s getting ready to possibly make another up-leg, the financial sector as a whole has not participated in these new recent highs. Don’t get me wrong, not all financials are lagging. Both GS and MS have been extremely strong, but as a whole, the sector is lagging and looks like it is stalling. This makes me very cautious about being long at these levels.

That being said, let’s take a look at some interesting things from the past week:

The rising wedge pattern is still intact on the S&P futures. This is important to realize, because although it looks like the index is breaking out, a closer look tells us this could be a topping pattern where we can expect a pullback of some sort.

This earnings season has continued to top analysts estimates. With over 75% of companies having reported now, this earnings season is proving to be one of the best in a while, even if it is on significantly lowered expectations.

A little update on some troubled asset sales. The 33% discount is much lower than what banks are listing assets on their books as. So, as expected, the suspension of mark-to-market accounting is really helping out the banks. The question remains: will these assets ever recover?

As because de-lever, the Fed has been levering up. Those assets have to go somewhere.

Citi may need to raise $10 billion. Stress test results are expected to be out on Thursday, after the market close. There have been rumors that the reason for the delay in the release of the results is because the banks are contesting the regulator’s numbers. Given the assumptions made under the most stressful scenarios, I think they have been shown alot of mercy. But this is the classic case of giving someone an inch, and them trying to take a mile. Some more insight into the stress tests courtesy of Naked Capitalism.

Another $400 billion in bank losses on the way. It will be interesting to watch how this unfolds, but more importantly how the market reacts to news in the financial sector. Over the last 3 weeks especially, the market has responded very well to capital raises, sending equity prices higher.

Here’s an analysis of program trading on the NYSE lately. GS has increased program trading significantly over the past few weeks. Zerohedge has discussed this in detail, with Goldman finally responding this past week. Some interesting points are raised. This is something I have become increasingly interested in and thought others would be curious to know about.

A very interesting analysis from the NY Times on genius. What has often been attributed as genius in the past was actually thousands of hours or practice and hard work. To touch on what Bella wrote about this past week, you must be committed to working long and hard if you wish to be the best, not just in trading, but in anything you do.

Below are the last two FOMC statements:

The most important part of the minutes will be the wording. The rates won’t be cut (we’re already at our lowest rate) and they won’t be raised (we’re in the middle of a deflationary cycle where raising interest rates would kill any hope of a recovery and send us for sure into a second depression). So that leaves the wording.

If you look at the 3rd paragraph of the March 18th release, they discuss actual numbers for the programs they plan to implement. Up until that point, we had no idea how big the programs were going to be. They said they intend to increase the purchasing of MBS, longer term treasuries, and agency debt. I’m not sure how much of this has actually been purchased already, and whether or not the programs need to be expanded just yet. I’m not sure if the numbers are out of exactly how much of the program they have spent. If someone has that info, that would probably be pretty helpful. If they expand the programs further I would expect another pop. If they don’t expand the programs, we could stay flat or sell off.

Last release, the move in commodities, particularly precious metals was extraordinary. Gold was hovering above 880, and closed the NY session at 950. FCX rose from 34 to 38 in that time period. All miners were on fire. Financials had a nice pop, but the extended move was in precious metals. Why? Because basically the Fed is beginning an inflationary cycle which at some point in the future will catch up to them. On the announcement, the key levels in gold will be 920 and 950 on the upside and 880 and 859(200 dma) on the downside.

I think if the market reacts negatively to the announcement we would see extended selling in the financials, and if it reacts positively we would see extended buying in precious metals. I think both will move on a strong reaction either way, so on the initial move I will probably trade financials. Then I will decide which of the two sectors I will continue to trade based upon what I expect and how they are reacting.

Well what looked like was going to be a week for the bears ended up being a pretty good week for he bulls.  Let’s keep an eye on that 88 level in the SPY, as it looks like it’s going to come into play again this upcoming week.

The dollar index looks like it is breaking down from a bear flag.  This is definitely something to keep an eye on, as a weaker dollar will lead to strength in commodities, particularly precious metals.

More than half of the companies that have reported Q1 earnings have beat estimates.  After what started off looking like a dismal earnings season, may turn out to be not that bad after all.  We’ll have to see if this trend holds up.

A comparison of rallies off bear market lows.  These two charts show where this most recent rally falls in terms of volume and percentage gains.

Gold is acting well.  After looking like it was going to trade back down to 800 for a day or two, gold has rallied and finished the week above 900.

Over at Naked Capitalism, Yves thinks the stress tests may be a charade.  Insiders are selling into this rally at very high levels.  A really interesting article, definitely worth the read.

Rumors are circulating that the SPY is becoming hard to borrow.  Very interesting indeed.

From the people who brought you FAZ and FAS, Direxion, has launched triple T-bond ETF’s.  It’s currently very thinly traded, but so were FAZ/FAS when they first started.  I think these will become increasing more liquid, and will provide equity traders with an opportunity to trade bonds for volatility swings on the release of economic numbers and Fed meetings.  Definitely keep an eye on these.

The SPY has formed a 3 push wedge, with a negative MACD divergence,  and could be presenting trader’s with a good risk/reward entry for a short.  88 was also a level where the SPY failed twice earlier this year.

A little humor.  I’ve seen some some pretty good stuff from Dilbert lately.  Here’s a few more. 

 Checking in on the 4 bad bear markets.  This is the second worst bear market of the past 100 years. 

An interesting article from the Journal talks about the possible effects leveraged ETF’s may have on the final 30 minutes of the trading day.  Definitely worth a read.

According to  Bespoke, stocks with the highest short interest have been the leaders in this rally.  Could this just be a short covering rally?  We’re not sure yet.  But they also note that market bottoms have started in similar fashion in the past. 

There’s a lot of skepticism on the bank earnings from the last week.  If one digs into Citi’s numbers, they see that the company actually lost money.   Goldman did some accounting acrobatics in order to report stellar numbers.  There’s also been some questioning on Wells Fargo’s loss reserves.  All in all, banks beat lowered estimates, but after Goldman’s earnings this past week, things felt like they changed, even if it was just a little.

China has made yet another move towards moving away from the US dollar.  This is something to keep an eye on in the future, as China is the biggest holder of US currency, and a change in their policy would have major effects on US monetary policy.  This will take some time to play out, but it would be prudent to not ignore this. 

Gold has been steadily climbing the last few weeks.  Some fundamental reasons for its climb has been growing concerns over inflation, growing concerns over deflation, concerns on the the ability for the Euro to act as a reserve currency, and concerns over possible US bank failures.

The weekly chart, posted below looks very good.  It has formed a massive bull flag over the last year or so, which is good news for the bulls.  I think fundamentally gold is strong.  Gold in terms of US dollars has actually been lagging all over currencies.  Gold has broken to new highs against almost every other currency in the world.

Some points of interest to me are not just the $1030 high, but also the $990, where it failed last Summer.  On pullbacks I would expect gold to hold above $930 to prove real strength, and $890 a little lower, although I would prefer it not violate the higher level.

One interesting point to note:  large gold miners such as ABX, AEM, GG, and NEM have not followed the commodity into this last upmove to the 980 level.  This could be telling us that a meaningful pullback could be in store for gold futures.  Nonetheless I will be looking to buy into weakness instead of shorting into strength.  We could be witnessing the beginning of a multi-year bull run.

 

 

Weekly Chart

Weekly Chart

The S&P 500 is currently hovering below the 800 level.  With a close below 800 I think we will go re-test the November lows and possibly break them.  Once broken, I’m not sure where we would find support.  The market is losing confidence in Obama, and rightfully so.  All the levels buyers have supported over the last few months have been violated.

I expect a big fight into the close as the bulls and bears battle to control that 800 level.

Another key level I’m watching is the $8 level on the XLF.  If financials hold their lows, then we may hold the lows on all the major indices.

 

Must close above 800

Must close above 800

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