Wednesday May 16th, 10:06PM EDT
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As we used to say in the pits of Chicago, “This is going to get ugly.”
Today, we confirmed that “Ugly” has arrived.
Trade update: We exited long gold positions on the 18th at 990.2 basis spot.
Today (the 19th) we also had a major sell signal in spot gold. Very unusual that this happend so quickly after our exit signal. Like I said “Ugly” has arrived.
Downside targets (Fibonacci Retracements) for gold are:
1. $855
2. $800
3. $750
Stand aside and give these guys a lot of room as every hedge fund and commodity fund is bolting for the exit doors in all the commodity markets, including gold.
You have read on this blog before that the markets slide faster than they glide. Just look at Bear Stearns slide and several other recent meltdowns.
With the end of the month and the quarter fast approaching these hedge funds have got to have something to show for the month and the quarter. This slide may wipe out all their profits.
It all reminds me of what Bette Davis said in her 1950 movie, “All About Eve.”
“Fasten your seatbelts, it’s going to be a bumpy night”
Look for more bumpy markets and more volatility as the hedgies continue to bolt for the exit door that just got a whole lot smaller today.
Trade smart and trade to win.
Adam Hewison
President INO.com
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U.S. gold futures finished slightly higher Tuesday on the back of inflation fears spurred by a bounce in crude oil prices, after heavy liquidation erased sharp initial gains that took the market to record highs on Monday.
Adam Hewison, president of INO.com in Annapolis, Md., said he would not be surprised to see some backing and filling in gold after the Monday pullback.
“Psychologically, the perception of the market has been somewhat dampened with the action yesterday,” Hewison said. “If we close lower than we did last Friday, then certainly there are going to be a lot of question marks since we might have seen a top on the gold.”
The active gold contract for April delivery on the Comex division of the New York Mercantile Exchange settled up $1.70 at $1,004.30 an ounce. It traded between a session high of $1,004.30 and a bottom of $994.80.
On Monday, panic buying amid turmoil in global financial markets due to a fire sale of Bear Stearns initially sent gold futures to a record high of $1,033.90. However, the April contract finished at $1,002.60 an ounce due to full-scale selling late in the session.
Hewison said that $960 an ounce would be a major support area for gold. But he expects gold to quite easily pull back below $1,000.
Rising crude oil prices also boosted gold, which is used as a hedge against inflation. U.S.
crude futures settled $3.74 higher at $109.42 a barrel after falling nearly $7 on Monday.
Comex estimated final gold futures volume at 161,956 contracts and gold options at 19,482 lots. Total turnover in Chicago Board of Trade electronic 100-ounce gold futures was 20,513 lots at 3:02 p.m.
After Tuesday’s pit trade session, the Federal Reserve slashed a key U.S. interest rate by three-quarters of a percentage point, a substantial cut but smaller than many in financial markets had expected, as part of an effort to hold off a deep recession and financial meltdown.
“The committee expects inflation to moderate in coming quarters, reflecting a projected leveling out of energy and other commodity prices and an easing of pressures on resource utilization,” the U.S. central bank said.
Comex May silver closed down 34.0 cents, or 1.7%, to $19.960 an ounce. It traded between a bottom of $19.850 and a high of $20.510.
The Nymex platinum contract for April delivery dropped $5.40 to close at 1,968.00 an ounce.
SAN FRANCISCO (MarketWatch) — The relatively muted reaction to Tuesday’s Federal Reserve interest rate cut came after the more dramatic events of the weekend, when the central bank cut the discount rate and announced its participation in the fire sale of ailing broker Bear Stearns said Adam Hewison, president of INO.com, a technical analysis site. “The action by the Fed over the weekend far out shadows today’s Fed rate cut of 75 basis points. The invocation of a little known and little used Fed policy instrument to force the sale of Bear Sterns changed the mood and dynamics of the market for many participants more than today’s rate cut,” he said.
AP
Fed Cuts Rates by 3/4 Percentage Point
Tuesday March 18, 2:36 pm ET
By Martin Crutsinger, AP Economics Writer
Fed Cuts Rates by 3/4 Percentage Point; Dow Industrials Falls 100 Points After Announcement
WASHINGTON (AP) — The Federal Reserve on Tuesday slashed a key interest rate by three-fourths of a percentage point, moving aggressively to contain a credit crisis threatening to push the country into a severe recession.
The latest action brought the federal funds rate — the interest that banks charge each other — down to 2.25 percent, the lowest point since late 2004. It marked the second back-to-back cuts of three-fourths of a percentage point.
Fed Chairman Ben Bernanke and his colleages have now cut the funds rate six times since last September, with the reductions becoming more aggressive since January as the central bank has faced growing turmoil in global financial markets.
In Jacksonville, Fla., Tuesday, President Bush said the government will take further action — if necessary — to help the sagging economy.
The rate cut Tuesday caps an unprecedented period of Fed actions aimed at trying to stabilize financial markets and ward off a recession or at least keep it from being too severe.
While the cut was larger than the Fed’s normal quarter-point moves, markets dropped sharply in the moments after the announcement, with investors disappointed that the central bank did not cut rates by a full percentage point.
The Dow Jones industrial average fell 100 points within two minutes of the Fed’s mid-afternoon announcement. It had been up 286 points just before the annoucenment as stocks had posted a strong rally after Lehman Brothers and Goldman Sachs reported better-than-expected results for the first quarter. That came as welcome news following the collapse over the weekend of Bear Stearns, which was forced into a fire-sale to JP Morgan Chase & Co.
The reduction in the funds rate was designed to lower borrowing costs and boost spending by consumers and businesses and thus increase economic activity. Economic growth slowed to a near standstill in the final three months of this year as the economy was hit by a series of blows including the credit crunch, a prolonged housing slump, rising unemployment and surging energy prices.
The funds rate cut quickly triggered announcements from commercial banks that they were cutting their prime lending rate to 5.25 percent from 6 percent, where it was before the Fed meeting. This rate is the benchmark for millions of business and consumer loans.
What a week, and it’s only Tuesday.
It’s not everyday an 85 year old institution like Bear Stearns goes out of business, but this was the week when it happened.
So let’s start this week’s email with a little humor from one of my favorite comedians. DA, DA, I am of course talking about former hedge fund manager, and now investing show guru host, Jim Cramer. You might know Jim from CNBC’s TV show Mad Money.
On Monday, we received this video featuring Jim Cramer imploring everyone “NOT TO GET OUT OF BEAR STEARNS”. I am afraid we may have witnessed Cramer going over to the dark side and losing his marbles on this one.
Take a look at this short Jim Cramer clip dated March 12th. Bear Stearns (NYSE_BSC) was trading over $60 dollars a share at the time!
You have to thank the Internet for clips like this. Jim Cramer is a great comedian, but yesterday we saw a lot of market action that was no laughing matter for the longs.
Cramer was 100% wrong on Bear Stearns. He wasn’t even close, but I understand why people watch him. He is a financial joker.
When you trade with a sound “game plan” you win. When you listen to the talking heads like Cramer, you lose. The talking heads never tell you when to get out of a bad trade! It’s just that simple.
Watch Cramer first – like I said he is very entertaining –
Now take a logical approach to Bear Stearns and the market in this video.
Only then can you make a logical well informed decision on who you would rather follow in the market … Cramer or MarketClub.
I think you will logically know which decision make sense for you.
Let’s enjoy a great year together.
Adam Hewison
President, INO.com
P.S. If you missed any of the “Traders Whiteboard” educational trading series watch them here.
Day 2, now what?
Did the FED manage to change the perception of the markets?
It’s too early to tell, but here is what we do know…
Gold dropped below $1,000
Oil dropped over 4%.
So did the FED win in the mind’s of traders? We don’t know, but what we do know is that Jamie Dimon, CEO of JP Morgan (that’s him on the left), may have made the DEAL OF THE CENTURY.
How would you like to buy a major asset like CEO Jamie Dimon did and have it guaranteed by the FED, for pennies on the dollar? Now that is what we call smart, very smart. Heck, the Bear Stearns building alone is worth over one billion dollars!!!
If the FED is willing to save Bear Stearns, do you think they will let JP Morgan go under? NO WAY is that going to happen. A collapse of JPMC would be a collapse of western civilization as we know it.
The only way we can look at the markets is with market action. This monster is not going to turn around in a day, but this week is going to tell us a great deal about the inner mindset of the market.
This maybe the most important week of the year … it might even be the most important week in a generation of traders.
There is only one thing to do, and that is stay tuned to the market and this blog.
I expect that we will see some once in a lifetime trading opportunities this year. These opportunities will only be available to the disciplined and courageous.
We are here.
We are in this together.
Together we will succeed.
Adam Hewison
President, INO.com
P.S. If you missed any of the “Traders Whiteboard” series watch them here.
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Take a look at what Jim Cramer said about Bear Stearns (NYSE_BSC). Bear Stearns was trading over $60 dollars a share at the time!
Boy, we love the internet. As it keeps a record of what who said what and when they said it. Cramer is a great entertainer, but he was 100% wrong on Bear Stearns and a great many other stock moves that have cost investors billions!
When you trade with a “game plan” you win. When you listen to the talking heads you lose, as they never tell you when to get out of a bad trade!
Take a look at this video that we did live on Bear Stearns and then decide who you would rather listen to, MarketClub or Cramer.
We have discussed Mr. Cramer before on this blog. You can see his track record here.
This just in:
Never buy because a price looks low, and never sell because a price looks too high.
Why would I say something like that? Why doesn’t it matter what you think?
Well here’s the cruel reality of the marketplace…
It doesn’t matter where these markets are headed. What matters most is you get the direction right.
Just look at Bear Stearns this morning. Joe Lewis, the Bahamas based investor (smart guy) is a little less wealthy as his 9.4% shares of Bear Stearns has a loss of 1.16 billion dollars.
MARKET DIRECTION … that’s whats important.
The reality is, these are trading markets. They are all driven by market sentiment.
That’s the kind of markets we are in right now, and we are likely to stay in this mode for quite some time.
What matters most, is that you get the direction of the market right. You can only determine the trend by using pure market action. The easiest way to do this is by using a program that can tell you in plain English what the market is doing.
Don’t let the hype, hoopla, news and the chat rooms fool you. A market can only do three things, it can go UP, DOWN or SIDEWAYS, that’s it!
When you hear about the next hot or cold market that is headed for the stars or the cellar, just say to yourself “it doesn’t matter.” That way you will know when to get in and more importantly, when to get out.
Take the next several minutes and watch our latest video on Bear Stearns and let me know what you think.
Then take a couple of minutes and watch our educational “Traders Whiteboard” series. This series is all about common sense trading and removing the number one account killer and that is emotion.
Here’s to thinking “it doesn’t matter” what you think, it’s the direction of the market that is important.
We are going to see some amazing market and trading opportunities this year. So plan now to make some big profits. It’s important to stay cool, listen to what the markets are saying and have a “game plan” that works. You can see it all here.
Let the markets have their say … all you have to do is listen.
Adam Hewison
President, INO.com
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