By TraderVox.com

Tradervox.com (Dublin) – Charles Plosser, the Federal Reserve Bank of Philadelphia President, has expressed pessimism in the ability of the bond buying program announce by the Fed to spur economic growth and employment in the country. In a speech yesterday in the district bank in Philadelphia, Plosser said that the program is unlikely to bring much benefit to economic growth or employment. He warned against conveying the message that the asset purchases program will bring substantive impact on labor market and speed up economic recovery as this puts at risk the credibility of Federal Reserve.

The Federal Open market Committee decided to embark of an asset purchases program where the bank will buy $40 billion of mortgage-backed securities per month until the labor market improves substantially. The unemployment rate has been above 8 percent since February 2009, prompting the Fed to shift to unconventional tools to deal with it. Plosser noted that economic research shows that additional asset purchases will not significantly reduce long-term interest rates and if interest rates is lowered by few basis points, the economic recovery pace will not be affected and neither will the hiring. He projected that the US economy will probably grow at rate of 3 percent in 2013 and 2014.

Explaining his opposition to the Fed decision, Plosser indicated that he believes that quantitative easing program is not appropriate for current economic environment. The US stocks dropped sending the S&P 500 index on its biggest loss in three months. Concerns that the current measures taken by global central banks will not yield the expected results have spurred global stock decline. Plosser said that protecting the hard won Fed credibility is important as the confidence in policy makers helps them to make effective monetary policies. He explained that if Americans believe the Fed will delay in raising interest rates, they may construe this as an indication the Fed is willing to tolerate higher inflation, which would spur higher inflation expectations that would force the Committee to act.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
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By TraderVox.com

Tradervox.com (Dublin) – The 17-nation currency dropped to the lowest in as weakening economic data and political uncertainty in the currency bloc signaled a worsening debt crisis. The euro dropped to its lowest in two weeks against the yen prior to the release of reports projected to show declines in European consumer confidence and Italian retail sales. The Japanese currency advanced against the US dollar as safety seekers opted for the yen over the US currency. The yen climbed to 0.1 percent from one-week high against the dollar as Mariano Rajoy, the Spanish Prime Minister, faces calls to request for international bailout. This has caused losses in Asian stocks, causing a decline in asset related currencies.

According to Hitoshi Asaoka, a Tokyo-based Senior Strategist at Mizuho Trust & Banking Co. indicated that the recent data coming from Europe suggest that the economy will remain weak in the medium term, adding that the Spanish Prime Minister reluctance to ask for international bailout is weighing on the euro. The decline on the euro also came as the MSCI Asia Pacific Index of stocks fell by 1.2 percent. Further, speculation that the Italian Retail Sales fell by 0.8 percent in July, has led to the euro decline. It is also estimated that the overall consumer confidence in the euro zone fell to negative 25.9 in September. If this figure is confirmed, this will be the lowest since May 2009. This report will be released tomorrow by the European Commission.

Euro zone crisis seems to be compounded by the political tensions in Spain where Catalan President Artur Mas has asked for early elections. This has come at a point when Spain has increased its spending and the tax receipts are reported to decline. Spanish Prime Minister has refused to ask for international bailout saying the country will meet its budget goals.

The euro declined by 0.2 percent against the dollar to trade at $1.2868 after it dropped to its least since Sept 13 of $1.2862. It dropped to 99.97 against the yen, the least since September 13. The currency is trading at 0.4 percent low from its Level during the New York session yesterday.

Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management. 

Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox

Source: ForexYard

The euro tumbled vs. the US dollar in overnight trading, as concerns regarding the Spanish debt situation led to risk aversion among investors. After falling 55 pips to reach as low as 1.2855, the common currency bounced back to the 1.2870 level, where it is currently trading. After staging a mild upward correction at the beginning of the Asian session, the price of crude oil quickly reversed, erasing all of its previous gains. Crude traded as high as $91.31 a barrel before dropping to its current level of $90.75.

Main News for Today

US New Home Sales- 14:00 GMT
• The home sales data is forecasted to come in at 381K, which would represent an improvement over last month’s figure of 372K
• Any better than expected news could help the US dollar bounce back from its recent lows against the Japanese yen

Read more forex news on our forex blog

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By Central Bank News

By MoneyMorning.com.au

Overnight we saw the biggest sell-off in the US markets in over two months. US Federal Reserve Bank of Philadelphia President Charles Plosser made the grave mistake of telling the truth. He said that ‘we are unlikely to see much benefit to growth or to employment from further asset purchases.’

Plosser opposed QE3, so it shouldn’t be a surprise to hear him say this. But most market participants have been waiting with baited breath since the QE3 announcement to see whether the sharp rally of the last few months would continue.

The trading over the past week has been decidedly sluggish and after last night’s sell-off we have now retraced most of the rally since the QE3 announcement…

Last week I wrote about the technical set up in the S+P 500 and said that, ‘From where I sit, if the market fails to hold these levels and sells off to a level below the previous high of 1422 made in April this year, then there’s a high chance that we’ll see a sharp correction back towards the 200 day moving average at 1350.’

The intermediate trend is still up in US markets so you have to expect the buying pressure to remain for the moment. But last night’s price action sends an ominous warning that the emperor (US Federal Reserve Chairman, Ben Bernanke) may soon be shown to be wearing no clothes.

Unlike QE1, QE2 and Operation Twist, market participants have been front running the announcement of QE3 for the past three months. There will be plenty of traders scrambling to hit the sell button if the market continues to fall over from here.

Macroeconomic figures worldwide have weakened over the last few quarters so the strong rally is looking more and more like hot air.

Bernanke’s greatest power was in promising to do something in the future. The uncertainty and expectation that this created was enough to keep short sellers at bay while buyers attempted to front run the money printing.

But now that Bernanke has turned expectation into fact the market will focus on whether or not the money printing will actually achieve anything.

That is why Plosser’s comments last night created such a strong reaction. If printing all this money achieves nothing other than keeping mortgage rates close to their all-time historical lows and economic figures continue to worsen, you have to ask yourself why you would buy the US stock market at a yield of 1.8% or so.

Bernanke the Witch Doctor

If the spell is broken on the money printing voodoo there is a long way for the market to fall and I think the announcement of ‘QEternity’, as it’s becoming known, at multi-year highs for the stock market smacks of desperation.

If the market continues to fall from here there isn’t much Bernanke can do, because he has already shown his hand.

As always market tops take time to form and some buying pressure always remains while we are in intermediate uptrend (10-day moving average above the 35-day moving average) so it’s still too early to come out all guns blazing on the short side.

But I think last night’s price action is the first sign of cracks appearing since the announcement of QE3. That means you need to closely watch the trading over the next few weeks.

Another sign that we may be close to a market top is the extremely low volatility of the past few weeks…

Market Warning Signs

I look at the 10 day average true range of the index I’m analysing as a percentage of its price and then I invert the indicator and lay it over the index.

I’ve found this method can give you great early warning signs when the market is ready to turn.

S+P 500 Daily Chart and Average True Range

Click here to enlarge

(As always it’s advisable to open the above chart in another browser window so you can follow along with my reasoning.)

The blue line chart below the S+P 500 is the ATR indicator. It’s inverted, so a rising line means falling volatility and a falling line means rising volatility. The scale for the ATR indicator is on the left hand side of the chart and you can see that when the ATR indicator hits a level of around 0.8 (meaning the average true range over the past 10 days has been around 0.8% a day) the stock market has been very close to a multi-month top.

The vertical lines show you each time the ATR indicator has come close to that level (I’m not including the Christmas trading period in 2010, which I consider an outlier).

Follow the vertical lines up to the actual S+P 500 chart and you can see quite clearly that the market was very close to a major sell-off each time the volatility fell below the 0.8 level.

Obviously nothing is ever 100% certain in the markets and this may be the one time in the past three years where this indicator gets it wrong. But after explaining the waning post QE3 excitement above I would start to tread very carefully going forward.

An article in the Age yesterday said that:

‘Regulators have vowed to impose a fresh ban on short-selling in shares if markets descended into the kind of chaos seen around the time of the global financial crisis.

‘The Australian Securities and Investments Commission has pledged to impose a ban on the practice should market conditions require it.

I’m sure you remember the last time ASIC banned short selling. It was in 2008 just prior to one of the biggest sell-offs in the market history. I love the way regulators are happy for short sellers to lose money while the market goes up but then when short selling is profitable they decide it’s an evil practice that must be stamped out.

The only outcome from banning short selling last time was that it took away buying volume as the market fell because there were no short sellers covering their positions. Yes they created an initial spike, but when the music stopped the bottom fell out from under the market.

We can always rely on regulators to do the dumbest thing at exactly the wrong moment and to ignore history. So when you see them acting on short selling you should start to get very worried indeed.

I want to make one other quick observation about the ASX 200 before I sign off.

ASX 200 Daily Chart

Click here to enlarge

The ASX 200 has been in a very clear range between 4100-4300 for over a year now. Whenever the ASX 200 has closed above the 4300 level during this time (the ellipses in the chart) the market has created a high and subsequently sold off sharply to below 4100.

The actual high of the range is 4324 so keep your eye on that level and if it closes below that level this week the chances of another drop to below 4100 increases dramatically.

Murray Dawes
Editor, Slipstream Trader

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The Grave Mistake of Telling the Truth

By MoneyMorning.com.au

‘We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves.’

– Duetsche Bank analysts Daniel Brebner and Xiao Fu

Brazil’s finance minister Guido Mantega made headline writers all over the world happy a few years ago when he announced the beginning of the Currency Wars. Mantega made his original comment when the US Fed came out with QE2 in 2010.

Last week, he concluded both the Fed and the Bank of Japan were engaging in currency warfare.

He’s right about that. Currency debasement as a way to boost growth and exports is all central banks have left. It’s also the only strategy they have for pumping asset prices and preventing the large global credit and derivatives bubble from popping. It forces everyone to ‘race to the bottom’.

For Brazil, that may mean taxes on capital coming into the country. That’s the weapon the country employed last time to make the Real a less attractive currency to own. But with the Fed and the BoJ committed to even more debasement, Brazil, like every other emerging market country, will have to get cleverer if it wants to engineer currency weakness.

The Asset to Own During Currency Debasement

About the only winner I can see in the currency wars is gold. The boys from Deutsche Bank seemed to figure that out last week, too. The quotation at the top is from a new research report by analysts Daniel Brenber and Xiao Fu. They make the point that you know gold is money because so many central banks own it. They go on:

‘We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.

In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation.’

I’ve always thought that Gresham’s Law was the best refutation of Warren Buffett’s silly comments about gold. Buffett complains that gold makes no sense because you dig it up out of the ground in order to put it in a vault. Gold has no yield, no earnings, and isn’t a business.

But the more valuable something is – good money in Gresham’s Law terms – the less likely you are to use it, sell it, or exchange it. You store it for a rainy day and hold on to instead. That’s why central banks keep gold. It’s money, and fiat currencies always die.

With a dearth of quality collateral in the world’s financial system, gold gets more valuable by the day. Rather than trying to ride the Fed’s liquidity wave through stocks, I’m content to accumulate physical gold and silver.

Dan Denning
Editor, The Denning Report

From the Archives…

In Defence and Praise of ‘Cranks and Crazies’
21-09-2012 – Kris Sayce

We Buy Gold Because We Don’t Trust Them Not to Meddle
20-09-2012 – Kris Sayce

Why Share Trading is ‘Mental’
19-09-2012 – Murray Dawes

A Bear Market Where You Least Expect
18-09-2012 – Greg Canavan

Questionable Easing 3
17-09-2012 – Dr. Alex Cowie

The Only Winner in the Currency Wars

GBPUSD continues its sideways movement in a range between 1.6163 and 1.6309. Initial support is at 1.6163, as long as this level holds, the price action in the range is treated as consolidation of the uptrend from 1.5490 (Aug 2 low), and another rise towards 1.6500 is still possible. However, a breakdown below 1.6163 support will indicate that lengthier consolidation of the uptrend is underway, then deeper decline to 1.6050 area to complete the consolidation could be seen.

Forex Signals

Trader Education Week begins September 26
September 25, 2012

By Elliott Wave International

Some people like to get outside on the weekends, maybe playing tennis or working in the yard. Some people like to visit their friends or cook a big meal or go out to see a movie. And some people who are passionate about their work — such as Elliott Wave International’s (EWI) analyst Jeffrey Kennedy — like to stare at hundreds of price charts on their computer screen to find patterns that point to trade setups. We used to worry for his health but not anymore, because he’s been doing it for years and he comes up with some amazing trading lessons. Enjoy this lesson on bar patterns from EWI analyst Jeffrey Kennedy.

[Editor’s note: Elliott Wave International is hosting Trader Education Week, September 26 through October 3. During this event, analyst Jeffrey Kennedy will share video trading lessons that will empower you to improve the way you trade.]

The Popgun
I’m no doubt dating myself, but when I was a kid, I had a popgun — the old-fashioned kind with a cork and string (no fake Star Wars light saber for me). You pulled the trigger, and the cork popped out of the barrel attached to a string. If you were like me, you immediately attached a longer string to improve the popgun’s reach. Why the reminiscing? Because “Popgun” is the name of a bar pattern I would like to share with you this month. And it’s the path of the cork (out and back) that made me think of the name for this pattern.

The Popgun is a two-bar pattern composed of an outside bar preceded by an inside bar. (Quick refresher course: An outside bar occurs when the range of a bar encompasses the previous bar and an inside bar is a price bar whose range is encompassed by the previous bar.) In Chart 1 (Coffee), I have circled two Popguns.

So what’s so special about the Popgun? It introduces swift, tradable moves in price. More importantly, once the moves end, they are significantly retraced, just like the popgun cork going out and back. As you can see in Chart 2 [not shown], prices advance sharply following the Popgun, and then the move is significantly retraced. In Chart 3 [not shown], we see the same thing again but to the downside: prices fall dramatically after the Popgun, and then a sizable correction develops.

How can we incorporate this bar pattern into our Elliott wave analysis? The best way is to understand where Popguns show up in the wave patterns. I have noticed that Popguns tend to occur prior to impulse waves — waves one, three and five. But, remember, waves A and C of corrective wave patterns are also technically impulse waves. So Popguns can occur prior to those moves as well.

As with all my work, I rely on a pattern only if it applies across all time frames and markets. To illustrate, I have included two charts of Sirius Satellite Radio (SIRI) that show this pattern works equally well on 60-minute and weekly charts. Notice that the Popgun on the 60-minute chart [not shown] preceded a small third wave advance. Now look at the weekly chart [not shown] to see what three Popguns introduced (from left to right), wave C of a flat correction, wave 5 of (3) and wave C of (4).

There’s only one more thing to know about using this Popgun trade setup: Just be careful and don’t shoot your eye out, as my mom would say.

 

A FREE trading event that will teach you how to spot trading opportunities in your charts Elliott Wave International is hosting a free Trader Education Week, Sept. 26 through Oct. 3. Register now and get instant access to 4 free trading resources from EWI analyst Jeffrey Kennedy — plus you’ll receive more lessons from Jeffrey as they’re unlocked each day of the event. Don’t miss this opportunity to learn how to spot trading opportunities in the markets you follow. Register Now >>

By Central Bank News
     The central bank of Hungary cut its base rate by 25 basis points for the second month in a row, citing a weak economy and an expected easing in inflation, and held out the prospect of further rate cuts as long as improved conditions on financial markets persist and inflation remains under control.
    Magyar Nemzeti Bank said the bank base rate would be cut to 6.50 percent,while the rate on overnight deposits was cut by 100 basis points to 5.50 percent and the rate on overnight collateralised loans by 100 basis points to 7.50 percent.
    “Overall, expected developments in inflation and financial markets as well as persistently weak demand warrant an easing of current monetary conditions,” the bank said after a meeting of its Monetary Council.
   “The Council will consider a further reduction in interest rates if the improvement in financial market sentiment persists and medium-term upside risk to inflation remain moderate,” it added.
    Hungary’s central bank surprised markets last month by cutting its rate by 25 basis points and some economists had expected the central bank to follow-up with another rate cut this month.

    Hungary has been struggling to contain inflation, which rose to an annual rate of 6.0 percent in August from 5.8 percent in July. In December 2011 the central bank had raised interest rates by 50 basis points to stem inflation.
    Inflation is expected to remain “significantly above the 3 percent target for most of the forecast period, with the target only likely to be met in the second half of 2014,” the bank said.
    But the economy has weakened sharply this year and in the first quarter Gross Domestic Product shrank by 1.0 percent and then by another 0.20 percent in the second quarter for a 1.3 percent decline compared with the second quarter of 2011.
    The central bank said it expects domestic demand to remain “persistently weak, reflecting falling real incomes, continued balance sheet adjustment and tight lending conditions.”
    An extremely poor harvest is likely to cause a further worsening in this year’s outlook for growth and the economy is expected to grow slowly next year, supported by an expected recovery in Europe.
    Meanwhile, there has been an improvement in financial markets and in the perceived risk of investing in Hungary. The central bank expects a further fall in risk premia as long as Europe is successful in tackling its debt issues and the Hungarian government reaches agreements with the European Union and the International Monetary Fund.

    “Financial market sentiment has improved and the outlook for economic activity deteriorated around the world over the past quarter,” the central bank said, adding:

    A weak economy and spare capacity is expected to dampen the inflationary impacts of costs shocks, according to most members of the monetary council.
    However, the bank’s statement also reveals a discussion in the council about the crises and its damage to the economy’s productive capacity and potential growth rate. This may affect how much spare capacity the economy really has and how cost shocks affect inflation expectations.

  www.CentralBankNews.info

By The Sizemore Letter

Modern debates no longer happen on stages with lecterns, or even over office water coolers.  They happen over Twitter.

I lobbed a tweet grenade at friend and InvestorPlace Editor Jeff Reeves for writing “11 Signs This Rally is Doomed,” calling him a buzz kill.  In reply, Jeff invited me to make my own arguments for why this bull may yet have a little room to run.

So, with no further ado, I’ll offer my own “3 Reasons To Expect a 4^th Quarter Rally.”

Monetary Policy

As I wrote last week, ECB President Mario Draghi and Fed Chairman Ben Bernanke are in a monetary arms race of sorts to see who can inject more liquidity into the financial system.  And not too long after I wrote those words, Japan entered the fray with a massive injection of stimulus of its own.

The world’s third-largest central bank is expanding its quantitative easing problem by another 10 trillion yen to a full 80 trillion—or about $1.02 trillion in US dollars.  This adds to the Fed’s “QE Infinity” and Draghi’s “Big Bazooka” to what may collectively amount to the largest injection of monetary stimulus in history once the dollars, euros, and yen are counted.

I don’t usually pay attention to trader maxims and Wall Street clichés, but I think the advice to avoid “fighting the Fed” is sound here.  None of the stimulus measures are likely to create real growth in the economy, but they are very likely to inflate insipient bubbles in stock prices.

Big Investors Piling In

As was the case last year, the so-called “smart money” hasn’t looked particularly smart this year.  The average equity-focused hedge fund is up only 4.7% through the end of last month (see article), compared to 13.5% for the S&P 500.

This means there are legions of managers out there who are desperate to get their performance numbers up before the end of the year and willing to roll the dice to make that happen.  Hedge funds can generally make money on the upside or downside, of course.  But given the momentum behind the market right now, I don’t see many being brave enough to risk going short with so little time left in the year.

This week the Financial Times reported that the “masters of the universe” were embracing long-only strategies “amid volatile markets, constraints on the capacity of their main trading strategies, and an evermore conservative investor base.”

Bottom line, after a decade of waning institutional interest in equities, managers may be rediscovering the stock market for lack of anywhere else to go.

At the retail level, we also see investors warming to equities.  Weekly inflows into equity mutual funds just hit a four-year high of $17 billion.

Normally, I might consider this a contrarian signal that we’re nearing a top—and Jeff touched on this in his bullet points on market sentiment.  But much of this improvement in sentiment is due to the massive sigh of relief that the Eurozone didn’t disintegrate over the summer.  And I cannot stress enough how truly rotten investor sentiment had become after nearly five years of on again / off again crisis.   There was a lot of catching up to do.

Valuation

Most importantly to any value investor, stocks are not priced expensively enough to signify a major top.  I am the first to admit that markets can take short-term plunges for any reason or for no reason at all.  But real bear markets generally start with stocks priced aggressively, and I don’t see this as being the case today.

No, the S&P 500 is not “cheap,” per se, at 16 times earnings.  This is roughly in line with the long-term average price / earnings ratio for the index of 15.

But remember, we are not in “average” times.  Short-term interest rates are capped at virtually 0%, while the 10-year Treasury yields a pitiful 1.7%.  In a low-interest rate environment, stocks should have a premium valuation, and we simply do not see this today.

To be clear, no bull market goes straight up. There are always corrections or sideways consolidations along the way, and that is what we have seen for the past week.  Stocks have drifted slightly lower as traders take profits and digest their gains.

But until I see real signs of a breakdown,  I see no compelling reason to pull the plug on an aggressive allocation.

My advice?

If you’re feeling uneasy, tighten your stop losses or sell down some of your biggest winners of recent months.  But don’t go into bunker mode and miss what I expect to be an explosive end to 2012.

SUBSCRIBE to Sizemore Insights via e-mail today.

This article first appeared on InvestorPlace.

Related posts:

• What Does the Smart Money See for the 4th Quarter?
• An ETF Portfolio for the 4th Quarter