InvestMacro FX

By CountingPips.com

The latest Commitments of Traders (COT) report, released on Friday by the Commodity Futures Trading Commission (CFTC), showed that large futures speculators decreased their overall long bets for the US dollar last week against the other major currencies despite Euro short positions rising to a new record level.

Non-commercial futures traders, usually hedge funds and large speculators, decreased their total US dollar long positions to $15.71 billion on January 3rd from a total long position of $20.35 billion on December 27th, according to the CFTC COT data and calculations by Reuters which calculates the dollar positions against the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

Individual Currencies:

EuroFX: Currency speculators continued to add to their Euro short positions as of January 3rd and raised their short bets to a new record high surpassing the previous one registered two weeks ago. Euro short positions numbered to a total of 138,909 net contracts from the previous week’s total of 127,879 net short contracts.

The COT report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions as of the previous Tuesday. It can be a useful tool for traders to gauge investor sentiment and to look for potential changes in the direction of a currency or commodity. Each currency contract is a quote for that currency directly against the U.S. dollar, where as a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and net long position expect that currency to rise versus the dollar. The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.

GBP: Bearish bets of the British pound sterling increased for a second consecutive week as of January 3rd. British pound positions saw a total of 31,899 short positions on January 3rd following a total of 29,172 net short positions registered on December 27th.

JPY: The Japanese yen net long speculative contracts surged higher, according to data on January 3rd. Yen long positions jumped to a total of 56,481 net long contracts reported on January 3rd following a total of 20,585  net long contracts that were reported on December 27th. The sharp rise in Yen speculative positions put them at their highest level since August 2nd when long positions registered 58,833 contracts.

CHF: Bets in favor of the Swiss franc decreased for a second consecutive week as of January 3rd. Speculator positions for the Swiss currency futures fell to a total of 12,355 net short contracts on January 3rd following a total of 10,798 net short contracts as of December 27th.

CAD: Canadian dollar positions declined slightly to a total of 23,371 net short contracts as of January 3rd following a total of 20,812 short contracts reported on December 27th. CAD speculators have had a bearish position against the US dollar since September 6th and positions have consistently hovered around the 20,000 short contracts level since late September.

AUD: The Australian dollar long positions rose for a second consecutive week as of January 3rd. Australian dollar positions increased to a total net amount of 46,537 long contracts on January 3rd following a total of 32,637 net long contracts reported as of December 27th. The AUD speculative positions are now at their highest level since September 6th when Australian dollar long positions totaled 48,041.

NZD: New Zealand dollar futures speculator positions edged slightly higher for a second consecutive week through January 3rd. NZD contracts increased to a total of 2,436 net long contracts as of January 3rd following a total of 1,405 net long contracts registered the previous week. NZD contract’s show a slightly bullish position against the USD and are improved from the December 20th standing (612 long contracts) which was the lowest position since March 29th when positions equaled 239 long contracts.

MXN: Mexican peso speculative contracts barely moved against the US dollar as traders continue to short the Mexican currency. Peso short positions numbered a total of 25,829 net short speculative positions as of January 3rd following a total of 25,685 short contracts that were reported on December 27th.

COT Currency Data Summary as of January 3, 2012
Large Speculators Net Positions vs. the US Dollar

EUR -138909
GBP -31899
JPY +56481
CHF -12355
CAD -23371
AUD +46537
NZD +2436
MXN -25829

Other COT Trading Resources:

Trading Forex Using the COT Report

The Two Stocks That Made the Dow Positive in 2011

by Jason Jenkins, Investment U Research
Thursday, January 5, 2012

You may wonder, with all that’s going on in the world in regards to political and economic woes, how could any stock index actually be up for 2011. But, through the market’s December 31 close, the Dow was up 640.05 points in 2011. Here’s why:

The Price-Weighted Index

The first part of the answer lies in its structure. Unlike many other stock indices, the Dow Jones industrial average is price-weighted. This means that the most expensive stocks have the biggest impact on the Dow’s movement. Other indices such as the S&P 500 and Nasdaq are weighted by each stock’s market cap.

Last week, Nicholas Colas, Chief Market Strategist at ConvergEx, a software provider for brokerage and investment technology firms, stated in a note just how much of a factor each Dow stock was in its advance. He also stated that big gains from two specific high priced companies had the biggest impact – IBM (NYSE: IBM) and McDonald’s (NYSE: MCD)

Colas found that nearly half of that advance came from these two giants – both of which accounted for more than 100 points.

He went on to say that the confidence investors have in the business models of companies viewed as industry leaders “may have something to do with the remarkably sanguine perspective the sell-side has on the earnings predictability” of Dow components. Even the most pessimistic analysts, he found, only differ about 9% from the consensus forecast for 2012 profits.

In English Please?

Basically, there are just some brands out there we trust no matter what. And apparently, IBM and McDonald’s are two of those brands, and with good reason.

The last time I wrote about McDonald’s, The Big Mac – Recession Proof, it was right after they released their third-quarter numbers. They were impressive. But what was more impressive was Micky D’s future direction. Here were the highlights:

McDonalds has adjusted its food selections to match the trend toward healthier eating choices, and added such options as fruit, oatmeal and smoothies to its menu.

• The burger giant also launched the McCafe concept, complete with free Wi-Fi and fancy coffee drinks, to compete with other popular coffee shops like Starbucks.
• It has remodeled restaurants and converted more locations to 24-hour operations.
• In China, McDonald’s increased its restaurant locations from about 1,200 to 1,400 over the past year.
• Revenue in Europe climbed 16%, and revenue in Asia/Pacific, the Middle East and Africa climbed 20%.
• And of course, McDonald’s belongs to an elite cadre of companies that have raised dividends for 25 consecutive years.

Since my last article, McDonald’s reported a larger-than-expected rise in November same-store sales. Comp-sales rose 7.4% globally. Analysts were anticipating a rise of 4.6%.

As economic troubles persist, McDonald’s may continue to beat market expectations. With the low rates and headline risk out there, more investors will probably head to this type of safer play.

What About IBM?

International Business Machines Corporation (IBM) creates business value for clients and solves business problems through integrated solutions that leverage information technology and deep knowledge of business processes. IBM solutions typically create value by reducing a client’s operational costs or by enabling new capabilities that generate revenue. These solutions are drawn from an industry-leading portfolio of consulting, delivery and implementation services, enterprise software, systems and financing.

This isn’t your father’s IBM that just produced and innovated through hardware. Clearly the focus is now on client services, emerging markets and research.

So What Was Warren Buffet Thinking?

Early in November, Warren Buffett bought about $10.7 billion worth of IBM stock. “I felt that IBM had a very good business,” said Buffett. Many commentators expressed surprise at this development, as Buffett has traditionally chosen to avoid technology stocks.

Mr. Buffett said he invested in IBM after reading its most recent annual report and was taken with IBM’s entrenched position providing technology services to businesses. That is a characteristic he has long sought in investments, which he calls a “moat” against competition.

In an interview with The Wall Street Journal, Buffett said IBM “fits all my principles… it’s something we expect to own indefinitely.”

Three Reasons IBM Could Reach $200

1. In the last 10 years, IBM has grown EPS from $4.35 in 2001 to $11.52 in 2010. Including in the 2008 to 2009 crisis period, IBM was able to grow EPS. For 2011, IBM should earn more than $12 per share.

2. Huge amounts of cash have been returned to shareholders in the last 10 years. On average, $10 billion annually has flown back to shareholders through stock buybacks and dividends. This is more than 85% of the free cash flow generated during this period.

3. IBM’s 5,896 patents in 2010 were the most U.S. patents ever awarded to one company in a single year. Over 70% of the patents issued in 2010 were for software and services. The company’s investments in R&D also result in intellectual property income of approximately $1 billion annually.

There’s no telling what 2012 will bring to the markets. But these two companies have certainly gained some nice momentum going into a new year.

Good Investing,

Jason Jenkins

Article by Investment U

Jan. 9 (Bloomberg) — Donna Kwok, an economist at HSBC Holdings Plc. in Hong Kong, talks about the outlook for Taiwan’s economic growth and relations with China.¶ Kwok speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Why the Gold Slump is Not Over

by Alexander Green, Investment U Chief Investment Strategist
Monday, January 09, 2012: Issue #1682

Not long ago, my colleague Mark Skousen asked a roomful of attendees at an investment conference how many of them owned gold. Virtually every hand in the room went up.

“And how many of you have ever sold any of your gold?”

Virtually every hand in the room came down.

For many investors, gold is their “forever investment,” the one asset they never plan to sell. That could be a mistake, a big one.

I can assure you that the institutional investors who have bid gold up the last few years consider the metal a “hot date,” not a long-term marriage. And that bodes ill for prices in the short to medium term.

Yes, I was bearish on gold a year ago. But I’m more bearish on it today. After all, the trend is your friend.

True, gold went up in the first half of 2011 and didn’t peak until August. But take a look at a five-month chart.

It’s not a pretty picture.

Of course, gold is hard to value under the best of circumstances. It has very few industrial uses. It generates no earnings, pays no dividends, accrues no interest and provides no rental income. That means the best any of us can do is guess where it’s headed next.

So why am I guessing it will be lower? Let me count the ways:

1. Gold is a wonderful inflation hedge. But the metal is up more than five-fold over the last 12 years and inflation is still not a problem. Is it not conceivable that inflation could tick up and gold – having already discounted this – moves lower?

2. Gold is a great performer in an economic crisis. But we already had the crisis. It ended in 2008. Things are getting slowly better, not worse.

3. With gold prices still in the stratosphere and the value of the rupee falling, India – the world’s biggest consumer of gold – is likely to experience a pronounced drop-off in demand this year. Not good.

4. Gold is now well above the marginal cost of production. New mines are opening and old mines are re-opening. It’s Economics 101. Greater supply depresses prices.

5. If you believe the gargantuan debt load that Washington has run up will cause gold to rally from here, you may want to think again. Japan’s debt load as a percentage of GDP is more than twice ours and the end result has been disinflation, not inflation. Why will it be different this time? Indeed, George Soros and several other major speculators are openly forecasting outright deflation. That would not be good for gold.

6. Note that while gold ended the year up in 2011, gold shares dropped 16%. Already, equity investors are taking a dim view of the sustainability of gold’s advance. I think they’re right.

7. Investment demand for gold has soared in recent years. Seven years ago, it made up just 16% of total demand. Today it’s more than 40%. But hedge fund managers who piled into gold, unlike Mom and Pop, have no emotional commitment to the metal. These are hair-trigger traders. When the primary trend turns unequivocally south, you can bet these guys will dump gold faster than a freshman girlfriend.

I’m not suggesting that anyone bail out of gold. You should hold at least 5% of your liquid assets in gold and gold stocks, and perhaps more. But if you’re one of those folks I meet who has 30%, 50% … even 80% in the barbarous relic, you’re really sitting at the roulette table at 3 AM.

No one can say unequivocally that the bet won’t pay off. But there could be a steep price to pay if it doesn’t. The last time gold was a bubble, investors were down more than 60% two decades later.

As Mark Twain said, “History may not repeat itself. But it rhymes.”

Good Investing,

Alexander Green

Article by Investment U

Jan. 9 (Bloomberg) — John Paulson, the billionaire money manager who’s vowed to restore his hedge fund to profitability after the worst year of his career, may have to take a cue from rival Ken Griffin. Paulson’s $28 billion firm, Paulson & Co., will need to generate a 104 percent return to recoup a 51 percent drop in one of his largest funds after wagers on a U.S. recovery went awry. Until he hits that mark, Paulson will have to forgo his 20 percent performance fee, and will collect only his 1.5 percent management fee. It has taken Griffin, the billionaire founder of Citadel LLC, three years to recover most of the 55 percent he lost for investors in 2008. Erik Schatzker reports on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg)

By JW Jones: www.OptionsTradingSignals.com

Last week we received reports that the unemployment rate in the United States was improving markedly. In addition, sentiment numbers were released that confirmed my previous speculation that market participants were becoming more and more bullish as prices in the S&P 500 edged higher. The exact numbers that came in demonstrated that bullish sentiment had not reached current lofty levels since February 11, 2011. The table below illustrates the most recent sentiment survey:

Chart Courtesy of the American Association of Individual Investors

Clearly investors are growing considerably more bullish at the present time.  The bullishness being exhibited by market participants is rather interesting considering the notable headwinds that exist in the European sovereign debt markets, the geopolitical risk seen in light sweet crude oil futures, and the potential for a recession to play out in Europe.

To further illustrate the complacency in the S&P 500, the daily chart of the Volatility Index is shown below:

The VIX has been falling for several weeks and is on the verge of making new lows this week. If prices work down into the 16 – 18 price range a low risk entry to get long volatility may present itself. For option traders, when the VIX is at present levels or lower there are potentially significant risks associated with increases in volatility.

My expectations have not changed considerably since my article was posted last week. However, I continue to believe that the bulls will push prices higher yet in what I believe could be the mother of all bull traps. Let me explain. As shown above, we have strong bullish sentiment among market participants paired with general complacency regarding risk assets.

As I pointed out last week, my expectation if for the S&P 500 to top somewhere between 1,292 and 1,325. A lot of capital is sitting on the sidelines presently and if prices continue to work higher I suspect that a move above the 1,292 price level will trigger a lot of long entries back into stocks or other risk assets.

We could see prices extend higher while the “smart” money sells into the rally. Retail investors and traders will point to the inverse head and shoulders pattern on the daily chart of the S&P 500 and the breakout above the key 1,292 price level. The pervasive fear of missing a strong move higher will help fuel long entries from retail investors.

At the same time retail investors begin buying, a lot of committed shorts will be stopped out if prices push significantly above the 1,292 area or higher toward the more the obvious 1,300 price level. Thus, there will be few shorts to help support prices should a failed breakout transpire. A perfect storm could essentially be born from the lack of shorts to hold prices higher paired with the trapping of late coming bulls.

The daily chart of the S&P 500 Index below illustrates what I expect to take place in the next few weeks:

I want to reiterate to readers that it is not totally out of the question that the 1,292 price level could hold as resistance or that we could roll over early this coming week. Additionally a breakout over 1,330 will certainly lead to a test of the 2011 highs around the 1,370 area.

If the S&P 500 pushes above the 1,370 area we could witness a strong bull market play out. Ask yourself this question, what reasons could produce such a rally and what are the probabilities of that outcome transpiring in the next few weeks?

Obviously earnings season is going to be upon us shortly and if earnings come in below expectations a potential sell off could intensify. Furthermore, economic data in Europe continues to weaken and slower growth appears to be manifesting within the core Eurozone countries like Germany and France. If most of Europe plunges into a recession, deficits will widen beyond economic forecasts and the strain in the sovereign debt market of the Eurozone will increase dramatically.

One key element that many analysts are not even discussing is the potential for higher oil prices to present additional economic headwinds for developed western economies.

Clearly the situation in the Middle East is unstable, specifically what we are seeing taking place in the Strait of Hormuz involving Iran. If a “black swan” event occurs such as a military conflict between the United States and Iran or Israel and Iran the prices of oil will surge.

In a recent research piece put out by SocGen, nearly every scenario that is referenced involves significantly higher oil prices. According to the report, the Eurozone is considering the banning of imported Iranian oil which could cause Brent crude oil prices to surge to a range of $120 – $150 / barrel according to SocGen.

The other scenario involves the complete shut down of the Strait of Hormuz by Iran. If this shutdown were to persist for several days the expectation at SocGen for Brent crude oil prices is in the $150 – $200 / barrel price range.

Clearly if either of these two scenarios play out in real time, the impact that higher oil prices will have on European and U.S. economies could be catastrophic.

The daily chart of light sweet crude oil futures is shown below:

I want readers to note that I am not suggesting that oil prices are going to rise or fall, just outlining the report from SocGen about where they expect oil prices to go should either of the two scenarios presented above play out. If oil prices were to work to the $125 / barrel level and remain there for a period of time, I would anticipate a very sharp decline in the S&P 500.

Currently there are a lot of headwinds for bulls, some of which could persist for quite some time. I intend to remain objective and focus on collecting time premium as a primary profit engine for my service at OptionsTradingSignals.com.

Once I see a confirmed move in either direction I will get involved. For now, I intend to let others do the heavy lifting until a low risk, high probability trade setup presents itself. Risk is increasingly high.

Get these weekly reports and trade ideas free here: www.Optionnacci.com

JW Jones

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

The EU dept crisis once again takes the headlines this week with Merkel and Sarkozy meeting in Berlin and new refinancing auktions taking place in Italy and Spain.

Jyske Bank Senior Strategist Ib Fredslund Madsen takes a hard look at the week ahead that also marks the beginning of earnings season in the US.

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Video courtesy of  en.jyskebank.tv

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

Source: ForexYard

Despite a positive US jobs report on Friday, which would have normally boosted riskier assets like the euro, the common currency maintained its bearish trend to close out the week. The EUR/USD dropped to its lowest level in 15-months, while the EUR/JPY fell to a fresh 11-year low. This week, traders will want to pay attention to several important indicators, notably Thursday’s statements from both the European Central Bank and the British Monetary Policy Committee.

Economic News

USD – US Non-Farm Data Sends USD to 15-Month High vs. Euro

The US Non-Farm Payrolls data came in well above expectations on Friday, and managed to boost the US dollar against most of its main currency rivals to close out the week. The EUR/USD ended Friday’s session at 1.2718, down well over 300 pips from its peak earlier in the week. In addition, the GBP/USD was down well over 200 pips from highs reached earlier in the week to close out Friday at 1.5428.

The fact that the safe-haven US dollar maintained its bullish trend despite the positive jobs figure is largely because of the ongoing euro-zone debt crisis which continues to drive investors away from the common currency. Typically, positive US data sends investors to riskier assets like the euro. It appears that until positive European data is released, it will be difficult for the euro to rebound.

Turning to this week, euro-zone data is likely to dictate the direction the USD will take. In particular, Thursday’s ECB Press Conference may prove to create significant market volatility. With regards to today, Canadian data is forecasted to influence the USD/CAD. The pair has been largely bullish as of late. With today’s Canadian Building Permits figure forecasted to come in well below last month’s, the upward trend may continue.

EUR – Euro Tumbles despite Positive Global Economic Data

Riskier assets like the euro failed to rebound last week, despite positive global data like the latest monthly US jobs report. The euro remains bearish against virtually all of its currency rivals, in particular the Japanese yen. The EUR/JPY hit a fresh 11-year low and closed out last week at 97.88. Italian debt worries were largely to blame for the bearish euro. Additionally, Greece’s future in the euro-zone has caused many investors to divert their funds away from the EUR.

This week, traders will want to pay attention to any news out of the euro-zone. In particular, Thursday’s ECB Press Conference is likely to generate heavy market volatility. Investors will be looking for a concrete plan from the EU to combat its ongoing debt problems. Positive signs that a plan exists for the euro-zones current economic troubles are likely to boost the euro, at least in the short term.

CHF – Swiss Data May Help CHF Extend Bullish Trend Today

The Swiss franc had mixed trading throughout last week. While it was able to maintain a bullish trend against the euro, the currency slipped against both the dollar and yen. Analysts attribute the trends to the current euro-zone debt crisis and positive US jobs data released last Friday. The EUR/CHF closed last week at 1.2147 while the USD/CHF finished at 0.9551.

Today, the Swiss retail sales figure may help the franc against the dollar and yen. Forecasts are calling for the indicator to come in at around 0.6%, a considerable increase over last month. If the predictions turn out to be true, the franc may be able to recoup some its losses last week, while extending its current trend against the euro.

Crude Oil – Crude Oil Closes Week on a Bearish Note

Positive US jobs data combined with a weak euro caused crude oil to close last week on a slight bearish note. While oil is still trading above the psychologically significant $100 a barrel level, the strong dollar weighed down on the commodity. Typically, a strong US dollar makes oil more expensive for international consumers and brings prices down. In addition, the euro-zone debt crisis has brought equities markets down, resulting in bearish momentum for oil.

This week, traders will want to pay attention to any news out of the euro-zone. Further bearish movement by the euro will likely cause crude oil to move down as well. At the same time, Middle East tensions may cause oil to go bullish again. Any news out of Iran which may cause investors to fear oil supplies may drive the commodity higher throughout the week.

Technical News

EUR/USD

Technical indicators on the daily chart place this currency pair in the oversold zone, indicating that an upward correction may take place in the near future. A bullish cross is forming on the Stochastic Slow, while the Williams Percent Range is right around the -90 level. Going long in your positions may be a wise choice.

GBP/USD

Indicators on the weekly chart are showing a possible upward correction for this pair may take place. The Relative Strength Index is drifting toward the oversold zone, while the Williams Percent Range is already below the -90 level. Traders may want to go long in their positions.

USD/JPY

Most long-term technical indicators are showing this pair trading in neutral territory, meaning that a clear trend has yet to present itself. Traders are advised to take a wait-and-see approach with their trades until a clearer picture develops.

USD/CHF

After spiking in trading last week, technical indicators are showing possible bearish movement for this pair in the near future. The daily chart’s Stochastic Slow has formed a bearish cross, while the Relative Strength Index is hovering in the overbought zone. Traders may want to go short in their positions.

The Wild Card

EUR/JPY

Following a steady decline in prices last week, technical indicators are showing that this pair is trading in the oversold region and may see an upward correction in the near future. The Stochastic Slow on the daily chart has formed a bullish cross, and the Relative Strength Index is trading well below the 30 level. traders may want to go long in their positions. Forex traders may want to go long in their positions.

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.

GBP-USD
Date: 08.01.2012 Time: 16:40 Rate: 1.5428
Strategy: Short/Long
4 Hour Chart
The price is very close now to the lower ranging level on the 1.5410 price level that is used as a strong support level as well. It is possible that from this level the price will climb again with the purpose to correct a third to two thirds of the last downtrend (black broken line) meaning between the 1.5488 and the 1.5557 price levels. on the other hand, a breaking of the 1.5360 last low will sign the confirmation for the breaking of the lower ranging level, the target of the price in this case will be the size of the range thrown downwards to the 1.5045 price level.
You can see he chart below:
http://www.real-forex.com/charts-daily/r/01/09.01.2012/7.jpg