InvestMacro FX

Woah, that’s all I can say. I never expected the price of cotton to sky-rocket like this. The image above is the 1-year chart of Cotton #2 futures contract. For those who do not know, a “futures contract” is a contractual agreement made in the futures exchange to buy or sell a particular financial instrument of standardize quantity and quality at a specified future date with the price agreed today. Cotton #2 futures contracts are traded on the New York Board of Trade (NYBOT) under the ticker symbol CT. In case you purchase them, they are delivered every year in March, May, July, October, and December. A contract size for this is 50,000 pounds net weight.

Technical-wise, cotton broke out from a 2-month ascending triangle last month. Gauging the height of the base of the ascending triangle  added to the breakout point, we get a minimum upside target of 200 US dollar. It was reached within a month and even exceeded to an all-time high yesterday. Its value tripled up from $70 to over $200 in just a year. The most likely reason for this is China’s over-demand for cotton.

China has been the main cotton producer in the world but because of the recent banking crisis worldwide, many apparel-related-businesses were and are being outsourced in China since labor cost is way cheaper. In that case, China needed more cotton supply. This also caused them to buy from other nations like the US and India who are part of the top 5 cotton producers in the world. In case you do not know, most cotton is used in the textile industry. These include the clothes we wear, the bedsheets we use and the towels in our bathroom. Cotton is used in making fishnets, coffee filters, tents and gunpowder as well. Around 25% is used for home furnishings and the rest for other products. The cottonseed which is a byproduct of cotton is used in agriculture for animal feed. When extracted, you get the cottonseed oil which is used as cooking oil.

Some reasons that are driving cotton prices to soar higher are climate change, higher grain prices and increase in human population. Draughts, snow storms and other extreme weather conditions that are taking place in most countries have devastating effects to cotton crops and actually to all agricultural products like wheat, oats, corn and soybeans. So if you take a look at their charts, they’re all rising. Higher grain prices became more attractive to cotton farmers in the US back in 2008 which led the cotton production to decrease. Thus the supply in cotton seed, a by product of cotton and used in agriculture for animal feed, also decreased. Human population has also been multiplying in a fast rate recently and since mostly everyone wear clothes made from cotton, the demand for cotton has been increasing.

More on LaidTrades.com …

Now, Ayala Corporation (AC) – led Globe Telecom, Inc. or GLO in the Philippine Stock Exchange looks to be on the verge of a price meltdown until the company does something that would induce investors to get back in. You see, while a lot of other issues had performed exceptionally well in 2010, GLO did not. In fact, it was one of the sleepers as it traded on a downward slope from an opening of PHP 915.00 during the start of January 2010 to a closing of 800.00 Philippine Peso at the end of the year. For 2010, things look even worse as GLO slipped to a low of PHP 739.00 yesterday (February 17), setting up a new 2-year low. As I’ve mentioned, GLO’s outlook appears to be even more bleak given its price action for the past 12 years. Looking at its price canvas above, you will see that it has been forming a godzilla-like head and shoulders pattern for the last 7 years. Gone are the days when GLO was trading PHP 1,400.00 or even PHP 1,600.00 plus. At present, it is dangerously exchanging near the pattern’s neckline around PHP 700.00. And a breach of this support could send GLO further down to around PHP 400.00 or less.

On the fundamental side, Globe Telecom reported last week a 22.4% drop in its net income to PHP 9.7 billion last year from PHP 12.6 billion in 2009 due to the “hypercompetitive” nature of the telecommunications industry. For those who noticed, the telecom giants like Smart, Globe, and Sun were virtually engaged at a price war, launching several new call, text, and social media promos every so often. While such was good for the common people, it definitely dented the carriers’ immediate bottom line. As you know, the Philippines’ mobile and telecoms market are very much saturated with a good number of people having more than one hand phone, with the Philippines even being branded as the text-capital o the world.

In Globe’s recent disclosure, company president Ernest Cu said that for 2011, “we will continue to build on service quality as key differentiator for Globe. We will implement a proactive approach in meeting the upsurge in voice data requirements across all customer segments, including larger enterprises. We will also improve power and transmission management to meet our quality objectives in terms of network availability and capacity.” While it is true that Globe should continue to improve its network’s capacity and speed, doing such at the same pace as their other competitors would only do so much for the company. Again, the only way that it can eat up on its competitors’ market share with its present strategy is if it is able to increase its network capacity and speed at an exponentially faster pace. If not, they better look elsewhere.

Take for instance SK Telecom which is South Korea’s largest mobile carrier. For the past several years, it has been taking opportunities to invest overseas to counter South Korea’s already saturated telecoms market. For more than a decade now, the company has invested in different countries like Vietnam, India, Mongolia, Malaysia, China, and the US, making SK Telecom one of the biggest company in terms of revenues in Asia for the last few years. Manila Water Company, a sister company of Globe, did a similar strategy when it entered India. Globe should at least follow this approach and enter other emerging countries. Without any new growth drivers, Globe’s profits will remain at par at best.

More on LaidTrades.com …

Where did you first hear about Neural Nets?

The first time I heard about a Neural Net, believe it or not, it had nothing to do with computer software or using it to trade any market… it was in the MOVIES!

In 1984, James Cameron, the director of “Avatar”, made a movie called “The Terminator”…it was Arnold Schwarzenegger’s breakthrough role. They didn’t explain too much about the terminator though, because at that point, computers were still young and they had no idea how to actually conceive of something that sophisticated.
It wasn’t until the sequel came out in 1991 that the terminator in THAT movie revealed that his “CPU” was a Neural Net…”A learning computer”.

Strangely enough, the terminator actually comes back from the future somewhere around 2011 to 2020… which is pretty spot on it terms of where Neural Nets would start to blossom.

It’s quite amazing to see how science fiction often sets a timeline for REAL science to catch up with. It’s pretty much the same thing with Moore’s law – it’s a self fulfilling prophecy because knowing the future often creates that paradoxical loop that sets it in motion in the first place.

By the way Moore’s law states that the number of transistors that can be inexpensively placed on an integrated circuit will double every two years. That’s how computers keep getting faster and faster!

So… getting back to the present, it shouldn’t come as SUCH a surprise that the sharpest minds in the business have realized the applications of the Neural Net for analyzing and speculating on financial markets.

You could say it was inevitable…

A computer that can LEARN… that can THINK and can spot all the myriad similarities in charts (past and present) would obviously be the ultimate trading mind.
Not surprising then that FX trading software like Leo Trader Pro has come around.

Where did you first hear about Neural Nets?

The first time I heard about a Neural Net, believe it or not, it had nothing to do with computer software or using it to trade any market… it was in the MOVIES!

In 1984, James Cameron, the director of “Avatar”, made a movie called “The Terminator”…it was Arnold Schwarzenegger’s breakthrough role. They didn’t explain too much about the terminator though, because at that point, computers were still young and they had no idea how to actually conceive of something that sophisticated.

It wasn’t until the sequel came out in 1991 that the terminator in THAT movie revealed that his “CPU” was a Neural Net…”A learning computer”.

Strangely enough, the terminator actually comes back from the future somewhere around 2011 to 2020… which is pretty spot on it terms of where Neural Nets would start to blossom.

It’s quite amazing to see how science fiction often sets a timeline for REAL science to catch up with. It’s pretty much the same thing with Moore’s law – it’s a self fulfilling prophecy because knowing the future often creates that paradoxical loop that sets it in motion in the first place.

By the way Moore’s law states that the number of transistors that can be inexpensively placed on an integrated circuit will double every two years. That’s how computers keep getting faster and faster!

So… getting back to the present, it shouldn’t come as SUCH a surprise that the sharpest minds in the business have realized the applications of the Neural Net for analyzing and speculating on financial markets.

You could say it was inevitable…

A computer that can LEARN… that can THINK and can spot all the myriad similarities in charts (past and present) would obviously be the ultimate trading mind.
Not surprising then that FX trading software like Leo Trader Pro has come around.

It doubles your account every month (you can actually log into their account with an investor password which is provided on their website!) and has such a high degree of precision that the drawdown is less than 1%.

Once again, reality has caught up with science fiction.

Check it out here:

http://fxforexsoftware.com/leo.html

And, hey… it was good enough for James Cameron and the Governator!

About the Author

Article submitted by Gary Swanson

By Jared Levy, Editor, Smart Investing Daily, taipanpublishinggroup.com

I feel it’s our duty here at Smart Investing Daily not only to help you discover new and unique investment opportunities and tactics, but also to warn you of impending potential disasters.

Looking at the financial markets on the surface, many experts are saying that it seems a little “overbought.” There is no doubt I am in that camp, but now I am gaining more conviction. Experts use things like price/earnings multiples and technical formations to make these determinations. They also look at the past to make future forecasts.

When determining an “overbought” or “oversold” financial market, I examine several indicators, like the ones mentioned above and several others, to confirm my thinking. But there are a couple of signals that are not being talked about and one that I think can not only give us insight into the real strength of the financial market, but also explain its odd behavior and seemingly unstoppable bullish run. These signals are coming from three index Exchange Traded Funds (ETFs) that are some of the most heavily traded and most popular in the world.

A Growing Problem?

These three ETFs — Dow Jones Diamonds (DIA:NYSE), S&P 500 (SPY:NYSE) and Nasdaq 100 Index (QQQQ:NASDAQ) — represent the bulk of the most heavily traded, largest companies here in the U.S. and abroad. Combined, they represent over 600 stocks and the majority of the trading volume here in the U.S. What no one seems to be talking about are the large changes we are seeing in something called “short interest” and the “short interest ratio.”

Short interest is the measurement of how many shares are in short positions. When you want to short a stock, you must “borrow” shares from your broker. The broker allows you to sell the stock at one price, with the anticipation that the shares will drop, at which time you can hopefully buy them back at a lower price. That is a short (bearish) position.

Obviously, if the stock rises, you will lose money, and if it keeps rising, you may be forced to buy those shares back, because you are unable to afford the losses in your account. This effect can create something called a “short squeeze,” but more on that in just a second.

Now, you would think that short interest on the rise means more and more people are getting short a stock and therefore this increase in bearish sentiment will lead the stock lower… This is partially true.

(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let my fellow editor Sara Nunnally and I simplify the stock market for you with our easy-to-understand investment articles.)

If you look below at the short interest chart in SPY, which represents the S&P 500 index, you will notice the huge spike in the short interest ratio (green line). The short interest ratio compares the overall short stock positions to the average daily volume of the SPY.

At the end of December, short stock positions represented 2.7 times the average daily trading volume on the SPY (that’s very high). When you have that high of a ratio coupled with a little positive news, light volume (like you see in December) and upticks in price, you have the makings for a short squeeze. Short squeezes can drive stocks and indexes violently higher, without rhyme or reason, because the short sellers are trying to buy back their stock and cut their losses.

[A short squeeze also occurred in Netflix (NFLX:NASDAQ) on Valentine’s Day.]

Weekly Short Interest Ratio (green line)
Actual short interest amount and volume of SPY

Chart Courtesy of Bloomberg — View Larger Chart

Perhaps the late 2010 and early 2011 rally that we see in the SPY weekly chart below can be attributed at least partially to a short squeeze. This thesis is supported by a reduction in short interest shares (chart above) as a whole up until the first week of January (white line) as bearish traders cover their losses and buy stock.

Weekly SPY Chart With Volume

Courtesy of freestockcharts.com — View Larger Chart

What Happens Now?

Along with the meteoric rise of the SPY, the short interest ratio has been creeping up and short interest itself is also coming back into the marketplace.

Since a ratio low of 0.77 in May, the trend has been higher. Volume has also come back, but nowhere near where it was this time last year. Now that the market is looking more expensive than cheap (like it did mid-2010), those short players that have been creeping into the market may now get the upper hand as investors who are long and have made decent profits are more likely to step aside and let prices drop. In this case the short squeeze may work in the opposite direction, sending prices lower, quickly. I think this trend is notable because it’s been a risky, tough trade for anyone who has been short over the past several months and if traders are willing to step up and take that bearish risk, there must be serious conviction.

I will keep you abreast of any major changes in short interest. By the way, the DIA and QQQQ charts look very similar, except for the QQQQ having a major spike in the short interest ratio from July to August ahead of its drop in early August. For now, I remain cautious, much more so than just a couple weeks ago.

Don’t forget that if shares of the SPY, DIA or QQQQ are bought or sold, subsequent shares are bought and sold within the individual companies. This effect can drive prices both ways.

I wanted to thank my friends over at OptionsHouse*; they are some of the best and brightest minds in the options business and offered their assistance with my research for this article.

Editor’s Note: Access the secret blueprint Wall Street giants use. It could mean a big payoff for you… You could turn $5,000 into as much as $500,000. Earn 12%… 40%… 170% or more. Over $4.5 billion earned already with this proven method. Here’s why billions of dollars were made during the Crash. You have to see it to believe it. Read here now…

*Disclaimer: OptionsHouse has no affiliation with Smart Investing Daily, or Taipan Publishing Group. We always recommend you do your homework and due diligence when considering any brokerage or investment service provider. For more information on how to choose a broker that’s right for you, please read Taipan Publishing Group’s “Guide to Good and Bad Brokers.”

About the Author

Teaching the public to successfully trade and invest while keeping risk low

Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.

Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.

He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.

It is better to teach you to fish than to give you a fish everyday. A great instructional writing does not just teach individual methods, but also the principles behind them, with which you make the methods you own.

There are not many books which discuss the essential principles to good trading, but Bird Watching in Lion Country – Forex Trading Explained, written by Mr. Dirk du Toit, is a notable exception. The author of the book trades with an innovative principle which he neatly summarized as the “4×1 strategy”. The strategy includes four “one’s”:

1. One currency,
2. One direction,
3. One lot, and
4. One percent.

If you can understand the principle behind them, you will become a better trader. And they are explained below.

1. One currency: be an “insider” of the market.

There are two main approaches to the market. The first kind of traders are system-specific, who use one system to trade different markets. Legendary trader Richard Dennis belongs to this kind, whose trend following system is applied in everything from beans to bonds. The second kind are market-specific, who focus only on a few markets, but do not restricted themselves to any system. They include Mr. du Toit, who only trades a few major currency pairs. Most other traders are somewhere in between.

“One currency”, the first “one” of the 4×1 strategy, means you should focus on just one or a few currencies. Mr. du Toit explained the reason with the following story. A shareholder visited the president of the company he invested in, and found that the president was extravagant. Convinced that this president meant future troubles for the company, he decidedly sold all his shares. A few months later, the company was in the hands of a receiver. Mr. du Toit said, if you are a shareholder, you may visit the president to obtain “insider information”, but where could you find Mr. Forex CEO in the currency market?

The only way to know more about the currencies you trade is to follow them closely. However, as Warren Buffett said, “If you have a harem of 40 women, you never get to know any of them very well.” Given limited time and energy, it is easier to focus only on a few pairs you are interested in. If you can understand well the markets you trade, you can avoid the risk of doing what you don’t know, which is a surefire way of losing money.

2. One direction: take note of the long-term trend.

Markets are moved by large participants, and they tend to be long-term investors. As Warren Buffett said, “I buy on the assumption that they could close the market the next day and not reopen it for five years.” The trend they operate for is called the primary trend by Robert Rhea, author of the Dow Theory. As he wrote: “Manipulation is possible in the day to day movement of the averages, and secondary reactions are subject to such an influence to a more limited degree, but the primary trend can never be manipulated.”

“One direction”, the second “one” of the 4×1 strategy, means you should figured out current bias of the market, both in direction (up or down) and magnitude (how strong it is). As Wall Street veteran Victor Sperandeo puts it:

“The primary task of the speculator is to identify the major active factors which drive or will change the predominant trend of market participants’ opinions … can include everything from political and economic developments, to technological innovations, to fashion trends, to the earnings prospects of a particular company. Since this can only be done in the context of history, the best you can do is identifying the predominant factors of the past and project them on to the future. Some factors remain constant throughout history; and in general, the fundamentals which guide opinion change slowly over time. With effort, you can abstract those fundamentals and forecast the future with a high probability of accuracy.” (Emphasis added)

As the trading adage goes, think like a fundamentalist and trade like a technician. In a similar fashion, Mr. du Toit recommended a trader to “think big, trade small.” In all, you should keep an eye on the larger picture of the market.

3. One lot: not losing is half the battle won.

All successful traders practice money management. “Whatever you think your position ought to be, cut it at least in half,” said trend follower Bruce Kovner. Famous trader Larry Williams also described money management as the “keys to the kingdom of speculative wealth”. Conversely, Mr. du Toit pointed out that there is no easier way to lose than over-leveraging.

“One lot”, the third “one” of the 4×1 strategy, means you should always keep your position sizes affordable. To avoid betting too much in one entry, Mr. du Toit employs a multiple entry system. For example, if he decides that the maximum he wants to bet is $300,000, he would spread it out in three entries of $100,000 at different levels, so that he does not have to pinpoint the best entry in one shot. In essence, it could be summarized as diversifying your entries and bet small in each of them.

When shall you start to average in your position? For example, if you are bullish on the euro, and the price is approaching a resistance level which you believe will hold, then you may consider to start entering bit by bit. The advantage of this approach is that if euro rebounds before hitting the resistance, you will not end up missing the move, even though you are not fully loaded with your desired size. Apart from support and resistance, you can also use it with other technical tools like trend lines, moving averages, Fibonacci retracements, etc.

The multiple entry system allows you to do contra-trend trading with a reasonable margin of error. In the words of famous fund manager Paul Tudor Jones, it allows you to pursue your long-term view from a “very low-risk standpoint” until proved repeatedly wrong or you change your mind.

4. One Percent: leave a little for the other guy.

There are two schools of profit-taking. The first school stays with the trend and only takes profit after the trend has exhausted. Almost all trend followers belong to this school. The other school is more conservative. They will take profit if it is good enough. Paul Tudor Jones is a representative of this school, who said he does not mind to have “missed a lot of meat in the middle” as long as he makes money.

“One percent”, the last “one” of the 4×1 strategy, means to take profit when it is in-the-money enough. It is obvious that Mr. du Toit belongs to the second school of profit-taking. Nevertheless, he acknowledges flexibility in profit targets, so sometimes he does hold on a bit longer. Since how far the price will go is unknown beforehand, you can never pick the turning point to exit. Mr. du Toit said, “Leave a little sunshine for the other guy. We all have to eat.” He also said, “One profit a day keeps the bailiff away.” The name of the game is making money, not worrying about the “missed meat in the middle”.

Mr. du Toit also criticizes the so-called risk-reward ratio, which is defined as the capital risked over the expected gain. The games in the casino have poor risk-reward ratios, because each time little are their wins and huge are their losses. This does not prevent the casino to be rich, however, because the probability of winning is so much larger than that of losing, so that the overall expectancy of winning (winning amount each time x winning probability) is still larger. Moreover, they are able to keep the crowd go on playing, hence increasing the number of trials and swinging the odds into their favor. Therefore, given large winning probability and ongoing attempts with adequate sizes, even a poor risk-reward ratio can make you rich.

Summary: The 4×1 Strategy in a Nutshell

The merit of the 4×1 strategy is not just about its conciseness, but also its catchy presentation which makes it easy to remember. Here is it in summary:

1. We focus only on “One Currency” and understand it well.
2. We search for the active drivers behind the “One Currency” to figure out the “One Direction”.
3. We pursue the “One Direction” at a very low-risk standpoint with “One Lot”.
4. We practice a conservative but diversified profit-taking strategy with “One Percent”.

I have studied currency trading under Mr. du Toit for over a year. I can say you can learn a lot from him. If you are serious about currency trading and also find the above useful, I strongly recommend you to purchase his book and study it.

Article provided by selfgrowth.com/experts/victor-chan_wai-to

By CountingPips.com

The US dollar has been on a sharp and fast decline against the Switzerland franc this week after reaching a short-term swing top on February 11th at 0.9774.

The USD/CHF pair has closed lower all week on the daily charts and has fallen today to trading under the 0.9500 level. The pair has dropped from the week’s opening rate at 0.9729 for an almost 300 pip decline overall on the week.

A further slide lower would likely test support around the 0.9400 level with this month’s low under that at 0.9336 and then the December low point sitting all the way down at 0.9299.

USD/CHF Daily Chart

By Sara Nunnally, Editor, Smart Investing Daily, taipanpublishinggroup.com

This week, I want to do something a little different than just run a guest article… I want to take apart a recent article from WaveStrength PowerSignal editor Adam Lass, with contributions from Jared.

Earlier this month, when gold prices were trading below $1,330, Adam released this chart of the Market Vectors Gold Miners ETF (GDX:NYSE).

View Larger Chart

Here’s what he had to say…

The wags have been labeling the recent downward slide in gold prices as the end… a blow-off top… Gold Armageddon… yadda, yadda, yadda.

But when you take a look at the charts for Market Vectors Gold Miners ETF (GDX:NYSE), you can see that gold cyclically retraced within its price channel some 15 times over the past 24 months without challenging the integrity of that rising channel in any way, shape or form.

Right now we have the exact same stacked buy signals — support at the bottom of the rising price channel, a Fibonacci retracement marker and the 200-day moving average, a shift to positive momentum and a positive MACD gap — that have repeatedly yielded upside strokes averaging some 26%.

Now, 26% is a nice average, and Adam’s chart is already starting to pan out. Since Feb. 4, when WaveStrength PowerSignal readers first got this chart in their inboxes, the GDX has climbed 2%. That means there’s still plenty of upside left in this move, and you can find the exact recommendation online, available to all WPS subscribers.

Gold prices themselves have indeed moved higher and were trading back above $1,370 yesterday. This bounce higher is perfectly in line with what we’ve talked about here in Smart Investing Daily.

But let’s take a closer look at those “stacked buy signals” that Adam talked about.

What are they, and what do they mean?

(By the way, investing doesn’t have to be complicated. Sign up for Smart Investing Daily and let my fellow editor Jared Levy and I simplify the stock market for you with our easy-to-understand investment articles.)

Gold Miners ETF Finds Support

Adam talks about the Market Vectors Gold Miners ETF finding support at “the bottom of the rising price channel, a Fibonacci retracement marker and the 200-day moving average.” This “node” of support is clearly marked on the chart, not only just before Adam’s predicted movement for Market Vectors Gold Miners ETF over the next couple months, but in two other instances that both yielded results better than 25%.

These individual supports are powerful in and of themselves, but taken together mark the beginning of a big move higher.

Bottom of a Rising Price Channel — When prices move higher within a channel, it represents the natural price corrections of the company or asset without significant changes to the fundamental value of that company. It’s really just investors deciding if the company or asset is overbought or oversold.

So long as the asset makes higher highs and higher lows, the integrity of the channel remains strong; and when prices trade down to the bottom of that channel, it can signal a good time to buy.

Fibonacci Retracement Marker — Many technical analysts use something called Fibonacci retracements. These are scales drawn on a specific — and significant — price movement… from a bottom to a top, or a top to a bottom. For Market Vectors Gold Miners ETF, the bottom started back in late 2008, and ends at the most recent top in late 2010.

This scale is measured from 100% at the bottom to 0% at the top (when using them on a rising price). The purpose is to find specific percentages of the price move that could provide support for prices during a price correction. Fibonacci retracements have four key markers: at 23.6%, at 38.2%, at 50% and at 62.8%.

Analysts who use Fibonacci retracements find that when prices correct from a high peak, these percentages offer points of support. The inverse is true when prices have fallen significantly… and the retracement markers become points of resistance.

200-Day Moving Average — Moving averages show the average price of a stock or asset over a specific time frame. For the 200-day moving average, this shows the average price of the stock over the past 200 days. These averages kind of smooth out the price movements of a stock, which makes it easier for investors to see how much an asset really is moving. Moving averages, particularly when they survey a larger number of days, can be key indicators of support or resistance.

In Market Vectors Gold Miners ETF’s case, prices climbed quickly between August 2010 and December 2010, which pushed prices farther away from the 200-day moving average. When prices corrected back down to that average, they found support.

Investors also use moving averages to gauge momentum. A rising 200-day moving average is more likely to provide support than a falling 200-day moving average, and Adam’s mention of rising momentum as a specific indicator itself is another level of support.

The convergence of these support points is what Adam calls “stacked buy signals,” because all have appeared to have halted the Market Vectors Gold Miners ETF’s price decline.

These buy signals are then combined with another indicator: MACD.

Moving Average Convergence Divergence — This indicator measures two separate moving averages as compared to a third moving average that functions as “zero.” Sound confusing? It is, but it’s worth understanding, as MACD can provide investors with key buy and sell points.

MACD compares a 26-day moving average to a 12-day moving average. Because of the difference in time frames, the 12-day moving average is more sensitive to price changes than the 26-day moving average. That means these two averages oscillate differently, and the changes in their relationship mean a lot.

These two moving averages are then overlaid on a nine-day moving average that becomes a signal line. Its value doesn’t change. It essentially becomes zero — just a way to compare the movement of the 26-day and 12-day averages to something static.

Those are the basics… Here’s how to interpret those movements.

In general, when both moving averages cross above the signal line, it’s a bullish signal. When they cross below, it’s considered bearish. But the relationship between the two moving averages — the convergence and divergence — is even more important.

Because the 12-day moving average oscillates faster than the 26-day moving average, when the two meet or cross, it becomes a powerful indicator. When the 12-day moving average converges with the 26-day moving average, it could signal the end of a trend. When the 12-day diverges, it could signal a big price move is in the works.

With GDX, the 12-day moving average crossed above the 26-day moving average and was quickly moving higher. That means the immediate downtrend in GDX’s prices was over and that investors could expect a big move higher.

That this divergence happened at the same time the GDX found support on three different levels with rising momentum is a huge indication that the Market Vectors Gold Miners ETF is headed north.

As I said before, the GDX has jumped 2% higher, but could climb as much as 26% higher. This move is just beginning, and Adam and Jared’s recommendation on this move could realize even more gains. WaveStrength PowerSignal subscribers can immediately access this alert online.

And those interested in joining WaveStrength PowerSignal can learn more about Adam’s options-trading service.

About the Author

Sara is Managing Editor of Smart Investing Daily. As Senior Research Director and global correspondent, Sara Nunnally’s diverse resume includes studies in art history, computer science and financial research. She has appeared on news media such as Forbes on Fox, Fox News Live, and CNBC’s Squawk Box, as well as numerous radio shows around the country. Most recently, Sara co-authored a book with Sandy Franks called, Barbarians of Wealth.

As Senior Research Director, global correspondent and managing editor of Smart Investing Daily, Sara has traveled all over the world in search of the best investment opportunities to recommend to her readers, be they in developed economies like France and Italy, in emerging markets like the Czech Republic and Poland, or in frontier terrain like Vietnam and Morocco. Her unique “holistic” approach of boots-on-the-ground research has given her an edge in today’s financial marketplace as she searches for the next investment opportunities in hot sectors like alternative energy, currency markets and commodities.

By CountingPips.com

The US dollar has been trading lower the past three days against the Japanese yen in forex trading after the USD/JPY bounced off the 200-day moving average. The dollar/yen pair has been rallying for most of February with a top culminating at the 83.96 exchange rate on February 16th following up-and-down January trading.

The pair tested (for the first time since June 2010) but failed to hold above the 200-day moving average (in black) and instead has bounced off and descended lower.

The pair currently trades just above the 50.0 Fibonacci retracement level (on the move down from 85.92 to 80.17) with a previous support/resistance line below near the 82.50 level. Further down the line the 38.2 Fibonacci level lies at 82.35 while upside barriers are presented near 83.50 and the 61.8 retracement level which closely coincides with the 200-day moving average.

The recent statement by the ECB representatives gives a serious blow to US dollar. Dollar closed at a lower rate at the end of the last trading week. The roots of this decrease can be traced back to the upsets in Chinese market. At the beginning of this trading week, China introduced some measures that stabilized dollar to some extent. But, the statement from the ECB personnel is telling something more. They are trying to convince the world that China is not the sole competitor against US dollar in Forex trading. Europe’s Euro has also got the potential to disturb the market and to set new trends.

Smaghi’s statement that ECB could raise interest rates is unjustified to much extent. ECB has been setting new records in lending money with the help of overnight lending plans. Critics find no reason to increase the interest rates in this scenario. The causes they have ascribed for the rising inflation are also subject to great controversy. Smaghi’s statement in these circumstances is just meant for exerting the power of ECB and the Euro to the whole world. The continuous down trend in dollar is alarming. Seems that a series of factors that may influence dollar directly or indirectly, are unleashing one after the other. Even Americans are now criticizing Bernanke and his dual policies very seriously. They are blaming him to penetrate dollar too much into the developing countries and making fake claims about the real targets and causes of renaissance policies.

The ECB statement has made Euro very volatile as well, as is evident from Friday’s trading session. But, experts are not much worried about this fluctuation. However, US dollar is going to give tough time to the traders and the experts as well.

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Daily forex trading news written by Rehan from DailyForexTrade.com

The US dollar advanced versus the Japanese Yen on Friday’s overnight trading session. The greenback surged 0.17 percent to 83.45 against the Japanese currency in European trading session. The pair USD/YEN is expected to find support at 83.10 however could witness resistance at 83.97 level which also happens to be day’s high on Wednesday.

The US dollar traded on strong sentiments and surged versus single currency too. The Euro declined 0.24 percent against the greenback to 1.3576.

Support and resistance levels for the pair EUR/USD are expected at 1.3429 and 1.3627 respectively. The single currency remained under selling pressure against the British Pound and Japanese Yen on worries over euro zone’s sovereign debt situation. The Euro declined 0.34 percent versus the British Pound to 0.8385 while fell 0.13 percent against the Japanese Yen to 113.22 in overnight trading.

The British Pound however surged versus the greenback on stronger United Kingdom’s economic data. According to the official report released in UK the country’s retail sales increased to seasonally adjusted 1.90 percent for the month  of January which not only surpassed all expectations which hovered around 0.50 percent but also was substantially high as compared to retail sales growth figure of -1.40 percent in the prior month.

The Pound Sterling gained 0.24 percent to 1.6213 against the US dollar. The pair GBP/USD is likely to experience support at 1.5982 while its resistance is expected at 1.6232 levels.

The British Pound gained 0.38 percent to 135.25 versus the Japanese Yen in European trading session.

About the Author

Daily forex trading news written by Rehan from DailyForexTrade.com