The Morgan Report Blog

It Begins And Ends With You!!

It Begins And Ends With You!!
by Janice Dorn, MD, PhD, The Trading Doctor
 
www.thetradingdoctor.com

As individuals, groups, and businesses, we’re often so busy cutting through the undergrowth we don’t even realize we’re in the wrong jungle.  We are more in need of a vision or destination and a compass (a set of principles or directions)…Effectiveness–often even survival–does not depend solely on how much effort we expend, but on whether or not the effort we expend is in the right jungle… Stephen R. Covey 

You are the problem and you are the solution.  It just doesn’t get any simpler than that.  How wonderful to know this!   It’s a revelation of sorts. You cannot change or control anything or anyone but you. At this moment, you are becoming the person you want to be IF you pay attention and take action.  Doing nothing is not an option for success.  Doing nothing is unacceptable.  Without movement, there is only complacency, stagnation and death.

But it is not enough just to do something.  It is not enough to be busy. There is too much “busy-ness” and always having to do something.  It’s like trying to build a house starting at the roof or somewhere on the second story. How is that working for you?  You need a blueprint and even that is not enough.  So what is enough?  

Make a blueprint for your life.  Follow that blueprint exactly as you have drawn or envisioned it.  There is a sequence to be followed and each step flows logically from the previous one. If you attempt to deviate from the sequence, you will falter and lose your way.  Yes–you may be “crazy busy”– but you are not focused on the outcome.  You are so busy that it is making you crazy.  You are doing so many other things that are trivial and absolutely not relevant to the task at hand that you lose sight of what you started out to do in the first place.  You will fail and your house will crumble on shifting sands.

Your blueprint in the markets is your trading plan.  Make it, work it and stick with it.  Don’t be tempted to jump into or out of “the next best thing.”  There is no next best thing.  There are no “quick fixes” or “win the lottery” systems.  NOTHING WORKS WITHOUT YOU!!  There is only you and your plan.  There is a clear sequence to trading and investing success. You must take each step to trading competence in its own time.  Read the linked article below this one:  So You Think You Can Trade?”   Read it and live by it because it is your own personal trading success blueprint.

Among the most critical aspects of knowing yourself as a trader is understanding—truly, madly and deeply this one question:  WHAT ARE MY VALUE SYSTEMS IN AND OUT OF THE REALM OF MONEY?

 

If you do not know who you are, i.e., what are your true value systems are and how  they relate to money, you have no business whatsoever trading.  Do something else. You must know this and they make it work for you. If you are unaware of your true value systems outside the realm of money, you are not truly alive.  You are existing.  It’s about taking personal responsibility for your own values.  It’s about being in complete integrity and authenticity with your own values.   It’s about waking up and taking action!

I am a survivor of two near-death experiences that changed my value system radically and took me to a completely new understanding of who I am—–both in and out of the realm of money.  Prior to these experiences, I was a “reactor” who tended to
focus on what I now believe to be matters of extreme unimportance. The victories I achieved may seem enormous to others, but, in retrospect, they were not.  I had no idea who I really was, what other people truly meant to me and what was the TRUE meaning of money in my life.  Boy- did I ever have a wake-up call (actually two!!) —totally beyond description!   Now I know who I am, where I am, where I am going and how I am going to get there.  Slowly, one step at a time, over many years, I have rebuilt my life based on the solid foundation of my core value systems.

It’s time to eliminate every person, place and thing in your life that is not in congruence with your core value systems.  These are energy vampire vultures that detract from what should be your major focus:  Evolution to your own higher self and true enlightenment.  You are a precious living creature that requires nourishment, rest, safety, movement and encouragement to blossom and grow. Take charge of your own life and your own trading.  Don’t wait for someone else to bring you flowers or throw you a hot trade.  Empower yourself.  Become your own leader. Be your own hero. If not now, then when?

There’s a hero
If you look inside your heart
You don’t have to be afraid
Of what you are

There’s an answer
If you reach into your soul
And the sorrow that you know
Will melt away

And then a hero comes along
With the strength to carry on
And you cast your fears aside
And you know you can survive

So when you feel like hope is gone
Look inside you and be strong
And you’ll finally see the truth
That a hero lies in you…
Mariah Carey, “HERO”     

Link to:  SO YOU THINK YOU CAN TRADE:   http://www.thetradingdoctor.com/pdf/SoYouThinkYouCanTrade4-10.pdf

Thanks and Good Trading!
Janice

www.thetradingdoctor.com

Vertical Credit Spreads & Clues About the S&P500 Left Behind by the Russell 2000

Before discussing why I think the S&P 500 may be setting up to rally I have to discuss an options strategy that often times is overlooked. Besides writing covered calls and cash-secured naked puts (same risk profile by the way), one of the most basic spread constructions available to option traders is the vertical spread.

A vertical spread can be written when an option trader believes prices are going up (bull call spread) or when prices are going down (bear put spread). In addition to the previous trades which are placed as debit trades, option traders also have the ability to place vertical credit spreads too. While vertical spreads regardless of nature are a very basic option trading strategy, they can produce strong returns with defined risk.

A brief description of a vertical debit spread involves buying a call or put and simultaneously selling a strike further away from the money. Vertical debit spreads always have a directional bias depending on whether calls or puts or used. The sale of the call or put that is further away from the money results in a credit and helps reduce the total cost of the spread thereby reducing the capital risk. A call debit spread, also called a bull call spread is used when a trader expects higher prices. A put debit spread, also called a bear put spread is utilized when the option trader expects lower prices.

A vertical credit spread is established in the opposite construction of a vertical debit spread. The construction involves selling a call or put that is closer to the money and buying a strike that is further away from the money. This strategy profits from time decay as well as price action. The maximum gain is limited to the difference in the credit received for the contract that is sold and the debited premium that is required to purchase the long strike. Vertical credit spreads always result in a trader receiving a credit. A call credit spread, also known as a bear call spread is used when an option trader is expecting lower prices. A put credit spread, also known as a bull put spread is utilized when an option trader expects higher prices.

I typically use vertical debit spreads when I want to place a trade that has defined risk and when I am expecting an underlying’s price action to move in a specific direction. However, vertical credit spreads are often overlooked by many traders and this is most certainly a mistake. My favorite time to utilize a vertical credit spread is when price action across the equity indices is ugly. In fact, a nasty selloff where implied volatility is juiced in most equities presents an outstanding opportunity to construct vertical credit spreads.

With the commodity complex getting hammered recently as the U.S. Dollar increased in value, a lot of the agriculture based companies have suffered. The ETF MOO as an example has lost close to 10% from recent highs. I was stalking $MOO looking for a bottom in the price action and on May 23 I looked on as MOO was close to testing its 200 period moving average shown below:

 

I had also been stalking Deere & Company (DE) for a while looking for a bottom. As it turns out, $DE is the single largest individual holding held in the MOO ETF. When I saw MOO bounce near its 200 period moving average while at the same time I looked on as $DE closed in on its 200 period moving average I felt that we were near a short to intermediate term bottom in the agriculture space. I immediately looked at the $DE option chain as well as the historical implied volatility chart. The trade offered solid risk definition as the 200 period moving average was my support level and credit spreads offer an option trader precise capital risk attributes.

Since Deere & Company had been under significant selling pressure implied volatility was elevated which would also put the wind at my back. When writing credit spreads, implied volatility is critical and must be monitored. I knew I was selling juiced option premium as the implied volatility was historically elevated. The closest at the money strike on the put side was the June DE 80 Put contract. I proceeded to sell the June DE 80 Put contracts and bought the June DE 77.50 Put contracts in a 1:1 ratio to setup the spread.

The maximum risk per put credit spread was $197. The maximum gain was $53 per spread. At expiration the maximum yield would be earned if $DE closed at $80/share or more. The maximum yield of the trade would be 27% (53 / 197) based on maximum risk. The profitability curve of the DE Put Credit Spread is shown below:

I had absolutely no intention of holding this trade to expiration. In fact, my trading plan was to close the trade as soon as a 15% return based on max risk was reached. I employed a hard stop based on the underlying Deere & Company stock price of $80.90 /share. Essentially the trade had a 1:1 risk versus reward ratio (also referred to by traders as a 1R trade). I entered the trade and at this point still have the trade open, but with the higher prices I am seeing this morning (Friday) in $DE, I will be closing my trade with a gain near 15% of my maximum risk and 100% of my hard stop based risk.

Often times option traders overlook basic trading strategies like a vertical credit spread. In a stock market correction or in a situation where a particular underlying has been under selling pressure for quite some time and implied volatility is juiced and a major support/resistance level is nearby, vertical credit spreads offer solid risk / reward. Often times option traders fail to use basic strategies like vertical spreads which provide them the opportunity to trade around bounces, topping patterns, and bottoming patterns without the total capital risk associated with buying/shorting stock.

Russell 2000 Index (IWM)

Members of the service I run are used to seeing analysis about the Russell 2000 Index on a daily basis. Every day I monitor the price action in the Russell 2000 Index (IWM), the Dow Jones Transportation Index (IYT), and the financial complex (XLF). Quite often one, if not all of these ETF’s start throwing off clues about Mr. Market’s favored market direction.

During strong moves in the market, all 3 ETF’s will generally be moving in the same direction regardless of whether prices are going up or down. If the move is strong and has momentum they all move the same way, but generally speaking one of the ETF’s displays relative strength against the S&P 500 and the other ETF’s.

Recently the Russell 2000 Index started showing signs of life and then the transports and financials followed the small caps higher. While both the Transports (IYT) and financials (XLF) traded higher the past two days, neither have had the relative strength that the Russell 2000 ETF (IWM) has shown. When the small caps speak, I listen and they have been screaming the past two days that higher prices may be likely next week and into the first week of June. However, as the daily chart of IWM below illustrates, they have some major work to do the rest of Friday and next week.

If the price action in IWM can push above the upper bound of the recent downtrend and show continuation higher, we will likely watch as the S&P 500 pushes up to the key 1340 price level for a retest. If the S&P 500 is able to penetrate the resistance area I believe we will likely see the 1,400 – 1,450 S&P price level come into play. The daily chart of the S&P 500 Index (SPX) is shown below:

I am leaning bullish on the S&P 500 and risk assets in general (commodities) going into the final week of May and the early part of June. I am expecting a news event to move the markets in a big way within the first few weeks of June. My guess is that an announcement coming out of Europe will be the headline that finally pushes the market into overdrive. For right now, the price action is coiled and we are about to witness a big move. 

While I am leaning bullish, I am certainly not willing to risk capital in an attempt to game price action. I will sit back and wait for price action to confirm and pick my spots. Anticipatory trades do not fit my risk tolerance or trading style and I consider them sophisticated gambling. I’m going to let others do the heavy lifting and wait for confirmation about the trend’s direction. At this point in time, the small caps are signaling that higher prices are likely for equities but the real question is whether Mr. Market is just toying with us and this is nothing more than a head fake. Risk is excruciatingly high.

If you would like to be informed several times per week on SP 500, Volatility Index, Gold, and Silver intermediate direction and option trade alerts… take a look at http://www.optionstradingsignals.com/specials/index.php today for a 24 hour 66% off coupon, and/or sign up for our occasional free updates.

Morgan’s Thoughts on Silver

It is almost amusing to see how many people are writing and extolling the virtues of silver investing now. What a contrast to the early 2000s, when almost no one wrote about silver, save Butler, Sanders, and me. Jason Hommel came on board very early as well. 

People who have followed my work from the beginning know that we stated there would be a day that the physical market would take over the price-setting mechanism. That day has arrived and this is one of the factors driving the price higher. Any new physical buying is adding pressure and therefore moving the price higher.

Since silver is also used in industry and we know that four nines (0.9999) silver is being delayed, one can only ask how many silver users are now experiencing concern that their “just in time” silver inventory might be in jeopardy. It is being discussed by silver users around the world as we go to print. All this is taking place as the Silver Institute recently published a paper stating that industrial demand for silver will increase to 60% from the current 54% by the year 2015 or so. Simple fact:  the industrial component of the silver market is not going to be deterred by the price. The industrial demand is projected to get stronger, not weaker!

Next we see that more than 5 million ounces of silver have moved from Scotia’s registered category (where Scotia owns the silver) to the eligible category, in which almost all cases, long-term investors are holding silver but merely storing it in Comex-approved banks. The total amount of silver held in the Comex is about 102 million ounces. Of that, almost 67 million is in the eligible category (long-term investors) and a mere 35 million ounces in the registered (dealer) category.

As most of you know my near obsession with the silver market, I often look at the Comex movements and categories. The last time the registered category got below 38 million ounces, all heck broke loose. Well, I am not saying it will happen again, but silver was up 8.2% for the week and that was a four-day week. It is too early to forecast or project too much because the market is already high and accelerating up as of the week of April 18. It could certainly have something to do with the extremely small amount of physical silver held by the dealers. The question remains, is the Comex in serious trouble of defaulting, although I have mentioned in the past that it could take place, and it could!

For those interested in the two categories, here is a link to an article I wrote in 2003 about it: http://www.financialsensearchive.com/editorials/morgan/2003/0916.html.

The “authorities” have a great deal of control provided by the contract (that all futures traders sign that they have read and understand) that provides the rules of the game, so in my view it is still unlikely at this point that we will see a commercial failure. But the commercials must be feeling the pressure and it is my contention that the commercials are very adept at getting their way when things get tough. Let’s not take mildly the ability of the Exchange to do something similar in the silver market that has already been done in the palladium market.

The coin market is on fire and especially the government minted coins, such as U.S., Canadian, Australian, and some European based coins. From our survey it seems most current investors are moving toward coins and not 100 oz. bars, which at one time were very popular.

The coin market also does not seem to be affected by the current price level, as many new silver investors are realizing that the price might be noticeably higher than a year ago, but they also understand that gold and silver are about the only investments that make sense under the current economic conditions.

The large funds are also very involved in putting price pressure on the market. If we look at the established silver funds, such as Central Fund of Canada for an example, we know they are most likely not finished purchasing precious metals. In fact, CEF put out a press release on April 6, 2011, stating that the fund has completed sale of more than 16,000,000 shares, raising gross proceeds of US$360,145,000. This will add a few more million ounces of silver to the overall holdings of Central Fund.

At the same time that established funds are adding to their silver holdings, new funds are coming onboard as well. We all know about the Sprott Physical Silver Trust, established when silver prices were around $26 per ounce. There will be others coming out over the next several months and perhaps years.

In summary, it is different from the aspect that the silver market has never been tighter. For one of the very brief times in my lifetime, the physical market (not the futures market) appears to be setting the price, and demand continues unabated in both investment demand and industrial demand.

However, if we are to be objective, we must examine the other side and prepare ourselves for what can possibly turn the market down. Most if not all of our sub­scribers know that I am constantly asked why the market (in silver or gold) went up or down on any given day.

However, in order for silver or gold to drop precipitously and stay down, it would require a solution to the current global monetary system. Simply stated, where else can anyone invest for capital preservation outside of the precious metals?

Now that Standard & Poor’s has downgraded the U.S. credit outlook it is obvious to anyone with any ability to think, that precious metals are a must investment! So, to repeat, where else are you going to invest under the current market conditions? This downgrade implies the S&P sees a likely chance that the U.S. credit rating will fall below AAA within the next few years.

Defaults in the municipal bond market continue and many understand that even bonds are not safe investments. This suggests that a default for many cities and counties will be inevitable. Many still state again and again that U.S. Treasuries are the SAFEST investment; I have my doubts personally, but I do think the shortest maturities—read T-Bills—are safer than any other maturity. Again, the debt of some higher-level government agencies is at serious risk.

David Morgan

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Where now for Gold and Silver?

David A. Banister- www.MarketTrendForecast.com

Well, that was fun wasn’t it gang?  A huge drop in silver from $49.75 to the $32 ranges after 8 months of rallying from 19 to near 50.  A 150% gain in Silver in eight Fibonacci months, sounds like a pretty overbought situation.  Gold in the same time frame lagged badly, but all of that was predicted by me late last August due to the consolidating “B wave” in Silver that was preceding what I felt would be a “massive rally” in the metal.  Quite simply I said, investors will view silver as “cheap” relative to Gold and they will buy it instead of gold.  I realize that makes no logical sense, but since when are the herd behaviors ever logical?

What everyone wants to know still is what is next for both Gold and Silver in their bull markets?  When dealing with human behavioral patterns, it’s as much art as science, so I do my best to ferret out the coming pivot highs and lows, and here is where I am at right now:

Gold should work higher in a current “5th wave up” from the $1462 pivot lows to a bogey target of $1627, and once that is hit or close investors should be enjoying rallies in the Gold and Silver stocks but looking to trim back positions aggressively assuming I’m right.  Where that forecast could go wrong is if we close much below $1440 on spot gold before attacking and piercing through the old $1577 highs.  As this final thrust up completes, not too many people will be on board because they all just got spooked out of the market with the silver crash. I expect a bunch to come in near the end and they may get smoked as Gold peaks out and reverses hard into a stronger correction than what we just saw.  My subscribers will be informed at every pivot along the way as to the best action to take.

Silver will have the potential now to rally back up to the $38.70-$41.50 ranges if I’m right about the Gold forecast.  We had an interesting retracement in Silver that was between two Fibonacci pivots of 61.8% and 78.6%.  Often in my forecasting career, I have seen retracements that end up around 71% of the prior major wave pattern up and therefore they throw off many Fibonacci watchers who are looking for that lower or higher level to make their entries.  This is partially why I think Silver has bottomed out in price, but traders are hesitant to make a bold move here. 

Silver and Gold have another three Fibonacci years left in a 13 Fibonacci year bull market cycle, so other than some intermediate term tops and bottoms and chopping action, I am looking for much higher prices by the year 2014 in both metals.

Below is my outlook for Gold intermediately:

If you would like to be informed 3-5 times per week on SP 500, Gold, and Slver intermediate direction and price movements in advance… take a look at www.MarketTrendForecast.com today for a 24 hour 33% off coupon, and/or sign up for our occasional free updates.  Read what our paying customers are saying here: http://www.TheMarketTrendForecast.com/testimonials.php

THE GREAT AMERICAN NIGHTMARE

THE GREAT AMERICAN NIGHTMARE
Janice Dorn, M.D., Ph.D.
www.thetradingdoctor.com

May 17, 2011

Say your prayers little one
Don’t forget my son
To include everyone
I tuck you in
Warm within
Keep you free from sin
‘Til the sandman he comes

Sleep with one eye open
Gripping your pillow tight

Exit light
Enter night
Take my hand
We’re off to never never-land

Something’s wrong, shut the light
Heavy thoughts tonight
And they aren’t of snow white
Dreams of war
Dreams of lies
Dreams of dragons fire
And of things that will bite, yeah

Sleep with one eye open
Grippin’ your pillow tight … ENTER SANDMAN by METALLICA

Eighty years ago, the Great American Dream was to work hard, get a good education, prepare yourself to take advantage of the tremendous opportunities available in America, become financially successful, and leave a legacy.

Forty years ago, the Great American Dream evolved into living in a house in the suburbs, having two cars, two children, going to work (not to be confused with actually working) forty hours a week or less, having a salary that increased steady regardless of your performance, acquiring more paid-vacation days, spending more money than you made on consumer goods, and waiting to retire on Social Security.

Fast forward to today.  What is the Great American Dream?

To win the lottery

To become a reality TV star by signing a “humiliation contract” that allows cameras to invade every aspect of your life and the more outrageous you appear, the more people want to watch you

To have a viral video on YouTube

To get a student loan

To get on food stamps, social security, disability or get a job in the public sector where you can get a pension for the rest of your life

To become a lifeguard in Newport Beach, California and make over 100K a year

To remain a child forever cradled in the arms of the nanny state

To have a wealthy relative die and leave you lots of money since you are certainly entitled to it just by virtue of being born

To rob a bank or pull off the perfect crime

To marry for money

To run a Ponzi scheme

To lie, cheat or steal to get money

To find a guru who will lead you out of your own personal wasteland into yet another personal wasteland or off a cliff into the ocean

To do nothing but “put it out there to the universe” and you will have good luck and money will drop down your chimney

To prey on elderly people who are frail, needy or in cognitive decline

To get away with anything and everything that permits you to renounce personal responsibility.

The great American Dream is to get rich quickly no matter what it takes. This has become the Great American nightmare.  What happened to self-discipline, hard work, personal responsibility, striving to improve no matter what the cost, or (heaven forbid!) actually working?

I want to tell you something about my life that is no secret to those of you who know me or who have heard me speak.  If it’s not of interest to you, I am not offended. I was born into extreme poverty. My parents may have had a high school education ( I am not sure about my mother, but I think my father graduated from high school).  They both died in their mid-forties, leaving me penniless.  I had zero, zilch, nada of material wealth and had to find a way to make it in the world.  Fortunately, I didn’t end up in the gutter, although there were times when it was tempting—I assure you of that.  My parents loved me beyond anything I can ever describe, and they taught me the value of hard work and education because they wanted for me what they did not have for themselves.  I worked my way through high school, college, graduate school and medical school. Yes, I flipped burgers and sold shoes and took any job available even if I had no clue what to do—I learned quickly because failure was not an option. I made myself wealthy in every way—mentally, emotionally, physically, spiritually and financially.  No one did this for me and it took nearly 40 years and a lot of falling down and getting up again.  A lot.   Was it worth it and would I do it again?  Absolutely.  Why?  Because I don’t owe anyone anything and my future rises or falls with me. 

So what’s the lesson here?  You have to be before you can do and then you have to do.  There are no shortcuts that add meaning to life.  There are only shortcuts that take away self-esteem and send you into servitude. In life and in trading, there are no easy solutions and it is a process of trial and error, of getting up and falling down and getting up again until you are so strong that nothing and no one can ever put you down again.  Success is determined by the process that preceded it and each step is a building block to the next step. Dreams and hopes are great and much has been written and spoken about their value.  I agree.  HOWEVER–  It is absolutely not enough to dream.  It is not enough to hope.  These are not viable strategies for life or trading.  It takes work, diligence, discipline, persistence and practice, practice practice.  Living or trading on hope or dreams without taking action is a sure recipe for your own personal Great American Nightmare.

The only solution is action with integrity.  Do it and do it right and if you can’t get it right at first, keep trying.   You can live your dreams and hopes only if you take action to be all that you truly are, to become the person you are now becoming and to thrive, survive, evolve and never stop growing.  Do it now.  If not now, then when?

Janice Dorn, M.D., Ph.D.
www.thetradingdoctor.com


Copyright:  2011:  Janice Dorn, M.D., Ph.D.:  All Rights Reserved
Illustration Credit: http://www.pandys.org/survivingthememories/id13.html
 

The Dollar Bull Monkey Dance Will End Badly, with a QE3 party?

David Banister- www.MarketTrendForecast.com

Interesting to watch all of the Silver and Gold Bears running out into the streets from their caves beating their chests due to the silver shellacking we just saw.  Getting jiggy with the US Dollar rally is all the rage right now, and stomping on the precious metals Bulls is the hot sport.  The only problem is calling for a crash after a crash is kind of like picking the winner of the NCAA tournament at your office the day after the tournament ends.  It’s rare to get a crash on top of a crash, and trying to predict any crash is a fool’s game anyways.

The reality is the US can’t even keep their continually rising debt ceiling in check let alone run a normal break even budget. The constant calls for the end of Q2 are kind of funny, because in one form or another, we will see a Q3… call it what you will.  Getting on board now with being bearish on silver or gold and bullish on the US dollar is probably going to be short lived near term.  One of the confirmations I look for at bottoms is not just with my Elliott Wave patterns or charts, it’s headlines, forecasters, and erstwhile market seers are going the same direction and high fiving each other.  When everyone stops trying to call the top in Gold and Silver, then we will probably have a major top in 3 years or so, but not yet.

The dollar should bounce a bit higher yet between 76.20-77 ranges on this chart below then resume the decline. .  Giving the Bin Laden news credit for the Dollar rally is a bit silly to say the least; it was overdue no matter what the news of the day was.

 

The bottom line is that Silver was likely to top in the $45-$47 per ounce range after a huge rally from $26.50 whether or not the COMEX raised equity requirements. I had forecasted a run to the $45 highs way back in the mid 26’s for my subscribers.  I had mentioned that as we approach those highs, predicting the next “D wave” correction would be very difficult indeed.  Certainly the COMEX raising equity requirements made that D wave that much more difficult to assess.  The fact that they did it four times in one week certainly sped up the correction and caused an “overthrow bottom”.  

Now if we can step back and take a deep breath, we can see that Silver roughly retraced a Fibonacci 61% of the rally from 26.xx to $49.xx and this is typical of a major wave correction in sentiment and price.  Gold has so far retraced 61% of its prior 3rd wave up, and that does happen as well.  Investors and forecasters simply like to use the day’s headlines to explain the action, so they can feel justified with what just occurred.

 I believe that the headlines don’t much matter during rallies or corrections.  Instead what matters is typical crowd behavioral patterns and trying to outline pivot highs and lows as best as I can for my paying subscribers.  With Gold’s recent bottom at 1462 being a likely “A Wave” of an A B C correction, we then saw a “B wave” rally as I forecasted would occur to “About $1520 or so”, and then a C wave so far to a higher low than $1462.  I thought the pullback from the $1520 area would bottom at a higher level than $1462 and so far that is still the case.  I am looking for Gold to rally past $1577 and complete a large 5 wave rally from October of 2008 at $1627 or higher.  At that time, or close to that time, you will then be wise to take a fair amount of cash off the table.

 

Indeed, we have had a stellar rally in Gold and Silver from the October 2008 lows and there will be eventually longer periods of consolidations and corrective wave patterns to work that off.  However, my theory has been that we are in a 13 year bull cycle for the metals and this is like 1997 in the Tech stocks, still a few good years left and probably one of those 1999 years is still in front of us for the better gold/silver junior exploration companies. Certainly after rallying from $681 in October of 2008 to the $1577 recent highs of April, we are getting a little long in the tooth on this multi-wave pattern to the upside.  This next top at $1627 or higher will be followed by a multi-month corrective pattern, and I’ll keep my subscribers on top of the coming moves as best as possible.  Consider joining us now and save 33% off the annual subscription covering Silver, Gold, and the SP 500 with a 24 hour limited offer at www.MarketTrendForecast.com and or sign up for occasional weekly reports.

Market Sentiment Reaching Extreme Levels for Gold & SP500

This week we are seeing fear across the board from traders and investors as they dump their long positions is stocks and commodities. Just in the past two trading sessions alone we have seen extreme overbought conditions and extreme oversold conditions which generally mean another big move is brewing…

Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I start to prepare for a trading setup which should form within a couple of trading sessions.

Keep in mind that fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for 1-3 more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.

SPY 10 Minute Chart of My Market Sentiment Readings

Panic selling, coupled with oversold NYSE market conditions and fearful options traders makes for an extreme reading in stock prices.

 

 GLD 10 Minute Chart of My Market Sentiment Readings

Sentiment readings many times carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions etc..

 

Mid-Week Market Trading Update:

In short, I feel the market is at a major tipping point along with the US Dollar. It is just a matter of time before we get another low risk setup and take a position for the next move in either direction.

Get My Weekly Reports Free Here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

David Morgan on the Global Economy, Inflation, Recession and Where Silver Is Headed

 
David Morgan

The Daily Bell is pleased to present an exclusive interview with David Morgan.

Introduction: David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, author of “Get the Skinny On Silver Investing” (Morgan James Publishing, 2009), and featured speaker at investment conferences in North America, Europe and Asia.

Daily Bell: Let’s ask some general economic questions first. We asked some of these last time, but you can update us. Are we at the end of the economic crisis in the West or is there more to go?

David Morgan: We are not at the end of an economic crisis in the West. The crisis is a debt crisis that emanates primarily from the reserve currency of the world which is the US dollar. Until this debt problem is resolved one way or the other crisis will continue. It may not manifest in a manner or in a timeframe that most people expect nonetheless it will continue.

All debts are paid eventually. There’s two ways for this debt situation be resolved. One is by a direct default on the debt of the US government and the second is by defaulting on the currency itself. At this point in time almost everyone expects one or the other as the Federal Reserve has taught us time and again. Over and over, it comes into the marketplace to boost the markets by printing more money and stimulating the economy a global basis, and eventually that makes the currency worthless. Right now there’s a fluctuation between the United States and the European markets. The euro is no better than the dollar. All fiat currencies and are based upon the faith credit or trust of the nation state or global economy as a whole.

Daily Bell: Is America due for significant inflation?

David Morgan: The problem with inflation is that it is measured in today’s “1984” world. What we find is that government’s statistics mean very little. Since the US government takes out food and energy from the overall inflation index, the index is almost pointless as those are the two most important facts for any living human being. Thus government economists can say that inflation is whatever they want to say. Inflation is probably somewhere around the 10% level in the US, and of course again the things you need the most food and energy keep increasing in price.

But many people don’t understand is that there’s no need for a hyperinflation for the US economy to have a greater collapse than already exists. In advanced capital markets, the bond market is a governor on the overall health of the system. As interest rates increase because people no longer trust the currency, the bonds fall in value. This is basically what took place during the Volcker administration of the Federal Reserve back in 1980.

Daily Bell: A crashing bond market is hugely deflationary.

David Morgan: Perhaps, but if we look at what we know as an absolute fact right now, it looks as if the Feds wish is to inflate the problem away. Of course this can only go on for so long, as  sooner or later someone determines that the dollar is not worth the paper it’s printed on and gradually people start to move their dollars into anything tangible that’s not a paper asset. This is why the precious metals are such a strong indicator what’s going on under the surface of the global currency markets.

Daily Bell: How about companies. They seem to be doing better. Is this a good sign?

David Morgan: Big US companies are full of cash at the present time. However they’re not ready deploy this cash because they really don’t know where a good place to put the cash to work exists. US consumers are burnt out, basically, burned as blackened toast. They can’t borrow any more; their only savings is their overprice “home,” and that’s still falling in value. Since so much of the US economy is based on consumerism these companies have decided to sit on their cash. Off course, it’s a good sign that some companies are profitable; in real free market capitalism profit is a legitimate motive.

Daily Bell: How would you grade Ben Bernanke‘s performance as head of the Fed?

David Morgan: I would give him a B-, and I know that may seem shockingly high.

Daily Bell: Yes, that’s high to us. We’d give him a Z.

David Morgan: He’s in a horrible no win position; at this point, he has far less control than many think. His press conferences do not seem to be helping. I recall watching him on “60 Minutes” and his lower lip was quivering as he spoke. I thought this poor fellow is not a practiced hypocrite like most of the U.S. politicians; he should do as little in public view as possible. So, I will withhold further comment for now, but from what I have seen, my advice would be to send a Public Relations type to read a prepared statement.

In my view there is only one thing that will help and that is an immediate return to the Glass-Steagall Standard that was removed during the go-go derivative years. We must let this truly worthless debt perish and soon before the whole system does a repeat of 2008 and never gets off the mat.

Daily Bell: Seems like the mat is as good a place as any. Is significant inflation “baked into the cake?”

David Morgan: Not necessarily! First, as an Austrian-oriented economic observer, let me be clear that there is enough “money” in the system to cause a hyperinflationary blow out in 12 milliseconds. So, it is NOT a function of how much funny money that is in the system but what it is doing.

If the velocity is very low, then it is as if the over-abundance of “money” does not even exist because the currency is just sitting. In the U.S. the turnover is very low because there is little demand for money as consumers have stopped spending. Overseas, however, the velocity is increasing. But until the velocity gets to a point where it is having an impact on prices, which is how most people understand inflation, we cannot be 100% certain that inflation is baked into cake. A deflationary wild card could still take hold.

For a quick thought experiment, let us say overnight all commodities are settled in Chinese yuan. The U.S. dollar is suddenly void—is that inflationary? It would be hugely deflationary and have the same effect as the end of a hyperinflation. The currency is worth –NOTHING! So in a bond default bonds are worth nothing, and the currency has value; or in a currency default the currency becomes worthless and the associated bonds as well. Go watch the movie “Gone with the Wind” for a good reminder about the beliefs surrounding money and what kind of lessons lie ahead.

Daily Bell: Where does silver go from here?

David Morgan: To be clear we are doing this interview after silver nearly hit $50 and fell to $33 and change. At this point (mid May 2011), silver will establish a trading range in my view. It is far too early to know what that range will be or even if I am correct.

Daily Bell: What are the best investments to make throughout the business cycle, and do they change over time?

David Morgan: Yes, they do change over time,. Early in the cycle from a hard-money point of view, almost any exploration company is a good bet and these companies are usually more dependent on promotion than merit. As the cycle matures then mid-tier growth companies do the best overall. Finally, in the final mania stage, the real crummy penny stocks do the best … but be careful! Throughout the entire cycle a pure silver or silver and gold (metal) investment is usually superior to a gold or silver stock investment.

This has been proven again and again, and each year I verify it for my members. We’ve beaten the heck out of the averages, but most investors don’t. In other words, following the example in The Morgan Report would have provided very superior gains to a pure silver or gold investment.

Daily Bell: Explain why silver has historically been called the people’s money.

David Morgan: Silver has been used for longer periods of time, in more places in the world, and by more human beings for money than anything else … period! End of story! If you have the ability to think then no further comment is necessary.

Daily Bell: There are some that believe that silver is a secondary money. And that gold is primary money. What about you?

David Morgan: Gold is worth more per ounce than silver and has been since the beginning of recorded history. In that sense it has a higher unit value (more value per ounce). Both serve their purpose.. Gold for international settlement and silver for individual settlement.

Daily Bell: Why did silver take off in the past few months?

David Morgan: The physical market has finally taken control after all these years.

Daily Bell: Why did it drop?

David Morgan: You can build a case in several ways, but primarily the continual increase of margin requirements brought the leveraged silver speculators down and down hard.

Daily Bell: Yes, the old trick. When silver and gold go up, it’s a bubble and the exchanges have to take action by raising margin requirements and wiping out a slew of small investors. Funny, the stock markets never raise margins when stocks are on the way up. Anyway, is it still a bull market for silver?

David Morgan: Yes, as we discussed earlier, until the debt bubble bursts precious metals will reflect just how bad the debt problems are.

Daily Bell: Can you comment on the gold-silver ratio? It has come under attack as a false or made up ratio from some.

David Morgan: It is not made up; divide the price of gold by the price of silver to gauge it accurately. It is a way to measure which metal is doing better in terms of the other one. For example when I started pounding the table to buy silver, the ratio was 80 to 1. It took 80 ounces of silver to buy one ounce of gold. The ratio is now 40, which means at this point in time silver has been twice as profitable as gold in the same time frame … BUT could you have stood the volatility?

Daily Bell: Good point. Is industrial demand for silver growing? Is there enough silver around?

David Morgan: Industrial demand continues to grow and is estimated to by 60% of the market by 2015 from the current 54%, mostly due to solar, water purification, and food preservation/packaging. There is enough silver — as price determines who gets the silver. This is not to say that a squeeze cannot take place and “shortages” do appear in certain areas. For example, both the U.S. and Canadian mints are NOT keeping up with demand.

Daily Bell: How much is the world’s silver supply increasing? What about future production?

David Morgan: Silver is increasing by around 3% per year and that will continue for the next 3-4 years, after that time frame things could get a bit dicey and we might see silver go back into a deficit situation similar to what existed between 1990 and 2006.

Daily Bell: Have gold and silver mining peaked? Do India and China play into this equation?

David Morgan: I will stick my neck out and venture the supposition that silver production could peak in 2015-2016.

Daily Bell: We’ve suggested the same possibility.

David Morgan: Indian and China both play significant roles primarily in their industrial use of silver, and that’s where some of the demand is coming from on the margin.

Daily Bell: Does price manipulation continue?

David Morgan: Yes, but it is becoming less and less effective. As our work indicated so long ago, once the physical market takes over, then the paper pushers will have a very difficult time “managing” things. But never give up on the (silver and gold) paper pushers! They are very imaginative.

Daily Bell: Where will silver end up at?

David Morgan: We called the breakout at $19 and rode it up to around the $46 level. No one knows what paper price silver will end up at… but I am on record that silver would make it to at least $100 by the top, so let’s stick to that for now and visit it again later. It is really an error to focus too much energy on the paper price. An ounce of silver and an ounce of gold never change in value actually; it is the price that is quoted in paper currency that varies. This is a reflection of the debasement of all currencies globally.

Until the debt bubble bursts or is resolved, money metals will continue to see price pressure to the upside. Of course, all markets move up and down … and from time to time gold and silver will see their prices knocked down. A true, ultimate paper price for silver or gold is impossible to forecast accurately.

Daily Bell: What countries are most hospitable to silver mining today? Mexico and Peru you mentioned last time.

David Morgan: Same this year, with China number 3. There are concerns surrounding Mexico because of the drug wars going on in that country. Quite frankly, some of the miners are near the vicinity of trouble. There have been reports of some mining incidents do to the drug problems.

Another factor that we get asked often is whether a country might nationalize a mine. This surfaced recently in Bolivia and it is a concern. Might I suggest anyone that wants to examine this in depth read Resource Wars by Michael Klare.

Daily Bell: Any important silver mining companies you want to mention?

David Morgan: We reserve this for our paid membership but there is lots of information available on the Internet and many ETF’s and even silver funds are available that people can find with very little effort. Let me remind everyone that a simple non leveraged silver investment has outperformed any silver index so far. However, again, our portfolio has done much, much better than a silver only investment.

In other words, I and our members (that follow our model) have made much more money in the mining stocks than a simple silver only investment. The stocks have lagged the metal in this most recent move, and for those that understand market cycles and want to catch up to the people that bought silver at $20 to $25, it can be done by careful selection of mining companies and the ability to hold on tightly.

Daily Bell: What’s going on with the CFTC? Any news on the silver manipulation front?

David Morgan: The CFTC has been very quiet. There are several suits that have been filed and the authorities are doing their best to put all “manipulation of the silver price” suits into one large class action suit. We are purportedly getting close, but don’t hold your breath. Governments can outlive individuals by hundreds of years, if you know what I mean.

Personally, it would benefit so many to see some resolution to this question. It has been at the heart of the silver world for so long. The opinions are so strong on both sides of the argument that I doubt any resolution would satisfy both sides. But a clear and fair rule regarding market manipulation equally applied across the board would go a very long way in restoring faith in the system.

Daily Bell: Can the powers-that-be continue to control the price regardless of CTFC action, or are they losing control?

David Morgan: They are losing it as mentioned previously; this is not to say that they cannot come up with all kinds of rhymes and reasons to further “control” things but in the end the free market wins. There will be times such as now that we will experience silver finding it way to a trading range and the market cooling off for weeks, or perhaps months. But the powers-that-be can only raise margins so many times. As long as the debt bubble continues to inflate, the pressure on precious metals will continue.

Daily Bell: Will the world end up with a new currency in the near future? Will it be silver and gold based?

David Morgan: Tough question. Steve Forbes former presidential candidate recently forecast a return to the gold standard by the United States within the next five years because a gold standard would help the nation solve a variety of economic, fiscal, and monetary ills. Such a move would stabilize the U.S. dollar, restore confidence globally and reassure the U.S. bonds market. Under a gold standard reckless federal spending would be impossible.

As Forbes pointed out, the United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment in pure paper money that has contributed to a number of woes that the country is suffering from now. The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.). But the idea makes too much “sense” not to gain popularity given the terrible performance of the US economy. “If the dollar was as good as gold, other countries would want to buy it,” Forbes said and he has a point.

My main concern is not a return to a gold standard; in fact we are quite favorable to it. The concern we have is how much of the reported gold is held by the U.S. Treasury? In other words, would the U.S. have unencumbered gold to back the U.S. dollar? We ask the question because through the years so much information has built strong cases that the “gold” in Fort Knox is perhaps gone, or at best not owned by the Treasury.

Daily Bell: We’ve heard the same stories. An audit would be nice. Any other points you want to make? Any articles or websites you want to point out?

David Morgan: Let me state for your U.S. readers and soon all your Canadian readers, please check: www.Silver123.net.

This is a site that offers a silver savings program. That is a monthly accumulation program that once it is set up it continues as long as you wish. In the past this was primarily directed to the small saver but it now is also competitive for very large purchases. This methodology takes advantage of one of my Ten Rules of Silver Investing which any of your readers can obtain for free just by visiting our website: www.TheMorganReport.com.

Daily Bell: You do not write much in the public domain anymore. Why is that?

David Morgan: I spent so much of my time and money to spread the word on the problems in the financial system and why precious metals were part of the solution it took a full decade of my life. I do not regret one minute of it, but that work is on the Internet for anyone that wants to visit my thinking from the bottom until say 2010.

The demands for my time became overwhelming so my efforts are now directed to our paid members, although I still find the time to send something of merit to our free list once per week.

Daily Bell: Thanks for your time and for sitting down with us again.

David Morgan: My pleasure…

Market Sentiment Reaching Extreme Levels for Gold & SP500

This week we are seeing fear across the board from traders and investors as they dump their long positions is stocks and commodities. Just in the past two trading sessions alone we have seen extreme overbought conditions and extreme oversold conditions which generally mean another big move is brewing…

Fear (panic selling) has very distinct characteristics when looking at the intraday charts and we are seeing those price and volume patterns forming now. When waves of buying and panic selling start to take place back to back, I start to prepare for a trading setup which should form within a couple of trading sessions.

Keep in mind that fear is a much more powerful force in the market and once extreme levels are reached, we typically tend to see continued selling for 1-3 more days afterwards. This is the reason I tend to scale into oversold market conditions as I can potentially enter at lower prices within the next couple of sessions to build a position with a reduced cost basis.

SPY 10 Minute Chart of My Market Sentiment Readings

Panic selling, coupled with oversold NYSE market conditions and fearful options traders makes for an extreme reading in stock prices.

 

GLD 10 Minute Chart of My Market Sentiment Readings

Sentiment readings many times carry over into the precious metals sector and can be used as a gauge also for tightening stops, adding to long positions etc..

 

Mid-Week Market Trading Update:

In short, I feel the market is at a major tipping point along with the US Dollar. It is just a matter of time before we get another low risk setup and take a position for the next move in either direction.

Get My Weekly Reports Free Here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

David Morgan interviewed on the Fox Business Channel regarding the Utah Legal coin act.

Recently, I was interviewed on the Fox Business Channel regarding the Utah Legal coin act. Here is a little background and some interview questions…For the first time since 1971, gold and silver are once again considered legal tender in at least one part of the United States. The state of Utah passed the “Utah Legal Tender Act,” which “recognizes gold and silver coins that are issued by the federal government as legal tender in the state and exempts the exchange of the coins from certain types of state tax liability.”

The law, signed by Governor Gary Herbert on March 25, is voluntary system that provides an alternative to the fiat-based Federal Reserve note that are created out of thin air in unprecedented proportions.

The most significant change from a practical perspective is that the Utah’s state tax code now considers gold and silver coins issued by the U.S. Mint as currency rather than an asset, which means since it is considered money it cannot taxed.  However, federal taxes still apply on these transactions.


1. What is this Utah Legal coin act about?

The Utah Legal Tender Act (HB 317) is designed to reinstate gold and silver coin as an optional medium of exchange in Utah intrastate commerce. The bill recognizes the inherent and inalienable right of citizens to voluntarily employ these time-tested, inflation-proof, complementary currencies to foster economic development throughout the state. The bill draws its authority from Article1, Section 10 of the United States Constitution which provides that no state shall make anything but gold and silver coin a tender for payment of debts. Grounded in long-standing principles enshrined in the supreme law of the land, this statute addresses current, pressing monetary issues in modern American society – issues to which gold and silver coin solutions are uniquely suited.


2. Why do we sound need money?

Because the founders of our nation had experienced first hand the ills attendant unbacked fiat currency, they provided in Article 1, Section 10 of the United States Constitution that no state is to make anything but gold and silver coin tender for payment of debts. Unfortunately, we’ve departed from the wisdom they imparted, and embraced a medium of exchange which has no intrinsic value whatsoever. The value of today’s dollar is upheld by governmental edict, backed only by the indebtedness of our nation and its citizens. Because of sharp increases in our money supply, our national debt is on an upwards trajectory set shortly to eclipse our gross domestic product. Since there is no historical precedent for a totally fiat money system, such as ours, ever lasting more than a few decades, prudence dictates that alternative, sound, means of exchange be put in place well in advance of any potential crisis, such as those endured by the fiat-financed nations and empires of the recent and distant past.

Even absent the specter of catastrophic consequences, an alternative sound money system confers many benefits on citizens and state governments alike. Such a system serves as a refuge from the ills fiat money produces, including the insidious “inflation tax” that our current monetary system imposes. Consider that the U.S. dollar has lost more than 95% of its purchasing power since decoupling from gold and silver backing. By contrast, sound money systems of the past continued virtually inflation proof for centuries on end.


3. Are there other states that are looking at something similar?

Virginia House Joint Resolution 557

Georgia Constitutional Tender Act

Ohio Honest Money Project

Idaho Silver Gem Act, Bill No. 633

South Carolina House Bill No. 4501

Missouri House Bill No. 561

Washington House Joint Memorial 4010

Colorado Honest Money Act (HB09-1206)

Indiana Senate Bill No. 453

Montana House Bill No. 639

New Hampshire Gold Money Bill 1. 1.
 

4. Why are the states doing this and not the Federal Government?

Because of the co-dependent relationship between Congress and the Federal Reserve, the likelihood of any sound money reform coming out of Washington is remote indeed. Individual states, exercising their sovereign authority, are best equipped to restore sound money to its prior status as a trading currency. So look for a sound money come back on a state by state basis. It makes sense to first support states that are well positioned to make sound money a reality today. Then as the movement gains momentum, reluctant jurisdictions will see the advantages of embracing sound monetary systems

There are many questions that cannot be answered in this interview.

For those interested please go to www.utahsoundmoney.org

This website will have the answer to most questions we have not covered today..

David Morgan

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