The Week Ahead

I for one, will be watching the Silver Miners for good entry points as they are performing better then the commodity and much better overall then Gold miners. As I mentioned in the previous article, the viral campaign and/or a silver short squeeze should do nothing but help the miners.

As I said last week, it's not the news but how the market reacts to the news. One of the most truthful things ever to come out of Cramer's mouth is that the market has nothing to do with fundamental valuations, it's all about sentiment. NFLX may be a good recent example of that and another stock that will be on my radar.

This December is set up to be an unusual month. Usually we have the Santa Claus rally as funds try to get in that last bit of juice for their yearly returns. However we do have some wildcards in the mix. For example if the Bush tax cuts are not renewed or do not address issues like Capital gains, there could be a lot of selling before options expiration this month to lock in profits at a lower tax bracket.

We also have a distinctive turn in the recent economic flow which has been better then expected for the last month or so. This week however we saw the November Employment report come in at a huge miss with October revised. The unemployment rate rose to 9.82, the day before (Thursday) saw higher jobless claims, and Wednesday a disappointing ISM survey.

While I find th timing of the leaked CBS/Bernanke interview very questionable in a market that was close to closing totally flat, it is what it is and now the cats out of the bag, but is this really something unexpected? To say the option is on the table is just common sense. Whether or not the Fed will be in any position to carry on more QE or even finish this QE, is what is not common knowledge as the political backlash is growing beyond just open letters and interviews, they'll be action soon in Congress, why do you think Bernanke was out there on 60 minutes?

The Eurozone faces it's next hurdle on Tuesday when we find out if the Irish parliament will pass their 4 year budget plan, a failure to do so will put Europe back in the news like it was a few weeks back.

As for last week and the possible bounce "Kiss the Channel Goodbye", here's what we are looking at.

 Dow-30

 NASDAQ 100

S&P-500

I'm not making a call of a successful "Kiss" goodbye, that's up to price action to confirm that, but from what I see above, the range prices ran in with the channel is not abnormal. We saw a little upside bounce out of the channel in the first red box, and a little upside in the second box, as I try to get across, support and resistance are not exact numbers but rather an area. The other thing in those tow boxes to note is that reversals usually lose momentum and then fall, you see it in the first box with the last candle before the reversal being an up day but significantly less then the previous days, then the reversal, Friday's gains, even with the late day meltup were significantly less then the two preceding days.

Here's what 3C looked like in a few timeframes and tends to confirm what I said above, at least to this point,

 DIA 1 min

 DIA 5 min

 DIA 15 min

 QQQQ 5 min


 QQQQ 10 min

 SPY 1 min

 SPY 5 min

 SPY 10 mn

SPY 15 min

This chart above is basically the same as all of the other timeframes, we see a trend here pretty much in confirmation of the bounce until 12/02 when an end of day negative divergence gaps the market down on 12/03-the negative divergence gets worse into the EOD on 12/03. That's pretty much the theme of all the charts above.

On another front, I've been talking about trading systems I've been backtesting, it's kind of a hobby. Here are the results of a 3C-Volatility based system with another indicator thrown in there and it trades two leveraged ETFs on a short term basis, either long or short. Here are the results and I can tell you from years of backtesting, it's difficult to find a system that does substantially better then buy and hold in a decent market.

 There's a slight difference between the two and that's just based on when the trade is taken-that day or the next at the open. The annualized returns are not of interest, the buy and hold (market performance) vs the equity line are what are important. In both situations, starting a year ago to date, both start with $100

Buy and hold comes in at  $91.91 whereas the trading system comes in at $161.58 -so a 61% gain placing 22 trades in a year.

If anyone would be interested n the signals or the system, let me know and I may make it part of the daily updates after a little more tweaking. Remember, it's 2 stocks only that are traded.

Have a great week.

The Viral Campaign Against JPM

Surely by now you have heard about the viral campaign to bankrupt JPM espoused by one Max Keiser by buying physical silver, thus causing JPM to cover it's supposedly large “naked short” on silver.

Here's an example of the Viral attempt at bankrupting JPM-please excuse the language in the following video, I do not condone it and I hope everyone understands that I'm using this video as it represents in a nutshell the viral movement.

Video

It is claimed, on the CME's COMEX metal exchange silver market, over half of the silver short positions are held by two North American Banks, JPM and the Bank of Nova Scotia (BNS) with JPM holding the biggest silver short position on the COMEX and the third implicated being HSBC. Both JPM and BNS hold hedge accounts which makes them immune to the 6,000 COMEX silver contract limit, the hedge limit for JPM and others with hedge accounts is unknown and not publicly available.

JPM is also the custodian for the SLV ETF which according to most analysis and the viral movement, probably does not hold all the silver which is another JPM short on the silver market.

Beware the SLV prospectus.

“Under certain markets condition where illiquidity exists, the price of the I-Shares may diverge from the price of silver and fall” furthermore in the prospectus, the silver in the vault IS NOT independently verifiable.

I've never been a huge fan of Motley Fool, however, there is another side of the story or at least another perspective.

http://caps.fool.com/Blogs/beware-of-this-advice-or-why/481026

Here's what I noticed at the end of the day on Friday when comparing the GLD ETF with the SLV ETF

GLD does show a small relative divergence, but I think part of it is the speed in which the rally at the EOD took place (in other words, the divergence could have been some profit taking into the weekend or just 3C not being able to move up as quick as price). It doesn't look very out of place to me.

However, SLV...

SLV showed resistance in the red square box with the candlesticks showing long upper wicks as price tried to approach the $29 level that seems to be resistance that is actively defended and 3C was quite clear about the divergence being negative.

Furthermore...

In the red box, you can see the reaction to the CME's increased margin rate as SLV backs away from $29 again, before that however, there were negative divergences as SLV rose toward the $29 level. Perhaps a call was made seeing it may have been on course to breakout through $29 despite the negative divergences perhaps trying to stop it from doing so? You can see the negative divergence on the rise recently toward $29 which seems to be a level of great interest.

Here you can see SLV has twice met with some resistance near $29-perhaps an area that would trigger margin calls? That's a real question mark as I do not know. the first arrow is the same day CME raises Margin requirements on silver -announced on Nov-9^th.

I don't cover physical and tangible assets, if you see an opportunity here and choose to pursue it, you can always buy physical silver which is running in short supply and is a smaller market then gold, with more industrial uses. It also would seem to be a better metal to own then gold if you truly believe 1 of/or two things: If you believe there is this viral campaign that will bring down JPM and cause physical silver to shoot up or if you truly believe that the fiat currency system called the $US dollar will be nullified. Imagine trying to conduct business with specs of gold rather then pieces of silver.

 Considering the disclosures in the SLV ETF and considering “if” JPM was forced into a short squeeze, it would be difficult for them to take physical delivery of silver if they indeed do not hold the amount they are supposed to in SLV, the disclosure in the prospectus gives them some cover, meaning SLV may not be the best way to play this silver manipulation theme if you are inclined to.

One way you may want to consider is the silver miners who have not seen the same resistance as SLV.

Compare the charts of SLV resistance vs the miners breaking out.

 HL

 PAAS

 SLW

SSRI

Silver miners may be a win-win. Compared to a quick look at the list of gold miners, the silver miners list is certainly outperforming the gold miners list.