The Miner Trading System

For those of you taking the signals from the Miner Trading System, today's signal is "hold" on the long position in DUST.

 You can see our signal line is moving further away from the moving average, which is overall good for the continued trade, which is now up 5.5% (if you bought on the open) over the last two days. The current backtest with the newest trade has the system performing at a 86.88% 6 month real equity return.

I've backtested a lot of systems and it's very difficult to find one that even beats buy and hold. Considering how choppy trade is, the equity line's trajectory is amazing; there isn't a single lower high or low, just a nice smooth uptrend with no volatile drawdown.

So until tomorrow night, there's nothing to do in the DUST trade.

The good, bad and unknown

First let me start with a warning I always give when it comes to anything Fed related; "Beware the knee jerk reaction". For whatever reason, there has been a long history of Fed/FOMC statements that see an initial knee-jerk reaction, only to be reversed shortly thereafter.

As for the optimistic outlook on the market's end of day trade...

While the web is full of distinctions a to what a "tweezers bottom reversal" is suppose to look like, the most authoritative work on the subject is definitely Steve Nison's Japanese Candlestick charting.

As for Nison's definition, today qualifies as a tweezers bottom.

The lows in the SPY yesterday were $128.87 and today $128.87. A tweezers bottom doesn't need to be exact lows, but they need to be very close; today qualifies.

 The NASDAQ 100 does not qualify, the NASDAQ composite does as do the DIA above.

The Russell 2000 put in a different type of bottom reversal called a Harami or in western vernacular, an inside day with today's candlestick body falling within yesterday's and proceeding a downtrend.

 This is the last valid tweezers bottom I can find on the SPY, which led to a reversal.

And the last Harami I can find which also led to a reversal. While I don't have statistics on the validity of these formations, the two above that I have showed you on a historical basis, were the only two, meaning there were no similar patterns that failed.

Interestingly, as for the stocks I track which have closed up or down 5% or more with their volume relationships, today saw a strong dominance in Close Up 5+% on rising volume of 54 stocks; 67 total closed up. As for close down 5% or more, there were 32 closing down 5%+ on rising volume and another 13 on falling volume for 45 total.

Unbelievably, there was a dominant price/volume relationship today-Close UP / Volume Down- 2298 stocks, with followed by Close Up / Volume Up-1552. In third place Close Down / Volume Down 1513 and finally Close Down / Volume Up at 1219.

While the dominant relationship is usually considered bearish as volume was down, I find it interesting that the first and second most dominant P/V relationships both had more stocks closing up then down (3850 closed up / 2732 closed down).

The Dow was pretty evenly distributed among the 4 P/V relationships.
The NASDAQ was barely dominant with 30 stocks closing up on falling volume.
The Russell 2000 was Dominant in Close Up / Volume Down beating out second place by about 220 stocks.
The S&P-500 was just barely dominant at Close Up / volume up 149
The NADAQ was pretty evenly distributed

I think the internals were surprising in how many more stocks closed up today.

Also surprising was the NASDAQ's breadth charts

 Today's % of stocks moving above their 50-bar 15 min average went from about 10% to 70% today. The action in the QQQ itself, didn't seem like this would be a likely outcome.

Furthermore, the % of new 15 min 250 bar lows was near 50% yesterday and even during the sell-off late today, it was only at about 10%, and intraday for most of the day, around 2-3%.

As for the bad...

The market was clearly disappointed in the lack of a hint regarding QE3, but was this really expected at this point before QE2 has even ended? QE 2 wasn't announced until well after QE1 ended. This makes me think the reaction today was more on the retail side as I believe Wall Street knows better then to expect an announcement regarding QE3 before QE 2 has even ended. Furthermore, the Fed has made clear that they intend to asses the economic situation after QE2 before deciding what steps they'll take, such as rates, asset sales, and further easy monetary policy.

Also on the negative side was the price volume relationship. A strong relationship of close down / volume up would be a strong indication of short term capitulation. On the other side of that coin, the majority of the market closed up today, which is amazing considering the very dull price action with the end of day sell-off.

All in all, I would continue to keep adding the stocks I feature as top/short candidates and keep looking for strength in these stocks as they move toward their neckline or above it. Any stock moving above the neckline should be checked for distribution, that is ultimately the strongest set up among the watchlist.

If you do not have a decent charting package in which you can create these watchlists, please check out www.FreeStockCharts.com. This is realtime intraday data with no 20 minute delay like most charting services that are free and it is browser based so you can take it anywhere.

Thus far in after hours trade, the market has regained between 30% and 50% of the late day sell-off.

If you have specific positions or portfolio strategies you'd like to discuss, feel free to email me any time.

Bernake's Full Speech

The U.S. Economic Outlook

I would like to thank the organizers for inviting me to participate once again in the International Monetary Conference. I will begin with a brief update on the outlook for the U.S. economy, then discuss recent developments in global commodity markets that are significantly affecting both the U.S. and world economies, and conclude with some thoughts on the prospects for monetary policy.

The Outlook for Growth
U.S. economic growth so far this year looks to have been somewhat slower than expected. Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain disruptions associated with the earthquake and tsunami in Japan are hampering economic activity this quarter. A number of indicators also suggest some loss of momentum in the labor market in recent weeks. We are, of course, monitoring these developments. That said, with the effects of the Japanese disaster on manufacturing output likely to dissipate in coming months, and with some moderation in gasoline prices in prospect, growth seems likely to pick up somewhat in the second half of the year. Overall, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers.

As is often the case, the ability and willingness of households to spend will be an important determinant of the pace at which the economy expands in coming quarters. A range of positive and negative forces is currently influencing both household finances and attitudes. On the positive side, household incomes have been boosted by the net improvement in job market conditions since earlier this year as well as from the reduction in payroll taxes that the Congress passed in December. Increases in household wealth--largely reflecting gains in equity values--and lower debt burdens have also increased consumers' willingness to spend. On the negative side, households are facing some significant headwinds, including increases in food and energy prices, declining home values, continued tightness in some credit markets, and still-high unemployment, all of which have taken a toll on consumer confidence.

Developments in the labor market will be of particular importance in setting the course for household spending. As you know, the jobs situation remains far from normal. For example, aggregate hours of production workers--a comprehensive measure of labor input that reflects the extent of part-time employment and opportunities for overtime as well as the number of people employed--fell, remarkably, by nearly 10 percent from the beginning of the recent recession through October 2009. Although hours of work have increased during the expansion, this measure still remains about 6-1/2 percent below its pre-recession level. For comparison, the maximum decline in aggregate hours worked in the deep 1981-82 recession was less than 6 percent. Other indicators, such as total payroll employment, the ratio of employment to population, and the unemployment rate, paint a similar picture. Particularly concerning is the very high level of long-term unemployment--nearly half of the unemployed have been jobless for more than six months. People without work for long periods can find it increasingly difficult to obtain a job comparable to their previous one, as their skills tend to deteriorate over time and as employers are often reluctant to hire the long-term unemployed.

Although the jobs market remains quite weak and progress has been uneven, overall we have seen signs of gradual improvement. For example, private-sector payrolls increased at an average rate of about 180,000 per month over the first five months of this year, compared with less than 140,000 during the last four months of 2010 and less than 80,000 per month in the four months prior to that. As I noted, however, recent indicators suggest some loss of momentum, with last Friday's jobs market report showing an increase in private payrolls of just 83,000 in May. I expect hiring to pick up from last month's pace as growth strengthens in the second half of the year, but, again, the recent data highlight the need to continue monitoring the jobs situation carefully.

The business sector generally presents a more upbeat picture. Capital spending on equipment and software has continued to expand, reflecting an improving sales outlook and the need to replace aging capital. Many U.S. firms, notably in manufacturing but also in services, have benefited from the strong growth of demand in foreign markets. Going forward, investment and hiring in the private sector should be facilitated by the ongoing improvement in credit conditions. Larger businesses remain able to finance themselves at historically low interest rates, and corporate balance sheets are strong. Smaller businesses still face difficulties in obtaining credit, but surveys of both banks and borrowers indicate that conditions are slowly improving for those firms as well.

In contrast, virtually all segments of the construction industry remain troubled. In the residential sector, low home prices and mortgage rates imply that housing is quite affordable by historical standards; yet, with underwriting standards for home mortgages having tightened considerably, many potential homebuyers are unable to qualify for loans. Uncertainties about job prospects and the future course of house prices have also deterred potential buyers. Given these constraints on the demand for housing, and with a large inventory of vacant and foreclosed properties overhanging the market, construction of new single-family homes has remained at very low levels, and house prices have continued to fall. The housing sector typically plays an important role in economic recoveries; the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like.

Developments in the public sector also help determine the pace of recovery. Here, too, the picture is one of relative weakness. Fiscally constrained state and local governments continue to cut spending and employment. Moreover, the impetus provided to the growth of final demand by federal fiscal policies continues to wane.

The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government's finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery. The solution to this dilemma, I believe, lies in recognizing that our nation's fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk. At the same time, establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates and increased consumer and business confidence.

The Outlook for Inflation
Let me turn to the outlook for inflation. As you all know, over the past year, prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline and other energy products and, to a somewhat lesser extent, for food. Overall inflation measures reflect these price increases: For example, over the six months through April, the price index for personal consumption expenditures has risen at an annual rate of about 3-1/2 percent, compared with an average of less than 1 percent over the preceding two years.

Although the recent increase in inflation is a concern, the appropriate diagnosis and policy response depend on whether the rise in inflation is likely to persist. So far at least, there is not much evidence that inflation is becoming broad-based or ingrained in our economy; indeed, increases in the price of a single product--gasoline--account for the bulk of the recent increase in consumer price inflation.¹ Of course, gasoline prices are exceptionally important for both family finances and the broader economy; but the fact that gasoline price increases alone account for so much of the overall increase in inflation suggests that developments in the global market for crude oil and related products, as well as in other commodities markets, are the principal factors behind the recent movements in inflation, rather than factors specific to the U.S. economy. An important implication is that if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory. Indeed, the declines in many commodity prices seen over the past few weeks may be an indication that such moderation is occurring. I will discuss commodity prices further momentarily.

Besides the prospect of more-stable commodity prices, two other factors suggest that inflation is likely to return to more subdued levels in the medium term. First, the still-substantial slack in U.S. labor and product markets should continue to have a moderating effect on inflationary pressures. Notably, because of the weak demand for labor, wage increases have not kept pace with productivity gains. Thus the level of unit labor costs in the business sector is lower than it was before the recession. Given the large share of labor costs in the production costs of most firms (typically, a share far larger than that of raw materials costs), subdued unit labor costs should remain a restraining influence on inflation. To be clear, I am not arguing that healthy increases in real wages are inconsistent with low inflation; the two are perfectly consistent so long as productivity growth is reasonably strong.

The second additional factor restraining inflation is the stability of longer-term inflation expectations. Despite the recent pickup in overall inflation, measures of households' longer-term inflation expectations from the Michigan survey, the 10-year inflation projections of professional economists, the 5-year-forward measure of inflation compensation derived from yields on inflation-protected securities, and other measures of longer-term inflation expectations have all remained reasonably stable.² As long as longer-term inflation expectations are stable, increases in global commodity prices are unlikely to be built into domestic wage- and price-setting processes, and they should therefore have only transitory effects on the rate of inflation. That said, the stability of inflation expectations is ensured only as long as the commitment of the central bank to low and stable inflation remains credible. Thus, the Federal Reserve will continue to closely monitor the evolution of inflation and inflation expectations and will take whatever actions are necessary to keep inflation well controlled.

Commodity Prices
As I noted earlier, the rise in commodity prices has directly increased the rate of inflation while also adversely affecting consumer confidence and consumer spending. Let's look at these price increases in closer detail.

The basic facts are familiar. Oil prices have risen significantly, with the spot price of West Texas Intermediate crude oil near $100 per barrel as of the end of last week, up nearly 40 percent from a year ago. Proportionally, prices of corn and wheat have risen even more, roughly doubling over the past year. And prices of industrial metals have increased notably as well, with aluminum and copper prices up about one-third over the past 12 months. When the price of any product moves sharply, the economist's first instinct is to look for changes in the supply of or demand for that product. And indeed, the recent increase in commodity prices appears largely to be the result of the same factors that drove commodity prices higher throughout much of the past decade: strong gains in global demand that have not been met with commensurate increases in supply.

From 2002 to 2008, a period of sustained increases in commodity prices, world economic activity registered its fastest pace of expansion in decades, rising at an average rate of about 4-1/2 percent per year. This impressive performance was led by the emerging and developing economies, where real activity expanded at a remarkable 7 percent per annum. The emerging market economies have likewise led the way in the recovery from the global financial crisis: From 2008 to 2010, real gross domestic product (GDP) rose cumulatively by about 10 percent in the emerging market economies even as GDP was essentially unchanged, on net, in the advanced economies.³ 

Naturally, increased economic activity in emerging market economies has increased global demand for raw materials. Moreover, the heavy emphasis on industrial development in many emerging market economies has led their growth to be particularly intensive in the use of commodities, even as the consumption of commodities in advanced economies has stabilized or declined. For example, world oil consumption rose by 14 percent from 2000 to 2010; underlying this overall trend, however, was a 40 percent increase in oil use in emerging market economies and an outright decline of 4-1/2 percent in the advanced economies. In particular, U.S. oil consumption was about 2-1/2 percent lower in 2010 than in 2000, with net imports of oil down nearly 10 percent, even though U.S. real GDP rose by nearly 20 percent over that period.

This dramatic shift in the sources of demand for commodities is not unique to oil. If anything, the pattern is even more striking for industrial metals, where double-digit percentage rates of decline in consumption by the advanced economies over the past decade have been overwhelmed by triple-digit percentage increases in consumption by the emerging market economies.⁴ Likewise, improving diets in the emerging market economies have significantly increased their demand for agricultural commodities. Importantly, in noting these facts, I intend no criticism of emerging markets; growth in those economies has conferred substantial economic benefits both within those countries and globally, and in any case, the consumption of raw materials relative to population in emerging-market countries remains substantially lower than in the United States and other advanced economies. Nevertheless, it is undeniable that the tremendous growth in emerging market economies has considerably increased global demand for commodities in recent years.

Against this backdrop of extremely robust growth in demand, the supply of many commodities has lagged behind. For example, world oil production has increased less than 1 percent per year since 2004, compared with nearly 2 percent per year in the prior decade. In part, the slower increase in the supply of oil reflected disappointing rates of production in countries that are not part of the Organization of the Petroleum Exporting Countries (OPEC). However, OPEC has not shown much willingness to ramp up production, either. Most recently, OPEC production fell 1.3 million barrels per day from January to April of this year, reflecting the disruption to Libyan supplies and the lack of any significant offset from other OPEC producers. Indeed, OPEC's production of oil today remains about 3 million barrels per day below the peak level of mid-2008. With the demand for oil rising rapidly and the supply of crude stagnant, increases in oil prices are hardly a puzzle.

Production shortfalls have plagued many other commodities as well. Agricultural output has been hard hit by a spate of bad weather around the globe. For example, last summer's drought in Russia severely reduced that country's wheat crop. In the United States, high temperatures significantly impaired the U.S. corn crop last fall, and dry conditions are currently hurting the wheat crop in Kansas. Over the past year, droughts have also afflicted Argentina, China, and France. Fortunately, the lag between planting and harvesting for many crops is relatively short; thus, if more-typical weather patterns resume, supplies of agricultural commodities should rebound, thereby reducing the pressure on prices.

Not all commodity prices have increased, illustrating the point that supply and demand conditions can vary across markets. For example, prices for both lumber and natural gas are currently near their levels of the early 2000s. The demand for lumber has been curtailed by weakness in the U.S. construction sector, while the supply of natural gas in the United States has been increased by significant innovations in extraction techniques.⁵ Among agricultural commodities, rice prices have remained relatively subdued, reflecting favorable growing conditions.

In all, these cases reinforce the view that the fundamentals of global supply and demand have been playing a central role in recent swings in commodity prices. That said, there is usually significant uncertainty about current and prospective supply and demand. Accordingly, commodity prices, like the prices of financial assets, can be volatile as market participants react to incoming news. Recently, commodity prices seem to have been particularly responsive to news bearing on the prospects for global economic growth as well as geopolitical developments.

As the rapid growth of emerging market economies seems likely to continue, should we therefore expect continued rapid increases in the prices of globally-traded commodities? While it is certainly possible that we will see further increases, there are good reasons to believe that commodity prices will not continue to rise at the rapid rates we have seen recently. In the short run, unexpected shortfalls in the supplies of key commodities result in sharp price increases, as usage patterns and available supplies are difficult to change quickly. Over longer periods, however, high levels of commodity prices curtail demand as households and firms adjust their spending and production patterns. Indeed, as I noted earlier, we have already seen significant reductions in commodity use in the advanced economies. Likewise, over time, high prices should elicit meaningful increases in supply, both as temporary factors, such as adverse weather, abate and as investments in productive capacity come to fruition. Finally, because expectations of higher prices lead financial market participants to bid up the spot prices of commodities, predictable future developments bearing on the demands for and supplies of commodities tend already to be reflected in current prices. For these reasons, although unexpected developments could certainly lead to continued volatility in global commodity prices, it is reasonable to expect the effects of commodity prices on overall inflation to be relatively moderate in the medium term.

While supply and demand fundamentals surely account for most of the recent movements in commodity prices, some observers have attributed a significant portion of the run-up in prices to Federal Reserve policies, over and above the effects of those policies on U.S. economic growth. For example, some have argued that accommodative U.S. monetary policy has driven down the foreign exchange value of the dollar, thereby boosting the dollar price of commodities. Indeed, since February 2009, the trade-weighted dollar has fallen by about 15 percent. However, since February 2009, oil prices have risen 160 percent and nonfuel commodity prices are up by about 80 percent, implying that the dollar's decline can explain, at most, only a small part of the rise in oil and other commodity prices; indeed, commodity prices have risen dramatically when measured in terms of any of the world's major currencies, not just the dollar. But even this calculation overstates the role of monetary policy, as many factors other than monetary policy affect the value of the dollar. For example, the decline in the dollar since February 2009 that I just noted followed a comparable increase in the dollar, which largely reflected flight-to-safety flows triggered by the financial crisis in the latter half of 2008; the dollar's decline since then in substantial part reflects the reversal of those flows as the crisis eased. Slow growth in the United States and a persistent trade deficit are additional, more fundamental sources of recent declines in the dollar's value; in particular, as the United States is a major oil importer, any geopolitical or other shock that increases the global price of oil will worsen our trade balance and economic outlook, which tends to depress the dollar. In this case, the direction of causality runs from commodity prices to the dollar rather than the other way around. The best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment and price stability, and we will certainly do that.

Another argument that has been made is that low interest rates have pushed up commodity prices by reducing the cost of holding inventories, thus boosting commodity demand, or by encouraging speculators to push commodity futures prices above their fundamental levels. In either case, if such forces were driving commodity prices materially and persistently higher, we should see corresponding increases in commodity inventories, as higher prices curtailed consumption and boosted production relative to their fundamental levels. In fact, inventories of most commodities have not shown sizable increases over the past year as prices rose; indeed, increases in prices have often been associated with lower rather than higher levels of inventories, likely reflecting strong demand or weak supply that tends to put pressure on available stocks.

Finally, some have suggested that very low interest rates in the United States and other advanced economies have created risks of economic overheating in emerging market economies and have thus indirectly put upward pressures on commodity prices. In fact, most of the recent rapid economic growth in emerging market economies appears to reflect a bounceback from the previous recession and continuing increases in productive capacity, as their technologies and capital stocks catch up with those in advanced economies, rather than being primarily the result of monetary conditions in those countries. More fundamentally, however, whatever the source of the recent growth in the emerging markets, the authorities in those economies clearly have a range of fiscal, monetary, exchange rate, and other tools that can be used to address any overheating that may occur. As in all countries, the primary objective of monetary policy in the United States should be to promote economic growth and price stability at home, which in turn supports a stable global economic and financial environment.

Monetary Policy
Let me conclude with a few words about the current stance of monetary policy. As I have discussed today, the economic recovery in the United States appears to be proceeding at a moderate pace and--notwithstanding unevenness in the rate of progress and some recent signs of reduced momentum--the labor market has been gradually improving. At the same time, the jobs situation remains far from normal, with unemployment remaining elevated. Inflation has risen lately but should moderate, assuming that commodity prices stabilize and that, as I expect, longer-term inflation expectations remain stable.

Against this backdrop, the Federal Open Market Committee (FOMC) has maintained a highly accommodative monetary policy, keeping its target for the federal funds rate close to zero and further easing monetary conditions through large-scale asset purchases. The FOMC has indicated that it will complete its purchases of $600 billion of Treasury securities by the end of this month while maintaining its existing policy of reinvesting principal payments from its securities holdings. The Committee also continues to anticipate that economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets. In this context, monetary policy cannot be a panacea. Still, the Federal Reserve's actions in recent years have doubtless helped stabilize the financial system, ease credit and financial conditions, guard against deflation, and promote economic recovery. All of this has been accomplished, I should note, at no net cost to the federal budget or to the U.S. taxpayer.

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. At the same time, the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term. Should that forecast prove wrong, however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored, the Committee would respond as necessary. Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve's mandate.

This Could Be Taken as a Hint for QE3

BERNANKE SAYS ACCOMMODATIVE MONETARY POLICIES ARE STILL NEEDED

What I meant by longer term charts/bounce

 DIA 30 min.

 QQQ 15 min.

SPY 15 min.

This wouldn't be the first time the market acted on a leaked embargoed speech.

You should be aware of this article

I don't know why it took the last update so long to post, but it's up. Since then I ran across this at ZH.

This would make some sense, if true, as to why the long term charts look like a bounce and the shorter term charts have been negative based on the earlier Fed President's WSJ interview.

Market Update

Here are the DIA, SPY and QQQ-all acting ambiguous today. I couldn't get short term charts on the IWM because of a bad price print taking it down to $.00 in 1 min.

 DIA 1 min was positive into yesterday's close, thus the green in the DIA today, but it's as if the market is circling the airport, waiting for a cue, which is most likely the Bernanke speech in 25 minutes.

 The DIA 5 min not reacting well to today's intraday highs.

 On a 1 min basis, the Q's have looked the best

 Like the DIA, they didn't react well on the 5 min chart to today's intraday highs.

 SPY 1 min has looked bad most of the day, 3C has been in negative territory just about the entire day.

Strangely though, o a 5 min chart, it looks the best-strange considering the financials have been drifting down all day and are looking like they want to head into the red.

SOME OF MY FAVORITE ETFS

Unfortunately, many of the specific sectors that I'd like to participate in, like perhaps the defensive utilities, don't offer ETFs that are leveraged and still have volume that is acceptable. So many of these are broader ETFs. I view the market as risk on, no matter what trade you are in, whether leveraged or not. After all, who would have considered the derivative products in housing which nearly collapsed our economy, to be speculative and dangerous? They were backed by real, tangible assets, but they were very risky. So when I enter a trade, I want to get the maximum return for the risk I'm taking. As far as the potential increased downside, risk management is essential. There's no reason you can't take high BETA trades with appropriate rsk management, diversification (but no over divisified) and propper position sizing to reflect the risk at your entry.

For those of you using StockFinder, I have an indicator I'm glad to share with you which will tell you what the maximum surprise gap against a position has been over the year. Gaps are the hardest thing to deal with in risk management as you can set a reasonable stop, but have no way to protect your risk position if that stop is gapped thrpugh on the open; so this indicator will give you an idea of what is possible. So long as your position size accounts for the worst case scenario, I personally have no problem trading leveraged positions.

There also is the ETF 1 day performance issue to consider. I have traded many ETFs and have had no significant problems other then when the NYSE specialist decides to open a market. I had a very profitable position in SKF several years back see quite a bit of the profit disappear as the specialist didn't open SKF for trading until 10:30 a.m.-that's their right and when you trade an NYSE issue, you have to be aware of that.

To deal with the 1-day ETF problem, which some people have had a problem with, I haven't personally, you can look at ETFs as a swing trade or shorter trade vehicle. Again, I personally don't have a problem holding them for longer periods.

Here are some of my favorite ETFs right now. ETFs are typically most useful when they are trending, especially leveraged ETFs, choppy markets are not kind to leveraged ETFs for the most part. So you can always wait for a breakout in the respective ETFs. If we are to get a substantial move, missing a few percent by buying before a breakout is really not a big deal.

 DUG-Ultra Short Oil & GAS-(ERY can be used as well). You'll notice a common theme among these has been a bullish descending wedge, followed by a period of lateral basing. Typically the price target implications of a descending wedge is "Wedges retrace their base" so in this case, the base would be around $70.00. RSI is positively divergent, 3C is as well, especially in the lateral base building area.

 DXD-UltraShort the Dow-30.

 DXD daily 3C in a leading positive divergence.

 EDZ (Short Emerging Markets 3x) A positive RSI and the target zone of the wedge near $60.

 EDZ and 3C both in leading positive divergences.

 FAZ Financial Bear 3X leveraged.

 FAZ daily 3C leading positive divergence near the target zone.

GLL- UltraShort Gold. This I consider a more recent addition and probably a shorter term trade based on my Gold analysis for a deep pulback and a potential buying opportunity there.

 GLL's very recent MoneyStream Leading positive divergence.

 GLL's daily 3C chart.

 Here's the 60 min GLL chart as I indicated, this is a more recent trade acting better.

 SCO UltraShort DJ-UBS Crude. Just look at the recent volume here.

 SCO's daily MS leading positive divergence.

 SCO 60 min 3C divergence right at the exit from the wedge,

 SMN UltraShort Basic Materials-this is one of the more specialized ETFs that I wish there were more of with decent volume, Basic Materials should see a big drop judging by the recent manufacturing numbers that are close to decline.

 SMN breakout area and positive RSI-again, the target implied here is around $45, nearly 300%

 TZA has seen a lot of action recently-Small Cap Bear 3x leveraged. Just be aware if you are in this position, there's a lot of correlation with something like a short position in the Russell 2000. For risk management, you should consider treating the risk between two similar trades as one.

 TZA daily 3C in a leading positive divergence through the basing area.

 TZA showing a similar positive divergence in MoneyStream.

 ZSL-UltraShort Silver. While silver prices are depressed compared to gold, the Comex sending 5 margin hikes in silver suggests there's an agenda, perhaps by the Fed. The CME's explanation of volatility/risk and why they hiked margin requirements doesn't hold any water when they recently lowered ES (S&P E-mini contracts) during a period of increased volatility. So I say, "Don't fight the Fed" on this one, or at least not just yet.

And ZSL's recent leading positive divergence in MoneyStream.

I do like these ETFs if I need quick, broad exposure to a sector and haven't had time to set up a pure equity short, which in most cases I prefer for a number of reasons. They are also helpful if you do not have the ability to go short with your brokerage.

Maybe the Q's

I haven't put up a market update because the market has been ambiguous at best. The Q' are showing some strength though.

 DIA-Nothing to act on here

 The QQQ look the best and this is the only short term trade I see worth looking at.

 SPY-nothing to act on here.

Note the earlier WSJ article about the Fed/QE came out at 10:53

A Few More Candidates

I'm trying to offer candidates on as possible shorts based on what they have to lose and in different sectors. For risk management considerations, I view any two trades in the same sector as 1 trade. So with some different options available to you, you can better diversify.

 CRUS

 PANL

 SINA

 SWK

XLE

This may have material effect

The list of short candidates I added yesterday should be something you are looking at today, and if this article from the WSJ rings true, we may very well see a new leg down in the market.


As you may know, Bernanke is set to speak at 3:45 today. What the permabulls want to hear is some hint that QE3 is possible, after all, when you look at the performance of the market vs. the performance of the financials as I posted a day or two ago, you'll see that the market has way outperformed the financials and in the S&P's case, it usually doesn't stray too far from the financials, it did however during the QE1/2 regime for reasons we should all be aware of by now.


In the WSJ article, noted dove, Charles Evans of the Chicago Federal Reserve said he is, "marking down his growth forecasts for 2011 and 2012, but says he isn’t prepared to call for new Fed actions to support the economy."


The article continues, "The Fed later this month will conclude its $600 billion Treasury securities purchase program. Mr. Evans doesn’t want to add to it, but he also has no inclination to reduce the Fed’s portfolio of mortgage or Treasury securities any time soon, he said."


and... "Mr. Evans was among the Fed’s more outspoken proponents of the Treasury purchase program. His comments suggest that there isn’t a strong base at the Fed right now for more monetary easing. "


Clearly QE has been the sole driver of equity prices, without its artificial market support, the market will have to stand on its own two feet. 


Once again, Financials vs. the S&P

Financials in green, the S&P-500 in white.


You may want to consider easing into some of the short positions provided for your consideration yesterday.

Here's What Retail is Watching This Today

 The short term downtrend line

 A closer look at it, they'll want to see it hold another test.

And the 50 bar 5 min moving average.