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Vision Capital M.
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With more than 10 years of interest and experience in financial markets, I dare to say I have learned that the obvious is not always true and the multitude is often wrong. Still the markets always tend to provide hints and directions. Learning to listen, see and act happens to be the hardest... More
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  • Current expectations for September, 2010
    Expectations in short for September -
    Dollar - down
    Gold - down
    Stock markets - up


    Last week the FED again has reassured the markets it will continue its monetary policy of easy money in order to stimulate consumer spending and get US out of the trap. The FED discount rate can hardly be any lower but Bernanke said they will try to communicate clearer that this rate could last longer than the market participants has expected ("Bernanke said Friday the FOMC would consider modifying the language to communicate to investors that it plans to keep the federal funds rate low for a longer period than is currently priced in markets." source Marketwatch ). At the same time the chairman said they will continue to buy back Treasurys. An additional result from such actions could be lowering the US government debt.

    This alone will give enough strength to the Euro to continue its advance as there will be expectations of increasing the amount of available Dollars on the market. A series of positive news from Europe (as a result from the weaker Euro in the previous months giving the European companies the needed competitive advantage) could also boost the demand for Euros. The weaker Dollar will give more competitive strength to US companies and further improve their financial results. As a secondary effect the Crude oil value could increase.

    On the other hand such stimulus money (or any other type of government support) would give markets the long awaited trigger to start trading positive expectations again.

    A sidenote on the Unemployment in USA and in the world in general: This is one of the last indicators that will change. The employment level is a result from the good or bad decisions in governing the economy and not their reason. On the first hand businesses get optimized, reorganized as to inventories and human resources and only after that they start to employ new workers and that is only if they are needed for the future productivity.

    As markets turn positive using Gold as a hedging vehicle would become less popular. Having a big enough drop in demand of Gold would pretty much turn the tide. A considerable drop in Gold price would scare most of the last crowd that entered the Gold market in hope to make some quick profits which would increase the selling pressure further.

    All these are an expression of an analytic point of view. Will wait for the end of September to compare with the real data.

    Disclosure: No positions


    Disclosure: "No positions"
    Tags: DOW, stocks, forex, EUR, USD, FED
    Sep 01 3:24 PM | Link | Comment!
  • Gold fever. Possible directions for the price of Gold.
    For the last year Gold has attracted much of attention. There are numbers spoken in the range of 1500 to 5-7000 and rumors of bets in those areas. The notion is that if this is spoken of, it might happen. So everybody rushes in and tries to get a share in the profits. It's like people expect and believe the market is just and it is its duty to give them what they need. The sad truth is, to paraphrase what Mark Twain once said, that the market owes you nothing because it was here first.

    Gold price might continue to rise. If the demand exceeds the supply this would be normal. Even if the trading never gets to deliver real bullion the price would still be a question of demand and supply. The only difference would be the leverage that is possible to be used when trading not in real bullion. The amount of that leverage however could vastly increase the available amount of money that could be poured into Gold and effectively to create a pump&dump structure similar to the credit bubble and the housing ones. These however, are only assumptions and possible future scenarios. Nothing is sure in markets.

    Let's take a look at the historical movement of Gold compared to the movement of Euro/Dollar pair. As these are past numbers we could use them to make some notes or even conclusions.

    Table 1. Changes in price of Gold and the value of US Dollar against the Euro

      1995-2001 2001-2008 2008-2008.10 2008.11-2009.11 2009.11-2010.05
    Gold - 39% 284% - 41% 73% 5%
    EUR/USD - 39% 80% - 29% 22% - 20%

    This comparison draws some interesting ideas.

    The first one is that in general for the last 15 years Gold and Dollar were negatively correlated and the Euro and Gold were positively correlated. This means that whenever the Dollar rose in value against the Euro the price of Gold fell. This happens to be true till the last period which starts around the end of last year (November 2009) and continues till now. During this last period at first there is a slight fall of the Gold price in accordance with the rising value of the US Dollar but shortly after the Gold continues to rise and now Gold and Dollar seem to have broken its previous type of correlation as the value of Gold was increased by 5% for the period accompanied by a 20% rising of the Dollar.

    In the light of the last market turmoil this could mean a lot more people could be using Gold as a hedge against a possible economic downturn. Or at least these people (or orders) entered the market in the last several months and were enough to break the previous type of negative correlation that was in place.

    A second thing of note on the table above is the value of the correlation. Before 2001 the table shows the value was pure -1 which means there is a great possibility that the value of Gold was calculated in the "buying power" of the US Dollar. Thus every drop in the US Dollar drove the Gold price higher in the same proportion and vice versa. After year 2001 this doesn't seem to be the case.

    During the later periods the negative correlation was still in place but it's power was changing. The proportion of movements (or say it Beta if you'd like) changed from pure -1 to more distorted values. For the next period the price of Gold rose 3.55 more that the value of the Dollar fell. With all other conditions equal this could mean there was a 3.55 times more demand for Gold than in the previous period. Such an increase in real demand looks a bit striking but having in mind the construction and debt bubbles all over the world in that period makes it not so impossible. The next periods just continue to distort the strong negative connection between the Dollar value and the Gold price. Thus we come to the last period in which the Gold price and the Dollar started to move in the same direction in contrast to all the previous periods in the table.

    An interesting thing about the beginning of the century is that in the years of 1990-2001 the electronic means of trading became widely available. And then after year 2001 there came the CFDs to their fullest. This marked the era of the easy access to the market and eliminated the need to really own the shares (or commodities!) you trade in on leverage. With CFDs the leverage could go up to 1/100 or even 1/500. So a person with $1000 could have a buying power of $100000. This increased amount of available money could explain the bigger proportions between the movements of Gold and US Dollar during the period after year 2001. As the CFDs are not available to US investors this could mean that the world outside the US could be the reason for the changing the proportion.

    Generally the price of Gold was affected by the value of the Dollar which happened to be lower in times of economic strength and growth and higher in troubled times. The higher value of Dollar when there are troubles in stock markets is possibly because the Dollar is perceived as a save-haven currency. I believe there is a chance the next recovery will be also accompanied by a weaker Dollar as this will help the US economy. So if the current newly found state of positive correlation between Gold and Dollar prices is preserved, this would mean the Gold could fall accordingly.

    The last upside in the Gold price despite the rising Dollar and in the light of Europe's debt problems speaks that it could be mostly used as a hedge instrument now. Apart from the fact that using as a hedge something you own only on paper and not "holding in your hands" devalues the idea of hedge itself, using Gold as a hedging means that when there is no need to hedge a imminent danger, there would be no need to hold Gold.

    All the above thoughts lead me to a conclusion that when times get calmer and the horizons look brighter the Gold price could fall. Even just in order to compensate the change in the correlation that appeared during the current crisis. There are technical signs that such a move could not be so much ahead in time but this would be a topic of another article.


    Disclosure: No positions

    Disclosure: No positions

    Disclosure: "No positions"
    May 26 11:50 AM | Link | Comment!
  • US stock market (S&P 500) technical analysis - daily, 18052010

    Today the US Consumer Price Index (CPI) level was announced. The consensus figures were 0.1 (MoM) and 2.4 (YoY) and they were missed a bit. The actual CPI reported is -0.1 (MoM) and 2.2 (YoY). Excluding the food and energy, the CPI stands at 0.0 (MoM) and 0.9 (YoY). This figures show that still the American economy is not generating much of a inflationary pressure and the highest part of the inflation came from the energy prices. This would have at least two implications - the FED is free to leave the interest rate at its lowest level and another stimulus of money could not happen to be so pro-inflationary.

    Earlier in the day the Construction Output in the European Monetary Union (EMU) was declared to be 7.6% while for the previous period it was -7.2%.

    But let's see the graphs.

    SPX Daily graph

    The daily graph of S&P 500 shows that the market is getting close to an oversold area. What is more interesting is to see if it will be a bullish divergence formed on the graph. Still the general direction is down and a test of the 1093 area is possible.

     

    SPX 1hour graph

    What is more interesting is the bullish divergence that is already formed on the 1 hour graph of S&P 500 which could signal an upward movement for today at least to 1120/25 area. If that gets broken, the market could go higher to around 1140.



    Disclosure: No positions
    May 19 8:52 AM | Link | Comment!
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