Market Trends | Gold, Silver, Currency Swaps and QE3

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Market Trends | Currency Swaps

Although this topic may have the charismatic brilliance of grandmas false teeth, it likely may be the most significant piece of financial news of the past several months to hit news wires. It is important to follow these market trends to understand the market we are trading in. On November 30th 2011, the Federal Reserve, along with the Euro Central Bank, and the central banks of Canada, Switzerland, Japan and the U.K. all slashed U.S. Dollar swap rates by nearly half (1.08 percent down to 0.58 percent) to borrow U.S. Dollars to ease the Euro Debt Crisis.

Peter Schiff was adamant that this move is going to be a primary driver for precious metals and the US Dollar while studying market trends. "Today's unprecedented announcement by the world's most powerful central banks was a loud and clear bell ringing to buy precious metals... By reducing interest rates paid for dollar swaps, central bankers are in effect increasing the quantity of global dollars in circulation." I could not agree more with Peter and would also add that the EURO is also going to see significant changes in how it is traded in the following months based on current market trends.

Clearly from the following two Charts the EURO and US Dollar have been falling and rising respectively in near perfect inverse market trends and patterns. After the coordinated central bank announcement we are now witnessing technical reversals in both of these currencies.

The EURO after a technical double bottom appears poised for a rally and the U.S. Dollar has hit a double top and is now breaking down.

Market Trends | EURO Breakout

Market Trends | U.S. Dollar Breakdown

Market Trends | The Devaluing Of The U.S. Dollar

Effectively what the Central banks are saying is that the insolvent European financial intuitions will be allowed to continue down their paths of self-destruction at the expense of the U.S Dollars that are now being funneled in to the banks at very cheap rates.

U.S. dollars in Europe have been scarce, and it is possible that a large financial intuition may have been on the verge of collapse prior to this announcement.

Even Forbes.com is speculating about this possibility, as this action is similar to what happened following the collapse of Lehman Brothers in 2008; yet the real facts behind this coordinated effort at this time is to remain hidden from public perception. "It appears that a big European bank got close to failure last night. European banks, especially French banks, rely heavily on funding in the wholesale money markets. It appears that a major bank was having difficulty funding its immediate liquidity needs. The cavalry was called in and has come to the successful rescue."

Market Trends | Precious Metals Breakouts

On the positive side, precious metals investors may finally have something to smile about based on the technicals below. After the major metals markets peaked this past May, a long drawn out and seemingly endless multi-month consolidation period has taken place. The central bank action may be seen in the charts as creating breakouts across the board on all precious metals sectors. Palladium is leading the charge, with gold and silver about to breakout of current market trends.

When new these technical indicators take place, it can be difficult to stop them and generally last the same period of time as their consolidation periods. Since tops were hit roughly 7 months ago, and we are about to embark on new rallies, we could expect renewed 7 month rallies and market trends that should bring us into the third quarter of 2012 making our May highs appear like small cars from a airplane.

Market Trends | GOLD Breakout Chart

Market Trends | SILVER Breakout Chart

Market Trends | PALLADIUM Breakout Chart

Market Trends | QE3

Now, this swap agreement could in fact have limited impact and these market trends could reverse sooner than expected yet there still remains the unforeseen and expected QE3 which may be around the corner based on the current market trends. Societe Generale SA, the second biggest French bank recently released a report which they believe that the worse things get, the stronger the response by the global central banks will be. They make the case that QE3 is around the corner and as we all know, QE is basically a currency debasement policy and will seriously devalue the U.S. Dollar and continue precious metals on their upward tear on market trends pointing to the moon.

Market Trends | What is the long term precious metals outlook?

In my previous article last week I mentioned that my precious metals exit strategy is a long ways away. Why? Well one of those reasons is because gold has not yet caught up to all the money that has been produced based on availability market trends. You see, gold does a periodic accounting for all of the Fiat money in circulation.

It happened in 1933, in 1980 and in all it will happen again. Take a look at the chart below based on the market trends and I think you will agree that for gold to catch up to all the base money in existence. We still have a long way to go, and that is if they stop printing today. Staying current on these market trends can greatly increase your portfolio sustainability.

My advice, don't miss the train as the precious metal steam engine has fired up and is about to make its way out of the station, study these market trends.

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Why The Dow Jones Will Reach 11700 Sooner Than Expected

May 12th, 2012

Stocks and Markets rise and fall in discernible patterns motivated by our collective emotions. These emotional patterns remain present in the markets despite Government manipulation through programs such as Currency Swap agreements with the EBC, Quantitative easing programs, and other monetary injections of capital into markets that are simply too numerous to catalog for the purpose of this article. These injections of capital will produce a overall positive trend in the markets, yet contained within the trend are periods of volatile downside risk.

Today's DJIA Chart: click

The Dow Jones Trend Is Your Friend Until It Ends

This article will outline a comprehensive technical analysis of the Dow Jones Industrial Average(DJIA) using numerous methods to predict that the Dow Jones will soon reach 11700 points. We will use trend analysis, Fibonacci retracements with support and resistance levels to determine our conclusion. If history is indeed a repeatable lesson to learn, it will lend even more credence to our thesis.

The chart below depicts two recent trends in the DJIA Dow Jones depicted by the dotted green upward slanting lines. The general rule with trend lines is that once they are violated, a move in the opposite direction will occur.

Click image below to enlarge

The first green trend line follows along as a support, pushing the Dow Jones DJIA upward to 12876 points. After the rising trend line was violated in May of 2011, a new high failed to be reached, and we witnessed a very sharp pull back and the Dow Jones fell until it stabilized in the 10600 point area in September that same year. Let us take note of the grey horizontal lines which indicate Fibonacci retracements. Fibonacci retracements are common retracement patterns that stocks and markets can retrace to. Acquiring a calculation from the beginning to the end of a trend, common Fibonacci retracement areas are 38.2%, 50.0% and 61.8%. After the first trend ended, the Dow Jones crashed a near perfect 61.8% retracement.

The second trend indicated in our chart began at around 10600 points on the Dow Jones and lasted until around 13338 points on the DJIA. Our chart indicates that the trend line was violated in April 2012, and just two weeks ago failed to reach a new high. Currently the Dow Jones is being supported at 12700 points. It is worthwhile to note that a previous resistance had existed at this level. Technical analysis suggests that once a resistance level is violated, that same level will behave as a support. This is likely why this level has been chosen to act as a current and quite possibly temporary support.

Any violation of this 12700 support level will likely trigger a completion of the 61.8% retrace that will place the Dow Jones right near our target of 11700 points. Now that the upward trend has ended, history will repeat. The rules of technical analysis suggest that a subsequent downward move must now follow. This target prediction is reinforced as the Dow Jones had previously built up a very strong resistance at this level, and it likely will behave as a support in the future.

How To Profit From This Knowledge Trading The Dow Jones

You can short the Dow Jones and profit from it by purchasing shares in a reverse EFT and some examples are below:

You want to be very selective on your strategy with this type of a setup to minimize risk as much as possible. Below are two methods you could use when determining your entry to minimize risk. Method one consists of patiently waiting at the 13330 point resistance area on the Dow Jones, expecting a eventual sharp pull back. Remember that A violation of this resistance area will offset any bear prediction and you will want to exit your short position immediately. Method two consists of waiting for the violation of the 12700 support level and entering just below it. We would want to exit if the price moved back above it to minimize our risk.

Whichever method you choose, remember you will be minimizing risk which is the way to succeed when trading the markets. If the trade moves in your favor, develop a strategy to maximize your gains. At Stock Legends we cannot guarantee a 11700 point Dow Jones, but if history repeats and the rules of technical analysis apply, it is a high possibility.

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