Stock Preacher

No chart pattern formation is a absolute guarantee of market direction, but it is extremely helpful when the trader is aware of the chart’s pictures.

All traders make directional trades in stocks, commodities and forex. I, for one, try to enter trades that are in tune with the market’s direction. When I do this, I give myself an edge (Red’s Edge) because, when a market is rising, most stocks can be expected to rise, as in “a rising tide floats all boats” as some put it; that’s a Bullish POV. The opposite is true when the markets turns South, in that one can logically expect most stocks to be down when the market is down, hence, the bias on directional plays will turn Bearish.

In the Trenches: Even if you know absolutely nothing about how to start making a living in the stock market, and want to learn how to do it, the first step is to learn from someone who knows how to do it successfully. The stock market is about success, and the lifestyle that comes with it, but it must be done carefully, both by picking the issues and in the trading of them, because one wants to make money doing it independently and without stress. “A journey of a thousand miles begins with the first step” (Confucius).

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Have a great weekend!

-Red

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Gold may target a record $1,250 an ounce as a continuation head-and-shoulders pattern may be forming within a longer-term trend, Standard Bank Group Ltd. said, citing trading patterns. A break and close above $1,050.40 “provides warning that an important breakout” has occurred, Darran Grabham, the bank’s technical analyst, wrote in a note yesterday. A head-and- shoulders pattern is formed when a commodity makes three consecutive peaks, with the middle being the highest. It forms during a series of increases over time. “The positive implications are substantial, with the minimum objective situated at US$1,250,” Grabham wrote. “On the downside, gold weakness through $864 turns the outlook bearish, and the weaker trend could then continue towards US$802.”

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US Treasury yields have moved South to the lowest levels since the ’40s, because investors are very fearful of this global economic downturn + the potential deflation on the horizon and have rushed to purchase the US government issued debt paper considered among the safest asset classes. The fact is that this may turn out to be the biggest investment bubble to date and may be on the edge of popping. According to a article in Barron’s today, the big risk to the Treasury market comes from the potentially inflationary impact of both the Federal Reserve’s extreme accommodative monetary policy, which sent short rates to zero +, and the huge fiscal stimulus slated to come from the US government this year. It is expected that it will take higher yields to attract investors, particularly foreigners, as the US Treasury works to fund an estimated deficit of US$1T + this year. Savvy analysts are saying “get out now”. Why, because other parts of the bond market are calling including municipals, corporate bonds, convertible securities, some mortgage securities and preferred stock. The average junk bond now yields 20%, compared with 9% at the start of 2008. Triple-A-rated Muni’s with 30-year maturities are yielding about 5.25%, almost double the yield on 30-year Treasuries. The yield differential between the two markets is unprecedented. Until this year, Munis almost always yielded less than US Treasuries because of their tax benefits. A Bearish stance toward US Treasuries and a Bullish one toward the rest of the bond market represents the consensus view. Most equity and bond analysts surveyed last month by Barron’s projected the US Treasury 10-year note would carry a yield of 3% or higher by the end of 2009. At the same time, it’s hard to find Bears on corporate bonds. It’s nice to be contrary. Sometimes, however, the consensus view is right.

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