Financial Market Online

CFDs trading differs than other kinds of trading within the stock and Currency markets. The one thing it has that is similar to numerous other conventional way of shares and stocks trading is the fact that it earns a profit. Overall, however, it brings in a bigger margin of profit than the other contemporary way of trading. Instead of profiting by selling the actual shares and currencies, you profit by the change within the prices of currencies and shares in CFD trading. Like a trading product, this type of trading is performed on leverage only, and also at usually, the leverage goes to 10:1 or maybe even further up to 20:1.

For novices, the simplest way to see and understand the operation of the Trading CFDs would be to consider it as a way to magnify profits. They are not only magnified, but they are real. For example, if you’re trading about the leverage of 20:1, and you invest say, about $10000, you’ll be bale to purchase as much as $200,000 worth of CFDs. When the shares rose in price by about $0.05, then your profit will be $10,000 minus the costs. With respect to the leverage, your profits is going to be magnified by the same number of leverage. If you have chosen a CFD broker who trades both ways, you can profit from the falling and the rising stock prices.

Unlike other share trading practices, you can be able to trade on shorter periods with CFDs. This will permit you to profit from even the smallest moves in the prices of the stocks in the market. The shorter periods allow you more room to move onto other profitable deals in the market.

For example, if you were trading on one stock for a month, it means that within that one month, you can only make money from the progresses prices of these particular stocks. Even so, had you been trading on the shorter lease; say like one week, you can shift your CFDs elsewhere in the other week.

Another distinction between the CFD and normal stock trading is that you can be able to cut losses fast. Depending on the platform that you trade your CFDs on, you are able to exit the market inside the same trading day when prices plummet. In the normal stock trading, you would probably have to wait until the finish during the day to see whether the prices will rise. Such could bring untold losses. All said and done, the main difference between the CFDs and the conventional stock trading would be that the formers profits margins are bigger, which there’s a method to count losses and move out fast.

Author suggests you visit cfdspy.com to learn more about CFD Guide including Trade Share CFDs.

The relative trickle of investment funds moving into Gold today will very shortly become a torrent, completely outrunning available Gold supplies and sending prices through the roof.

Although no one I know can say when the big spike in Gold will begin in earnest, given the World’s Financial Fragility, it could literally happen over night. While the focus in recent months has been on the troubles in the Euro zone, don’t forget that the “straw that broke the camels back” was ultimately the crashing U.S. housing market and its mortgage backed securities.

While financial institutions and Governments around the world are at least attempting to recapitalize and are attempting to address their structural problems, US policy makers and their economists have their heads stuck in the sand and are fighting the patient’s symptoms without even offering or even thinking of a possible FIX. Moreover, the U.S. is not addressing its own structural deficits, increasing the risk that America’s Deficit Viruses will morph into a full Malignant Cancer, destroying all that it comes in contact with.

First and foremost, it is important to acknowledge that the GSEs, FMN and FRE were fundamentally ill conceived; so how can they possibly be saved? Without subsidies, home prices will continue to fall – But that would make homes more affordable!!! Policy makers don’t seem to be interested in affordable home prices, they are only interested in the short-sighted belief that preserving the value of overpriced homes through government interference will get them re-elected. After all, the election cycle is never more than 2 years away resulting in Extend and Pretend since it seemed to have worked for the last 40 years or so. But all good things eventually come to an end.

The stock market always attempts to discount the future, which means that economic weakness is only ever a threat when it hasn’t been discounted. This is why the stock market often makes a sustained up-turn, months before the economic data begins to show its true colors. However, there is an exception -Should the FED and the Government decide that the only way left to get money into the hands of the people and Main Street is to BUY SECURITIES with their out of thin air money, instead of creating assets for the FED and Reserves for the Banks, that are NOT lending, then we could be in for a hell of a suck-in rally that will create the Biggest BULL Trap in recorded history.

With the Case-Shiller house price index still 37% above its value in January 2000, just about matching the CPI rise during that same period, house prices are still at least15% to 20% above their long-term average in terms of incomes (the recession reduced incomes has not helped). However in certain areas such as New York, Boston, and Washington DC and its suburbs along with coastal California, house prices remain far above their historical norms.

Global commodity prices are rising inexorably, driven partly by rapidly rising demand in emerging countries that consume a large proportion of hard products (rather than services), but also by persistent negative global real Interest rates. Gold prices, which are once again about to break out to all time record highs, are only a symptom of this. The World Gold Council recently reported that global demand for Gold increased by 40% in the second quarter of 2010 and is running far ahead of supply. Needless to say, the immense liquidity among central banks are increasingly finding Gold a better investment than each others’ currencies, and hedge funds and corporations in general, are also feeding the rise. However, little of the global inflation has yet affected US prices (which are in any case carefully “managed” by the Bureau of Labor Statistics) but its force cannot be denied much longer; By the end of the year, US inflation figures are likely to look considerably less benign than they do today.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!

The past week has been interesting to say the least. Gold is trying to find support while the SP500 grinds its way higher. Let’s jump into the charts and analysis to get better feel for what I feel is happening here.

Gold 4 Hour Chart As you can see from the chart below gold has formed a possible double top. The fact that it made a higher high is actually a bearish sign for the intermediate term 1-3 weeks. When we see a higher high getting sold into with big volume it typically means the big money is unloading large positions into the surge of breakout traders and short covering that occurs when a new high is reached. Following the big money is very important to keep an eye on as it can warn us of possible trend changes before it occurs.

The current selling volume is not exactly a healthy sign if you are looking for higher prices in the near term. If this pattern breaks down I would expect $1340 to be reached very quickly.

Keep in mind gold it in a strong up trend still. Shorting is not the best play in my opinion. I prefer to see pullback which washes the market of weak positions then jump on the long side for another bounce/rally.

SP500 Market Internal Strength – 10min, 3 days chart I watch these charts to get a feel for the overall market strength on a short term basis. The top chart shows the SPY etf breaking above a resistance trend line on Friday afternoon. This occurred on light volume meaning it is mostly likely a false breakout and Monday we could see a gap lower at the open or a pop & drop. The two other indicators are reaching an extreme level which normally tells us a pullback is due in the next 24-48 hours of trading. The question is, will us just be a bull market pause or will we get a decent pullback.

The red indicator in the top chart and the red indicator levels on the charts below that help us time the market as to when profits should be taken or to tighten our stops if we have any long positions.

The broad market is still in a very strong uptrend so moving stops up and buying on oversold dips is the way to play it.

Weekend Market Analysis Conclusion: In short, both gold and the stock market are in a bull market (uptrend). Trying to pick a top to short the market is not a good idea. Instead I am looking for an extreme oversold condition to help reduce downside risk before taking a long position.

The overall strength of the market (SP500 and Gold) I think are starting to weaken but in no way am I going to short them. We continue to buy dips until proven wrong because indicators can stay in the extreme overbought levels for a long period of time. Generally the biggest moves happen in the last 10-20% of the trend.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!

Ostrich investors are a major driving force in today’s financial markets. As the name implies, they are hiding their heads in the sand like the popular literary perception of the king of birds. Burned in 2008′s epic stock-market panic, they have shunned active investing ever since. Trillions of dollars of their capital languishes idle on the sidelines, earning zero in money markets or near-record-low yields in Treasuries.

I can certainly sympathize with them. In the heart of that brutal once-in-a-century stock panic in October 2008, the flagship S&P 500 stock index plummeted 30% in a single month! Elite blue-chip stocks long considered safe failed to weather that fear storm well. Because the economy has been slow ever since the panic, countless investors fear another extreme selling event. They still want nothing to do with stocks.

The reasons for investor anxiety today are legion. Investors fear a new recession, the ever-popular double-dip scenario of heading back into economic contraction. They worry about the sorry state of the jobs market, consumers’ ability to spend, and the shaky housing market. They fret about the incessant and stifling growth of big government in Washington, and the Democrats’ threats of record tax hikes.

It’s not a pretty environment out there, so it isn’t illogical to hide heads in the low-yielding sands of cash and bonds. Unfortunately for ostrich investors though, this strategy is doomed to failure. While it is challenging psychologically, the active investors braving these stock markets are thriving. Our wealth is multiplying while ostrich investors’ is stagnating. Those hiding out too long will never catch up.

I wrote my original ostrich-investors essay 16 months ago, fresh out of the despair lows in early 2009. At the time countless worries plagued the markets. Economists were convinced we were heading not into a recession, but a depression. The newly-elected Democrats promised smothering tax increases on investors. And the S&P 500 (SPX) had averaged just 808 since the despair low 6 weeks earlier.

If there was ever an environment that encouraged ostriching, early 2009 was it. If you had moved your capital to cash then, you’d essentially have the same amount today. But boy the opportunity cost of hiding on the sidelines has been staggering. Between March 2009 and April 2010, the SPX blasted 80% higher in a massive post-panic recovery. Believing the pervasive gloom and doom back then nearly cost you a doubling of your capital!

Although the stock markets have been volatile and stressful, the opportunities have been great. In 2009 the SPX rallied 23.5%. Yet in our popular Zeal Intelligence monthly newsletter, the average annualized gain on all the stock trades we realized last year ran 45.0%. In our weekly Zeal Speculator, where we trade more often and take more risks, our average stock trade in 2009 enjoyed an 88.9% annualized gain.

As of the middle of 2010, the SPX was down 7.6% year-to-date. Yet our average Zeal Intelligence stock trade closed this year had seen a 73.7% annualized gain (64.8% absolute)! Of course these averages include all our losing trades too, full performance data is always posted on our website. Despite all the fears and anxiety floating around, there is lots of money to be made in these markets. Active investors have a good shot at winning some, but ostrich investors are guaranteed to make nothing.

As investors we carry a huge burden, we are the financial stewards of our families’ futures. If we make wise decisions, our capital will grow and our families’ lives will improve. Similarly, poor decisions today will greatly reduce our future wealth. No one cares more about your financial future than you do, your active stewardship is crucial. Hiding out on the sidelines is an abdication of this stewardship responsibility, a flat-out failure. Tough markets require different strategies, not capitulating and cowering.

Provocatively, even the Bible speaks out on this principle of stewardship versus ostriching. Jesus Christ’s famous Parable of the Talents is chronicled in Matthew 25 and Luke 19. A nobleman who would be traveling long and far entrusted his servants with portions of his capital. The good servants went out and invested it, growing it for their master’s return. He praised and rewarded them. But one servant was afraid, so instead of investing the capital he was given he hid it. He was a first-century ostrich investor!

Far from being commended for returning the cash unharmed, this ostriching servant was called “wicked and lazy” when the master returned. He was effectively fired, with his capital given to a good servant who had wisely invested and multiplied his own capital allocation. While this parable teaches deep spiritual truths to Christians, its literal surface application on the financial front is no less valid. As investors our responsibility, our moral duty, is to multiply our capital, not hide it away.

These post-panic markets are certainly far-more challenging than the pre-panic ones, but that just means we have to step up our stewardship efforts. Investors can’t just buy anything and hope a rising tide lifts all boats. They can’t just buy anytime and hope their stocks will eventually rise. They have to study the markets, learning about their cycles and finding stocks that will thrive in this environment.

If you’ve been ostriching since the panic, you can’t change the past. Though you could have nearly doubled your wealth since through active investing, there is no sense beating yourself up about it. But you can change the future. Your decisions you make today will determine how much capital you have in the coming years. If you hide in cash, what you have today (minus inflation) is the best you can hope for. If you get back in the game though, fighting your anxiety, you could achieve a much better financial future for your family.

The opportunities are truly vast right now in the stock markets, despite their big gains already booked since the panic lows. In nearly 100 weekly essays written since that panic, by business partner Scott Wright and I have detailed many awesome opportunities. Most of the key post-panic trends that have rewarded us and our subscribers with such massive realized gains in the past couple years are still ongoing.

To understand why, you have to consider cycles and sentiment. Stock markets move in great 34-year cycles I call Long Valuation Waves. The first half is a 17-year secular bull, like we saw from 1982 to 2000. The second half is a 17-year secular bear, like we’ve been experiencing since 2000. Within these sideways-grinding secular bears, smaller multi-year cyclical bulls and bears oscillate. Check out my essay delving into these critical cycles. We are in one such mid-secular-bear cyclical bull today.

Cyclical bulls within secular bears average 3 years in duration, but can be as short as 2 or as long as 5. Yet our current one was only 13 months old in late April when the stock markets peaked before their recent correction. This bull was far too young to give up its ghost then, which strongly suggests it is very much alive and well today. I recently wrote another essay explaining all this in depth.

In addition, secular bears have giant horizontal trading ranges. In SPX terms our current one runs from roughly 750 on the low side to 1500 on the high side. We hit this upper resistance in late 2007 at the top of the last cyclical bull, and lower support in late 2008 at the height of the panic. Today the stock markets remain low within this secular-bear trading range.

The upshot of our position today in these critical cycles that all investors should study is that probabilities strongly favor the stock markets rallying from here. These bull-bear cycles are strong and nearly ironclad, nothing stops their ultimate progression. All the news you hear every day, all the anxiety and worry, is nothing but ephemeral noise. The markets are always fretting about something, but it is soon forgotten (remember European sovereign debt, the oil spill?).

With our position in the bull-bear cycles firmly on investors’ side today, ostriching now is as irrational as it was in early 2009. Sure, you can bury your talents in cash over the next year and dig them up with just minor real losses after inflation. But that is not investing, it is just poor stewardship. If you take a little time to learn about the markets and seize the opportunities, you could really grow your capital in the coming year.

In addition to the cycles, all this rampant fear and anxiety itself is extremely bullish. Sentiment is all-important in the financial markets, driving most short-term price action. Sentiment is like a giant pendulum, perpetually swinging back and forth between greed and fear. When stock prices have long been rallying to highs, greed reigns supreme. When they have been falling to lows, fear dominates. But like a pendulum, once either extreme is reached you can be sure the next extreme will be the opposite one.

There is no doubt that this summer has been dominated by the fear side of the sentiment continuum. The stock markets have been weak thanks to the major SPX correction in May and June. Investors are scared of countless threats, worried that something even worse is coming. As is always the case when stock markets are weak, bearish and pessimistic theories dominate newsflow and consciousness. When prices are down, investors want to be scared and look for reasons to rationalize their emotions.

Yet it is fear episodes that birth all great rallies. Eventually fear and anxiety drive everyone interested in selling anytime soon into pulling the ripcord and bailing out. And once this selling-exhaustion threshold is hit, there are no more sellers left. Then no matter how bad the news is, the markets start rallying anyway because only buyers remain. And after this new rallying is established for a few weeks, newsflow turns positive as investors start feeling greedy and look for justifications to buy.

The great sentiment pendulum endlessly swings from greed to fear and back again. And since it spent most of the past few months deep into fear territory, the only place it can go from here is back towards greed. The only thing that can drive widespread greed is a big rally. Thus in pure sentiment terms, the stock markets are perfectly set up to enjoy a major rally in the coming months. The markets abhor extremes, and fear has ruled for too long. Greed is overdue to make an appearance.

If you study the markets, you have no choice but to acknowledge the bull-bear cycles and the greed-fear swings in sentiment. Many ostrich investors I’ve talked with over the past year have some level of awareness of cycles and sentiment. But they still argue that hiding in the sand is rational, because they fear another stock-market panic or crash. Together crashes and panics are extreme selling events.

From the widely-hailed Hindenburg Omen in the news lately, to all kinds of more obscure theories, perma-bears offer dozens of reasons why we face a crash or panic this autumn. Never mind that these perma-bears always think a new crash or panic is imminent! If you follow one of these guys, read what he was predicting back in early 2009. It will be a crash or panic, not the massive rally I predicted then. Gloom and doomers are broken records, they perpetually forecast calamity and lead investors astray.

An extreme selling event in the coming months is terribly unlikely, its probability approaching zero. Ostrich investors need to understand this, as constantly expecting an event with exceedingly-low odds of occurring is no excuse for burying their capital in the sand. There are a couple key reasons why we won’t see a crash or panic this autumn. Today’s bull-bear cycles are in the wrong place to spawn them and the last extreme selling event happened too recently.

Crashes, a 20%+ plunge in the stock markets in a matter of days, only occur at one very specific time in cycles. Crashes always erupt near multi-year highs deep in secular bulls, like in 1929 and 1987. Crashes are born in extreme greed when retail investors are fully deployed and almost no one is hiding in cash on the sidelines. Obviously today with widespread fear and ostrich investors hiding trillions in cash, this environment is all wrong for a crash. And the April SPX high of 1217 was far below the October 2007 high of 1565 at the end of the last cyclical bull. A crash ain’t gonna happen folks.

Panics, a 20%+ plunge in the stock markets in a matter of weeks, also only occur at one very specific time in cycles. Unlike crashes starting from multi-year highs, panics cascade out of lows in cyclical bear markets. A bear persists for a year or so, mauling about 25% out of the stock markets. Then some high-profile catalyst ignites a frantic rush for the exits, and the resulting intense selling drives another 20%+ loss in a matter of weeks. Like crashes, panics require heavily-deployed retail investors. People have to be in before they can panic!

We aren’t at the end of a multi-year bull near multi-year highs, so no crash is coming. We aren’t a year into a cyclical bear near lows, so no panic is coming. And extreme selling events can’t happen in an environment like today’s plagued by ostrich investors, when trillions of dollars are already hiding outside of the stock markets. Extreme-selling-event-magnitude declines require fully-deployed investors. Even Wall Street often acknowledges how chronically underinvested people are today.

Proximity to the 2008 panic is another strong argument against another extreme selling event anytime soon. Extreme selling events are so scary that everyone without nerves of steel is driven to sell. Some of these investors are so discouraged they never come back, and others gradually tiptoe back in over years. So throughout market history, you always see at least a decade between extreme selling events. It takes that long after one for enough investors to quit worrying and get fully deployed again.

So ostrich investors can’t latch on to some perma-bear’s flawed extreme-selling-event thesis and use that as an excuse for abdicating their family’s financial stewardship. Probabilities are virtually zero of seeing another panic or a crash anytime in the coming years. And without extreme-selling-event worries, the bull-bear cycles and sentiment pendulum become even more compelling. They are very bullish today.

Ostrich investors also bring up the horrible state of Washington as an excuse. They understandably worry about our out-of-control government’s epic debt binge. And the way the Marxists (Democrats using class-warfare rhetoric) want to raise job-killing taxes on hard-working American businessmen. And the terrible encroachment by the federal government into all aspects of our lives through insane overregulation.

There is no doubt at all that the Democrats’ terrible anti-prosperity philosophy, monstrous overregulation bills, and endless threats of higher taxes have strangled this post-panic recovery. But this isn’t the first time we’ve had an abominable government in America. Remember Jimmy Carter? The beauty of the United States is we can vote out these thieving socialists. We’ve done it before and we’ll do it again in November and 2012. Don’t extrapolate out our current bad government into infinity. This too will pass.

Realize that oversold or undervalued stock markets can rally strongly even when we are saddled with a terrible government for a season. Remember that back in early 2009 we had the misfortune of the same openly-Marxist Obama Administration and prosperity-hating Democratic Congress we do today. Yet despite all the despicable things Washington has done to us taxpayers since then, the SPX is still up 80% at best since its lows!

Ostrich investors have really lost out since the panic, giving up nearly a doubling in their wealth. But they don’t need to bear such crushing opportunity costs forever. If you have been hiding out in zero-yielding cash or low-yielding bonds, get back in the game! Start redeploying a small fraction of your capital in stocks. As you get more comfortable and enjoy gains, gradually move more of your capital back into stocks. Eventually you’ll be out of ostrichdom and back into wise financial stewardship of your family’s future.

We can help you. At Zeal we study the markets constantly, always looking for high-probability-for-success trading opportunities. We specialize in commodities stocks, the great secular bull market of the past decade. We publish acclaimed monthly and weekly newsletters analyzing the markets, explaining what is going on and why, and detailing which stocks we are buying and selling (and when) to ride these trends. Our subscribers have been richly rewarded by our trades even in these tough times. Join us!

The bottom line is there is no excuse to be an ostrich investor. Hiding your capital in the zero-yielding cash sands is a failure, a millennia-old abdication of stewardship responsibility. Tough markets are not as easy to grow your wealth in as normal markets, but with a little time and effort you can still thrive as an investor. Get your anxiety and fear in check, buckle down, and start investing to win again.

The markets are actually very bullish right now, with almost no chance of an extreme selling event like the perma-bears perpetually prophesy. Stocks are in a great place in their bull-bear cycles to rally strongly in the coming months. And the very poor sentiment we’ve weathered this summer ensures the next sentiment swing will be towards greed. The only thing that can generate it is a major stock-market rally.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!

In the very long-term S&P 500 Index chart this week, we see that an important resistance level has been reached. This is equal to the late 2008 high, which was followed by a quick and severe decline. The price action, which followed this high towards the end of 2008 and this 1,300 level itself are therefore important factors (from the psychological point of view) from which some possible 2011 projections can be made.

At this point we would like to digress a bit. One might ask – why does the previous high make a resistance level? The answer is that people tend to see trades in only two ways – win or loss. Most people would see bigger difference between winning $1000 and losing $1000, then between losing $6000 and losing $9000. That is because in the first situation one is faced either win or loss, and in the second situation is a loss either way. Still, the second situation is more important, because the difference between two outcomes is 50% higher ($2,000 vs. $3,000). The vast majority of Investors and Traders originally became Investors and Traders to make money; however most people ultimately find it more important to feel that they are winning than that they make money. In this case, most people would consider the difference between $-1,000 and $1,000 as more important than the one between -$6,000 and -$9,000.

Another way to put it is to take a look at the question that Investors and Traders sometimes ask – I agree that the market is going to move lower, but my speculative long position is at a loss, so should I sell? The answer is – of course – if you think the market is going to move lower than you should close your long position, period. How much weight should one put to the fact that the position is already at a loss? None. If one believes the market is going lower, then ones loss would turn into a bigger loss – and why would anyone even consider wanting to have a bigger loss?

The real answer is that because that it requires one to admit that the position that one has previously entered turned against them. One feels responsible for it and wants it to be closed at a profit. What one fails to realize at this point, is that the same position could be re-opened at lower prices, which would make it even more profitable in the end. Again – one often takes into account the win/loss psychological factor instead of calculating profitability of each action.

Consequently, one maximizes the times that they are holding a winning position, but not their overall rate of return. For instance it’s better to lose $10 and gain $110 than to gain 20$ two times.

The abovementioned phenomenon alone makes the previous highs and lows important resistance/support levels. Many investors but at the top or very close to it (that’s why we usually see strong volume at/close to local tops), and once price declines they never sell – waiting to close their position at no loss whatsoever. Consequently, they sell when price moves to the previous high, since it is their purchase price. So, many Investors/Traders, who purchased stocks in August and September 2008, were waiting for the price to reach the price levels that we have just seen, in order to sell their stocks. This strong selling pressure is naturally a bearish factor.

The previous top is not the only bearish factor that we see today. We also have an interesting situation in other stock indices where a non-confirmation is – in fact – a confirmation of the previous points. Let’s take a look below for details.

According to the classic Dow Theory the signals from the industrial average should be confirmed by the ones seen in the transportation average. Without that a signal does not mean much.

Here, we are using this divergence in a slightly different way. In the past few days we have seen a sharp decline in the Dow Jones Transportation Average, without a similar action in the Dow Jones Industrial Average. In order to isolate this relative phenomenon, we have included a transportation:industrial stocks ratio below the price chart. Here, we clearly see that the ratio moved quickly lower recently.

Since this signal is quite clear, let’s take a look what it meant in the past. The fact is that in the past it was an early warning about the coming decline. In the past, declines such as this were seen to continue for days or even weeks. The implication here further confirms the short-term bearish case for stocks. Speaking of implications, let’s take a look below, at our correlation matrix.

In this week’s Correlation Matrix, the short-term coefficients are not as significant as in weeks past. There appears to be a slight negative correlation between metals and stocks but this does not hold true for silver.

It seems that the medium-term coefficients (90-day and 250-day columns) are of more value at this time. Recent breakdowns have been seen in many of the markets this week but in most cases have not yet been verified. The situation is such that if these breakdowns are verified in the days ahead, the impact will likely be felt for weeks and therefore the medium-term columns will provide valuable insight.

Only the general stock market appears to have a significant influence on the precious metals for this time-frame. Therefore, if stocks decline from here, the same will likely be seen across the precious metals sector for they will be dragged down as well by the declining stock prices. Although the relationship is not clearly seen on a day-to-day basis (short-term correlation is weak), the bigger move in stocks is still likely to have influence one the precious metals sector.

The above would not be such a big deal if the gold market itself provided us with bullish signals – however that is not the case right now.

The very long-term chart for gold this week shows a key breakdown below the long-term support level. Price has declined below the 50-day moving average and slightly below the rising support line. This latter breakdown however has not been verified. Three days below this previous support level are generally required to verify such a breakdown.

Should a small insignificant move back up to this level be seen with a failure to move beyond it, it may very well be a signal to open short positions. This will be watched closely in the coming days.

Before moving to the following chart, we would like to digress once again. In the recent several weeks we have seen several moves lower, and mentioned several verifications that are needed. At this point one might get an impression that no signal is meaningful if we require verifications over and over again. That is not the case usually – the point is that we are in a situation where big trends can change, and this could impact the long-term holdings in a meaningful way. Selling long-term holdings is an important decision and should be utilized only at particularly favorable (or unfavorable, if you prefer to view it this way) conditions. It is these verifications and confirmations that provide us with enough certainty that a bigger move lower or higher is in the cards – that’s why we have been mentioning them so often recently.

Summing up, the outlook for the general stock market is bearish for the short-term and perhaps medium-term. This bearish sentiment is likely to have a negative influence on gold, silver, and mining stocks. However, since the latter are short-term oversold, we may have a quick move up first.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!

While future articles will return to focusing on the option Greeks, a recent comment regarding risk really piqued my interest. The age old discussion about risk versus reward, equities versus options, and the fundamental difference between Nassim Taleb’s “Black Swan” risk and what most people perceive as ordinary risk.

In a perfect world, financial markets are by design a discounting mechanism of a cash flow stream, risk versus reward, and a psychological environment where the difference between profits and losses is merely perception. In the end, trading is all about the mastery of risk mitigation and leveraging probability.

I am an options trader, not because I do not like equities or futures, but because I fear the perception of their so-called safety. Most academics and the average investor believe that financial markets, specifically individual stocks follow a Gaussian, or log normal distribution. While various economists and statisticians have argued this point for decades, to understand that price distributions are in fact not strictly Gaussian.

Price distributions are capable of exhibiting more than the predicted occasions of price inhabiting the extreme regions of the distribution curve. Understanding these concepts is critical in order to have a robust understanding of risk. This type of phenomenon is called “fat tail” risk; statisticians refer to it as leptokurtosis. It is this degree of risk well beyond the normally distributed range to which Taleb has characterized as “Black Swan” risk.

In financial markets, having accepted that these fat tails do in fact exist and exist with a frequency far beyond what is intuitively apparent, risk becomes significantly harder to quantify. When risk becomes more difficult to quantify it can be said that investors and traders have significantly more exposure to a catastrophic event than they realize.

In basic terms, the financial world we live in today is wrought with fat tails. Government integration and manipulation of financial markets, the Federal Reserve’s (supposedly independent) direct engagement into the bond market, and specifically treasuries and mortgage backed securities creates an environment in those markets where distributions are not statistically normalized. Geopolitical risk such as the potential for an Israeli air strike against Iran places unconditional risk on a variety of risk assets, at the forefront light sweet crude oil.

If one considers all the various risks extant, risk today seems excruciatingly high. Professors on Minyanville have recently called into question whether paper assets like the Gold ETF GLD is accurately priced. It is widely believed that there is significantly less physical gold versus gold-backed paper. This adds yet another element of uncertainty to an increasingly uncertain environment.

What would happen to the gold ETF GLD if an analyst announced that the GLD ETF no longer had access to physical gold? What would happen to the valuation? How can they maintain adequate capital levels inside the ETF if gold demand rises while physical supply diminishes? The answer is contraction in the NAV price of the gold ETF. In real terms, the ETF owns less gold than the paper supposedly represents and price must come down to indicate this discrepancy. Make no mistake, the market will be happy to provide the swift and unforgiving necessity of adjusting to parity.

While the above offers basic examples of fat tails, the increased statistical variation has a name. The name of this type of condition where fat tails surround us and atypical logarithmic distribution takes place is called kurtosis. As a side note, since recent and forthcoming articles are going to focus on the Greeks, kurtosis comes from the Greek word meaning υρτός, kyrtos, or kurtos. (Just thought I’d throw that in there for a synergistic moment)

A scenario similar to the condition in which we find financial markets today could likely be summarized as a period of time where Leptokurtosis has become prevalent. Leptokurtosis is a statistical phenomenon where a population’s distribution, in our case equities, has a rather pronounced peak around the average. This peak is representative of a population that is rife with fat tails, higher variance, and a propensity for abnormally large swings in the standard deviation of returns.

What does all this mumbo jumbo mean? It means that when fat tails are present within a leptokurtic distribution, risk literally can become infinite. Fat tails and leptokurtosis are just a few of the many statistical economic studies that have caught the eye of many academics, specifically in the areas of advanced statistics, mathematics, and . . . economics. Distributions, kurtosis, and fat tails are the science behind behavioral finance. To most people this subject matter is boring, however it is only boring if you have never experienced the gut wrenching expression of these phenomena in the market; after that experience, the subject becomes transfixing.

The average investor believes that when they buy a stock the likelihood of it declining significantly in a short period of time is relatively minimal. We have been conditioned by Wall Street snake oil salesmen that due to inflationary pressure, over long periods of time equities must rise as a function of inflation. Everything is a buy in the long term, plus it makes for a great story to build a business model around that the retail crowd buys into. While this may be true in the long run, we live finite lives which do not have the luxury of allowing behavioral mean reversion over geological periods of time.

Right now risk is excruciatingly high. We have a variety of risks and uncertainties that are plaguing financial markets. The statistics behind the market today would likely exemplify the excessive risk built into the current system. So how exactly does this relate to options you might be wondering? I trade options instead of individual stocks to reduce risk. Options offer a variety of ways to hedge risk, even after a trade has been initiated. Options allow for manipulation where as with stocks and futures there is little one can do besides fully hedge a position.

The reason I utilize options instead of futures or equities for swing trades is because by definition they are insulated from outlying events such as an unexpected act of war or a natural disaster which could interrupt the flow of commerce for an extended period of time. Options are inherently less risky than stocks because of the leverage built into them. Since all moneys invested in the market are subject to Black Swan risk, the ability to control an equivalent position with dramatically less capital commitment is a core risk reduction strategy.

Yes, a trader can lose his/her entire investment if they own an option naked. Experienced option traders that buy and sell calls or puts naked and then hold them for extended periods of time is likely an anomaly. Experienced option traders will use some form of a spread to mitigate their risk further. Additionally, most online brokers offer option traders access to contingent stops which are based on the underlying asset’s intraday price.

Fat tails and leptokurtosis are the result of financial markets reacting violently to unexpected events, similar to what happened this week when the jobs number was much worse than expected or to the still unknown factors which precipitated the recent “flash crash”. Large price swings similar to what we have seen recently are usually attributed to higher volatility. Higher volatility for prolonged periods of time is just another symptom that points to fatter tails and leptokurtic distributions. Reliance on the Gaussian, log normal distributions likely have some of the “machines” on Wall Street in a situation where their models do not work.

Option traders leaning long into the close on Wednesday that utilized specific types of spreads had limited risk. They did not have to worry if the market gapped their stop. Their risk was limited from the moment they initiated the trade. In contrast, an equity trader that went long before the close on Wednesday could have exited if they had access to the premarket, however if they didn’t the gap down found them losing more than they originally set out to lose. The market gapped over their stop, leaving them vulnerable to further downside. The unquestioning reliance on stops to close positions in times of Black Swan events is flawed at its core because it denies the very existence of unknown and unknowable risk.

This is just one example of how equity traders who routinely hold positions overnight are exposing themselves to potentially unidentifiable levels of risk in today’s market. If we are in a period where leptokurtosis and subsequent fat tails in the distribution prevail nothing is impossible when risk is being calculated. By statistical definition, a period where a fat tail(s) exist indicates a period where risk is extremely high.

Log normal modeling software will significantly underestimate the true risk in financial markets. What trading software and price models are you using in your analysis? If you are using a gut feel or one type of stock chart to help guide your decisions about risk, you could potentially be mischaracterizing risk by as much as 5-7 standard deviations. 5-7 standard deviations is scary my friend, the kind of scary that days that have nicknames that start with “black” are made of.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!

Vancouver, BC, Canada – Gold-Ore Resources Ltd. is pleased to report the results of an updated, independent mineral resource estimate for the 100%-owned Bjorkdal Gold Mine in Sweden. The new measured and indicated resource estimate for the open pit and underground totals 920,900 ounces, an increase of over 50% from the resources reported in March, 2010.

Wardell Armstrong International Ltd. (WAI) calculated the updated mineral resource estimate, incorporating all drill data up to November 15, 2010 and all chip samples from underground. The revised estimate used Datamine software and Indicator Kriging, and includes the results of 1,766 drill holes. The estimate is National Instrument Policy 43-101 compliant.

January 2011 Open Pit & Underground Mineral Resource Estimate

Evaluation (2.5 m Selectivity) Adjusted for a 91% Mining Recovery and 30% Mining Dilution * Totals may differ due to rounding\

Bob Wasylyshyn, Gold-Ore’s president commented, “The updated mineral resource estimate confirms that Bjorkdal is a significant gold deposit, with over one million ounces produced and over 900,000 ounces in the measured and indicated resources category. Our drilling continues to expand the known limits of the deposit, and the mineralized vein swarm remains open to expansion in several directions. An ongoing aggressive, widely-spaced underground drill program intersected gold mineralized veins over a broad, on-strike area. Based on this information, we are confident that, at current gold prices, Bjorkdal will have a significantly extended mine life.”

The updated estimate resulted in a 52% increase in underground measured and indicated ounces of gold. To reflect current mining practices at Bjorkdal, the resources for the open pit are reported using a 0.30 gram per tonne cut-off resulting in a 50% increase in measured and indicted ounces of gold when compared to the totals previously reported using a 0.60 g/t cut-off. Surface and underground drilling is ongoing to develop additional resources and explore for new mineralization on the Company’s mining leases and exploration concessions.

About Gold-Ore

Gold-Ore Resources is a gold mining and exploration company currently focused in the Skelleftea mining district in northern Sweden. The Company’s primary asset is the Bjorkdal Gold Mine, which is cash flow positive and unhedged. In addition to Bjorkdal, the Company also has other assets in the district, including the mineral rights to approximately 66 square kilometres surrounding the mine site, as well as the Norrliden Polymetallic Deposit.

Learn how to buy gold and make great money doing it! Gold is the best investment in ANY economy!