Making Money Alert
The Sell-Off and the Magic 1040 Line
06/30/2010
Tuesday’s big equity sell-off has a lot of market observers very worried about the future of stocks. I’ve heard a lot of chatter in the financial media about the “head-and-shoulders top” chart pattern on the S&P 500. According to StockCharts.com, a head-and-shoulders top pattern forms after an uptrend, and its completion marks a trend reversal. The pattern contains three successive peaks with the middle peak (head) being the highest and the two outside peaks (shoulders) being low and roughly equal. The reaction lows of each peak can be connected to form support, or a neckline.
Take a look at the chart below of the S&P 500 Index, and you can clearly see a classic head-and-shoulders top pattern. The left shoulder formed in January, the head took shape in April, and the right shoulder formed with the most recent high in June.
If this technical reversal pattern proves to be right, then we could see stocks fall very far, very fast. In the chart above of the S&P 500, I’ve drawn a support line at the 1040 level. I think this is a magic level in terms of market support and potential change of direction. If stocks fail to hold above this level, the next area of real technical support is way down around 900.
Now, I am not saying that we are heading all the way toward 900. What I am saying is that if you have big positions in equities right here, you had better have a plan to know when to sell and when to move into the safety of cash.
I am happy to report that subscribers to my Successful Investing advisory service have been safe and sound, and out of harm’s way for some time, thanks to our proven trend-following plan that’s been helping investors beat the market for more than three decades. If you’d like to put the Fabian Plan on your side, then I invite you to check out Successful Investing today.
Even Liberals Are Worried about Obama's Economic Policies
By Jim Woods
We know that conservatives, libertarians, most Republicans and Austrian School economists are at odds with President Obama’s economic policies. Count me in with this camp, as I think the country is headed in the direction of too much government and not enough liberty in the realm of economic activity (among other realms). Now, however, the president is being called out by prominent members of the left-wing intelligentsia for being on the wrong track.
Two recent New York Times op-ed columns illustrate this disaffection on the left. First, there was Nobel Prize-winning economist and Keynesian arrowhead Paul Krugman, who wrote a June 27 op-ed, titled “The Third Depression.” The Krugman piece makes the following statement:
“We are now, I fear, in the early stages of a third depression. It probably will look more like the Long Depression than the much more severe Great Depression. But the cost -- to the world economy and, above all, to the millions of lives blighted by the absence of jobs -- will nonetheless be immense.
“And this third depression will be primarily a failure of policy. Around the world -- most recently at last weekend’s deeply discouraging G-20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.”
So, from Krugman’s point of view, the only way to extricate the world from the pernicious effects of too much government spending and runaway debt is to saddle the world with more government spending and more debt.
The other critical op-ed came just one day later, June 28, from liberal commentator Bob Herbert. His piece, titled “Wrong Track Distress,” calls the president out for not seizing upon the opportunity of his election and offering a more sweeping government scheme to create jobs. Here’s the money quote from the Herbert op-ed:
“It’s not too late for the president to turn things around, but there is no indication that he has any plan or strategy for doing it. And the political environment right now, with confidence in the administration waning and budgetary fears unnecessarily heightened by the deficit hawks, is not good.
“It would take an extraordinary exercise in leadership to rally the country behind a full-bore jobs-creation campaign -- nothing short of large-scale nation-building on the home front. Maybe that’s impossible in the current environment. But that’s what the country needs.”
Once again, we see the president taking fire from the left for not doing enough to create jobs and for a failure to undergo “large-scale nation-building on the home front."
Hey, you know things are bad for you when high-profile liberals like Krugman and Herbert jump ship. And while I think the analysis and solutions to our economic problems proffered by Krugman and Herbert are much worse than those offered by the president, I admit it’s nice to see that conservatives, libertarians and Austrian School economic thinkers aren’t the only ones who know that the president’s solutions are ineffectual.
Jim Woods is a freelance journalist specializing in economics and politics. He is a frequent contributor to Doug Fabian’s Alert, as well as many other publications. He celebrates the virtue of making money from his home on the California coast.
ETF Talk: Hitting a Gold Streak
Gold is one of the most enticing investments in the world right now. The price of the yellow metal hit a record high this month, and each short-term pullback has been followed by a new advance. The upward trend in gold will be marked today by its seventh consecutive quarterly gain. At noontime today, the price of gold reached $1,243.70 an ounce, not far from the record high of $1,260 it hit on June 18. At the close of trading today, gold likely will have risen 12% in dollar terms for the second quarter of 2010 alone.
Seasoned investors know that gold gains luster during times when the overall market is tanking and investors are seeking safety from economic and stock market turmoil. If you have read the financial pages of the newspapers or listened to radio and television reports about the economy and the markets lately, you can understand why investors are buying gold.
Unquestionably, investor interest in stocks has been waning as the markets retreat. The Dow began the year above 10,500 but this week fell below 10,000, amid rising economic pessimism among investors. The euro keeps hitting new lows against the dollar, as the European debt crisis worsens. Concerns are mounting about a double-dip recession, as U.S. unemployment hovers around 10%, job growth appears weak and foreclosures are at an all-time high. We also are bombarded by images of the never-ending British Petroleum oil spill disaster in the Gulf, coupled with the belated and unimpressive efforts of President Obama in addressing the situation.
This bleak outlook has many investors looking for protection. And, gold is proving irresistible for many of them. As you can see by the chart below, gold spot prices have risen during the past month, reflecting investors’ fear and flight to the precious metal.
So, why do investors buy gold during unstable times? First, although the Federal Open Market Committee announced June 23 that inflation likely will be “subdued” for some time, inflation is a long-term concern and gold offers a hedge against such risk. Second, gold serves as an accepted form of currency, which is a good thing in such uncertain social and economic environments. And third, precious metals such as gold offer a way to diversify your portfolio outside of the traditional investments of stocks and bonds.
One way to access this surge in gold prices is through exchange-traded funds (ETFs) such as the SPDR Gold Shares (GLD). GLD invests 100% in gold bullion, so it’s a pure play on the yellow metal. Of course, there are other ways to invest in gold but GLD is one of the simplest. It is as easy as a click of your computer mouse to buy and sell the fund online, without needing to physically trade the precious metal and store it in a secure place.
To obtain my latest ETF advice and my stop prices for each recommendation, I encourage you to subscribe to my ETF Trader service. As always, I am happy to answer your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.
Fabian Teleseminar: Mid-Year Review and Market Outlook
Join me Saturday, July 10, at 12:00 p.m. (noon) Pacific Standard Time, for a FREE discussion of the rapidly changing 2010 financial markets. In this teleseminar, “Mid-Year Review and Market Outlook,” I will be speaking about how you should position your portfolio for what promises to be a tumultuous second half of 2010.
As you’ve likely noticed, things are not going well with the stock market. We saw stocks fall below their long-term moving average in May -- an event that hasn’t happened since January 2008. The major indices now are firmly in negative territory for the year, and many investors are looking for new, safety-first strategies to protect their wealth.
During this one-hour teleseminar, I will share with you these key points:
• A recap of the financial markets in the first half of 2010. What’s worked, and what hasn’t.
• How to read the price trends in the markets, and what they’re telling us.
• What investment themes I believe represent the best opportunities in the second half of 2010.
• A glimpse of my ETF watch list for the rest of the year.
• Most importantly -- how to evaluate your current investment positions so that you don’t get hurt again.
All teleseminar registered participants will receive a valuable handout ahead of time that outlines the key topics. To join me for this timely discussion on Saturday, July 10, please register today and make sure you reserve your place. This FREE, one-hour teleseminar will be limited to the first 800 registrants. Judging by our last three record-setting teleseminars, we will reach capacity quickly. Take advantage of this opportunity and reserve your spot today!
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
Radio Show Update
Last week’s radio show was devoted largely to a discussion of municipal bonds. We covered the issue of why your muni-bond portfolio may be at risk, and what you can do about it. If you’re a muni-bond investor, you simply must give this episode a listen.
Remember that Alert readers have FREE access to my Radio Show archive, and all you have to do is go to the website and listen for yourself, whenever you have time.
Coming up on this Saturday’s show, we’ll have a discussion on:
• What’s happened in the first half of 2010
• What’s in store for the second half of the year
• Why you need to be more careful than ever with your portfolio
• Your phone calls
It all goes down live, this Saturday from 10 a.m.-11 a.m. Pacific Time. To find out how you can listen to the show live, simply click here.
The Virtue of Confidence
“If you have no confidence in self, you are twice defeated in the race of life. With confidence, you have won even before you have started.”
--Marcus Tullius Cicero
The ancient Roman statesmen was chock full of quotable wisdom, but the quote here is one of my favorites. I’m a big believer in confidence, as it’s necessary to get virtually anything good in life accomplished. The next time you’re faced with a challenge, put your confidence suit on and go out and get things done.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
Sincerely,
Doug Fabian
P.S. It’s not too early to start making plans to join me at the MoneyShow in San Francisco, August 19-21. This year’s event will be held at The Marriott Marquis and will feature 50 of the world’s smartest investors, traders and analysts. To join me in San Francisco, you can register FREE of charge by calling 800/970-4355 and mentioning priority code 018509 or by visiting the MoneyShow’s website at The MoneyShow San Francisco!
P.P.S. My publisher, Eagle Financial Publications, is now on Facebook. Click here to see our page and be sure to become a fan when you get there.