Archive for 2009

Guest Post: Global Economics on Tilt – How To Protect Your Ass(ets)

Courtesy of Tyler at Zero Hedge

Guest Post: Global Economics on Tilt – How To Protect Your Ass(ets)

Submitted by Jeff Clark, Editor of BIG GOLD

Gold isn’t going to $2,000 an ounce.

Before you gag on your coffee or suffer chest pains, allow me to explain.

We’re about eight years into the bull market, and gold has breached the $1,000 level twice and has spent weeks trading above the old high of $850. Some observers are now saying that gold’s pretty much had its day and that once the recession is over, it will retreat for good.

However, the four-digit gold price we’ve seen so far is with no price inflation to speak of, no effects of the atrocious increase in the money supply, and despite a rising dollar. What happens to gold when each of those pictures gets turned upside down – high inflation, excess cash jolting the economy, and a falling dollar? After all, gold’s performance to date has been powered only by general anxiety, not by any visible erosion in the dollar’s value.

I decided to take a fresh look at calculations that could be used to appraise gold’s upside potential. No one of them, by itself, comes with compelling logic. But they all point in the same direction.

Gold’s Percentage Rise in the Last Bull Market. What if gold in this bull market repeats the percentage rise in the last bull market? In the 1970s gold rose from $35 to $850, a factor of 24.28. Our low in 2001 was $255.95. Multiply that by 24.28 and you get a gold price of $6,214 per ounce.

U.S. Gold Holdings to Money Supply: The M1 money supply consists of currency and checkable deposits. The U.S. government currently holds 286.9 million ounces of gold. If the government were to make each dollar redeemable by the amount of gold it possesses, we’d arrive at the following price for gold: $1.569 trillion ÷ 286.9 million oz. = $5,468.80 per ounce

Gold/Dow Ratio: The ratio was about “1” when gold peaked in 1980, meaning the Dow and gold were the same price. To restore that relationship at today’s stock prices would mean when the Dow is at 6,626, gold should be at $6,626/oz. Of course, we think it likely that the Dow will get a lot lower before gold peaks. But even if


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Weekend Reading

Tyler Durden’s Weekend Reading

  • The DTCC’s CNS naked short selling residue (Deep Capture) – must read for everyone curious about regulation SHO and the gimmickry going on in the equity shorting market.
  • How Lehman got its real estate fix (New York Times)
  • More glowering optimism from Templeton’s Mark Mobius, who sees an EM bull market, and a boost to Mexican EPS despite H1B1 (here and here)
  • "I can only hope this proves to be inflammatory nonsense" (Finem Respice)
  • Gold may be off to the races above $950 (Bloomberg)
  • Berkshire calls investment 4 replacement candidates’ 2008 performance subpar, to succeed internally (Bloomberg)
  • WHO prepares for a pandemic (WSJ)

And a personal note of gratitude for the amazing outpouring of support over the last two days – it has been unexpected, unprecedented and we are very thankful to have such generous readers. A personal thanks for donations by Andre, Barbara, Doss, Elaine, Hassan, John, Kevin, Kiran, Lexy, Mary, Matthew, Mugglenet.com, Scott, Sean and Sebastian.

Chartology:

The upcoming depletion of resources (New Scientist)

 





How Banks Become Condo Rental Agents

Courtesy of Mish

How Banks Become Condo Rental Agents

Last month in a Boston foreclosure sale, John Hancock Tower Lenders Took, a 65% Haircut In 3 Years . Boston is back in the news today with another foreclosure auction. This time it’s condo related, with Chorus Bank in the thick of things.

Please consider 441 Stuart Street: What Happened?

This week, the building at 441 Stuart Street was offered to the public through a foreclosure auction. The property was most recently purchased in 2004 for $37.5MM with the intent of converting the building to condominiums.

Recorded documents show that Corus Bank, a well-known condo conversion lender out of Chicago, placed $42MM in debt on the property in 2004.

The auctioner opened at $30MM and asked if there were any bids. There were not. Next he cut the bid in half and asked for $15MM, and the bids that followed were $15.1MM, $16MM, $16.1MM, and finally $17MM. There was only one 3rd party who bid the $15.1 and $16.1 against the bank. The lender bought the property back at $17MM.

Nevermind the fact that the highest 3rd party bid for the property was less than 40% of the known debt, consider the fact that the number represents only about $100/foot. Remember that this property is in Copley Square. If retail prices for completed condos are $600-900/SF and construction costs run $150-250 per foot then that’s a margin of 40% or better – isn’t it?

It’s interesting that no one wants this building at $100 a square foot with completed condos going for $600 to $900 a square foot.

Corus Bankshares Receives ‘Going Concern’ Qualification

In Bank Watch (Apr. 12-18): CoStar is reporting Corus Bankshares Receives ‘Going Concern’ Qualification.

Corus Bankshares Inc. in Chicago announced that its audited financial statements for the year ended 2008 contained a ‘going concern’ qualification from its independent registered accounting firm Ernst & Young LLP.

Corus, with a portfolio consisting primarily of condominium construction loans, many in the hard hit areas of Arizona, Nevada, south Florida and Southern California, has seen a rapid and precipitous decline in the value of the collateral securing its loan portfolio. Thus, it is experiencing significant loan quality issues.

The net loss of $456.5 million it recorded in 2008 was primarily the result of significant increases in the provision for credit


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Weekend Reading

Tyler Durden’s Weekend Reading

  • The DTCC’s CNS naked short selling residue (Deep Capture) – must read for everyone curious about regulation SHO and the gimmickry going on in the equity shorting market.
  • How Lehman got its real estate fix (New York Times)
  • More glowering optimism from Templeton’s Mark Mobius, who sees an EM bull market, and a boost to Mexican EPS despite H1B1 (here and here)
  • "I can only hope this proves to be inflammatory nonsense" (Finem Respice)
  • Gold may be off to the races above $950 (Bloomberg)
  • Berkshire calls investment 4 replacement candidates’ 2008 performance subpar, to succeed internally (Bloomberg)
  • WHO prepares for a pandemic (WSJ)

And a personal note of gratitude for the amazing outpouring of support over the last two days – it has been unexpected, unprecedented and we are very thankful to have such generous readers. A personal thanks for donations by Andre, Barbara, Doss, Elaine, Hassan, John, Kevin, Kiran, Lexy, Mary, Matthew, Mugglenet.com, Scott, Sean and Sebastian.

Chartology:

The upcoming depletion of resources (New Scientist)

 





White House “Directly Threatened” Perella Weinberg Over Chrysler

John Carney follows up on yesterday’s article by Tyler Durden at Zero Hedge discussing the Administration’s tactics in forcing senior creditors holding Chrysler’s debt to agree to terms in the bankruptcy plan. -Ilene

White House "Directly Threatened" Perella Weinberg Over Chrysler

Courtesy of John Carney at ClusterStock

obama-geithner-happy_tbi.jpgThe White House threatened to use the White House press corps to besmirch the reputation of one of the financial firms that holds Chrysler debt, according to a prominent New York bankruptcy lawyer. If true, the explosive charge shows that the White House was willing to go much further than is widely known to have its way in the attempt to restructure the Detriot automaker.

"One of my clients was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under threat that the full force of the White House press corps would destroy its reputation if it continued to fight…That was Perella Weinberg," Tom Lauria, the head of the bankrutpcy department for top New York City lawfirm White & Case, told a WJR 760 radio host.

Perella Weinberg had been one of the firms that was resisting the Obama administration’s plans for restructuring, alongside Stairway Capital and Oppenheimer Funds. The group had argued that their position as senior creditors gave them legal rights to be paid in full before junior creditors were paid. They had put forth a counter-offer under which they would have received far less than the face-value of the debt they held, but more than the Obama adminstration had proposed. This compromise deal was rejected by the administration, and the holdouts were characterized by the president himself as unwilling to make sacrifices for the common good.

After intense political pressure, Perella Weinberg defected from the dissenters and agreed to the administrations plans. The majority of senior creditors, including several large banks such as JP Morgan Chase, had already agreed to the plan. Some critics charge that the administration used its leverage as the provider of TARP funds to force banks to comply. Lauria’s charges suggest that the administration had to get even rougher with financial firms that haven’t taken bailout money.

The suggestion that the adminsitration would direct the White House press corps, composed of newspaper reports and other journalists who cover the Whtie House, to ruin the reputation of holdouts is sure to raise the…
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Its source of funds comes from issuing cash

Courtesy of Tim Iacono at The Mess That Greenspan Made

Its source of funds comes from issuing cash

Sometimes it’s funny to read how economists describe what the Federal Reserve is doing in their ongoing quest to save the world from the effects of global deleveraging which they both enabled and condoned. This story by an anonymous economist at The Economist blazes a new trail in describing the massive increase in the Fed’s balance sheet – how it’s a good thing.

THE Federal Reserve does not set out to make bumper profits. But its 2008 annual accounts, released on April 23rd, would turn many a hedge-fund manager green with envy.

Like Wall Street’s finest, the Fed makes money on a spread. Its main source of funds comes from issuing cash, since currency in circulation is, in effect, an interest-free loan by the public to the central bank. The interest it earns on its loans and securities is almost pure profit, or “seigniorage,” most of which it remits to the Treasury. Last year the central bank reported a whopping $43 billion in operating income.

That should make you all feel better – the Fed’s turning a profit.

The fact that it buys Treasuries with money it borrows from the Treasury Department shouldn’t minimize the importance of the central bank’s bottom line, nor should the idea that a good portion of the central bank’s $1.4 trillion increase in assets has been purchased with money created "out of thin air".

*****

Here’s the story in the Economist, and here’s the press release from the Federal Reserve discussing their finances.  Do we have any economists/accounts that can resolve or explain the two views? – Ilene

 





Geithner’s New Bank Fix Is Bogus, Too

Courtesy of Henry Blodget at ClusterStock

Geithner’s New Bank Fix Is Bogus, Too

timgeithner-24march09-signs_tbi.jpgTim Geithner has a clever new way to recapitalize the banks that failed the stress test: Convert the taxpayer’s preferred stock to common stock. 

From Geithner’s perspective, this technique has several advantages:

  • The banks will suddenly seem healthy, because their assets-to-common equity ratios will rise.
     
  • Geithner doesn’t have to ask Congress for more baillout money yet.
  • Taxpayers won’t understand that they’re giving up a nice dividend and a safer security just to make the banks look better.
  • If Geithner is right that what’s wrong with the banks is just a temporary liquidity problem, the taxpayer should do well when the stocks rise. (We don’t think he’s right.)

Unfortunately, the plan also has two major flaws:  First, it’s smoke and mirrors. Second, the taxpayers are even more exposed than they are now.

Why?

Because the banks will still have the same amount of crap assets on their balance sheets, and they’ll have no more capital available to absorb these losses.  The only thing that will change is that the taxpayer will now get hit first as these losses flow through the balance sheet, instead of getting hit second, as is the case now.  The banks’ bondholders, meanwhile, will still be protected to the tune of 100 cents on the dollar (by administration policy).  Which means that if the common equity is wiped out by the losses, the government will have to dig into the taxpayer’s pockets to cover any shortfall.  (See Paul Kasriel’s detailed explanation below).

In other words, Geithner has hatched yet another plan to avoid dealing with the bank problem once and for all. 

How would he do that?

As we’ve argued, we think the best way would have been to seize the banks and restructure them.  Since Geithner has opted against the route, however, the next best way would be to convert unsecured bank debt to equity, not just the taxpayers’ preferred stock (the taxpayers’ preferred stock should have been senior to all the bondholders, but that’s spilt milk at this point).

Doing that would give the banks a much bigger equity cushion with which to absorb losses.  It would split the bank ownership up among current common shareholders, taxpayers, and current debtholders, which would help Geithner avoid having to take full control.  It would also, finally,


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Sell in May and go away: fact or fallacy?

Courtesy of Prieur du Plessis at Investment Postcards from Cape Town - Ilene

Sell in May and go away: fact or fallacy?

Where is the stock market heading? Has the rally that started in early March been exhausted? These are the key questions on all investors’ minds as financial markets remain caught between the frantic actions of central banks to get the cogs of the credit system and economy turning again on the one hand, and a still shaky economic and corporate outlook on the other.

It is therefore no wonder that even so-called “pop analysis”, including some legendary axioms, is resorted to in a quest for direction. And besides “buy low and sell high” few other axioms are more widely propagated than “sell in May and go away”. A Google search revealed an astounding 127,000 items featuring this phrase.

As equities have seen a particularly strong six-week rally, followed by what looks like the start of a consolidation/retracement of some of the recent gains, investors are justifiably questioning the market’s next move. And they nervously wonder whether this May will not only herald longer days in the Northern Hemisphere, but also live up to its reputation as the advent of a corrective phase in the markets.

The important issue, however, is whether this axiom actually has any scientific basis at all. Analyzing historical returns, the figures vary from market to market, but long-term statistics seem to show that the best time to be invested in equities is the six months from early November through to the end of April of the next year (”good” periods), while the “bad” periods normally occur over the six months from May to October.

A study of the MSCI World Index, a commonly used benchmark for global equity markets, reveals that since 1969 “good” periods returned +6.5% per annum while investors were actually in the red by -1.0% per annum during the “bad” periods.

“Sell in May and go away” also holds true for the US stock markets. An updated study by Plexus Asset Management of the S&P 500 Index shows that the returns of the “good” six-month periods from January 1950 to March 2009 were 7.9% per annum whereas those of the “bad” periods were 2.5% per annum.

A study of the pattern in monthly returns reveals
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The Cause of the Financial Crisis

Jesse’s Café Américain cites Jamie Galbraith’s article The Causes of the Crisis, adding some of their own comments.  - Ilene  

The Cause of the Financial Crisis

Jamie Galbraith leaves out a couple of key component of the ramp up to this crisis.

The corruption of the political process, increasingly dependent on large campaign contributions, by the large corporate interests set the stage for the erosion of public regulation of markets and the rule of the law.

And of course, Alan Greenspan, without whom this disaster would almost certainly have not been possible.

Dr. Greenspan, at the Federal Reserve, with a bully pulpit and a printing press.

Texas Observer
Causes of the Crisis
James K. Galbraith
May 01, 2009

…This is a panel on the crisis. Mr. Moderator, you ask what is the root cause? My reply is in three parts.

First, an idea.

The idea that capitalism, for all its considerable virtues, is inherently self-stabilizing, that government and private business are adversaries rather than partners…; the idea that regulation, in financial matters especially, can be dispensed with. We tried it, and we see the result.

Second, a person.

It would not be right to blame any single person for these events, but if I had to choose one to name it would be… former Senator Phil Gramm. I’d cite specifically the repeal of the Glass-Steagall Act—the Gramm-Leach-Bliley Act—in 1999, after which it took less than a decade to reproduce all the pathologies that Glass-Steagall had been enacted to deal with in 1933.

I’d also cite the Commodity Futures Modernization Act, slipped into an 11,000-page appropriations bill in December 2000 as Congress was adjourning following Bush v. Gore. This measure deregulated energy futures trading, enabling Enron and legitimating credit-default swaps, and creating a massive vector for the transmission of financial risk throughout the global system. …

Third, a policy.

This was the abandonment of state responsibility for financial regulation… This abandonment was not subtle: The first head of the Office of Thrift Supervision in the George W. Bush administration came to a press conference on one occasion with a stack of copies of the Federal Register and a chainsaw. A chainsaw. The message was clear. And it led to the explosion of liars’ loans, neutron loans (which destroy people but leave buildings intact), and toxic waste. That these were terms of art in finance


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US Equity Rally in Context From the Start of the Bear Market

Thoughts circulating at Jesse’s Café Américain on the current rally – bear market rally or something more promising? – Ilene

US Equity Rally in Context From the Start of the Bear Market Le Café Américain

Courtesy of Jesse’s Café Américain

So far the rally appears to be 9/10ths short covering and momentum speculation.

In order to proceed further and break through some formidable overhead resistance real buying by insitutions and individuals must appear and the volume adjusted cash flows must turn more positive.

In other words, so far a typically impressive bear market rally that may be getting overextended without a serious revaluation of the ecoomic outlook. Next week’s Jobs Report may help in that assessment.

The insiders and hedge funds still holding equities would greatly enjoy the stock piggies (institutions, 401k’s and private investors) coming back into the markets so they can continue to unload their increasingly worthless assets.

Here is the big picture. It is ‘possible’ that this is not a bear market which we are experiencing.

However, there is a dramatic spread between ‘possible’ and ‘probable’ that even our mighty Fed and Treasury cannot easily diminish with their printing presses.





 
 
 

ValueWalk

NZX Stock Pitch

By VWArticles. Originally published at ValueWalk.

NZX summary Via Elevation Capital

Seth Klarman: A Bubble Warning From The Past

EXECUTIVE SUMMARY
§ NZX operates a monopoly-like business that retains the ability to at least grow in line with GDP; however,
§ The business has suffered from ill discipline over the past five years, with operating margin declining by over 50%, and total
return to shareholders of +22.5% significantly underperforming the NZX50’s +105.1%.
§ While the Agri data and publishing businesses have in the past been strong contributors to profit, the publishing landscape
has changed, and NZX was slow to react;...



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Zero Hedge

Lacy Hunt: The Fed Has Undermined The Economy's Ability To Grow

Courtesy of Zero Hedge

By Stephen McBride via MauldinEconomics.com

The Fed’s hope was that quantitative easing would stimulate economic growth. But a former senior economist for the Fed believes it has done the exact opposite.

Speaking at the Mauldin Economics Strategic Investment Conference, Dr. Lacy Hunt, the executive vice president of Hosington Investment Management and former senior economist for the Dallas Fed, said that quantitative easing has created “significant unintended consequences.”

The Worst Expansion in US History

...



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Phil's Favorites

Wholesale and Retail Inventories Rise Led by Autos: Diving Into Seasonal Adjustments

Courtesy of Mish.

On Monday, Census Department data showed durable-goods orders declined 1.1% for the month.

Yet, despite falling sales and a warning from GM, durable goods orders for autos and auto parts rose 1.2% in May. That was on top of a 0.5% gain in April.

The auto mystery continues as today’s advance trade data from the Census Department shows Wholesale inventories rose 0.3% and retail inventories rose 0.6%. The auto-related details were even more interesting.

International Trade in Goods by Category

Auto imports f...



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Insider Scoop

Vetr Crowd Downgrades Snap To 4 Stars

Courtesy of Benzinga.

Since reaching its all-time high in February, Snap Inc (NYSE: SNAP) has traded down all the way down to its $17 IPO price, and the Vetr community has downgraded the stock from 4.5 stars to 4 stars. The company’s first earnings report saw misses on both EPS and revenue estimates.

See how crowdsourced ratings can help predict the market?

Vetr members have given Snap a Buy rating and a $19.38 price target. This price target fairs lower than the $23.08 price target from professional analysts. The stock opened Wednesday around $17.35.

Of all Vetr raters, 62.9 percent believe traders and inve...



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Mapping The Market

The App Economy Will Be Worth $6 Trillion in Five Years

Courtesy of Jean-Luc

This would be excellent news for AAPL and GOOG to a lesser extent although not inconsequential:

The App Economy Will Be Worth $6 Trillion in Five Years 

In five years, the app economy will be worth $6.3 trillion, up from $1.3 trillion last year, according to a report released today by app measurement company App Annie. What explains the growth? More people are spending more time and -- crucially -- more money in apps. While on average people aren't downloading many more apps, App Annie expects global app usership to nearly double to 6.3 billion people in the next five years while the time spent in apps will more than double. And, it expects the...



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Chart School

Semiconductors Experience Heaviest Loss

Courtesy of Declan.

Yesterday's losses followed through with fresh declines on higher volume distribution. Worst hit was the Semiconductor Index as it gave up nearly 3%. Today's finish left it at rising channel support and a chance for bulls to mount a rebound. Technicals are net bearish after stochastics undercut the mid-line which suggests a more prolonged trend lower is in the making.


The Nasdaq followed the loss of the 'bull trap' with a breakdown of rising support. This left the index on its 50-day MA which may give b...

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OpTrader

Swing trading portfolio - week of June 26th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Biotech

We have a vaccine for six cancers; why are less than half of kids getting it?

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

 

We have a vaccine for six cancers; why are less than half of kids getting it?

Courtesy of Electra D. Paskett, The Ohio State University

Early in our careers, few of us imagined a vaccine could one day prevent cancer. Now there is a vaccine that keeps the risk of developing six Human Papillomavirus (HPV)-related cancers at bay, but adoption of it has been slow and surprising low.

Although it’s been available for more than a decade, as of 2014 only 40 percent of girls had received the full three doses of the vaccine, while only ...



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Digital Currencies

Bitcoin Buyer Beware

Courtesy of Zero Hedge

Entrepreneurs have a new trick to raise money quickly, and it all takes place online, free from the constraints of banks and regulators. As Axios reports, since the beginning of 2017, 65 startups have raised $522 million using initial coin offerings — trading a digital coin (essentially an investment in their company) for a digital currency, like Bitcoin or Ether.

One recent example, as NYT reports, saw Bay Area coders earn $35 million in less than 30 seconds during an online fund-raising event...



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Promotions

NewsWare: Watch Today's Webinar!

 

We have a great guest at today's webinar!

Bill Olsen from NewsWare will be giving us a fun and lively demonstration of the advantages that real-time news provides. NewsWare is a market intelligence tool for news. In today's data driven markets, it is truly beneficial to have a tool that delivers access to the professional sources where you can obtain the facts in real time.

Join our webinar, free, it's open to all. 

Just click here at 1 pm est and join in!

[For more information on NewsWare, click here. For a list of prices: NewsWar...



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Members' Corner

Robert Sapolsky: The biology of our best and worst selves

Interesting discussion of what affects our behavior. 

Description: "How can humans be so compassionate and altruistic — and also so brutal and violent? To understand why we do what we do, neuroscientist Robert Sapolsky looks at extreme context, examining actions on timescales from seconds to millions of years before they occurred. In this fascinating talk, he shares his cutting edge research into the biology that drives our worst and best behaviors."

Robert Sapolsky: The biology of our best and worst selves

Filmed April 2017 at TED 2017

 

p.s. Roger (on Facebook) saw this talk and recommends the book ...



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Kimble Charting Solutions

Brazil; Waterfall in prices starting? Impact U.S.?

Courtesy of Chris Kimble.

Below looks at the Brazil ETF (EWZ) over the last decade. The rally over the past year has it facing a critical level, from a Power of the Pattern perspective.

CLICK ON CHART TO ENLARGE

EWZ is facing dual resistance at (1), while in a 9-year down trend of lower highs and lower lows. The counter trend rally over the past 17-months has it testing key falling resistance. Did the counter trend reflation rally just end at dual resistance???

If EWZ b...



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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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