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Moving Averages: Determining Trend and Avoiding Whipsaws
The moving average is a simple tool designed to help you easily determine the underlying financial trend of a stock, bond, commodity, mutual fund, or any other financial instrument. According to Wikipedia a moving average is “commonly used with time series data to smooth out short-term fluctuations and highlight longer-term trends or cycles. The threshold between short-term and long-term depends on the application, and the parameters of the moving average will be set accordingly. For example, it is often used in technical analysis of financial data, like stock prices, returns or trading volumes.”
Moving Average
The moving average is often the first tool that budding forex traders encounter. Put simply, it is the average of an instrument’s price plotted over time. You will almost always find the moving average plotted alongside the price itself on a chart. You may find it useful for determining if the price is in a trend.
The first thing that you’re likely to notice about the price’s relation to the moving average is that it is always either above or below it. At first glance, this may seem incidental. However, you should not overlook it. If the price is above the moving average, then you know immediately that the price has been rising more than falling.
Conversely, if the price is below the moving average, it follows that the price has been falling more than rising. This alone does not tell you whether the price is in a trend, because it has a tendency to run flat at times. Still, you can use this relative position to immediately get a feel for price direction over the last several periods.
Drilling Down into Oil and Gas Prices
Casey Research Summit Special Report Part II: Drilling Down into Oil and Gas Prices
The private panel that began with three key speakers at the April 27-29 Casey Research Recovery Reality Check Summit continues with a second installment in today’s Energy Report. This exclusive features Casey Energy Opportunities Senior Editor Marin Katusa, Global Resource Investments Founder and Chairman Rick Rule and Casey Research Senior Editor Louis James, turning their attention to oil and natural gas prices and opportunities in equities.
Source: Karen Roche and JT Long of The Energy Report (5/10/12)
The Energy Report: Since we last talked in November, oil went from $90–110 per barrel (bbl). Has it established a floor that will stick? Or, as Porter Stansberry predicted during the summit, is it getting ready to crash? He said that using the same sorts of technology that brought on the glut of natural gas will lead to finding too much oil and driving its price down.
Marin Katusa: Porter was basing his comments on the success of shale gas in North America, and with that you have natural gas liquids and some oil. In North America, gas became a victim of its own success, worsened by a warmer-than-expected winter. But understand that gas, in general, has very localized markets.
When it comes to the oil sector, people think Exxon Mobil Corp. (XOM:NYSE); Royal Dutch Shell Plc (RDS.NYSE.A/B) and ConocoPhillips (COP:NYSE) are the biggest players. The big players are actually the national oil companies (NOCs)—Saudi Aramco, Petróleos Mexicanos (Pemex) and Petróleos de Venezuela, which are not reinvesting in operations and exploration. Their production is decreasing as a result. Cantarell, in Mexico, is one of the greatest oilfields in the world, but it’s decreasing by 3.5% every year. The NOCs are distributing profits to fund massive social programs. For instance, more than 55% of Venezuela profits from oil-funded social programs.
By the way, America imports more than a million barrels of Venezuelan oil each day and pays a premium over what it pays for domestic oil. But that’s another story.
I don’t necessarily agree that the same reasons why natural gas in North America went under $2 per thousand cubic feet (Mcf) would apply globally. India is signing $14–$15/Mcf and more; Japan is at $15/Mcf-plus. It’s twice that in Europe. So North America is a unique case; the rest of the world is nowhere near that when it comes to shale exploration.
TER: Will that change when the U.S. starts exporting in 2015 or so? Continue reading
Economic Volatility
Is Economic Volatility Coming?
Source: Karen Roche and JT Long of The Gold Report (5/9/12).
One special session at the April 27–29 Casey Research Recovery Reality Check Summit wasn’t on the agenda—a private panel for The Gold Report readers with three of the premier summit speakers: Global Resource Investments Founder and Chairman Rick Rule, Casey Research Senior Editor Louis James and Casey Energy Opportunities Senior Editor Marin Katusa. You won’t pin them down to a timeframe, but they’re looking forward to a buyer’s market, as equity prices fall and volatility increases. As Rule puts it, “When the luster is off the sector, it’s off all parts of the sector, so in bad markets the best companies are cheap. When the best come cheap, you have to play.”
Casey Research Summit Special Report: Reality Check or Checkmate?
The Gold Report: When we talked last fall after the When Money Dies summit, Rick, you were looking forward to the volatility preceding the decline of paper currencies as an opportunity to take advantage of the liquidity crisis.
Rick Rule: The volatility I anticipated didn’t happen because the amount of quantitative easing—I would call it counterfeiting—was extraordinary. That cash coming into the system acted as a soporific, so the volatility I had hoped for did not in fact come to pass. People whose portfolios declined probably felt they experienced volatility, but I think it was the weight of the chronically overvalued junior resources sector. Probably 80% of the sector is nonviable and in a state of permanent decline, with the market occasionally punctuated by up moves driven by performance among the best companies.
TGR: So, you were disappointed.
RR: I was very disappointed. I expected a Volatility S&P 500 (^VIX) in the range of 30. For somebody who makes a living basically as a pawnbroker, there are no better circumstances than extraordinary volatility. I didn’t get to practice my trade.
TGR: Do you think it will change in the second half of 2012? Continue reading
What Is Contrarian Speculation?
Rick Rule’s Primer on Contrarian Speculation
In an interview with Louis James, Rick Rule provides an excellent summary of what contrarian speculation investment is and makes a powerful case that the current metals climate means gold stocks are the play to make.
[If you weren't present at this timely summit, you can still learn the details of Rick's current investment strategy, plus much, much more. Get the actionable advice and economic perspectives and insights of 31 financial luminaries to make sure you don't miss the opportunities ahead.]
Louis James: Ladies and gentlemen, welcome. Thank you very much for tuning in. We are at the Casey Research Summit – the reality check on the recovery of the economy. One of our luminary speakers who is always at our events, Rick Rule, is with us here now. We’d like you to give us the quick tour of your talk today and we’ll go from there.
Rick Rule: Sure. My role here wasn’t to do economics; that’s not what I am. I am a speculator, and so I talked about where we are in the context of where people are with their own portfolios – in particular portfolios that are junior-resource centric – which is what I think most of your audience was interested in.
Louis: Right.
Rick: And my point was that there were some good forces in the market: lots of cash on the sidelines; some good work being done; and basically a good market for resources as a consequence both of population growth and demographic growth at the bottom of the economic pyramid, and in terms of historical supply constraints. And there were some bad factors in the market: excessive debt in the system; way too much government interference; very large social takes on a global basis, beginning to impact extractive industries. And there were some truly ugly factors – the ugly factors in particular being poor corporate as opposed to share market performance, and the unfortunate truth that probably 80% of the junior resource stocks on a global basis are valueless. So the sector itself is in perma-decline. Although the performance – as you know from being affiliated with Casey – of the top 10% of the sector can be extraordinary. It often serves merely to focus attention on the worst companies in the sector. And then I went on to say: “This is the set of circumstances that exists, now what can we do with this?” Continue reading
What are Company Bonds?
Company Bonds
Company bonds have been a hot topic in many financial publications including the Wall Street Journal lately, though you might not be familiar with the term. Allow me to offer a brief primer on the topic.
Company bonds (aka corporate bonds) are a type of debt security issued by companies to raise capital. A related form of debt is a “debenture.” Debentures are corporate bonds that are NOT secured by any assets or line of income. Companies of varying sizes and states of profitability will issue bonds as a means to generate funds for any number of reasons pertaining to long term growth and investment. For instance, investors might buy bonds from a start-up company with a solid business model but little capital so as to help grow the business. Company bonds are a critical source of funding for all companies from those in their infancy trying to finance projects, pay employees, or invest in long term plans for expansion, to well established corporations interested in updating a multimillion dollar plant or enter a new global market. Let’s take a closer look at the mechanics of company bonds and how they function within the greater financial market. Continue reading
Is it a Good Time to Buy REITS?
Buy Rental Property or a REIT?
Although many individuals prefer rental units as additional income, one of the last things you probably want to do in your retirement is to find renters and deal with the drama that comes from having them rent for you. You have to find tenants with reliable income, continue to provide maintenance and other support for them, and worry about potential problems with non-payment or other issues.
Buy REITS?
Traditionally, one of the best retirement investment options is a real estate investment trust (REIT). According to Wikipedia:
A REIT or “real estate investment trust” is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.
As opposed to buying rental homes or properties, REITs offer a lot of diversification and are very liquid. It’s easy to sell REIT shares on the stock market and they are usually very stable. On the other hand, houses can be difficult to liquidate and people are finicky, leaving landlords with a lot of potential risk. Continue reading
European Trends: Slowing Momentum
Today we have an interesting look at the trends in the European Financial Market from guest author Chris Ciovacco, Chief Investment Officer of Ciovacco Capital Management.
European Financial Market
As noted in the video below, the markets have little margin for error from a technical perspective, which means they have been in need of some good news. Good news did come this morning from Europe in the form of better than expected factory orders in Germany. On Sunday night, S&P 500 futures hit a low of 1,342. As of 8:30 a.m. EDT, they stood at 1,358 or 16 points above Sunday night’s low.
Why were the S&P 500 futures so weak on Sunday night? Elections were held over the weekend in France and Greece. The markets knew there was going to be some political turnover, but the magnitude of the turnover, especially in Greece, was worse than anticipated. Two key problems have surfaced:
- It will be very difficult to form a new government in Greece with no clear majority party/coalition coming out the other side of the elections. It is possible another round of elections will need to be held creating more fear, uncertainty, and doubt for market participants.
- Nicolas Sarkozy was ousted by disgruntled voters in France. The Sarkozy-Merkel tag team is no more, creating uncertainty relative to the direction of future debt crisis policy.
A third problem relates to the European market’s slowing momentum from a technical perspective. Daily and weekly charts have little room for error as of Friday’s close. Given the news from Europe over the weekend, it is unlikely the technicals will improve during Monday’s session. The video below shows clear deterioration in trends and momentum; it also explores an excellent way to monitor the battle between “risk on” and “risk off”.
One thing we have noticed over the years while building financial models is markets that are on the edge technically can find their footing just as they appear to be ready to accelerate to the downside. That’s not a forecast for the current market, which remains on the edge technically, but it serves as a reminder to keep an open mind about where we go from here.
About the Author:
Chris Ciovacco, is Chief Investment Officer of Ciovacco Capital Management. Chris Ciovacco has been managing money and serving investors for over 16 years. He is a regular contributor to Financial Sense, Seeking Alpha, and Safehaven. Mr. Ciovacco has been quoted in several media outlets, including the Dow Jones Wire Service, MarketWatch, Fox Business News, the Atlanta-Journal Consitution, and Nasdaq.com.
Is an Economic Deluge Nigh?
By David Galland, Casey Research
If history has taught one certain lesson, it is that the less fettered an economy, the better humankind is able to do what it does best: run from trouble and run toward opportunity. In this way mistakes are quickly resolved and progress assured.
Conversely, the deeper the muck of regulation, mandates, taxes, subsidies and other bureaucratic meddling, the slower we humans are in following our natural instincts until the point that progress is slowed or even stopped.
It is said that history doesn’t repeat itself, but it often rhymes. In the current circumstances, it appears that enough time has passed that current generations have completely forgotten the critical connection between the ability of humans to freely pursue their aspirations and economic progress.
You can see this ignorance in the popular demand for even more, not less, meddling in the affairs of humankind. Should this trend continue – and for reasons I will touch on momentarily, I firmly believe it will – then the aspirations of the productive minority will soon be dampened by ever higher taxes and other attempts to “level the playing field” and the global economy, already in tatters, will fall off the edge. Continue reading
Investing in a Mutual Fund
Mutual Funds
Even in the wake of the Great Recession, the mutual fund has proven itself a worthy investment for the average person. In fact, many people are actually looking towards mutual funds as their hedged bet into the world of variable investments.
In order to fully understand how to invest in a mutual fund, you must first understand exactly what a mutual fund is.
What Is A Mutual Fund?
A mutual fund is a basket of investments that is chosen by a management team for the profitability of the investors. This is why many financial investors actually say that when you are investing in a mutual fund, you are investing in the reputation of the managers as well as the reputation of the underlying businesses.
Mutual funds usually have some kind of theme that combines the investments in the basket. For instance, all of the investments may be related to the precious metals market. In this case, the title of the mutual fund would be something like “Bank X Precious Metals Growth Fund.” Although the title of the mutual fund can give insight as to the underlying investments, they may only represent the top percentage of holdings. We recommend that you check into the actual underlying investments that are currently being held in the mutual fund to be sure that it is actually investing in what you think it is.
How Mutual Funds Work
The main idea behind a mutual fund is to allow an investor to instantly diversify their investments with a single purchase. The managers will spread out the total money collected from the investors into companies that are related to the theme of the mutual fund. Because of this, mutual funds are usually thought of as a relatively safe investment that is made for those of a lower risk tolerance. However, the rewards that accompany a mutual fund are usually not comparable to those of individual securities and short-term. They may be in the long-term depending on many variables.
Mutual funds have a scale of risk that is associated with a general view of the mutual fund market. If a mutual fund is marked as a “growth fund,” this means that investors should invest in this fund with the hopes of growing their investments over a certain time period. However, Continue reading
Oil Prices < $40/Barrel?
Marin Katusa vs. Porter Stansberry on Oil Prices
At the latest Casey Research conference, respected investment analyst Porter Stansberry stood at the podium and predicted that the price of oil will fall below US$40 per barrel within the next 12 months. Part of his reasoning revolves around the impact that the shale gas revolution has had in the United States – he believes a similar thing will happen with oil.
Porter is a friend of mine and a very smart, successful individual… but I think not.
From my perspective, the pressures at play in the oil market are all pushing prices in the opposite direction: up. Global supplies are tightening, costs are rising, and demand is not falling. Prices are going to remain high, and then go higher. And there will not be a shale oil revolution anytime soon.
I’m the kind of guy who puts his money where his mouth is, so I challenge Porter to a bet. I bet Mr. Stansberry that the price of oil will stay above $40 a barrel over the next 12 months. The wager? 100 ounces of silver.
Porter has made a lot of good calls in his career. I highly recommend watching his video The End of America, an interesting and entertaining look at his prediction that the US will soon drown in its debts and cease to be a global economic powerhouse, a transition that will lead to riots across the country.
Porter and I agree on a lot of things, but on this one he’s wrong. Below are my top ten reasons that high oil prices are here to stay. Continue reading
