Technical Analysis - February 23 2009

S&P500 (770, last week 827 or -6.9% w.o.w)
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This will be the second week of hefty losses. The Daily MACD and MACD Histogram had a negative crossover 5 sessions ago and has thus joined the Daily Parabolic SAR, Guppy MMAs and DMIs (+ve and –ve) turning bearish. For the weekly readings, the MACD and MACD Histogram are still positive but the Parabolic SAR has just turned negative. The weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still weak. Support is around 700 and resistance at 820.
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KLSE CI (890, last week 910 or -2.2% w.ow)

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Despite the daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) have all turned positive during last week, indicators such as MACD and DMI (+ve and –ve) are now slowly flashing negative although no crossover downwards yet.. The weekly charts MACD and Parabolic SAR continues to be positive but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still otherwise. The index is expected to trade between 860 and 910.

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HangSeng (12,699, last week 13,555 or -6.3% w.o.w )

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With a hugh drop during the week, the daily indicators like Parabolic SAR, MACD and MACD Histogram dips under water again. As of weeks ago, the DMI (+ve and -ve) and Guppy MMAs continue to be negative. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish . Support is seen at 12,000 and resistance at 13,200.

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Nikkei 225 (7,416, last week 7,779 or -4.7% w.ow)

All the daily indicators like the Parabolic SAR, MACD, MACD Histogram, Guppy MMAs and DMIs (+ve and –ve) are bearish now. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR, Guppy MMAs, ADX trend and DMI (+ve and –ve) are still weak. Support is seen at 7,000 and resistance at 8,000.

* Bloomberg: South Korea is prepared to support won, banks as market tumbles.

* Bloomberg: Asia agrees on USD120B pool of currency reserves as crisis worsens.

* BT: Macquarie:- Investors positive on Malaysia stocks. It picks Genting, AMMB, KNM, TMI and Tenaga.

* InvestorsBizDaily: Clinton urges China to keep buying US Treasurys.

Smart Investing/Trading for the week ending February 20 2009

US markets Update and Outlook

Stocks at the mercy of nationalization debate

MarketWatch: U.S. stocks are likely to face choppy waters next week, as the debate about whether or not to nationalize banks intensifies along with growing investor demand to rid the financial system of its toxic assets.

"Financial markets appear to be fixated on 'toxic' assets, and until they are removed from bank balance sheets, pressure will remain on the sector," said Benjamin Reitzes, an analyst at BMO Capital Markets. It's a week full of home sales and real-estate data, and Ben Bernanke heads to Capitol Hill for two days of testimony. Home Depot, Dell and others report earnings, and Microsoft has annual strategy meeting. Such concerns have helped drive the Dow Jones Industrial Average to fresh six-year lows. For the week, the blue-chip average fell more than 6%, marking its worst week since October of last year. The broad S&P 500 index fell nearly 7% for the week, while the Nasdaq Composite lost 6%.

A big chunk of the pain came from the financial sector, where Bank of America sank to new lows and Citigroup fell to an 18-year low on Friday amid concern the government may take over the banks, wiping out their shareholders. Senate Banking Committee Chairman Christopher Dodd on Friday said banks may have to be nationalized for a short time, according to Bloomberg News. But Robert Gibbs, the White House press secretary, said the Obama administration supports a privately held banking system. While the comments seemed to help financial shares come off their lows Fridays, stocks on Wall Street have again taken a turn for the worse since last week after Treasury Secretary's Tim Geithner unveiled a plan to help ailing banks.

Many analysts complained that the plan was short on details, specifically, on how the government would deal with the toxic assets that have plagued banks' balance sheets and the financial system for more than a year and a half.

"Unless investors are somehow convinced the assets are worth more or banks are willing to sell for less, the only option might be broad nationalization," BMO's Reitzes said in a note. Yet, he added, it was that very "prospect that helped drive U.S. banking shares to their lowest level since the early 1990s this week."

Not all asset classes lost over the past week, as investors seeking a safe haven led gold to top $1,000 an ounce for the first time since March of 2008. Still, the lack of follow-through from gold mining stocks isn't sending much of a bullish signal, according to some analysts. As commodity prices have plunged over the past year, the materials sector, which includes the shares of mining and chemical firms, has seen its profits collapse. In the fourth quarter, profits in the sector are down 82% from the year-earlier period, making materials the second worst performing sector of the S&P 500, after financials.

Overall earnings are now expected to have fallen 42.1% for the fourth quarter, according to Thomson Financial. This would mark the worst earnings growth rate since Thomson began tracking earnings 10 years ago. "The weakness is now spread out across multiple sectors and it looks to continue at least through the third quarter," said John Butters, earnings analyst at Thomson.

The first quarter is looking increasingly grim, with the ratio of negative to positive company forecasts jumping to 5.9 to 1, compared with a usual ratio of 2 to 1 historically.

Whereas health care, consumer staples and the utilities sectors had still posted slight earnings growth in the fourth quarter, all 10 sectors of the S&P are now expected to see their earnings fall in the first quarter, according to Thomson.

Next week, another 51 S&P 500 companies will report results, including Dow component Home Depot another update on the housing market, with the December S&P/Case-Shiller Home Price Index, followed by a survey of consumer confidence in February by the Conference Board. And Fed Chairman Ben Bernanke will deliver his semiannual report on monetary policy and the state of the economy, at the Senate Banking Committee. Wednesday will bring existing home sales figures for January, followed by new home sales date on Thursday. Also on that day will be data on durable goods orders for January and weekly jobless claims. On Friday will be a February manufacturing survey from the Chicago region, followed by another February reading of consumer confidence, this time by the University of Michigan. Also on Friday, will be a second estimate of gross domestic production in the fourth quarter. "Weaker business inventory and trade data suggest the second estimate for the fourth quarter GDP [...] will show a meaningful downward revision to something around negative 5% from the initial estimate of negative 3.8%," said William Knapp, investment strategist at MainStay Investments.

Weekly KLSE Update and Outlook

StarBizWeek(MarketWatch): The local bourse could not make much progress despite breaking out of the 21-week simple moving average for the first time in 12 months a week earlier, as investors were not enthusiastic to take up new positions due to frail offshore leads. Instead, they opted to book profit.

Despite that, Bursa Malaysia was holding quite well given the trauma the US market had been through the past week.

According to the daily chart, the recent breakthrough in the CI appears a half-hearted move for now and going forward; Bursa may just be range-bound due to limited participation from investors amid a dearth of market-stimulating news.

In short, there is still no solid confirmation of the recent bullish reversal but we will continue to look out for that.

While the weekly MACD is firming, the daily MACD is at a risk of flashing a sell. Given the tricky technical reading, the key index may channel sideways pending a new lead to emerge. Support 886, 860-863 and 835. Resistance at 925, 936.63, 946-950, 963.

* MarketWatch: Russian boom ends as resource wealth vanishes

* Japan leaves interest rate at 0.1%.

Gold and Dollar, Rising Together

"The rally in the US dollar and gold is telling the market that investors are worried about global economic stability outside of the US and therefore they are preparing for the worst".

Please continue to read here for Kathy Lien's interesting article on the concurrent rise in gold and USD and its implication.

* North Korea warns of war as Clinton heads for Seoul

* BT(Singapore): Beijing will increasingly use its USD2T in foreign exchange reserves to support domestic growth and to finance the overseas expansion of Chinese companies.

Yen heading for a fall?

Japan has been attracting all kind of negative news lately. The "unbelievable" contraction in its economy which contracted at its quickest pace in 35 years , resignation of its Finance Minister Shoichi Nakagawa who was allegedly intoxicated during a G7 Press Conference in Rome, the recent big drop in the approval ratings of its PM Taro Aso's and Clinton's visit to Japan which include a courtesy call to Japan's opposition party leaders are some of the recent "lowlights" for the country. Also, in recent times, there have been calls for the Japanese government to intervene in the money market to slow down the Yen's appreciation. A strong Yen will eventually kills the Japanese economy(or has it not already) and have repercussion to world trade. Here are some of the current views from analysts on this subject:

The Yen needs to depreciate

SeekingAlpha.com: An excessively strong Yen goes against the interest of everybody except those who have longed Yen......

It is frustrating for me to observe Japanese officials trying to bolster the stock market but doing nothing to avert the senseless appreciation of the Yen. At such levels, almost every manufacturing concern in Japan would fail. Artificially supporting stock prices would not work! But the Bank of Japan can sell Yen; indeed it can sell as much Yen as the market wants. There is no worry this will create excess liquidity, because should the Yen depreciate excessively, and at any sign of inflation, the central bank can mop up the excess Yen just as easily as it had sold the Yen in the first place.

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The excessively strong Yen is not helping other countries to export to Japan at all, because when unemployment and bankruptcies are on the rise, Japan's imports can only go down. In part because Japan's share in world trade is shrinking fast, world trade is also shrinking fast, hurting everybody. Order needs to be restored to the foreign exchange market before the world's second largest economy can have any chance of recovering

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The yen is heading for a fall

FT:Com: The yen is overvalued and its status as a “safe haven” currency is likely to come under scrutiny, says Michael Metcalfe, head of global macro strategy at State Street Global Markets.

He argues that analysts typically fall back on either current account positions or, better still, net foreign asset positions as a guide to which currencies should perform in times of heightened risk aversion. “The rationale is that investors respond to reduced risk appetite by cutting their exposure to international investments,” Mr Metcalfe says.

This theory appears to be supported by the fact that Japan has one of the largest surpluses on its net foreign asset position – and therefore the biggest potential for repatriation flows – and the yen has appreciated strongly.

Getting the Yen Back to Previous Levels Could Help Ease Current Pressures

SeekingAlpha.com: The two currencies causing problems for the world’s reflationary efforts just now are the yen and the dollar. Both are too strong. Equally, the yen and the dollar this decade have played key, global roles in the extension of credit via their structural weakness. While I’m not making a case for resurrection of conditions that got the world into its current mess, it’s certainly true that the global policy response is an attempt at stabilization. Getting the yen back towards its previous carry-levels would do a lot, right now, to ease pressures.

Here are two possibilities. One, the dollar is devalued against gold. Second, Japan essentially lends yen interest free to the IMF, which forms the backing of a large expansion of its balance sheet of SDRs. Those SDRs are then used to recapitalize banking systems from Austria, to Ireland. The result of these two actions is that the brunt of the dollar devaluation is borne in part by gold, to ease the race-to-the-bottom effect on other currencies. In the case of the yen, weakness does get restored against most foreign currencies, but, Europe is willing to pay that price as a recipient of IMF recapitalization.

These are of course elaborate and sophisticated methods to accomplish something simple: Money Printing. Global devaluation of paper currencies, reflation, and rescue of banking systems. Those are the goals. The world will be no richer for it.

* Ovarian cancer and talcum powder.

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* Report On Yuan Depreciation Remark False

* Bloomberg: GM, Chrysler seeks up to USD21.1B in first aid, plan to cut 50,000 jobs.

* East Europe faces deep recession.

* FT.com: Gold went to a 7 month high of USD972.65 a troy ounce after Russia's central bank planned to increase gold holdings with its overall foreign exchange reserves.

What's feeding the Chinese stock rally?

Many economists expect China's economy to recover early this year backed by the government's four-trillion-yuan stimulus plan. Many are also confident it would embrace on an early recovery before global economy picks up. As a result, there were a lot of buy calls for China stocks, example here. Due to these factors, the recent run up in China's stock markets may not be too shocking to many. (The above chart is the comparison between The Shanghai Stock Exchange CI -which gained almost 30% and S&P500 -which lost almost 10% over a period of 3 months)

However, I was shocked when I read the article below. China using stimulus money to prop up the share markets???...it will only create short term gain but long term pain. There is no real economic benefit to push up the share prices of the companies. Nevertheless, such strategy has been practiced by many countries for many years before China though.

NakedCapitalism: The China bulls have commented approvingly on the growth in loans in China, seeing it as a sign of pending recovery, along with an upswing in stock prices. We've pointed out that economist and China commentator Michael Pettis has heard quite a few reports that many of these loans were in fact sham transactions to meet government targets. And now it gets even better. One analyst estimates that more than 1/3 of the total "new" lending (assuming that the loans were truly extended) may have gone into the stock market.

From Bloomberg (hat tip reader Michael):

Chinese companies may be using record bank lending to invest in stocks, fueling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co. As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures. China’s banks lent a record 1.62 trillion yuan in January as part of a government drive to stimulate the world’s third- largest economy, while M2, the broadest measure of money supply, climbed 18.8 percent from a year earlier. The Shanghai Composite has surged 29 percent since the start of 2009, compared with a 10 percent decline in the MSCI World Index.

* BT: How much are Malaysia's richest worth now?

* BT: Citi: Worst yet to come for developers.

* TheStandard: Japan's Finance Minister said he will resign, after denying being drunk at a G7 meeting in Rome recently where he appeared incoherent and slurred his speech.

* Eliz Wong to quit?

Technical Analysis - February 16 2009

S&P500 (827, last week 869 or -4.8% w.o.w)

Another volatile week. Although index was up strongly a week earlier, the following week was a "strong down". The Daily Parabolic SAR which was the first to turn bullish is now bearish for the last two trading sessions. The Daily MACD has hooked down but has not crossover negatively yet. The MACD Histogram is still holding on while Guppy MMAs and DMIs (+ve and –ve) are remains negative. For the weekly readings, the MACD, MACD Histogram and Parabolic SAR are still positive. The weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. Support is around 820 and resistance at 900.

KLSE CI (910, last week 897 or +1.4% w.ow)

The daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) have all turned positive during the week. The weekly charts MACD and Parabolic SAR continues to be positive but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. The index is expected to trade between 860 and 931.

HangSeng (13,555, last week 13,655 or -0.7% w.o.w )

The daily indicators like Parabolic SAR, MACD and MACD Histogram continues to be positive. The DMI (+ve and -ve) and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish . Support is seen at 13,000 and resistance at 15,000.

Nikkei 225 (7,779, last week 8,077 or -3.7% w.ow)

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Following S&P500, the Daily Parabolic SAR which was the first to turn bullish is now bearish for the last two trading sessions. The Daily MACD has hooked down but has not crossover negatively yet. The MACD Histogram is still holding while Guppy MMAs and DMIs (+ve and –ve) are remains negative. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR, Guppy MMAs and DMI (+ve and –ve) are still negative. Support is seen at 7,500 and resistance at 8,600.

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* China's FDI falls 32.6%

* Japan's GDP plunges at 12.7% annual rate in Q4 of 2008.

Smart Investing/Trading for the week ending February 13 2009

Weekly US Markets Update and Outlook

Stocks to cut their apron strings with Washington

Wal-Mart, economic data to dominate; bad-bank plan could still make waves

MarketWatch: U.S. stocks, at the beck and call of Capitol Hill in the past month, get a chance to cut those ties in the week ahead, as Congress heads home and a smattering of corporate and economic releases take over the calendar.

During a holiday-shortened week, earnings from Wal-Mart Stores Inc. and Deere & Co. round out a quarterly reporting season notable for the gallons of spilled red ink.

Investors on watch for early signs of an economic turnaround also will wade through two economic surveys on how business and the housing market are faring this month, plus January's industrial activity and inflation.

"Everyone knows that the economy is weak, but the consensus is that the economy will bottom in the summer," said Alec Young, equity strategist for Standard & Poor's equity research unit. "If you see the numbers miss, it makes it harder for investors to believe things will get better."

News out of the Beltway could still wreak havoc across traders' screens when they return from the President's Day holiday weekend Tuesday. U.S. Treasury Secretary Timothy Geithner could fill in the details of his recently announced plan to partner with private investors to wipe the bad assets off banks' books. Stocks sold off sharply in the past week, after analysts said the plan fell short of the needed fix for the beleaguered banking system.

Geithner has yet to detail how much the government will pay to take bad loans and securities off the balance sheet of banks. Too low a price for these illiquid assets would likely cause some banks to take a fresh round of charges, further pushing off a recovery in the financial system. "There will be a lot of speculation as to whether Geithner comes out with the details," said Greg Valliere, senior political strategist at Stanford Financial Group in Washington, D.C.

The Treasury or the FDIC could reveal how it plans to value toxic mortgage-related assets by rescuing a struggling financial institution, according to analysts.

For weeks, mixed sentiment about the progress of a second economic-stimulus package and the Treasury's bank plan has teased the benchmark indexes.
Optimism over both underwrote a rally in stocks during the first week of February. But the S&P 500 Index and Dow Jones Industrial Average gave back most of those gains in the past week, making spectacular intraday dives on Tuesday and Thursday, on disappointments that both programs would fall short.

The S&P 500 and the Dow both lost about 5% for the week ended Feb. 13.
Stock investors shut the door on one source of that volatility Friday, when Congress prepared to push through a sprawling, $787 billion stimulus package backed by President Barack Obama. He is expected to sign the bill into law on Monday. "It's going to be a quiet week because Congress is out," Valliere added.
Legislators heading home for the President's Day holiday typically take the week off to spend time with voters and donors.

Future news about the stimulus will involve details of its implementation, such as how "shovel-ready" infrastructure projects are and when certain tax changes will go into effect, Valliere pointed out. But for now, distraction from that legislation is likely to give ground to reports from the economy and corporations.

Wal-Mart, inflation

The world's largest retailer is expected Tuesday to report a lower profit for its fiscal fourth-quarter, hurt by higher expenses and a stronger dollar. Analysts expect Wal-Mart will earn 98 cents a share, excluding a charge from class-action lawsuits. Reports from retailers J.C. Penney Co. and Lowe's Co. follow later in the week.

Companies are closing the books on an earnings season that has made records for its dismal performance.

Reported earnings, which include one-time gains and charges, in the S&P 500 have lost $10.44 a share in the fourth quarter -- the first time companies in the index have ever posted a collective loss. Operating earnings are on track for the six straight quarterly decline. Companies have been struggling to project future quarters as the economy founders.

On Tuesday, surveys from New York area manufacturers and the National Association of Home Builders give traders a taste of how factories and the real-estate sector have been faring this month.

On Wednesday, the January industrial output report is likely to show widespread declines in U.S. manufacturing, particularly pressured by lower auto production. Housing starts, also out Wednesday, likely slid to a new all-time low. Also Wednesday, the Fed releases minutes from its last meeting and its economic projections.

The week ends with reports on January wholesale and consumer prices. Both indexes are expected to reflect slightly higher gasoline prices since December while continuing to underscore the risk of deflation. Most key economic data this week "will contribute further evidence to the decay in economic growth in this quarter," wrote Brian Fabbri, chief economist for North America at BNP Paribas, in emailed comments Friday.

Weekly KLCI Update and Outlook

StarBizWeek(MarketWatch): Despite overseas markets, especially the Dow experiencing great swing and volatility, trading on the local bourse was pretty stable, with the key index fluctuating sideways to marginally higher, catching many people by surprised.

According to the weekly chart, a positive development appears in the making. That is, the key index had penetrated the 21-week simple moving average for the first time in 12 months. Theoretically, the breakthrough would pave the way for more scaling but because the CI still is flirting around the breakout level, it is wise we seek further confirmation before everyone turns bullish again.

Technically, the uptick of the daily and weekly MACDs suggest Bursa Malaysia may firm gradually this week.

To the upside, the key index is expected to face resistance at 925 points, 936.63 points, 946-950 points, 963 points and the 970-973 point range.

Support is seen at 886-892 point range, followed by 860-863 points band and the next at 835 points.




* Xinhua: South Korea Exchange plans to sign an official agreement with the Cambodian government next week to launch the kingdom's proposed stock exchange market in December. More fresh blood to spill? .

Time to sell gold?

According to the Editor of Investment U, this guy Louis Basenese (inset) has been dead on with his predictions. He called the U.S. dollar bottom versus the euro within 26 days… oil’s peak within 24 days… and the top in U.S. Treasuries within two days. So when he makes a big call like this, we listen. And while Lou thinks gold is going down, there’s another asset class he thinks is going straight up - small caps. To get access to his five best small-cap picks, go to The White Cap Report His other recent article includes Time to Invest in China stocks which was posted here before. Anyway, here are his reasons for being bearish with gold.

Shorting Gold: 12 Reasons Making The Case For This Contrarian Investment by Louis Basenese, Advisory Panelist Senior Analyst, The Oxford Club

If you’re a self-professed “Goldbug,” feel free to read no further. Or at least spare me your hate mail. Because no matter what I say today, I know you’ll cry foul… or something much more colorful.

But for those of you with an open mind - especially after my last three contrarian predictions proved dead accurate, read on.

Because it’s time to start shorting gold!

You won’t find many, if anyone else, making this case. But as the first reason of 12 below reveals, that’s precisely why you should give it more credence.

12 Reasons To Start Shorting Gold

1. It’s decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt we’ve reached such fever pitch levels, consider No. 2.

2. The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-there’s-more offers, it’s time to get out. And that’s exactly what’s happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money.

3. There is always some truth in a rumor. Recent news reports suggested Germany, the world’s second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if there’s some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germany’s considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly.

4. The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent!

5. So is the gold-to-silver ratio. Historically, an ounce of gold will buy you 31 ounces of silver. But now the ratio stands at 73 - an unbelievable 134% above the historical mean. Here, too, a reversion to the mean is imminent. And I’d rather place my bets on a 57% decrease in the price of gold, than silver more than doubling to make it happen.

6. The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level it’s only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower.

7. Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market. And if Indian brides balk at buying above $750 per ounce as the Bombay Bullion Association reports - India’s gold imports cratered 81% in December - look out below. And don’t be fooled into thinking investors (governments or speculators) will pick up the slack. As HSBC reports, rising demand from investors, particularly from ETFs, only offset half of the 33% decline in jewelry market demand since 2001.

8. What makes now “different?” If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasn’t lived up to expectations, not one bit. And I don’t think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, we’re close to the worst of times… and the peak for gold.

9. Analysts love it. According to Bloomberg, 16 of 24 analysts surveyed by the London Bullion Market Association believe gold will reach a minimum of $1,032 per ounce this year. As we all know, analysts’ track records are deplorable. Instead of just ignoring them, why not bet against them? The odds are definitely in our favor.

10. Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in gold’s run-up. But 920 of them went Kaplooey last year, according to Hedge Fund Research, Inc. Not to mention, hundreds of others hemorrhaged capital as investors demanded their money back, while those left standing ratcheted down borrowing to close to nothing, according to Rasini & C., a London-based investment adviser. In the end, gold prices will eventually reflect the absence of these former heavyweights.

11. Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And don’t be so quick to rule out a second half recovery…

12. The Fed, the President, history and the Baltic Dry Index concur - the economy’s on the mend. Despite dismal data, both the Fed and President Obama point to the current recession ending by the second half of 2009. Moreover, the average recession only lasts 14.4 months. So even if this one is longer than usual, we’re still near the tail end of it. A fact underscored by the recent 61.4% rally in the Baltic Dry Index from its early December low. As I wrote in November 2008, the index is the first pure indicator of an uptick in global activity. And once the economy gets back into gear, the Fed will act quickly to reign in the money supply and curb inflation.

Cleary the gold rush is on. But that’s all the more reason to move in the opposite direction, against the herd. I realize this might be the most unpopular recommendation right now, but that means it could also be the most profitable.

And before you brandish me a fool for recommending shorting Treasuries and gold in the span of two months, here’s the intersection. The driving force behind both assets in recent months has been safe haven buying. And it will remain the dominant variable in determining price in the months ahead. So when investors go back on the attack for more risky assets, prices for both assets will fall.

It’s already happening for Treasuries. And I’m convinced gold is next.

Good (and contrarian) investing,

* RGE Monitor: Chinese exports contracted by 17.5% y/y in January, the steepest in 13 years, and the third month of contraction. Imports contracted even more (43.1%, the worst since data begun being collected in 1995). The deep import contraction took China's trade surplus to the third highest of all time $39.11b (record $40.09b in November and $39.98b in December)

* China to stick with US bonds.

* Bloomberg: House, Senate agree on USD789B stimulus, setting stage for final vote.

* Bloomberg: South Korea cuts interest rate to record low 2% as economy nears recession.

Those smart Japanese investors

SeekingAlpha.com: The tide is starting to change and I want to make sure my readers are aware. Last year, the yen literally beat the performance of 177 currencies. However, the rise has been so swift and severe, that it’s killing the country. No one in Japan seems to be happy with it. Their exporters are literally campaigning to the central bank to intervene in the currency. The central bank has been quoted as saying that they are not happy with the rise of the yen either.

So what is a Japanese investor to do with such a strong yen that may not be that strong for long.

Invest abroad.

Here’s where the money is flowing!

Do we have any clue as to where they are starting to place their money? Yes! According to the Ministry of Finance, there have been “net purchases” of international stocks and bonds for the past seven weeks in a row now.

So where’s the money going? It’s working its way into places like Brazil, Mexico, Turkey and South Africa.

Therefore, money is being exchanged for the currencies of these lands and is further going into their bonds and stocks.

The yen gained an average of 55% against the currencies of these countries last year and they know that these gains will not hold. Therefore, they’re going into beaten down currencies with beaten down stock and bond markets.

It’s really important to note what these Japanese investors are doing, because they are smart investors. They get it right much more than they get it wrong. They are experts on international markets, because their own currency usually yields one of the lowest rates in the world. Therefore, they like to get into an appreciating currency that also has an appreciating stock or bond market.

A year ago, money was fleeing these emerging markets. However, they’ve plummeted so much and the yen has gotten so strong, it makes them one of the first groups of investors to march back into these markets.

In addition, one thing that you will see happening more and more this year in Japan is international mergers and acquisitions. There’s no better time to be buying when your currency is extremely strong and the stocks of international companies are extremely cheap. It’s a win/win for them.

They have done many of them already. In fact, their merger and acquisition activity tripled last year to $76 billion from about $25 billion the previous year.

All of this is beginning to cause a “net selling” of yen, finally, as the Japanese and other investors around the world exchange their yen for emerging market currencies around the world.

For those who are holding Japanese Yen or intending to short the currency, continue reading here are some idea what/where those smart Japanese investors are investing now.

* Skepticism is brewing that the US government 's bank rescue will not work. The US Treasury Secretary Geither has pledged government financing for as much as USD2T of efforts to spur new lending and address bank's toxic assets.

* Sunny days ahead for Hong Kong securities firms?

* Pimco Says World Faces Second Wave of Economic Crisis

* China Needs U.S. Guarantees for Treasuries

Technical Analysis - February 10 2009

S&P500 (869, last week 826 or +5.2% w.o.w)

What a turnaround! Now the Daily MACD and MACD Histogram have joined the Daily Parabolic SAR to become positive as well while Guppy MMAs and DMIs (+ve and –ve) are slightly negative. At this juncture, the indicators may continue to turn bullish if further bad news in the market are being discounted. For the weekly readings, the MACD, MACD Histogram and Parabolic SAR are still positive.The weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. Support is around 820 and resistance at 900.

KLSE CI (897, last week 884 or +1.5% w.ow)

The daily indicators MACD, Parabolic SAR, ADX trend and DMI (+ve and –ve) although have turned negative recently is seen making a comeback. Unlike the S&P500, none of the indicators have register positive readings yet but will soon be if the markets are to move up discounting further bad news. The weekly charts MACD and Parabolic SAR are still positive but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish. The index is expected to trade between 860 and 915.

HangSeng (13,655, last week 13,278 or +2.8% w.o.w )

After gaining almost 8% in two weeks, the daily indicators like Parabolic SAR, MACD and MACD Histogram have turned positive again. The DMI (+ve and -ve)and Guppy MMAs are still negative but has improved. The weekly charts are still positive, especially the MACD, MACD Histogram and Parabolic SAR but the weekly ADX trend, DMIs (+ve and –ve) and Guppy MMAs are still bearish . Support is seen at 13,000 and resistance at 15,000.

Nikkei 225 (8,077, last week 7,994 or +1.0% w.ow)

The daily indicators like MACD and MACD Histogram has joined the Daily Parabolic SAR to become positive during the week However, the DMIs (+ve and –ve) and Guppy MMAs are still negative. The weekly charts are still positive, especially the MACD, MACD Histogram. However, the Parabolic SAR which turned negative are still as such but will turn bullish soon if the market continues to turn upward. Support is seen at 7,700 and resistance at 8,600.

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* Bloomberg: China's inflation slows to 1% in January 2009 from a year earlier, weakest pace in 2 years as economy cools. Many analysts are predicting deflation looming

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* BT(Singapore): Delhi expects growth to slow to 7.1%.

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* YahooFinance: Obama to Congress: Pass stimulus, don't play games.