TA Spotlight - VIX

VIX - CBOE Volatility Index

It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".

Investor often use the VIX as a fear/greed gauge. What level of the VIX represents extreme fear or greed? For example, a VIX reading of 45 marked the equity lows in 2002. The same reading in 2008 would have missed the lows by 6-months. IMO, an quantitative measure of fear means little without equity price reference.

NYSE to VIX ratio:


Source: Investopedia.com

Biggest regional trade deal unveiled

Those that suggest that China's economic strength is solely a function of US consumption should review the regional trade deal published on ft.com

The launch of the China-Asean Free Trade Agreement, which covers almost 1.9bn people, coincides with the implementation of a similar deal with Australia and New Zealand and a deepening of Asean’s own internal trading agreements.

Jim wrote on jsminset.com that currency strength will follow economic ascendancy based on a sound national balance sheet. This is the foundation of political and social ascendancy which is the state of a nation that has also grown militarily during this process. This is the ascendancy of Asia in leadership economically, politically, socially and militaristically. This belonged, as a process, to the US from 1775 to 2000.

Source: ft.com

TA Spotlight: Amex Gold Bugs Index

The Amex Huey continues to to wrestle with the support zone. The 12/02 power down trend (PDT) was broken last week. This is constructive, but traders will likely sit on their hands until down trend in momentum is broken to the upside.

As long as commercial traders continue to fade the dollar rally, the Amex Huey remains a candidate for for an explosive upside move in 2010.

Amex Gold Bugs Index (HUI)

TA Spotlight: Russell 2000

When the market up begins he gets in the commencement of the move, and goes along with it till there are signs of a halt or distribution. - Richard Wyckoff.

Russell 2000 (small cap stocks) continue to break to new highs with volume confirmations. The 10/14 gap was filled and breached on 12/21 with an increased in volume or positive tape despite the light pre-holiday trading. Also, the 10/19 swing high was broken on 12/23, again, with increasing volume in a pre-holiday session.

An AP press release summed up the equity situation faily well. Few called market turn, fewer predict it will last despite the fact that tape continues to confirm.

Russell 2000 (IWM ETF)

China and the U.S. dollar

December 31, 2009 - The U.S. dollar will continue to be a key reserve currency in the near term and the main asset in China's foreign-exchange reserves, but diversifying the country's reserves "appropriately" will help spread out risk, China's forex regulator said Thursday, reiterating Beijing's currency stance as the year closes.

Source: online.wsj.com

November 7, 2009 -``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. The dollar is ``losing its status as the world currency,'' Xu Jian, a central bank vice director, said at the same meeting.

Source: bloomberg.com

The Chinese certainly do not want the dollar to collapse while their reposition their reserves. This "we support the dollar," but "do not really favor it" keeps the currency markets off-balance to their true intentions. Sell dollars (diversify) and buy gold. The Chinese are very shrewd market participants.

U.S. in fiscal peril with $12.1 trillion debt

Bipartisan support is growing in Congress for action to stabilize the nation's bulging debt, which is now $12.1 trillion. Influential experts from former Federal Reserve Board chairman Alan Greenspan to former comptroller general David Walker have joined the cause.

With so many off balance sheet items the real figure is a lot higher than $12.1 Trillion. But real numbers don't matter. Out of sight, out of mind. Besides, TCMD as % GDP suggests that Greenspan, Fed chairman between 1987-2001, is just the man to join the cause to control the bulging debt burden.

Source: USA Today

Total Credit Market Debt to Income (GDP): Gold is the mechanism...

This difference between strong and weak hands in 2010 will always be knowledge.

The upward revision in the price of gold as the mechanism for defeating another debt collapse at the end of an long economic cycle is taking place right now. The immense size of the debt burden in comparison the previous 1929-1942 cycle ensures a much greater price revision. Ultimately, debt relative to income (GDP) must shrink to provide the fuel for the next economic cycle.

Total Credit Market Debt to GDP ratio: