JP Morgan not only brought itself down, it managed to bring down the entire financial sector with it. U.S. Congressmen immediately called for a hearing. Dallas Federal Reserve Bank President Richard Fisher announced that he was concerned that the biggest banks just don’t have adequate risk management controls. A call for the break up of the 5 largest banks could be heard around the globe. Why isn’t the Dodd/Frank bill implemented? What about the Volker rule? JP Morgan has single handedly changed the investment world forever…

This month has definitely proven true the old adage, “Sell in May and Go Away”. The $2 Billion loss announcement did not help. From its high of 13,300 in April, the Market dropped 500 points to 12,800 in just two weeks. Looks ominous for summer doldrums right around the corner. But wait. Hold your horses! It’s Friday. Why was the news released on Friday? Surely they knew of the $2 Billion loss on Thursday or even Wednesday. Why release the news on Friday morning? Did they think no one would be around Friday morning so they could just somehow slip it in?

What did they know? It’s “Counter-Trend Friday!”

Although little known amongst stock investors, “Counter-Trend” Friday is better known amongst Futures traders who buy and sell pre-Market. Here’s what happened on Friday. The announcement is made about the $2 Billion loss. Futures traders, already actively investing early morning in the European Market, hear the announcement. Their first thought — short the S&P 500 E-mini Futures contract. Short that with as many contracts as you can afford. Why? Because you know that with this kind of news release, the Market is sure to plunge. Over 400,000 short contract positions trade hands.

By shorting the S&P 500 E-mini, they succeed in bringing the Market value down over 10 handles (1 handle = 1 point). But behind the scenes, a few sayvy Futures traders who fully understand the game afoot, begin to buy. Slowly at first, as many contracts as they can. No rush, so as not to alert the Market of the change in overall direction until they get their positions setup.

Tick tock, tick tock, with their positions set to Go Long, they wait for the Market to open. 9:30 arrives. Everyone fully expects the Market to plunge as laggy stock traders react to the $2 Billion news. But no! The Market roars back up and quickly recovers the 11 handles, eventually rallying up 14 handles on the S&P before coming back down. By 10:00, nearly 800.000 contracts have traded hands. Those who bought on the 10 handle dip have all made buckets of cash…”Counter-Trend Friday.”

During the rally, there was something very interesting to watch…as soon as the 10 handles were regained, the excitement, the momentum driving the Market’s rally went out, like the last flicker of life in the fireplace. The Market flattened, went up a little, and then slid back down for the remainder of the day. The sayvy Futures traders made their profit and literally walked out of the Market.

Why Friday, as opposed to Monday or Wednesday? Simple. Futures traders cannot afford to hold contracts over the weekend. They want in and they want out of the Market as soon as possible.

For those unlucky stock traders who sold at the Market’s open, or the even more unlucky options players who bought put options on the S&P, a word of advice from Futures traders — “Trader Beware!” When you see the S&P 500 E-mini down 10+ handles pre-Market on Friday morning, and the number of contracts traded at 400,000+, don’t sell, don’t go short, don’t buy put options, lest you fall prey to sayvy Futures traders who put the game on in the first place.

And remember JP Morgan that started in game in the first place? During the Counter-Trend Friday rally, JP Morgan’s stock regained nearly $2.00 of the $3+ that it had lost pre-Market. Watch it come back next week. So was it all a game? Was it all orchestrated? Who can say. All we can say is, it sure was profitable knowing the game was on.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

On Wednesday, the Automatic Data Processing Employment Report (ADP) was released at 8:15am EST. A couple of years ago, this report was a true bellwether for where the Market was going on unemployment day. The ADP report has one limitation, however… it does not reflect government job layoffs. A couple of years ago, massive government layoffs were unheard of. But then the flood gates opened and thousands of government employees were let go. After that the ADP report lost its true predictive measurement.

But in the last couple of months, the heavy government layoffs have slowed. So when the ADP report said 119,000 new jobs created, the Market took an immediate dump at 8:15 EST, knowing that the ADP report was probably not wrong this time.

That brought Thursday’s weekly unemployment claims at 8:30am EST. Now the Market had something to cheer about. Unemployment claims dropped from a predicted 381,000 to 365,000. The Market soared back up…which then left Friday.

Now comes the conundrum. Who was right? Was it the ADP report, whose reliability in the past few months has come in question? Or was it the weekly unemployment claims that came in well below expected?

As 8:30am EST approached, the Futures Market stood silent, waiting patiently for the news to break. And then it happened. But wait, it wasn’t 8:30am. Yet the 10-Year U.S. Treasury note futures took off rallying higher and higher….at 8:29, before the news release. Who let the cat out of the bag? How could the institutional traders get the news that early? All the retail traders wanted to know that too — how do you institutional traders rate?

As soon as the news broke, the S&P 500 Futures dropped more than even a 10-handle (40 ticks), starting at a high of 1389 and finally ending down at the end of the day at 1362.50. The Dow itself was bruised, down 168 points for the day. And the 10-year U.S. Treasury notes — well they continued to make huge moves up while their yields made huge moves down.

The interesting thing is, while the 10-year bond yields have been rising in Europe, in America, they have been approaching yearly lows. Right now the 10-year note yields 1.88% while the 30-year bond is at 3.07. One has to wonder here. Stocks have had a big run this year up to now. Quarterly earnings that normally give the Market a kick when Apple and Google report are over. Summer doldrums are just beginning. And the price for treasury notes are hitting yearly highs while yields are hitting yearly lows. Since the 10-year treasury note bounced off its 200-day moving average, the price has jumped with yields plunging to match. In April, U.S. treasury 10-year note yields were nearly 2.5%, today 1.88.

For those unfamiliar with trading, when the stock market goes up, purchasing U.S. Treasury bonds generally goes down. Traders feel they will make better profit from stock market prices going up along with accompanying stock dividends. However, when traders feel that the stock market is not a safe place to be, they take a flight to safety and buy bonds. With yields this low accompanied by big time volume purchases, perhaps this is the right time to exit the market and wait for the summer to be over.

The question at hand is this. Institutional traders knew at 8:29am EST that the unemployment number was going to be bad. Now they are buying U.S. Treasury 10-year notes and 30-year bonds in record quantities, even though the yields have dropped to almost yearly lows. What are they forecasting? Are they saying, sell stocks now before summer doldrums eats into your year-to-date profit? Are they expecting another summer like last year?

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

For the moment, lets stop and look back at the last two months activity. On March 17th, the Dow rallied to a high of 13,288. From there it promptly sold off, only to return to another high on April 3rd, or 13,297. This was almost a perfect Double Top candlestick formation. Think that’s a coincidence? On March 7th, the Dow sold off to a low of 12,735. On April 11th, the Dow again sold off to a low of 12,710, almost a perfect Double Bottom. Come on, you can’t still believe in coincidences now can you?

What is a “Double Top” and “Double Bottom” and what does it mean for the future direction of the Dow? For those of you unfamiliar with reading candlestick patterns, they are not nearly as coincidental or “farfetched” as reading tea leaves.

Double Top formation: the Dow price peaks after a major rally, such as what we saw in early March where the Dow went from 12,735 to a high of 13,288 in just 8 days. Next there is a small decline, from 13,288 down to 13,002 on March 24th. Finally, another rally that forms a second peak about the same of the first peak, April 4th at 12,297. Looking at the chart, an almost perfect letter “M” is drawn on the Dow chart. A Double Top means strong resistance to trending higher, as if traders are saying, “I’m not comfortable right now paying any more for these stocks.”

Double Bottom formation: the Dow price plunges after a major sell off, such as what we saw in early March 7th where the Dow dropped to 12,735 from 13,055 in just 3 days. Next there is a rise to 13,297 on April 4th. Finally, another plunge to about the same as the March 7th to 12,710. A Double Bottom means there is strong support stopping the Dow from going lower, as if traders are saying, “It’s a fire sale, let’s buy stocks.”

Since both a Double Top and Double Bottom were reached, how can we tell which direction the Dow will go now?

Another formation has recently taken shape, starting from the plunge on April 11th. The Dow went from 12,710 to a high of 13,131 on April 18th. The Dow could go no further and has begun a retreat, closing on Friday at 13,029. This formation shows what is known as a “Lower High” on price. This is the first Lower High. A truly Bearish trend would be a series of successive lower high prices and then even lower lows. As this is just the first lower high, it is not possible to say, yes, a Bearish trend has started. But definitely this is something to watch out for. If next week results in another Lower High and then another Lower Low, the Ides in May could be just around the corner.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

Last Thursday, April 12th, the weekly unemployment claims report was released. The Number soared from 367k the week before to 380k, yet what had been forecast was a drop to 355k. What made this number so concerning was that, not only did the number rise, but that unemployment claims are based upon the prior week, and the prior week was Good Friday when government offices were closed. That meant that the number was based on 4 work days not 5. At this point, the question becomes, is unemployment now structural or is it still a result of the 2008 recession (hysteresis).

Structural unemployment occurs when the jobs that are available to be filled no longer match the skills and locations of the workers looking for employment. Structural unemployment normally occurs as a result of a changing labor market, such as with manufacturing, where manual labor is replaced by automation. There are now somewhere in the area of 3.4 million job openings nationwide in the USA. In a survey conducted by the National Federation of Independent Business, over a third of small business owners said they tried to hire someone in the last several months but were unable to find candidates with the appropriate skills. This is especially worrisome given that small businesses pay nearly 45% of the total U.S. private payroll and employ about half of all private sector employees.

Hysteresis occurs after there has been some economic shock, such as the 2008 financial meltdown, which reduced the overall size of the nation’s workforce. With continued high unemployment, more workers begin to adjust, and thereby become accustomed to a lower standard of living, not trying to achieve their higher previous level. There is also the social aspect of long duration unemployment, as if it is now socially acceptable to be or remain unemployed. The stigma of unemployment has lost its shock value. The unemployment rate in the US has declined over the past few months from a peak of 10%. But does the decline mean that a larger proportion of Americans are back at work, or is it because many people have simply given up looking. The unemployment participation rate in 2009 was 65%, today it is roughly the same, 64%. The availability of jobs is not that much different than it was 2 years ago, yet 2.4 million workers have still not joined the labor force.

In her speech, “The Economic Outlook and Monetary Policy” delivered at the Money Marketeers Dinner Meeting, in New York on Wednesday, April 11th, Federal Reserve Governor Janet Yellen stated, “While I do not see much evidence of any significant increase in structural unemployment so far, I am concerned that structural unemployment could increase over time if the labor market heals too slowly–a phenomenon known as hysteresis. An exceptionally large fraction of those now unemployed–more than 40 percent–have been out of work for six months or more. My concern is that individuals with such long unemployment spells could become less employable as their skills deteriorate and as they lose their connections to the labor market.”

The jury is still out on unemployment, structural or hysteresis. Either way, the increase in weekly unemployment claims is disheartening, especially given the previous Friday’s Non-Farm Employment report only showed an increase of 120k jobs, down from the forecast 207k.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

At the beginning of 2008, the Federal Open Market Committee (FOMC) began reducing the Fed Funds Rate as a response to the global financial meltdown, first by 2 percentage points and by summer 3 points, until they reached almost zero, 0.25%. This has been on going for over 40 months now and is expected to last through 2014. The 10-year U.S. Treasury notes yield 2.05%, less than inflation. Even the 30-year bond is yielding just 3.21%.

While reduced interest rates may help homeowners refinance their mortgages or entice commuters to purchase new cars, banks have left savers with little choice but to stop saving. The current 1-year CD rate at most banks is roughly 1%. Even a jumbo 5-year CD pays less than 2%. For the millions of retirees, this poses a major problem, especially as more and more baby boomers join their ranks. In fact, low interest rates actually punish retirees who rely on interest income to survive.

Suppose a retiree has $500,000 in savings. At the current jumbo 5-year CD rates, that would produce an income (before taxes) of $8,500. Even the 30-year bond would only pay a pre-tax income of $16,000, certainly not enough to live on. It’s as if the Feds are turning retirees into victims of their monetary policy. Keeping interest rates at this artifically low level has has also spiked inflation, with gasoline prices soaring above $4.00/gallon, hurting the pocket books of retirees yet again. Bernanke continues to claim that this inflation is “temporary”…40 months is hardly temporary.

There is one other major “unintended” result…money is now flowing out of the country in search of investments with higher rates of return.

Because Fed monetary policy has gone on for so long and is expected to last for yet another 12-18 months, many retirees feel they are being forced to take their money out of normal secured investment income sources and put it somewhere they hope can earn them a solid return…i.e. the skyrocketing stock market. Since the begining of the year the S&P 500 is up over 11% while the Dow has gained 8%. Yields such as these are enticing to retirees who are experiencing 1% CD rates. Bottom line: the Feds are forcing retirees out of security and into high risk. But have the Feds pushed too far?

Last summer the Market dropped 2,000 points, down over 27% before it began its recovery. It has since experienced a very steep rise, and to retirees, like a carrot being dangled in front of them, enticing them to participate. Unfortunately, it’s almost May. We may once again see one of the most recognized Wall Street adages: “Sell in May and Go Away.” By April 2011, the Market had risen just over 6% before crashing 27%. In April 2012, the Market is up 8%. Billions of dollars were lost last summer. Fear took the Market by storm as investors sold as fast as they could. What will happen again this summer?

The Feds are pushing retirees into the Market, forcing them to be “all in”, just to earn enough income to survive. But not all retirees belong in the Market. Few, at best, can afford to weather a 2,000 point / 27% drop. The Feds should stop playing poker with the retirees lives.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

First, a bit of background so you will understand the play. “Quantitative Easing.” Quantitative Easing, otherwise known as QE, is the Central Bank’s unconventional “monetary policy” that is used to stimulate an otherwise flagging economy when normal monetary policy is ineffective.

The role of the Central Bank is to regulate the national economy by establishing official interest rates. The higher the interest rate, the less attractive borrowing becomes. Companies expand less, fewer household mortgages and construction loans are taken out, all of which equates to fewer employment opportunities. In a flagging economy, the Central Bank’s first thought is stimulate borrowing by lowering interest rates for the short-term. The problem is that when interest rates are kept at ridiculously low rates (namely, close to zero) for a long duration, they provide little to no stimulus.

Enter unconventional Quantitative Easing, also known as “printing money”. With the hocus pocus of computer accounting, the Central Bank creates new money, increasing the credit line of its own bank account. It then uses this “created money” to purchase assets: government bonds, corporate bonds, and as of late, “toxic” assets from other banks, (left-over sub-prime mortgages that are still sitting on the books of many of the banks). The idea is that, buy the mortgages, put more money into the banks’ hands, and they are then free to lend more to business. Any time the Market hears the words “QE” from the Central Bank it skyrockets.

Now, the background stage is set. The lights dim. The play begins. Monday morning, 8:00am EDT, March 26th..Bernanke takes center stage. Delivering a speech to the National Association for Business Economists 2012 Policy Conference Bernanke says, “Further significant improvements in the unemployment rate will likely require a more rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.” The Dow runs up 161 points. The S&P 500 gained 19 points. The Market interprets Bernanke to be saying that he is preparing for QE 3. He goes on to say, “Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.” The Market runs up even higher.

Tuesday morning, March 27th..CNBC Interview with Federal Reserve President James Bullard, He states that, “I think QE3 would require the economy to deteriorate somewhat from where it is right now.” “The basic story on the U.S. economy is that we’ve had good news over the last six months or so, especially compared to the recession scenario that was being painted in the August-September time period of last year.” The Market hears that there may not be a QE 3.

Tuesday morning, 10:00am EDT, March 27th..Federal Reserve Bank of New York President William Dudley takes center stage. Delivering a speech at the Domestic Monetary Policy and Technology Subcommittee Hearing, in Washington DC, he said, “I do not anticipate further efforts by the Federal Reserve to address the potential spillover effects of Europe on the United States.” The Market continue to think that there will be no QE3. The Dow falls 42 points.

Wednesday, 12:15pm EDT, March 28th..Federal Reserve Bank of Atlanta President Dennis Lockhart takes center stage. Delivering a speech at at the Commerce Club, in Atlanta, he said, “The financial risk has been reduced recently, quite literally in the last two or three weeks.” “I don’t see too much danger coming from Europe through real-economy channels.” The Market is now sure that there will be no QE3. The Dow plummets 77 points.

Thursday morning, March 29th, in an interview with CNBC..Richmond Federal Reserve Bank Jeffrey Lacker says, “”If we get growth about what I am expecting, about what a lot of people are expecting… if we can get growth around those lines, I don’t see where the rationale for further easing is going to come from.” That’s it…there is no QE 3. The Market drops another 74 to a low of 13048 before recovering at the very end of day.

The play ends for the week. The players take their bows. The soliloquy delivered. To be or not to be — the question remains…for the next week where the play will resume.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

For those of you unfamiliar with the daily battles being waged, here’s the Reader’s Digest version…High Frequency Trading robot algorithms controlling the order flow of the exchanges.

High-frequency trading robots (HFT’s) are complex computerized algorithms used to trade Equity Markets, Futures Markets, even the Options Markets, to analyze data and transact orders in massive quantity at ligthning speeds. Large brokerages / hedge funds have made agreements with the major Exchanges, allowing their computers to be positioned inside the Exchanges and hard-wired to the Exchanges’ data feed. This enables them to buy and sell within milliseconds.

Today, HFT trades account for over 70% of the daily volume. In his PBS NewsHour program, Paul Solman reported that, “In the U.S., high-frequency firms represent only 2 percent of the 20,000 or so trading firms operating today. But they now account for nearly three-quarters of all trades. And the average time a stock investment is held these days is 22 seconds.”

To show how prevalent HFT’s are…on March 20, 2012, Goldman Sachs announced that they were laying off more staff to be replaced with robotic technology. The new layoffs will take place across all of Goldman’s main divisions: sales and trading, investment banking, wealth management, and investing and lending

HFT’s create real problems for retail buyers and sellers because they undermine investment legitimacy by “Layering” their trades. Layering is where robotic algorithms OFFER to buy or sell large numbers of securities that they have no intention of executing. As the price of the security approaches their offers, these robotic algorithms immediately cancel.

Retail traders live and die by what is known as “Level II”, the quote system used by the NASDAQ, NYSE, and CME Exchanges to provide a real time “depth” of offers to buy and sell at various different prices. Level II shows Bids (offers to purchase) arranged in price order from the highest price someone is willing to pay for a security, to the lowest price. Level II also shows Asks (offers to sell) arranged from the lowest price someone is willing to sell their security for, to the highest price.

Buyers and sellers use Level II as a deciding factor in placing a trade or just sitting on their hands because it shows their security’s liquidity. Lots of shares / contracts at each price level shows a heavily traded market, and a good time for entering their trades. Conversely, a “thinly” traded market, with few shares / contracts waiting to execute is a market they want to stay away from.

Because of Layering, the Level II price ladder that daytraders rely on may no longer be trustworthy. Shares / contracts appear ready to trade at different prices but in fact, those offers are cancelled before the price is ever hit. Retail traders are stuck making faulty decisions based upon fantom, disappearing offers to buy or sell. Layering misrepresents market depth and disguises the actual prices being traded.

For example, a stock is trading at $50/share. The Level II ladder ask side displays lots of shares waiting to execute at $50.01, $50.02, $50.03, $50.04, and especially $50.05. A retail trader, seeing the ladder, makes an offer to buy at $50, thinking that there really are sellers at these higher levels and that the equity has a lot of price action. Their trade is filled. But almost immediately, the Level II offers to sell at these higher prices literally evaporate because they were phony to begin with. Suddenly the retail trader has difficulty closing out his trade and ends up taking a loss…collateral damage.

The sad part is, while Arnold Schwarzenegger may be able to “get revenge,” most retail customers will just be collateral.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

While it is true that oil prices have been skyrocketing, is it because of President Obama? Even Romney later acknowledged that “no one can guarantee what the price of oil’s gonna be.” And he has since declined to pledge to Americans that he would make sure gas prices would come down to a certain dollar level if he is elected.

What is really behind soaring energy prices? Is it Obama’s policies? Is it the pipeline from Canada to Texas that is on hold? What does a man like Romney, the founder of Bain Capital (a private equity firm that specializes in venture capital, corporate takeovers, and investor relations), really know about the price of crude?

What Romney really knows is that Keystone XL can not reduce oil prices. Keystone XL is a pipeline intended for export only. In several presentations made to their investors, Gulf Coast refineries disclosed that they intend to refine the crude oil from Canada into diesel and other oil products, and then export these products to Europe and Latin America. Why? Because proceeds from these exports are earned tax-free. This crude oil was never going to be USA domestic.

The real culprits in oil price manipulation are crude oil futures speculators. Speculators drive prices higher than what supply and demand demands. Want someone to blame? How about the Commodities Futures Trading Commission (CFTC).

With trading futures, it is a question of taking delivery. When a bread manufacturer buys wheat futures contracts, he settles in wheat, which means he takes delivery in wheat from farmers. Meat packers settle in cattle from ranchers. But oil speculators buy up crude oil contracts without taking delivery of barrels of crude. They purchase large quantities of crude futures contracts at prices higher than the current market price knowing this will cause oil producers to stock pile the oil fully expecting to be able to sell later at an even higher future price. Now add European sanctions with Iran, with oil shipments falling as much as 800,000 barrels a day, and both current and future prices skyrocket.

In October 2011, when the Dodd-Frank bill was passed after the financial meltdown in 2008, the CFTC voted to adopt rules that would limit the number of futures and swap contracts that commodity speculators may hold. But even though the rules passed, the CFTC has yet to enforce those rules.

Want to see proof of speculator influence in the Market? Take a look at this daily chart of light sweet crude oil (CL) that is traded at the Chicago Mercantile Exchange (CME) as it tracks the announcement that President Obama and Great Britain Prime Minister David Cameron struck a deal for a joint release of emergency Strategic Petroleum Reserves (SPR).

03/13/2012, Price hits an intra-day high of $107.35 with 146k contracts traded. No mention of any agreement.
03/14/2012, Price closes at $105.45 with 166k contracts traded. News releases hint that possibly Obama and Cameron are striking a deal to release oil reserves, mildly higher volume.
03/15/2012, Price plummets to a low of $103.78 with 235k contracts sold off. Report is released that Obama and Cameron have struck a deal to release oil reserves.
03/16/2012 Price rises again, with a high at $107.03 but lower volume of 97k contracts. The White House denies news reports that there will be a release of emergency crude reserves. Lower volume because speculators are not sure that the deal is on or off.

Light sweet crude trades in price movements known as ticks. 1 point in CL = 100 ticks. How could oil sell off and drop 357 ticks in the course of 3 days without speculators getting out of the market as fast as possible, closing their positions before the price takes them out altogether? And look at the number of contracts traded on the news announcement. Between 3/14 and 3/15, 400k contracts close out.

Here’s the problem…Obama cried wolf instead of making good on his threat. Once speculators realized that he was not going to go through with the release of SPR, that it was just a bluff, they drove the crude oil price right back to where it started from. The answer is not to play “chicken” with speculators. The answer is to require the CFTC to enforce the rules of the Dodd/Frank bill that limits commodity speculation.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

As soon as it became clear that Draghi was not going to answer the key question that has been on everyone’s mind, the Euro Future (6E) and the Forex EUR/USD currency pair plummeted, sending the Dollar Index higher. Futures and Forex traders were shorting the Euro as fast as they could execute their trades. It certainly didn’t help when Draghi went on to say that when formulating monetary policy, he does not consider Euro currency exchange rates.

What really sent the Euro spiralling down against the Dollar was when he was asked what happens if his monetary policy doesn’t work, forcing Greece into default. His answer was simple…he has no “Plan B”.

While he admitted he has no “Plan B”, he went on to say: “Inflation rates are now likely to stay above 2 percent in 2012, with upside risks prevailing.” Higher inflation makes it even more difficult for Greece to repay its loans. In 2011, Greece’s economy shrank 7.5%, And what’s known as the “gray market” for Greece’s NEW debt is pricing yields at about 20%. So much for no “Plan B”.

What make the lack of ECB transparency even more troubling is the whole manner in which the new Greek bond swap occurred. Under its “restructuring” plan, Greece’s private creditors must swap their old bonds for new ones, but with a much lower face value, longer maturity, and significantly lower interest rate. Bottom line…original debt holders will lose roughly 73% of the value of their investments. 85.8% of the original private bondholders “agreed” to the arrangement. And by using a bit of Greek law known as “collective action clauses”, Greece strong-armed the remaining creditors to take the deal as well. This all happened on Thursday. This is all well and good. However, on Friday the International Swaps and Derivatives Associations (ISDA) voted unanimously,stating that forcing everyone to take a major haircut had in fact triggered a “credit event”. When such an event takes place, compensation is due to holders of credit default swaps (CDS). CDS are basically insurance policies used for both corporate and sovereign debt. In case of default, the CDS holder can collect on the insurance policy. Given the nature of the world-wide economy as it is, many sovereign debt bondholders also purchase CDS to protect their investments.

Greece believed that even though they had exercised their “collective action clauses”, the ISDA would not consider that to be a “credit event,” and no payout was forthcoming. So much for “Plan A”. Currency day traders beware! It is never a good idea to be day trading Euro Futures (6E) or EUR/USD Forex during the monthly ECB Press Conference which takes place at 8:30am EST. NEVER trade when Mario Draghi is being “transparent.” You simply cannot know what clothes he will (or won’t) be wearing.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

First of all, let’s look at the scene just before he spoke. At 8:30am that morning, the U.S. GDP was released, and that ended up being 3.0% up from the 2.8% that was forecast. That sent the S&P 500 E-mini up 2 points. And when the Market opened at 9:30am, the price went up even higher. Then at 9:45am, Chicago PMI was released, and it ended up at 64 with the forecast being 61.6. The Market went up further. Wednesday came on the heels of the Conference Board (CB) Consumer Confidence number coming in at 70.8, when forecasters believed it would be 63.1. And the previous week, the University of Michigan’s Consumer Sentiment report was 75.3 up from 72.8 as forecast. The weekly Unemployment Claims reported was less with the 4-week average down significantly. Even private payroll employment was increasing by 165,000 jobs per month, with gains widespread across many sectors. Bottom line, the U.S. economy is showing signs of emerging from its long-duration recession.

Bernanke’s testimony elaborated on many areas of the economy. He said that the unemployment rate decline had actually “been somewhat more rapid.” Household spending was up, but everyone knew that, because the Consumer confidence number came in at 70.8 and the Consumer spending report showed improvements as well. He addressed the housing sector, saying that “affordability had increased dramatically.” He even said that manufacturing “production has increased 15% since the trough of the recession.”

He went on to talk about economic policy measures that were taking place in Europe by the European Central Bank (ECB) to extend 3-year collateralized loans to European financial institutions. Overall, the report smacked of positive elements. So why did the Market tank? Why did the S&P 500-Emini drop from 1377 to 1363? Why did the Dow drop from 13055 to 12940? Why? Because bottom line…it was not what Bernanke said, it was what he didn’t say.

Bernanke did not mention that he was going to start Quantitative Easing 3 (QE3).

The term quantitative easing QE1 and QE2 refer to monetary policy that is akin to “printing money.” Here the Federal Reserve creates new money “electronically” with the flick of a computer key, as if out of ‘thin air’, theoretically injecting cash into the banking system. This procedure is used to augment the supply of money when the normal process of cutting interest rates no longer works because they are so low that they cannot be cut any further. The theory behind QE is: provide banks with additional liquidity and they will start lending again, and in this way, money will flow through the economy.

The European community hoped against hope that he would say that another QE was on the horizon. That would mean that the equities market would continue to rally to the dismay of the U.S. Dollar that would weaken. To U.S. exporters, a weakened U.S. Dollar means that U.S. exports are cheap, relative to those in Europe. When the U.S. Dollar weakens, the Euro strengthens. American exports are cheap; European exports become expensive. (The last thing Greece needs now is a strong Euro, making what few exports they have even less desirable.)

A weakened Dollar, however, comes at a great price…crude oil skyrockets. Bernanke can no longer justify high crude oil costs, even when he claims that it is “temporary.” And with a mutiny in his ranks from Hawk Fed Governors wanting to stop QE, he simply cannot substantiate more. The Fed Governor Hawks, Charles Plosser, Narayana Kocherlakota, Jeffrey Lacker and James Bullard disagree that QE has helped the economy. So delivering a good semi-annual monetary policy report in front of Congress, Bernanke was hard pressed to even mention QE3.

For traders, this should teach you a very important lesson…NEVER NEVER NEVER trade when Ben Bernanke speaks. You simply cannot know what he will say or what he won’t say.

Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.