Donovan is Cluth, Gold Testing Nerves, Buying Equities

Donovan comes through for the US

I have to admit I have been a hater of Donovan for years now. I followed him early on in his career and found him to be an over-hyped, choke artist. Yet, times have changed and in the last few years his playing style has greatly matured and his composure on the ball has strongly developed. His brilliant top-shelf shot against Slovenia put us on the road to a tie and his extra time goal yesterday against Algeria was absolutely clutch. The US now takes on Ghana on Saturday at 2:30 PM in a very winnable game. Winning Saturday will put us against the winner of Uraguay and South Korea. We can definitely prevail in the next couple games especially if Donovan continues his star performance.

Gold stops out weak hands

My gold position is hanging on by a thread and my stop will be triggered if gold makes its first lower low since March. While I will have given back a good deal of profit I have no problem taking a small loss should my plan not pan out. Gold has dropped 2.9% off the all-time highs in a fairly harsh fall that has easily wiped out any weak hands. Being a trader with a short-term, momentum-based strategy, I am far from a strong hand yet the action yesterday was encouraging as gold bounced off the 20-day moving average for a strong close. Once again, I have my stop and no other action is required of me until it breaks down or moves out to new highs.

Goldman Sachs issued a report a few days ago stating that "if gold-ETF buying were to continue at its current pace for the remainder of the year, we would expect gold prices to rise to $1,400/toz by the end of 2010." Understanding the impact of NYSE:GLD on the gold market is important. I have noticed many 3:30 PM rallies in NYSE:GLD even while the gold futures market is closes at 1:30 PM. ETF buying has become a dominant feature in gold's movements.

S&P now 50% off short-term bounce at $1,075

I am looking at the $1,075 area in the S&P as a great place to be picking up longs for the next wave higher. Wall Street has forgotten about the Eurozone's debt woes as quickly as we started caring about them. It seems to me that the path of least resistance will be higher in the next couple weeks into earnings season beginning on July 11th with Alcoa. I am not as interested in being long market indexes but rather individual companies that have strong fundamentals and momentum behind not only their stock prices but their businesses.


Disclosure: Long GLD.

US Plays Brilliant Match, Stocks Repairing

The World Cup has begun! The US played brilliantly against England and with a little luck grabbed a point with a 1-1 draw. Hopefully UK goalie, Robert Green, can put together an amazing performance should he see the field again, the man needs to redeem himself after the embarrassment on Saturday. Honestly, I feel bad for the guy but I'll still take the goal without question. If only Jozy Altidore's ringer off the post would have dropped for us late in the second half. Ah well, all in all an excellent result against a solid squad. Surprisingly, English star, Wayne Rooney, was non-existent throughout the match. Next up is Slovenia on Friday at 10 AM which grabbed a 1-0 victory over Algeria today.

Now on to less important stuff, the S&P 500 ended last week higher by 2.5% at 1,091 after testing and holding support at 1,040 early in the week. The bears seem to have quieted last week and technically the equity market looks to be offering a good risk-to-reward scenario on the long side. One or two days does not a rally make but with a double bottom in place at 1,040 and possible break of the descending trendline, the pace of decline looks to have changed in the short-run. We will see this week if we can complete the first higher high. I picked up the NYSE:SPY at $105 on Tuesday but I am down to a small position now awaiting a higher low for confirmation.

The Arizona Financial Text system is the newest trading system to hit the Street. The system scans news stories for particular words and then buys and sells depending on whether there is a predicted move of greater than 1% in the next 20 minutes. This definitely market a new wave in artificial intelligence, a computer that can learn what we humans are worrying about or becoming excited about on a minute-to-minute basis. According to the creators:

The five verbs with highest negative impact on stock price are hereto, comparable, charge, summit and green. If the verb hereto were to appear in a financial article, AZFinText would discount the price by $0.0029. While this movement may not appear to be much, the continued usage of negative verbs is additive.

The five verbs with the highest positive impact on stock prices are planted, announcing, front, smaller and crude. (Source)

While some of these make sense, others seem to be a result of data mining. Initial tests look promising but time will tell if we are really this predictable. My expectation is that at the very least the 20-minute holding period will have to evolve into a much more complex trading plan to be consistently profitable.


Disclosure: Long SPY.

Markets Dive Again, Financial Reform Bill Passes

As they say, "stocks go up on an escalator and down on an elevator". The Dow dived 376 points today (-3.60%) entering the first official correction (greater than 10% decline) in the entire rally since the March 2009 bottom. Today's closing price puts the S&P 500 12.1% off highs but still 13.5 handles off the "flash crash" intraday lows.

The euro finally found some friends today bouncing today from a deeply oversold condition. After hitting lows of $1.2143 yesterday the currency recouped the psychological $1.25 level hitting highs of $1.2597 before leveling off later this evening.

The US Senate passed the financial reform bill today. The far-reaching bill is a broad expansion of government regulation and oversight of financial firms and markets. Now begins the reconciliation process between the House and Senate versions of the reform bill. All I have to say is it's about time. It's been a year and half since we witnessed the incredible crash of 2008 and Congress has yet to enact any meaningful reform. While the bill goes quite a bit further than I would have liked, I see the need for basic leverage limits and greater transparency in derivatives trading. I would have liked to see the Volcker Rule as part of the legislation but it looks to have been killed in the debate.

Any soccer fans out there? The 2010 FIFA World Cup starts June 11th, only a few weeks away! Nike released an absolutely brilliant commercial that will get even the most ambivalent fan excited for the upcoming games. The first game for the United States is against our arch-rival, England, on June 12th. Let's kick some British ass!

Correction: The Volcker Rule did make it through. Check out the New York Times for a comprehensive chart of the reform bill.