From MarketWatch:

Akamai Technologies Inc. (AKAM) fell $5.68 a share, or almost 13%, to $38.35 after the company reported second-quarter results late Wednesday that were in line with expectations, but failed to raised its third-quarter estimates above analysts’ prior forecasts.

In this short video I share with you a classic chart pattern that I’ve seen thousands of times before in different markets. The pattern is very reliable and seems to work well most of the time. Some people believe in this type of technical analysis, however, may as well be voodoo.

I for one, don’t believe that technical analysis is a bunch of smoke and mirrors, as you probably already know by now. I use it on a regular basis to make profitable trades, and in markets like this one, avoid losing my shirt.

You can learn technical analysis too. After the video, click here to sign up for a free trading course: http://club.ino.com/join/lessons

 Enjoy the video and leave your comments below!

So what’s a trader to do?

In my new video, I share with you some steps you can use to help improve your trading in the S&P 500 and other markets. The new video is approximately 3 minutes long and it will show you several key areas and levels that I am looking at. This is similar to what I pointed out in my article about the financial sector ETF (XLF).

As always our videos are free to watch and you do not have to register.

Click here to watch the video.

I would like to see your feedback on how you see the market, as so many traders are becoming frustrated with the lack of real follow-through in either direction.

If you want to learn some simple technical analysis techniques, click here to sign up for this free trading course: MarketClub Trading Course with Adam Hewison

There will be more comments on the economy coming from the Fed on Thursday, so expect to see some volatility around the announcement. If we hear dovish comments on the economy from the Fed President Richard Fisher, then it could send the markets down since it is already starting to roll over.

It’s difficult to trade in anticipation of news, so I try to keep the important technical levels in mind and trade after the announcements. I still maintain that the financial sector is absolutely key to seeing the market break above overhead resistance. My previous post talks about the resistance levels as we approached them and the chart below is the updated chart.

Financial Select Sector SPDR (XLF) Daily Chart

Financial Select Sector SPDR (XLF)As you can see in the XLF chart above, we’ve got this bullish inverted head and shoulders pattern but the resistance at the neckline has been too much for the ETF to overcome on the first attempt. The neckline is also at the same level as the 200-day moving average and I mentioned in my previous article that this would be a difficult level to break.

Now the question is, will the markets find a base here and rally higher? Or will we retest the recent lows and possibly lower? The truth is, I would rather sit on the sidelines for a couple more days until a key level is cleared, thus giving an indication of what direction the market is going. These levels include a close above $15 which is the XLF neckline or a close below $13.80 which would mean that the pattern has been broken and will likely drop below $13. Below $13 is a scary place for longs and will almost surely mean much lower prices in the broad market.

If you only skimmed the above paragraph because you have a short attention span, I said go long on a close above $15 and get out or go short below $13.80.

Short enough? Good.

About Financial Sector ETFs

I like using speculative ETFs such as the Direxion pairs the Financial Bull 3x (FAS) and Financial Bear 3x (FAZ) to take advantage of the volatility in the markets and as a hedging tool during expected drops and I get a lof of questions about these. This pair of ETFs is very popular among day traders, but it is not for average investors with a holding period of more than 0.1-3 days in this market.

One trick that I use to play these fast moving ETFs is (don’t get your hopes up) using XLF for charting because the 3x leveraged bad boys can sometimes overshoot and the price action gets a bit hectic intra-day.

In summary, watch for the levels mentioned above before you make large bets and keep your wits about you.

Stay tuned for my next update and get alerts by email, because a break of these levels will mean a big move in either direction.

Starbucks (SBUX) CEO Howard Shultz at a product launch.

The stock has made it through earnings relatively unscathed so far, issuing fiscal year guidance in line with analyst estimates as reported by Reuters Key Development. Starbucks (SBUX) is up over 9% for the year, but down over 10% from this year’s peak. Given these results and the market’s reaction, it is important to evaluate what the trend the stock is in right now.

In this video, we look at the trend from a longer time frame and some levels and chart patterns. Going back to the big “double-top” from 2007 and the important Fibonacci retracement lines.

Click here to watch the video analysis of Starbucks (SBUX).

If you are interested in learning more about technical analysis, click here to get a free trading course.

Enjoy the video and leave your comments below.

Stay tuned.

If this sector is facing strong resistance, expect to see a pullback in ETFs that track the sector like the Financial Select Sector ETF (XLF) or the Direxion Financial Bull 3x Shrs (FAS) as well as the overall market. This has been the case several times over the past few months and will continue to be so.

What are the financials telling me now? Here’s the chart:

Financial Select Sector ETF (XLF) Daily Chart

Financial Select Sector ETF (XLF) Daily ChartI have been expecting this rally, as mentioned in a previous article, and what has unfolded so far has been encouraging. There seems to be an inverse head and shoulders pattern developing here. This is where a low (shoulder 1) is followed by a lower low (head) which in turn is followed by a higher low (shoulder 2). The peaks of these three formations is called the “neckline” as marked by the blue line in the chart above and in this case, resides at around $15. This pattern is confirmed by a sustained break above the neckline and the bullish pattern is complete.

Since this is on a shorter timeframe, this should point to a shorter-lived rally.

The resistance at the neckline is from the 200-day moving average. Many sectors, including the major indexes, have broken above this resistance in previous rallies but have subsequently broken down as the financials did not follow suit.

As earnings season continues, the financials will need to make a decisive move in order to power the markets higher. Should this happen, it is very likely that we may have seen a bottom at least for the medium-term. A break of the neckline could see XLF at $16 as a first resistance level. If this pattern breaks down, it will likely remain range-bound for about another month or so.

Keep a close eye on XLF for a breakout or breadown and you will have a clear picture of what to expect from stocks. Updates on this ETF will follow soon, so make sure to stay tuned and receive updates by email.

Brilliant speaker and well animated video. Enjoy!

Leave your comments below.

The choppy action in the markets is certainly not something that the average investor likes to see. As the markets go through this period of relative indecision, it is important to evaluate what the bigger trend is. The S&P 500 is only up about 10 points since May 21st, meaning that the past two months may as well have been written off.

The guys over at MarketClub are hardcore trend traders and they have developped a system that rates the trend strength of a stock, commodity or index. Since this is done over multiple time-frames, it gives you a good idea of what a particular asset or security is doing at any given time.

In his latest video, Adam from MarketClub takes a look at the S&P 500 at today’s prices within the context of the larger trend. He also covers the key Fibonacci levels which have played a key role in the market’s price action and these are levels you need to know. At the end of the video, you can sign up to a free trading course which will teach you some simple technical analysis tricks that can help you make better trades.

Click here to watch the video: S&P Battle Royale

Enjoy and leave your comments below.

Article by Bryan Rich

Currencies have experienced a massive wave of volatility in the past three years. Driving some of that volatility are the early stages of a sovereign debt and currency crisis.

As I laid out in my June 26 Money and Markets column, history suggests many of the sovereign debt problems in the world will likely be responded to with competitive currency devaluations. So it’s reasonable to expect large moves in currencies.

How large should we expect?

For our guide, let’s take a look at the market’s estimate of the current “fair value” of currencies.

We’ll use an economic theory known as purchasing price parity (PPP), which adjusts the exchange rate so that an identical good in two different countries has the same price when expressed in the same currency.

And here are two tools to help with that analysis …

Tool #1—
Big Mac Index

If you were to visit a McDonald’s outside of your home country, would you expect to pay more or less for a Big Mac?

It depends.

You’d likely notice a difference though.

A major cause of this difference would be the value of the local currency relative to your home country’s currency. And that’s where the Big Mac Index comes in …

A Big Mac in the U.S. will run you about $3.50. If you’re traveling around Germany, you’ll pay in the neighborhood of 3.15 euros for that sandwich. So at current exchange rates, the same sandwich in Germany will cost you $4.10 or 17 percent more than you’d pay in America.

Expect to pay more for a Big Mac in Germany than you would in Kansas.

What does this analysis tell you about the value of the euro?

It could tell you that the euro is overvalued. But there are also other factors to consider when comparing the Big Mac’s prices: Labor costs, real estate costs, taxes, transportation costs, trade-related costs, the quality perception of the product and other variables that impact doing business in different countries.

The bottom line: Running a McDonald’s in Omaha is quite different than running a McDonald’s in Berlin. Nonetheless, the Big Mac Index is a useful quick analysis for comparing currency values.

Tool #2—
OECD’s PPP

The more academically accepted version of PPP is the measure against a basket of goods and services. These statistics are compiled by the Organization for Economic Co-Operation and Development (OECD).

Both the Big Mac Index and the OECD’s work are broadly accepted tools for assessing the relative under or over valuation of currencies. But keep in mind that PPP analysis in general is a longer-term tool. It does not incorporate many of the short-term influences that can drive currency values.

Yet it does provide a benchmark equilibrium exchange rate as a reference point, which combined with a healthy dose of assumptions, can be used to normalize the cost of a product across countries.

So What Does PPP Tells Us Right Now about
the Most Overvalued Currencies in the World?

In my chart below, you can see some of the most overvalued currencies according to the Big Mac Index and the OECD’s PPP. The axis on the left shows how overvalued these currencies are relative to the equilibrium exchange rate based on purchasing price parity.

Both measures agree that the Swiss franc is one of the most overvalued currencies in the world, relative to the U.S. dollar.

The franc’s strength has come from its traditional appeal as a safe haven currency. Market participants have fled the troubled euro, and used the Swiss franc as a safe parking place. That’s pushed the value of the Swissie well out of line with economic fundamentals.

Also sitting well in overvalued territory is the Japanese yen …

The yen has gained 28 percent against the dollar since the onset of the financial crisis in 2007 as investors exited the highly popular carry trade — where they borrowed cheap yen to buy high yielding currencies. And it continues to find favor, ignoring Japan’s inferior economic fundamentals.

As for the euro, despite its sharp collapse since November of last year, the OECD PPP puts a fair value even lower, at $1.18. Given the fluid nature of the problems in Europe and the tendency of markets to overshoot, it could go much lower.

As For the Undervalued Currencies …

Weak currencies help many Asian countries maintain a massive trade surplus.

The major Asian export-centric economies dominate those currencies deemed the most undervalued, according to purchasing price parity. Among them are the Malaysian ringgit, the Thai baht, the South Korean won, and the widely scrutinized currency for its gross undervaluation … the Chinese yuan.

The Big Mac Index and the OECD’s PPP aren’t great trading tools. But they do give some additional perspective, when combined with fundamental, technical and sentiment analysis. Indeed, helpful in a world of increasingly vulnerable currencies.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

This is all very bullish and I have been making my short-term predictions for this bounce as well. Some notorious bears like Doug Kass say that the bottom has been put in for the year and the media has been talkng about stocks testing the lows (so you know it won’t happen).

Then why am I not convinced that this rally will last beyond an oversold bounce? This is not to say that I am bearish, my recent articles say the opposite, but I am simply not willing to jump in with both feet just yet. 

What troubles me the most is the fact that there does not seem to be any institutional buying which is the only way we can continue this rally. Volume has been very light, which has been the case for the past 14 months, but I mean really light.

I’ve read some recent articles on Hedge Fund performance in June, which was one of the worst months since 2008, which leads me to believe that the “window dressing” that was expected at the end of June was actually replace with liquidation due to fund redemptions. In other words, instead of seeing institutional buying at the end of the month/quarter to boost their numbers, funds had to sell some of their holdings beacause their clients were pulling their money out.

This was demonstrated in spades when Gold took a big hit at the beginning of July as hedge fund manager John Paulson, the biggest holder of the SPDR Gold Trust ETF (GLD), had to liquidate some of his holdings to cover the over $2 billion in client redemptions.

In addition to this, I’ve read several other articles on the cash levels being held by institutions and their reluctance to pile into equities. Sort of a “deer in the headlights” situation.

Of course, I am always skeptical of what I read in the news, but these articles have been useful to help me confirm my thesis of what has been going on in the institutional investing world.

Timing is also a big factor. We are about to kick-off earnings season with Alcoa (AA), the first Dow 30 component to reporting earnings after the close on Monday. There will surely be volume coming in this week and the results will likely determine direction of the markets for the next few months.

Needless to say, positive results and strong forecasts will give hedge funds the conviction they need to begin accumulating again. I do not like to make predictions on earnings as I do not have a team of specialized analysts at my disposal. Not to mention the fact that I’ve seen many positive earnings results be met with sell offs. The devil is in the details and earnings headlines seldom give a clear picture of what the full report will reveal.

My general expectations for this round of earnings is results that are not as strong as the first quarter. The markets did crash after the last batch of earnings was released, caused largely by sovereign debt problems, but forecasts for the rest of the year were below the expectations of many.

Since stocks have shed some valuation multiples over the past couple of months, and some analyst estimates have been reduced, the markets could be more forgiving of mediocre second quarter results so long as the earnings guidance is good enough for the street.

While there are some leading indicators that I have been monitoring that signal a continued reversal to the upside, the market does not move purely on technicals. The markets need to react well to earnings in order for the current rally to continue. If this is the case, the bottom could very well be in for the year, if not expect a triple digit level on the S&P 500.

Not to toot my own horn, but I pretty much nailed the rally by going long on Friday and writing this post.

Stay tuned.