From one of Slope's own readers, The Energy Analyst, here's the latest.... It was tough for Slope to call a “top” in crude last Friday
morning, but this morning (Monday May 12) looks better with crude trading down
between $1-$2 per barrel in pre-market. Ostensibly, the catalysts are USD
strength versus Yen with USD now up 1% and overnight data from China on lower
April crude imports. However, the real driver is more likely that oil was up for
six straight days thru the end of last week, rising over 8% during that period.
Profit-taking in crude is clearly overdue. Interestingly, Yen was up (dollar
down) for six straight days prior to this morning. So, that trade was due for a
reversal, as well. Energy stocks likely to open weaker with DUG now up 2%. OIH
looks weaker driven by slippage in SLB in Europe. In sum, DUG looks okay as a
near-term trade on a slight negative shift in sentiment on energy and may have
potential back to the recent mid-30’s range.
The real issue is whether oil can stay down. The first “fib”
line is at $111, which also happens to be the 50-day MA. The 100-day MA is at
$102. Note that oil has not traded below the 50, or 100 day moving averages
since early February. These are key levels to watch, but may just be ‘a bridge
too far’ right now. Overall, news flow still supports crude with reports that
ENI may have to delay the world’s largest oil project (Kashagan) by another two
years out until 2013. Initial volumes here are targeted at 370,000 barrels per
day (b/d). Also, Chinese oil imports may have been down y/y in April, but are
still up 10% year-to-date. (Note that monthly data is not that meaningful for
discerning real trends, in my view). The collateral damage from higher oil still
has not been fully discounted and is actually just beginning – note FedEx this
AM. The S&P may be relieved short-term if oil “drops” to $110, but the
economic impact will still be a real negative at such levels on a longer-term
basis.
I'm occupied for the rest of the day, so I'll do my "end of day post" on Saturday morning. Until then, here are a few bearish ideas I'm considering (the dollar figure following each symbol is, as always, the contingent stop price; that is, any price above that level would result in me closing the short/selling the put).
AEM 66.99 AKS 70.79 AA 40.12 AAPL 188.20 ACI 68.49 COG 62.99 XEC 70 COP 89.99 CNX 99.99 ECA 87.69 FSLR 287.20 NE 64.99 PXD 69.99 X 173.99
Today is going to be analysis-free, as I offer a couple of videos people have been pestering asking me to do. The first one introduces the Grid feature in ProphetCharts (sorry, it used the internal laptop mic, so the audio is a touch raspy).
And the second one is about Patterns within ProphetCharts (in which I actually managed to use the right microphone).
The chart below makes me uncomfortable, so I am taking index profits. I'm crazy about most of my equity positions, but as nasty as the past seven weeks have been, I am in a cautious and defensive frame of mind. The prospect that yesterday's romp was just a retracement back to a large breakout patten is too real, and the price action over the past few months has been constructive for the bulls. We haven't broken any serious levels of support. Thus, I'm going to play it safe on those index puts.
I've closed S&P and FXI for now, and I've got my finger on the button for RUT and NDX.
I haven't plugged my book, Chart Your Way to Profits, in a while, so - there - I just did. If you use ProphetCharts, you should seriously consider it. I think you'll find the reviews to be overwhelmingly positive. Check it out!
All right, on to the markets. The best news to me today wasn't whacking 200 points off the Dow or the big surge in my portfolios (which, ahem, aren't 50/50...........I guess my even suggesting that was a good sign, eh?) The best news was the divergence in where crude oil is heading versus where all the oil-related stocks are heading. In other words, we've got crude oil which went on to its umpteenth never-before-seen in human history high price............
And yet oil-related stocks, which to date have wallowed around in bathtubs full of gold coins during this entire melt-up, didn't have the power to participate anymore.
My point is that my abundance of oil and commodity related items is well-positioned to benefit from this divergence. Because if they fall on a strong day for crude, can you imagine the damage waiting for them when crude falls? (And, yes, it will fall; nothing goes up forever).
Likewise, my $XAU position did pretty well. The formation for 2008 is very similar to the smaller one spanning October-December 2007 (which didn't amount to anything), but a break from this pattern downward would easily send the $XAU to the mid-$150s.
And - tip of the hat to Jana - China is finally starting to get kicked around again. It was the best down day in seven weeks. A monster bearish engulfing pattern. A break below $212 (far away, I confess) would be highly destructive to this index.
And - perhaps my favorite pattern of all - the $MSH is obediently staying beneath that not-quite horizontal line you see below. A fully materialized head and shoulders breakdown would send this at least a hundred points lower.
I entered a put position on the S&P relatively early today, and it's nicely in the green. Perhaps 1423 is as high as this retracement is capable of carrying the market. I sure hope so.
Due to (of course) a lack of time, I can only offer the following charts without any commentary. I'll let the lines do the talking for me. These are some favorite shorts now.
I am delighted the Dow is down over 200 points. It's been a great day. So I've got a lot to say about where things are at, and where they've been recently. But I've got to do my TOS Talk! So I'll do a post later today. Join me on TOS for a chat (or to listen, at least) if you're a user.
If this is the turning point (and, so far, it feels like the day will actually stay down.......) here is my view of the three big indexes and their stop-loss points.
After the briefest of corrections, oil prices and stocks have moved onto new highs. The surge in oil past $120 per barrel dominated the market today, in part driven by a new report from Goldman Sachs that discussed the possibility of $150 - $200 per barrel prices. The most interesting aspect of the report was that it contained no NEW reasons for the higher price objectives. Rather the “drivers” remain the same, which are, in my opinion: 1) still growing world oil demand; 2) lack of non-OPEC supply growth; 3) tight spare OPEC capacity; 4) increasing resource “nationalism”; and, 5) geopolitical instability (read Iraq, Nigeria etc.).
What is different now, is that the global oil market has awakened to the fact that the demand feedback mechanism is broken and that it could take even higher oil price levels to cause a significant drop in consumption. I discussed this concept in a post on April 23. Specifically, the problem is that the bulk of the world’s energy consumers are shielded from the impact of higher oil prices by national subsidies. This is particularly true in China, India, the Middle East, Russia, Asia and Africa. In effect, every country except in the so-called OECD, or developed world.
The US is really the only major energy consumer with a “real time” price feed-back economic model. Even the more free market European countries have been shielded from the full impact of higher oil prices by the decline in the US dollar. The conclusion is that almost all of the burden of oil “demand rationing” falls on the US consumer. In fact, this is exactly what has occurred year-to-date as US oil consumption has declined. However, a projected 200,000 barrel per day decline in absolute US oil demand does not even put a dent in expected global consumption growth of over 1 million b/d. Bottom-line, oil prices may in fact have to rise another 50% to invoke the necessary demand response.
A Two Sided Coin: Oil stocks, particularly the pure plays like APA, CHK, DVN, NXY, OXY (and others) should continue to move higher on the back of higher commodity prices. What remains most problematic, in my view, is how the rest of the equity market works not only at $120 oil, but at an even higher potential price. The commodity market and the equity market appear to be in direct economic opposition. Ironically, if the global growth thesis so widely held is correct, the additional economic pain that could be inflicted on the US via a higher oil price is substantial. As a fading thought, it is probably premature for the Journal to call for an “end to the US Housing Crisis” as it did so in today’s Op-ed section. Also, the gold story may not be “over” if oil prices strike even higher. Interestingly, these stocks have experienced a significant correction over the last month.
One of the readers of this blog wrote me a very eloquent email today expressing his frustration at having a horrible April (in spite of the first quarter being really good). That struck a familiar chord.
What he decided to do was this: he has two accounts, and he has decided to trade one with a bullish bias and one with a bearish bias.
Now, I know many would react saying, "You shouldn't trade with any bias at all! Just do what the charts say!" Well, that's easy to declare, but let's face it - - no one - - not you, not me, not anyone - - can be certain which way the market is going to go in a given period of time. I contend you could ask any experienced chartist to make a bullish or bearish argument for any given stock, and they could probably do a convincing job of it.
I'm getting so disgusted with the OIH-driven nuttiness that I'm considering taking on a similar strategy. I'd be interested to know what others here think of the idea of trading half of one's assets with charts that appear bullish and the other half with charts that appear bearish.
Lately it seems the only stock that's getting hammered is a certain stock of a certain blogger. If all my positions acted like that, I could do a leveraged buyout of Google on my own!
Crude oil, of course, was the focus of the day. It wasn't but a few months ago that $70 oil was considered beyond belief. We're nearly double that now.
The thing which shocks me is that if you took a time machine back a year ago and told traders without a doubt that oil would be trading at over $120 today, they would probably buy every index put on the planet. With the market largely unchanged from a year ago, that would have been a failed trade (with secret information from a time machine, no less!) Truly amazing.
Since a lot of contrarians hang out here (probably because they can no longer afford housing, given the losses over the past seven weeks........) here's another sign of the times. The most popular article is about how to "get in" on the commodities nuttiness.
There's plenty of credible reasons that oil will indeed continue to soar. I get that. In fact, I just got a beautiful poster about "peak oil" for my office. Still, one can't help but wonder if "oil is going to $200" will be the "Amazon is going to $400" quote for this generation of traders.
Good morning, everyone. I want to give a sincere thank you to everyone who participated in my Cinco de Mayo poll, particularly those that wrote me emails providing their detailed input. I appreciate it, because this is essential feedback for me. *Mwah!*
I look forward to keeping you folks posted on what comes of this. As you might guess, I am very attached to my little creation (Prophet) and am looking forward to breathing new life into it.
As an aside, please be sure to check out the "Watch Lists" on the right column. It will show you all my (short) positions right now, many of which are new. Maybe you'll see a symbol or two worth checking out. You can also look at my current set of representative positions; many of the recent shorts are showing losses, but I'm hopeful that will change very soon. I'll do a post later today..........thanks again!
For all the countless hours I spend working on this blog for free, I'm asking you to take a few minutes to answer a poll. OK, the guilt trip is over now! Honestly, if you'd be kind enough to answer a few questions, I'd genuinely appreciate it. (And, sorry, since the market was so dull today, this is going to suffice for my afternoon entry).
Let me first explain why I'm even doing this poll in the first place. Some of you know that I founded Prophet.net many, many years ago, and I sold it over three years ago. Frankly, not much of anything has happened with the site (with the exception of ProphetCharts' introduction), and I am hoping for the opportunity to completely redo and "relaunch" the site later this year.
The present idea I have is to relaunch Prophet as trading platform for chartists. So you'd be able to trade directly from Prophet, have all your trading information reflected within the site, and (naturally) enjoy blogs (starting with Slope, and expanding into others) within the platform. I personally find there is a huge, huge amount of "secretarial work" I have to do when trading (cutting and pasting symbols from place to place, moving items from list to list based on whether I have a position in them, updating cash balances, entering new positions into MarketMatrix, and so on).
So I've got a few questions to ask to help me see if I'm on the right track or if I should take a different tack. (Note: the term drawn object, used below, means something you'd drawn in ProphetCharts, such as a trendline, a Fibonacci retracement, a horizontal line, etc). Please choose an answer for each question, and click "Vote" for each one.
Lastly, if you are a current (or former) Prophet.net user and have any other specific suggestions for really fundamental ways to improve the site, I'd love to hear from you (or just leave a comment in the comments section of this post). Thanks, everybody!
Wow. We should have recognized this one all along. Abby Joseph Cohen was given the heave-ho from her very prominent, very public role into some similarly-named but not nearly as visible job at GS on March 17th. In other words, the loudest permabull on the planet was zapped by GS on the exact day of the market's low. How's that for a contrary indicator?
Unfortunately, that's not something we can make use of again, except insofar as public spectacles like that actually mean something.
I'll also mention that my little foray into being bullish on housing/financing stocks made me a few hundred bucks here and there, but I've sold all of these off now. There are breakout failures all over the place. I got lucky, but I don't think a long-term hold thing would bring anything but misery.
Hopefully a little later today I'm going to ask you to return all the love I provide in this blog by answering some survey questions. Stay tuned.
I wanted to share with you some quotes from some notable, respected sources about the end of the bear market.....
Analyst says bear market is beginning to level out. Richard Cripps, chief market strategist for Legg Mason Wood Walker Inc., is urging investors to begin leaning toward small- and mid-cap companies with lower valuations and higher projected earnings growth than the Standard & Poor 500, because the economy is transitioning out of a bear market. Cripps predicts the equities market is moving in a much different direction than the immediate past markets
Time to say bye-bye to the bear? In case you missed it -- or were too dazed to notice -- the stock market has bottomed."The bear is dead!" screamed a recent stock market report from Alfred E. Goldman, chief market strategist for A.G. Edwards Inc. in St. Louis. Maybe it's a rash pronouncement, but other economists and market strategists are preparing eulogies as well.
Stock Investors Start to Believe That the Worst May Be Over "We are all trained to look at this rationally and objectively, but I've got to say that there also was a gut feel that this couldn't go down too much farther," says Jon Brorson, director of stocks at the money-management arm of Northern Trust Corp. in Chicago. "We all sat together in meetings and said this has got to turn, this has got to turn. It was basically one of those chewed-on-pencils kinds of things." The firm has urged its clients to shift some money out of cash reserves and into stocks. Technology stocks took some of the worst punishment over the past 15 months, but even some longtime skeptics about tech stocks don't expect the broad market to fall much more. Although "the incredibly strong stock market that we have experienced for the last few years is unlikely to repeat itself for a while," says Henry Herrmann, chief investment officer at mutual-fund group Waddell & Reed in Overland Park, Kan., "I think the trend is up. So I guess I'd have to say that we are in a bull market."Robert Morris of Lord Abbett & Co. in Jersey City, N.J., another tech skeptic, says "I don't see how you could be bearish here" about the broad market.
And these sentiments are understandable, considering the market's strength..............which is undeniable:
Oh, wait, did I mention one other thing? I think I should. These quotes were all from the spring of 2001. Allow me to share with you a bit of a larger context, with the above graph tinted in yellow.
So, in all honesty, I think that all of you that are in bull-mode right now probably have the same disposition - - and reasons - - that the esteemed individuals mentioned above had at this exact time of season seven years ago. And I think you'll be proved every bit as wrong. As for my bearish friends. May God smile upon us and, for once, reward skepticism and prudence.
I never thought much of the term "MicroHoo" that was coined back on February 1st. It seemed like something a bit NSFW (and even fairly alluring). But not business-like.
In any case, it's a term that needn't be used, because YHOO has thumbed its nose at a deal that they will probably be begging to have back in a few months. Formerly large tech companies that get past their prime (Netscape, AOL, Sun) don't typically turn around and get big again. They get irrelevant.
It'll be interesting to see what each stock does Monday morning. I would guess YHOO would get hammered and MSFT might actually go up since they're not engaging in this not-so-bright transaction.
I spent part of the weekend at the Maker Faire, which, culturally, is probably the closest I'll ever get to Burning Man. I've never felt so normal in my life. For a stick-in-the-mud like me, it was a freak show, with:
The largest concentrated collection of man boobs on the planet
Fishnet stockings on many pairs of legs, most of which would permanently destroy any sexual appeal in a man's mind for fishnet stockings
Garb that looked straight out of Dickensian England
Long-haired hippie freaks
Long-haired women (err, that would be on the armpits)
I did get to revisit my childhood fondness for model rocketry, but I left the place feeling like Mr. Middle America. It wasn't all bizarre, though. At least there were about ten men driving self-propelled cupcakes. So that balanced things out a bit.
Looking at the past history of this stock, the last time it had an ascending triangle breakout, everything about the breakout was healthy - - the volume, the retracement - - the whole schmear.
But this time, the breakout is a mess, which suggests to me this breakout is going to become a breakdown instead.
What a week. I'm glad it's over. Technical problems. Stocks-that-should-not-be-named blowing up. Surges in equity prices. A return of the bubble-headed bulls. Widespread celebration that the microscopic bear market the world has "endured" is over.
To top it off, I took my CMT Exam, and it seems like 40% of the questions were about point and figure charts. Huh? Does anyone actually use these things? I suspect whoever put the test together has as much an obsession with P&F as I do with Fibonaccis.
How many of the 120 questions dealt with actual technical patterns? Zero. You read me right. None. Although, thank heavens, there were three questions about analyzing cash holding levels at mutual fund companies. God almighty. Plus the pitiful souls that ran the testing center had their monitors all set to a 60mhz refresh rate, since I suppose they just don't know any better. My success story was that my eyes didn't start bleeding.
And what about my trading today? I bought puts like crazy. If the patterns pan out, there were bargains galore everywhere.
But the next time we encounter a low like we did in mid-March, would someone please remind me to go 100% into cash and wait for the VIX to get down to 18 again, like it did today? Because the last seven weeks have been a complete waste of time and treasure.
Today started out terribly. And, as I type this, there are two and a half hours to go.
But the cold fact of that matter is that all the tremendous gains the indexes enjoyed at the opening bell have evaporated. Where shall we end today? A loss on some of the major indexes would be a welcome sight, to be sure. We'll see where it winds up. And the reason it's so important is that there are few things better for my shipmates than a failed bullish breakout.
As of this writing, the S&P is sporting a tremendous shooting star. Of course, the candle isn't worthy of interpretation until the close.
I've been incessantly warning about the potential breakout of the IWM. Well, the breakout has happened. It is history. But will it generate a bullish movement upward? It sure did in the first moments of the day. But, since then, the bull's car has had nothing but water in it. It wants to move, but it's not budging.
I offer the following charts without commentary (since I haven't the time). But here are my favorites right now.
There's a lot going on, but I will put together something soon.
You have honored me all these months with taking time to be here on Slope, and I want to apologize for being so distracted lately.
There are some very interesting things going on in the market, and I hope to comment on them very soon. I'm not convinced the bear's back is broken. Mine certainly isn't.
The plunge in OIH and related companies was the only thing they kept things decent for me today. My NDX and QQQQ puts - - fat with profits yesterday - - were closed out with a loss, thanks to the explosion higher in those markets. I bailed out of my RUT puts as well, given the ungodly terrifying pattern that has shaped up on an intraday basis. All in all, the day was a wash, but it would have been a disaster were it not for the plunge in oil.
The market's strength pushed complacency and the $VIX down to new 2008 lows. We are approaching the levels seen last Christmas, when the market was extremely strong. It's amazing, but the VIX is half its value from its January peaks. Boy, those were the days, weren't they?
The tinted area of the Russell shown below is, to my eyes, very, very, very dangerous. Friday morning's employment figures will give it some direction, of course. But it could be a disaster.
With all my worrying, someone sent me an email today asking, "whose side are you on?" I'm on the side of profits. I'm on the side of minimizing losses. No one is going to pay me to be a permabear.
One pattern that I've mentioned repeatedly which had formerly given me comfort was $MSH. Well, that neckline got sliced today. I suppose one could nudge the neckline higher, but I really don't like cheating my charts.
The S&P 100 is butting right up against its Fibonacci retracement level. Of course, it could slice right through this tomorrow, just like the $MSH cut through its neckline today.
Even more perilous is the S&P 500, which is banging up against a variety of technical lines. In addition, most of the Elliott Wave stuff I've been reading has declared 1,410 as a line in the sand for S&P, so this is a very dangerous time for this index too.
Lastly, I beefed up my short positions on China today. I am anticipated a softening in this market soon.
Today was pretty rough for me, both with the indexes zooming higher (in spite of yesterday's miniature victory!) and all kinds of technical troubles here at the office. I sure hope Friday is better on all fronts.
I'm going to be totally quiet for the rest of the day, probably until very late tonight.
The market is ungodly strong. We're having technical problems galore here. So the last thing I have time for is to type musings on a blog. As for my positions, oil is doing fantastic, but I dumped my RUT, QQQQ, and NDX puts at a loss since this market is exploding higher. Feh.
So I'll see you VERY late tonight. Sorry.........please consider the graph below a HUGE warning sign; the risk of a breakout is very, very real, and it would be devastating for the bears.
I haven't engaged in the world of academia (thick books, studying, flash cards, tests) in many years, but my Chartered Market Technician test this Friday has compelled me to return to that world. I've got a foot-thick stack of books I've been going through preparing for it. I'm reminded now why I got through college in 2 1/2 years. Studying isn't my cup of tea. I prefer doing.
I was staring at my monitor this morning, not "doing" much of anything, and not knowing what to write, when Slope's intrepid Energy Analyst made a delivery into my electronic in-box. I herewith offer his thoughts.......
There was a modest short covering rally in energy stocks
after the Fed rate cut yesterday as the “statement” was not as explicitly
hawkish on inflation as some expected. DUG, in particularly, moved lower as the
big-cap names (XOM, CVX and COP) rallied on the close. The reaction by energy
names yesterday was a false move, in my opinion. The sector will open lower
this AM, as XOM missed the consensus forecast by 5% ($2.03 per share versus
estimate of $2.14).
More significantly, XOM’s production volumes were down almost
6% y/y. Media pundits are focusing on the decrease in the company’s refining
earnings y/y, but Wall Street analysts are going to raise more concern over the
production shortfall. The volume numbers were not good, and this has been a
nagging issue for the company. The 19% decline in XOM’s African oil volumes y/y
will be a major source of investor concern, in my view. Recall that XOM
“missed” on earnings and production in July of 2007 and this set off a major
correction in both XOM’s shares (from almost exactly the same price level) and
the oil sector. A similar move could now unfold. It is not insignificant that
hedge funds begin a new monthly performance period today, having realized big
monthly gains in energy in April.
DUG is already up 3% in pre-market. DUG lagged yesterday
because of the last hour move in XOM, which accounts for 23% of the value of the
ETF. XOM did raise the dividend by a higher than trend 14% yesterday afternoon,
which gave some investors hope of an earnings beat, but another interpretation
may be that it was more of a cover for today’s earnings and volume miss. One
final note: XOM’s results this AM underscore the investment case for OXY, where
EPS were up 137% y/y, versus the obviously more modest 25% increase in XOM
profits y/y. Oil may pause near-term, but OXY represents a much more direct
vehicle to capture the higher longer-term price with much less volume and
refining risk.
