Daily Archives: June 10, 2010

The End of the Bear and the Start of War

By -

After today's drama, most folks are probably prepared to ride the new bull market back to Dow 20,000. My view is that days like today are just blips, and that when the bear market really does end, it will do so – – paradoxically – – in some cataclysmic way.

One Sloper took the time to put together an interesting table showing how various crashes led to subsequent wars. No one wishes for war (and I certainly don't; we've got two on our hands already, and those aren't exactly going very well), but if history is a guide, financial troubles usually lead to political ones as well.

Market Crashes

 

War

Name

Year

 

Name

Year

Tulip Bubble^

1637

—>

First Dutch War^

1652

Bengal Bubble*

1769

—>

American Revolution*

1175

Panic of

1796

—>

Franco-American

1798

Panic of

1857

—>

US Civil

1861

Long Depression*

1873

—>

Boer Wars, Anglo-Zulu War*

1879

Panic of

1893/1896

—>

Spanish American

1898

Panic of

1907

—>

WWI

1914

Great Depression

1929/1937

—>

WWII

1939

Recession of

1973

—>

Engaged in Vietnam

1965-1973

Black Monday

1987

—>

No war

Dot-Com

2000

—>

War on Terror

2001

Great Recession

2008

—>

?

 

 

 

 

 

 

^ – Occurred in the Netherlands/involved the Netherlands

 

* – Occurred in England/involved England

 

The Bulls Get Off the Mat

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Well, it was a rough day in Tim-land! I came into the day totally short, and the only bright spots for me were some bullish day-trades in BGU, DIA, and SPY as well as the successful close of my SLV short. Otherwise, I got beat up pretty badly, particularly since there was so much strength in the energy sector.

The next line in the sand above for the /ES is 1090. After that, it's 1108. If the /ES pushes above 1108, that would be pretty impressive, since the two attempts before failed. Finally, there is 1147.50 and, the ultimate line, 1174.75.

So all this chatter I read about how bearish today was going to be was clearly dead wrong. Let's see what Friday has in store for us. There's no doubt that a day like today is going to hearten the bulls, particularly those looking at such battered bargains as BP and RIG, each of which had amazing days.

0610-es

Perfect Setup for Bears (by The Inflationist)

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Our indicators are screaming BEWARE, markets rallied hard at the word go ! , DJIA is 10125 as we type (+2.2%), Spain up 4% at 9250, Dax 6075 (+1.4%). Japan remains the weakest, alongside FTSE (thanks to BP).

We were researching on BP’s misfortunes – being ignorant to it in the last few weeks. Is this the time to jump in? It makes about $14-16 billion per annum – with a market cap of 91b at the moment. It has over 10 billion barrels of oil reserves (over 5 billion under BP and >4 billion under its subsidiaries). A few factors we thought were important on top of the obvious legal repercussions of the spill.

1. How much oil is leaking per day? Does Deepwater Horizon form a large part of BP’s reserves?

We couldn’t find an answer to this. BP’s estimates are 1000 barrels a day, whilst “experts” from the US are estimating up to 95,000 barrels a day just by looking at the video of oil gushing out. Pick a number! If it was the highest estimate, thats almost 1 million barrels of oil every 2 weeks, or 28 million barrels a year. Is that a significant % of BP’s total reserves? Its “a drop in the ocean” if you look at their reserves below:

BP oil reserves

BP oil reserves

Which brings us back to the legal/financial impact. What is the final bill going to be? We’ve read that BP is self-insured, but other reports say they have reinsurance (probably do, but not much). The upper end of the bill so far in the media goes to 3.5 billion dollars – if that was the case, then we would jump head first to buy before it gets taken over. BP’s financial statement for the last few years summarised below:

BP Cash flow and Financial Statement

BP Cash flow and Financial Statement

Now, for the most interesting (and unfounded) part of the analysis: look at the chart below.

IS BP leading the Dow Jones???

We put both on the same chart, Y-axis being the percentage change going back all the way to 1977. As we said, there is no basis for this, but BP and the Dow tracks each other very well in the last 33 years!

BP vs DJIA

BP vs DJIA

We are going Short Dax $20 at 6070, stop loss 200 points. 

Chart on FXI (Mike Paulenoff)

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Let's notice that the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) peaked at 46.66 in November 2009 and was in the confines of a coil-like corrective pattern into the series of May lows near 36.60/25. Since early May, the FXI has carved out a 5-week basing pattern which could be the second coordinate of a larger Double Bottom formation established in February 2010.

Right now, the combination of the base formations argues for higher prices near term that project into the 41.50 area, on the way to test the multi-month resistance line in the vicinity of 44.50. Furthermore, there appears to be a reliable 15-16 week trading day cycle that bottomed in mid-May, which is exerting positive influence on prices into the first week of July.

It is with the foregoing in mind, as well as because the FXI pattern appears to be ahead of, or leading, the major U.S. equity market indices, that we are long the China equity market in our model portfolio.

DPKaM8OwG
Originally published on MPTrader.com.