by ilene - July 27th, 2010 6:45 pm
Courtesy of Brett Owens at The Contrary Investing Report
These days we are keeping a keen eye on markets that have been reliable leading indicators of the stock market. Since 2004 or so, markets have become quite interrelated, creating a lot of interesting relationships in markets that previously had little or no correlation.
The correlation of course peaked during the 2007-2009 downturn, when EVERYTHING dropped by about 50% (except for US Treasuries and the US Dollar). I still believe that was the market tipping its hand, showing a glimpse of an even worse crash to come.
When that crash would (finally) start was something we took at look at this January, when we analyzed the Top 3 Investment Themes to Watch in 2010. On March 29th, just weeks before US equities topped, we revisited the charts of some key leading indicators, and concluded that the reflation rally was perhaps on its last legs:
These non-confirmations could be ominous bearish divergences, indicating the reflation rally is on it’s last legs. The rally appears tired, but is not over yet.
Since it appears that this conclusion was, thus far at least, correct, I’d like to revisit some of our favorite charts – taking a long term perspective – to see were we are at.
Crude Oil – Trading Sideways
Crude caught my eye on Friday when I saw a headline that it was making two-month highs. Taking a longer term view of crude oil, it’s performance looks less impressive:
by ilene - July 23rd, 2010 7:50 pm
Technicals vs. Fundamentals: Which are Best When Trading Crude Oil and Natural Gas?
By Elliott Wave International
If "fundamentals" drive trend changes in financial markets, then shouldn’t the same factors have consistent effects on prices?
For example: Positive economic data should ignite a rally, while negative news should initiate decline. In the real world, though, this is hardly the case. On a regular basis, markets go up on bad news, down on good news, and both directions on the same news — almost as if saying "talk to the hand cuz the chart ain’t listening."
Unable to deny this fly in the fundamental ointment, the mainstream experts often attempt to reconcile the inconsistencies with phrases like "shrugged off," "defied" or "in spite of."
That begs the next question: How do you know when a market is going to cooperate with fundamental logic and when it won’t? ANSWER: You don’t.
Take, for instance, the first three news items below regarding the July 22 performance in crude oil, versus the fourth headline, which occurred on July 23:
- Crude prices surge nearly 4% in their sharpest one-day percentage gain since May. The rally was "aided by fears that Tropical Storm Bonnie will enter the Gulf of Mexico over the weekend and disrupt oil production." (Wall Street Journal)
- "Oil Prices Soar As Gulf Storm Threat Looms" (Associated Press)
- "The storm should keep oil prices bubbling if it continues to strengthen and remain on track." (Bloomberg)
- "Oil Slips From Surge Despite Storm Threats" (Commodity Online)
Unlike fundamental analysis, technical analysis methods don’t rely on the news to explain or predict market moves. They look at the markets’ internals instead.
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by ilene - May 18th, 2010 3:45 am
Courtesy of Robert Reich
Saturday the White House warned BP that it expects the oil giant to pay all damages associated with the disastrous oil leak into the Gulf of Mexico, even if the costs exceed the $75 million liability cap under federal law. BP responded Sunday saying its public statements are “absolutely consistent” with the Administration’s request.
When you hear dueling public statements like these, watch your wallets. You can safely assume BP’s lawyers are already at work to ensure that the firm pays not a cent more than $75 million — not to taxpayers bearing cleanup costs, not to consumers whose gas bills will rise, not to businesses along the coasts that will lose a fortune. And BP won’t pay more unless or until there’s a law requiring it to.
BP has been making public statements about its supposed corporate social responsibility for as many years as it’s behaved irresponsibly. It’s the poster child for PR masquerading as CSR.
It was just eight years ago British Petroleum shortened its name to BP and began promoting itself as the environmentally-friendly oil company with a vision that went “Beyond Petroleum” to embrace solar cells and wind power. In a $200 million advertising campaign organized by Olgilvy & Mather, BP transformed its corporate brand insignia from a shield to the more wholesomely natural green, yellow, and white sunburst. BP’s chief executive, Lord John Browne, issued warnings about global warming and said the company had a social responsibility to take action.
Notwithstanding its new image, BP continues to be one of the largest producers of crude oil on the planet. Although it committed itself to devoting $8 billion to alternative fuels over ten years, the sum was tiny compared to BP’s annual profits from oil that have averaged over $20 billion and its annual capital expenditures of over $14 billion.
Nor has the firm distinguished itself by its commitment to the law. Several years before the Gulf oil rig explosion, an explosion at BP’s Texas City plant killed fifteen workers and triggered a $21.3-million fine from safety regulators.
In March 2005, corrosion of BP’s pipes and equipment on the North Slope in Alaska led to a spill of 270,000 gallons of oil, the largest spill ever recorded in that fragile territory. Critics said BP wasn’t spending enough money to prevent such spills. Only in 2006, after…
by phil - September 11th, 2009 8:27 am
And away we go!
We have finally broken through all of our breakout levels and no one is more surprised than I am to see this coming without a pullback (perhaps David Fry – see chart on right). We will, of course, remain cautious through the weekend but we’re already preparing to throw caution to the wind (sort of) as I’ve posted a primer for our Buy/Write Strategy, so we can start picking up the stocks we want at roughly 15-20% discounts. This is why we can afford to be patient as we wait for our breakout levels – WE DON’T MISS ANYTHING! At PSW, we can STILL buy BAC for $14.41 (16% off) and C for $3.43 (27% off) and PARD for $3.79 (51% off) and now that we have made our tops, we feel a lot more comfortable working in at those prices than we would have when the market was 20% lower in early July.
Hopefully that floor holds (Dow 8,000). We’re looking good so far as our breakout levels have been Dow 9,600, S&P 1,030, Nasdaq 2,038, NYSE 6,700 and Russell 577 and now they form a floor we will be able to watch so we’ll know when to be worried that the rally is running out of steam.
We are also well-protected with our disaster hedges from the Aug 24th post and, if you don’t have any – it’s still a good idea to get some (and cheaper now too!). Only 2 33% (off the top) levels remain and that’s 1,056 on the S&P and 6,959 on the NYSE and we will be officially raising our mid-point from Dow 8,650 to 9,500 if we can take those out and hold them for a day or two, which will make 9,000 our new expected floor on the Dow and that means we should be buying here! There’s no point in having watch levels if we don’t act on them.
The dollar continues to fall and that’s supporting oil and gold but not the Nikkei, who fell 100 points off their open and finished down .666% for the day as the dollar failed to hold 91 Yen against the world’s mightiest currency. Even a 50-point "stick save" into the Nikkei close couldn’t paint a positive close for the day. A 100-point boost into the close was enough to give the Hang Seng a 91 point gain on the day, capping off a 700-point week (3.5%) and exactly 10%…
by ilene - August 21st, 2009 10:36 am
Courtesy of Jake at Econompic Data
Reuters details on the reason for Wednesday’s jump in oil:
U.S. stocks rebounded and oil closed above $72 a barrel on Wednesday after data suggested a recovery in U.S. oil demand, a surprise for investors who earlier were fretting over a sharp slide in Chinese equities.
A U.S. government inventory report showed a huge drop in crude supplies last week, boosting oil futures by more than $3 a barrel and lifting Wall Street sentiment that had turned dour after a 4.3 percent a drop in the Shanghai Composite Index .SSEC.
But oil reversed early losses after the U.S. Energy Information Administration (EIA) said crude stocks fell by 8.4 million barrels last week, confounding analysts’ expectations for a rise of 1.3 million barrels.
"I think these (demand) changes are reflective of an improving economy, but one must be cautious because these changes are versus year-ago weak numbers," said API chief economist John Felmy.
The relevance? The relationship between the change in these reserves (shown inversely below) and the price has been rather strong going back 4+ years. That is until the global financial markets began their rebound in March.
But where is all that demand coming from? Back to Reuters:
The decline in crude stocks was caused by rising production in refineries but also by a sharp drop in oil imports, with traders holding more inventories in tankers offshore as they await higher prices.
So is it increased end user-demand (which combined with a weak dollar makes a great story as to why oil could/should rise) OR is it just a technical reaction to traders hoarding oil? The answer to that question goes a long way in determining the future direction of oil.
by Chart School - August 5th, 2009 8:22 pm
Courtesy of Adam, co-creator of MarketClub
You may have heard about Fibonacci, the man who discovered a set of numbers which have been found to have a major affect on the market. So who is this Fibonacci fellow and why are his findings so important in the market place?
The mathematical findings by this thirteenth century Italian man has yielded a useful tool which is used in technical analysis and by scientists in a large array of fields. In our new short video, I will look at gold and also the crude oil market using MarketClub’s Fibonacci tool. I think you will be surprised and shocked at just how accurate and up-to-date this dead mathematician’s work is in today’s markets.
All the best,
by ilene - July 6th, 2009 12:24 pm
Courtesy of Corey at Afraid To Trade
The following charts are taken from my new weekly “Intermarket Technical Report,” which goes into greater detail in discussing the current and potential future price structure for crude oil. For now, let’s take a look at the Monthly and Weekly timeframe charts to see EMA and Fibonacci confluence resistance overhead.
Crude Oil Monthly Structure
Taking a quick look, we see a dominant Elliott Wave count, which places us either at the final stages of Corrective Wave B up, or the beginning stages possibly of Wave C down which could eventually target the $35 lows over the next few months, particularly if the S&P 500 falls to test its lows.
I wanted to highlight the confluence levels (click for larger chart) about the $70 to $75 level.
First, we see the 50 week EMA at $70.14 and the 20 week EMA at $72.11. With the scale so large, this $2.00 zone would be considered an EMA confluence zone to watch – we’ll split the difference and call $71.00 as significant resistance.
Just above that is the 38.2% Fibonacci retracement from the closing high to the recent 2009 lows. This retracement price comes in at $75.50.
Let’s see what the weekly structure shows.
Crude Oil Weekly Structure
We now see the 200 week SMA residing at $74.80, which is serving as well as resistance.
Price is currently supporting on the 50 week EMA at $66.88, so watch closely if this level is broken – a break of $68.00 would almost certainly set up a test of the rising 20 week EMA at $61.00.
Any bearish view would be negated with a close above $75 and especially $80, but for now, there appears to be more confluence overhead resistance than support, so let’s watch the downside risk for now.
For more analysis of Crude Oil (this is just a sample) as well as a multi-timeframe view (Monthly, Weekly, and Daily charts) of the 10-Year Notes, S&P 500, Gold, Crude Oil, and US Dollar Index, please check out my new subscription weekly service “Weekly Intermarket Technical Analysis” (full information and two samples are provided with the link).
by phil - July 1st, 2009 8:22 am
Well we sure ended Q2 with a bang.
Just because we’re in cash doesn’t mean we don’t have some fun and our final index play of the quarter was a nice 70% gainer on the DIA $86 puts. Other than a TNK spread and some quick GS puts (up a quick 20% and out), that was our only play of the week so far so we’re really picking our spots for that sidelined cash. Now that Q2 is finally fading into the sunset, it is time to see what’s real and what isn’t and we’re really looking forward to earnings season, where we hope to separate the haves from the have-nots.
As David Fry pointed out regarding yesterday’s action: "Stock price declines today were milder than expected given the news. But, silly me, I forget that this is the quarter and mid-year end—there are bonuses to be had and bullish headlines to be written. Why did the market rise this quarter? An overwhelming amount of liquidity plus an equal amount of BS." It has indeed been a very frustrating quarter to be a bear, mainly because you have an administration that turns a blind eye towards bullish market manipulation because it’s "good" for the economy. Unfortunately, it’s only good for the economy the same way rigging baseball so the Yankees would play the Mets in a subway series would be "good" for New York sports – it may be good in the short run but, if people begin to distrust the validity of the games, then they may lose interest altogether…
Professional traders like the market to make some sense. We like to see X data have Y effect in a fairly reliable curve. Consumer confidence fell 10% yesterday and consumer spending is 70% of the GDP so you would think it would affect the market by more than 1% right? Not this market – nothing seems to matter and that’s OK, we’re getting used to the scam but we’re now playing the scam – not the market itself and that’s never a good thing and it’s certainly no reason for us to commit our long-term capital and that’s the only way this market will ever get healthy again.
Meanwhile, over in reality, steel prices in the US fell 3.1% in June – the 11th consecutive monthly decline as the only green shoots we see there are the ones growing through…