8,285 on February 9th to 6,485 at 3pm on March 6th.
That's 1,800 points down in 19 market sessions, a 22% drop with a "stick save" at the end that took us back to 6,626 – almost exactly, to the point, 20% below where we started! These are not coincidences, we just discussed the 5% rule in detail during member chat the other day and, sadly, finishing right at the 20% line on a 4-week dip is not really encouraging. As I mentioned during the video-cast on Friday, we went into the weekend 55% bearish – a decision I had to make before I left for the day at 10:30.
We did not buy into the "rally" in the morning, other than our usual stab at FAS and SKF puts, neither of which went well on the day but, as I said during the live show, we aren't really too worried until Wednesday when we'll have to roll the SKF puts to April or possibly a hedged July/April spread (we'll decided next week). As I said to members at 9:45: "This is why we need to take those bullish chances on the bad days, things get away from you fast once they get moving." We do not buy into sudden market moves at PSW, we were buying on Thursday, when everyone thought the world was ending and, had I been around Friday afternoon, we would have been buying there too!
A good example of how we offset our exuberance is my 9:17 comment to members as the futures began running up ahead of the open: "Watch 1.25% and 2.5% levels to decide when/if to stop out at least 1/2 of the covers. I would certainly roll up long puts into this rally (.50 or less per $1 higher strike)." So, what are we doing when the market is flying up nearly 200 points in the first 15 minutes – WE ARE IMPROVING OUR DOWNSIDE COVERAGE! We already have longs, those we can let run but we have an opportunity to move our long index puts up to higher strikes, which: 1) Gives us better leverage on the way down, 2) Improves our net delta to any puts we have sold as a hedge and 3) Puts us in a position to sell hedged puts at higher strikes without compromising our position advantage.
So the "game plan" of watching the 2.5% levels (which I laid out in the Friday Morning Big Chart Review and which were hit almost on the button across the board) did not impress us because it was the move we expected. THIS IS NOT MAGIC PEOPLE, THIS IS THE SYSTEM WE TEACH! By stopping out our March put covers on the way down (after failing to hit levels we establish before the market opens) we can flip from a bullish play off the run to an aggressively bearish cover at the top almost automatically. Going more bearish at the top of the 2.5% run lets us ride out the 5% drop without panicking out of our bullish positions and, as I mentioned during the live broadcast, gives us money to improve our bullish positions at the bottoms, just as we improve our bearish positions at the tops.
I've been fixating on the drop from February 9th, which is where we fell out of our range, which had been between 8,200 (5% below our 8,650 mid-point and 9,100 (5% over) and have never really looked back since. Here we are down 20% from there and we have to seriously consider whether or not we'll ever "come back" to the level I thought was a fair value for the current economy. We've had major drops from 13,000 to 11,000 (15%), 11,000 to 8,500 (22%) and, hopefully now done, 8,250 to 6,500 (20%).
Like any good roller coaster ride, the drops are designed to make you feel like there is no bottom but think about it from a realistic standpoint. How much money would you pay for IBM? Not the stock – the multinational coporation that employs 385,000 people around the world, collects $103Bn in revenues and makes a profit of $12.3Bn. Right now the selling price (market cap) is $115Bn. If you had the money, at what point would you step in? $100Bn? $75Bn? $50Bn? $25Bn. Even if you waited until IBM fell to $25Bn, a point at which the ROI is 50% a year – that's still higher than zero isn't it? Yet we have numerous banks and other business priced far below 25% of their prior market caps, investments which offer ROIs (averaged over 5 years) of even better than 50%.
So CitiGroup, to pick a very distasteful example, also takes in $106Bn but lost $33Bn last year. In the 4 previous years the bank made $60Bn so, even with the loss, an average annual return of better than $5Bn on your investment. But what is your investment to buy CitiGroup? Well, at the moment you can have the bank, it's 8,300 branches and its 326,000 employees for just $5.5Bn. Of course CitiGroup has debts and other scary issues – of course it does! That's WHY you CAN buy it for $5.5Bn, but in 1999, 2000, 2001 and 2002, Citigroup made more than $11Bn a year and in 2003 and 2004 they made $17Bn and in 2005 and 2006 they made over $20Bn. In your wildest dreams buying IBM, you cannot reasonably expect them to make $20Bn a year within 5 years!
Let's say we quantify C's losses somehow and come up with $200Bn, enough for them to book 7 more years of losses as horrific as this one. Now let's "mortgage" that loss over 30 years ($6.6Bn a year) and slap on 10% interest ($660M) to pay for it and let's assume C never earns $20Bn again and that inflation stays flat and housing stays down and their assets never improve and let's knock 20% off the $11Bn a year they made in 1999. That's $8.8Bn less $7.26Bn = $1.54Bn in net annual profits AFTER paying off a $200Bn deficit that is is purely speculative. Now, how much is that worth? $3Bn? $5Bn?
Well, $5Bn is the price right now and if the bank survives at all, theres a heck of an upside since they are very capable of earning $11Bn a year – giving you a 220% ANNUAL ROI at some point in the distant future IF the economy ever survives. While C itself may not survive, certainly some banks in the XLF will, which is why we prefer the index plays at the moment but we can also do fun spreads like buying the C 2011 $2.50 calls for .42 and selling the 2011 $7.50 calls for .21. That's net .21 for a $5 spread, a 2,500% return if C gets to $7.50 in 2 years.
Again, not C in particular but if you put just 4% of your virtual portfolio into a diversified group of spreads like this (AA 2011 $12.50/$17.50 net .40, UYG 2011 $3/$8 net .32, XHB 2011 $12.50/$20 net $1, LVS 2011 $5/$10 net .25, CBS 2011 $5/10 net .50….) and the world survives and they get back just 1/3 of what they've lost, you can up your whole virtual portfolio 40% or more. Set a 50% stop loss on each position and you are risking 2% overall – a reasonable gamble on the Great Depression, Part II giving us a miss, don't you think?
Last weekend, in the Wrap-Up, I mentioned we were 60% bearish, this weekend it's 55% but you have to do SOMETHING on the bullish side. Not all plays have to be short-term as there are many long-term hedges like these that can pay off one time better than being right on 10 20% gainers, you just need a little patience. As I mentioned last week, Buffett didn't double the S&Ps returns for 40 straight years by day trading, his philosophy of buying when things are on sale is as true today as it was then but, like a dip in the roller coaster, we have many people screaming and betting there is no floor and we will all fall to our deaths – those of us who have already been on that ride are taking those bets. Frankly, if Warren and I are wrong, we're all dead anyway…
Scaling in is the key to going long in this market. Had you decided to buy $10,000 worth of DIA at $110 (Dow 11,000), you'd be down 40% on 91 shares. If, however, you had scaled in, buying $2,500 at $110 (23 shares) and another $2,500 at $85 (29 shares) and another $2,500 at $65 (38 shares), you would have just one less share but you would have an average entry of $83 and be down 21% with $2,500 cash on the side. Should we drop another 20% from here to (gulp) 5,000, you could give up and cash out with $7,000 (down 30% on a greater than 50% Dow drop) or you could deploy the final $2,500 you allocated for the position to buy 50 more shares, putting you into 140 shares at an average entry of $71, down 30% but with a better chance of recovery to Dow 7,000 than what you would have had with 90 $110s waiting for 11,000 to break even.
No matter how much you love a position, taking a portioned approach to your entries can help tremendously. In our members' Strategy Section we discuss this in more detail as it also works on the way up, If you had been bearish on the Dow and shorted at $110 with 25% (23 shares) then added 25% at $100 (25 shares) and 25% at $90 (28 shares – we do not add to a position that is already up 20%), then you would currently have 76 shorts at an average of $98 and they would be up $2,500 with $2,500 cash on the side vs. the 91 shares that would currently be up $4,095 with no cash on the side.
If you are right better than 65% of the time, you can do better with 100% entries but this is a great way to learn trading disciplines and forces you to reevaluate your position on a regular basis. When a 25% entry is down 20% do you still like it enough to buy another round or should you get out with a net 5% (of a full position) loss? When a 25% entry is up 5 or 10%, do you like it enough for another round at the higher price or is the party probably over? As I said about FAS yesterday, I don't LOVE them at $2.50 but I'll buy $2,500 here, just in case they turn and another $2,500 at $1.25 and another $2,500 .65 and another $2,500 at .30 which would give me over 15,000 shares at about the value of 2nd lowest entry (.65) and if you ask me if I would buy 15,000 shares for .65 as a long-term hold the answer is YES! So right now, I can buy that position and, if at any point it "ruins" my plan by heading higher on me – I'm not going to be upset about it.
This logic applies to options too. SKF is a good example. I would LOVE to buy $10,000 of SKF July $200 puts for $31 (the price of the April $200 puts). Unfortunately, they are now $77 and that's not going to happen this month. Looking at April, it costs me $10 to roll the $175 puts up to the $200 puts so $2 per $5 roll about 45 days out is "acceptable". So I will start with the first July calls I CANNOT roll up for $2.50 That would be the July $175s, now $37.50. My plan, which I can execute on any run up in SKF over the next 3 months, is to roll up to the next higher strike for $2 any time I can. That would put me in the July $200 puts for net $47.50.
Since I wanted to be in for $31, I could look to see if I could sell some offsetting puts, like the April $120 puts for $6.40. If I sell $6.40 worth of lower strike puts 3 times (April, May, June), I exceed my goal of being in the July $200 puts for $31. If the SKF shoots down on me, my $175 puts are still $55 ahead of my putters on a net $31 entry so nothing to cry about. Meanwhile, since my putters are paying for my first 3 rolls, my net entry of $37.50, which is about 1/2 the cost of the July $200 puts, may be all the cash I ever have to commit. I could buy twice as many or I could take half the risk and be done with it. That too is a form of scaling in with options – not so much scaling into a size as scaling into a strike that you wouldn't want to pay full price for.
As to wrapping up the week – It was "Monday Market Melt-Down" with a picture of sheep jumping over a cliff, on Tuesday I posted levels of DOOM, which we crossed despite the TALF, Wednesday we thought Wen Jiabao would save us but he couldn't and on Thrill-Ride Thursday we were back on our bear roller coaster but did a little bottom-fishing, leading into Friday's review, which we reviewed above. Staying generally balanced in the virtual portfolio and picking up bargains along the bottom is the way to play if you think, long-term, that we survive this crisis. If you don't think we can survive, it's the same old "Bullets, Beans and Bullion" virtual portfolio we've been looking at since the fall as we stock up the fallout shelter and wait for the looters.
We're still doomed if we can't turn it back up from here and we'll have to see if the 60% off line holds in the global markets. That's the mark we tested on Friday's lows in the US and Europe and Asia needs to gain close to 10% just to get back over the line (as 10% of 37% value left in the Shanahi is just 3.7%). That's the funny thing about the XLF too, they are down 85% from the top but to get back just halfway, to $18, they have to gain 200% – that would REALLY suck for the SKF between now and July!
I clicked on Friday’s video and found it utterly frustrating – you should make a DVD on your own and keep to your script.
But no Tim – you like him – but for me he was just an interruption, a disturbance, actually he’s boring.
I also would have liked to stop the video at certain points either to fast forward through him or to allow what you were saying to be digested before moving on to the next part.
You barely got to make the points you were trying to make but left to your own devices I could have learned a lot more from you.
E.g. the stuff about HOV and also the XLF/SKF relationship but the fundamentals too
Video/Red – Well it’s Tim’s show you know, I’m just a guest… He asked me to make a DVD teaching options and I said I would but that’s all his gig too. I like Tim, he’s fun but he plays the maket like a pure scam, going after the penny stock market the same way we try to identify value inefficiencies in the real market and his audience is very, very different from our group as it’s literally people with $100 trying to get to $120 in the hour they have to gamble that day, kind of like being at a race track with a few big winners but thousands of torn up tickets on the floor at the end of each play.
There is a video on demand button on the mogulus/livestock site that has the show in a format that can be stopped and started. I had no idea you could put on a TV show that cheaply and I’m seriously considering the idea of doing something with those guys but that little room they had us in was torture as the hot lights were less than 18 inches over our heads and they keep the a/c off because they don’t have a sound filtered system like a real studio does – otherwise, it was fun!
Joined last year and and started profitably trading options thanks to everything I have learned here. THANK YOU!!
Now that it is tax time I need a little help understanding when our option trades are considered 1256 Contracts vs regular Schedule D Equity gains/losses. Do you have any advice or archived articles dealing with reporting gains/losses from trading option contracts?
Thank you in advance for your help.
Thanks OnWisconsin! Sorry, but I am so not an accountant and I do advise you consult one. There is a very important thing called "electing trader status" which I suggest you look into, Karmcon did a great Part 1 and Part 2 article on this a couple of years ago.
Oh I forgot to ask – could you explain why you want to be in the July 200’s for $31 in the example above – I follow the drift but I would not even think about being in the July 200’s in the first place.
SKF $200 puts/Red – Because there is an excellent chance that sometime between now and June that SKF dips below $180. As I mentioned above, the XLF has to go up 200% to get to 1/2 of where it was less than a year ago. SKF is a 2x bear fund and a 50% gain in the XLF translates to a 100% drop in SKF – this is how these ETFs break, like DIG is now, which ran up to silly levels as oil topped out, had a blow-off top (much like SKF may be having now) and then fell 90% as oil dropped more than 50%. If you can imagne C going from $1 to $1.50 and BAC going from $3 to $3.50 then you have a premise for SKF going to $50 – I’ll be thrilled with $90.
SKF has been under $120 after hitting $180 or more 5 out of the 6 previous times it went that high and generally within 3 weeks or less. So we’re taking a $31 bet (at $175) that 5 out of 6 times since last July when it has run this high has fallen to a level that would return at least $50. Also, I should mention that the 1 exception was in Nov, when SKF "only" fell from $300 to $133 before bouncing to $180 at the end of the month but was then at $101 just 7 days later!
Gravity is indeed a bitch!
So if SKF dips below $180 in June your long 200 puts return a profit and you leg into a more bullish trade? Do you stay with SKF at that point – how do you book the trade.
I have a couple of really dumb questions. I figured I can ask them and get them answered since it is the weekend. So here it goes:
Can you briefly explain the 1.25% and 2.5% levels?
Can you explain the covers you are talking about? I know you’re selling puts, but is the cover buying other puts?
What does it mean to improve downside coverage?
What longs are you talking about?
All of these questions stem from paragraph above starting w/ "A good example of how we offset our exuberence…."
Also, just wanted to get your 2 cents on ETFC.
SKF/Red – I would suggest you paper trade it following the above rules, you’ll probably see many opportunties to exit with a profit. I would likely start out unhedged with SKF at $250 and roll it up a couple ($4) before I give up and sell puts as I firmly believe $300 would be pushing it for them. There are not all that many times in the market when there is a set-up like this, with an ETF flying to such extremes that there are fairly high-percentage plays that can be had against a tremendous sell-off.
I’ve discussed the March $120 puts, which we rolled to for $1 after our $1.20 entry on the March $100 puts looked bad but that was almost $100 ago on the SKF. Those March $120 puts let us get out even several times since, even with the SKF at higher strikes and also gave us re-entries at $1.45-$1.60 several times (almost daily). As of next Wednesday, if SKF isn’t rolling down, it will be time to move to a longer position but if you look at the RIDICULOUS price of the April $120 puts ($6.40), you’ll see why we won’t go there but we may go to the July $100 puts for $9.90 and pay for 1/2 the roll (net $8,50 about) by selling April $105 puts for $4.25 although, again, it can be heartbreaking to have covers if this thing heads south.
For the SKF, if the premise is that it has run up too much and should come down, why not sell calls? The Apr 300 are $31.70.
Japarikh – In-depth discussion of using DIA puts as cover here. Entire article on it here. The 5% rule was just discussed on Thursday in detail and the 2.5% rule and 1.25% rules are just subsets of it.
Improving downside coverage means to either 1) Add more naked puts, 2) Remove puts that were sold as covers, 3) Moving primary put covers to higher positions to increase their downside delta or 4) decreasing bullish positions. So it’s hard to say what longs we are talking about but usually I confine the discussion to adjustments made to the DIA covers, which are discussed in the first two links.
ETFC – I think they are a terrible platform. They have stuff that looks good but when I tried them tier execution was terrible, their fees are high and their customer service was a disaster so I don’t like them as a stock either.
SKF/Japarikh – Selling calls is very attractive but too much margin for many people and also, there is the very real possibility that the XLF/IYF could fall another 20% on a catastrophe and the SKF would spike up to $400. If you are not comfortable dealing with your caller going $100 in the money, then you need to stay miles away from that trade. Again, I do love it and it’s great if you are comfortable with rolling strategies and have a portfolio and the margin to allow you the flexibility – from the questions you asked above, I would say you are probably not in that catagory.
Phil- you posted on your favorites about one week ago discussing that one could take advantage of how the USO rolls its fronth month contracts (ie, the last three months it appears the price gets pushed down beforfe expiration)…could you explain how we could play that dynamic
Phil:saw you on this Tim programme, lots of the callers there did not follow you,
Buy/Write ot hedged stock positions:
assumption was that market might move just sideways,
THE TREND was however BEARISH, so actually selecting a putter at a low strike would have been smart, I did this in some cases,
the assumptuion that stocks were already at the low was flawed and , after all this decline, I did not close or roll the putters as I (and you) expected some reversal, also, we were 3 weeks from mPOEX,
This did not work at all, we still have 2 weeks but all putters are deep ITM,
I think the suggestions of buy/write was fine but it needed a strong alert to close or roll evn though we were 3 weeks from OPEX,
accepting assignment is fine but its better at lower prices which can only be obtained after a roll down.
This week will need a focus abnd action with this putter situation, looks there is no reversal and the trend is bearish. TREND is far more important than days to OPEX.
Phil: what I am saying:
1) emphasis should be first: TREND, bullish or bearish, among the many words. your view about this is often hidden, often I do not know what your view is at that day,
2) Action Alerts for callers and putters : close or roll, taking assignment stock is fine as long as we get them at lower strikes.
even if I would accept assignment, some of the strikes are far too high to accept the stock, I am talking about 50 % higher than the stockprice right now, this is too much, in the case of LDK mar10 putter, it would be 127 %, FAS march 7.5 putter, 188 %, makes no sense to roll these,
for those putters were it is less severe, a roll to apr or 2x to jun is possible.
Does that make sense to you ??
Futures down! Disaster waiting to happen!!!!!
Interesting video of Vaclav Klaus, former president of the Czech Republic on believing in the market.
Good morning! Another fun-looking futures. And don’t forget, just 60 points is now 1% in the Dow…
USO/SNS – I don’t think I would try it now with oil this low as the contango is washing out somewhat and USO is changing their rolling habits as everyone was starting to catch on. Generally, as we got closer to contract expiration, USO was forced to roll (find buyers for) it’s front-month contract, which would drive prices down. As they roll into the next month, they would drive prices up for that contract and this forced the ETF to take a hit each month – almost no matter what the mactros were. So the key is to short USO as they approach expiration day (the 20th this month) and buy them as they bottom out when the rollover will rebound them again. We can keep an eye on it this month but we also have OPEC production cuts (again) messing with the market.
Trend/RMM – Yes it is bearish. Cramer just called Dow 5,200 on Friday – how’s that for bearish. What worries me about that is that if that’s going to be CNBC’s party line then you are going to hear non-stop gloom and doom on that station until they hit their numbers. As to rolls, absolutely when you lose over 1/2 the premium on your putter/caller you should be looking to roll them. If you wait until they are well in the money you put yourself at a tremendous disasdvantage and also, you miss the "initial excitement" phase where the longer puts have an inflated premium. As to trend, I don’t know how many times I can say 60% bearish or 55% bearish in one day. I don’t think we’ve managed to be net bullish for more than one day in a month. You CAN’T expect to make a profit on both sides of your portfolio – one side is going to lose, hopefully not too much and we already talked about the fact that the DITM putters need to be rolled to something else entirely, like the ill-fated RKH’s.
I think to some extent you miss the point on these. If you are well covered, even if you are not that well covered, with DIA June $72 puts (the last major strike we used) and those are already $6 in the money and you roll your putters to something that only goes in the money if the market drops another 20% like RKH (as it’s very unlikely the financials collapse but not the broader market) then you ARE looking at another $10 drop in the Dow. If $10 you make on the DIA puts is MORE than the $5 you are going to lose on the RKH puts you sold and you are adequately covered, then this is a non-issue.
If you are scaling into positions, as I described above, AND YOU REALLY WANT TO OWN THE STOCK, then an FAS $7.50 putter would not bother you as much. Those are at $4.90 (and what happened to the callers?) and if you already have 1,000 FAS at $7.50 and you sold 10 $7.50 puts and calls for $1.50 then your net entry is $6. FAS is now $2.64 so you can DD to drop your basis to $5.32 and roll your 10 $4.90 $7.50 putters to 20 of the July $4 puts and calls at $3.40 so you are collecting $3.40 x 20 against your $4,900 obligation which knocks net $1,900 off the remaining $10,640 in stock for $8,740 with a call away at $8,000 which, of course, you will be able to roll again. Currently it’s an even roll to the Jan $3s, even with all the premium and, of course, should it actually ever go up, you can roll that set for a credit to the Jan $5s – $15s.
Clearly you have lost faith in the markets and your positions. If you do not want the stock, then rolling to stay in the position or adding to the position makes no sense. At that point, hopefully your downside plays have enough balance to allow you to cash out some of your downside and pay off the upside and be done with it but don’t sit there and keep selling more puts in a stock you don’t even want – it colors your thinking every step of the way. What you are saying in the 8:35 comment makes perfect sense if you don’t want to be in the stock because you are down 188% on that put but 188% is $3.65 out of $5 and you can roll that put straight out to the 2011 $5 puts AND calls for $5.10, of which $2.90 is premium. If you do not believe FAS will at least hold $3 by 2011 then get out now but what was your premise when you bought it at $7.50?
Good Morning Phil
Good morning Ramana – looks like same old, same old unfortunately.
Futures getting worse as Buffett says "US economy has fallen off a cliff."
Asia Markets : Monday, March 09, 2009
(The following is from WSJ; please cross check with other sources to confirm.)
Nikkei Average* 7086.03 -87.07 -1.21%
Hang Seng* 11344.58 -576.94 -4.84%
China: DJ Shanghai* 241.70 -9.75 -3.88%
Seoul Composite* 1071.73 16.70 1.58%
Bombay Sensex 8156.79 -169.03 -2.03%
Baltic Dry Index 2225.00 58.00 2.54%
MRK and SGP to merge!
Nikkei Closes at 26-Year Low on Worries Over GM’s Fate
Asian markets were on shaky ground Monday amid continuing uncertainty over the fate of General Motors and the extent of the global recession. Japan stocks tumbled to a 26-year low while Hong Kong stocks slid on the back of a sharp selloff in HSBC shares.
Japan’s Nikke ierased early losses to close down 1.2 percent — a 26-year low, hurt by automakers such as Honda Motor amid worries about the fate of General Motors. Takeda Pharmaceutical was among the major losers in Japan, tumbling 13 percent to its lowest level in a decade, on concerns that the U.S. FDA may not approve a key diabetes drug. Investors also sold off Sapporo Hokuyo shares after a Nikkei report said the Japanese bank was seeking $1 billion worth of public aid.
Seoul shares ended in positive territory after a volatile session. The KOSPI rose 1.6 percent as a rise in LG Display and brokerage stocks offset a selloff in Kia Motors.
Australian shares gained 0.3 percent at the finish line as resource and energy stocks performed well thanks to a spike in oil and metals prices.
Hong Kong shares fell 2.3 percent, as hopes for further stimulus from China waned. HSBC dragged the Hang Seng lower ahead of this week’s deeply discounted rights issue, tumbling as much as 13 percent.
Singapore’s Straits Times Index sank 2.2 percent.
China’s Shanghai Composite Index lost its early gains to decline 3.4 percent as nervousness about upcoming economic data led to profit taking.
Bombay Stock Exchange’s Sensex was at 8132.01, down 193.81 points or 2.33 per cent. The index fell to touch new intra-day low of 8123.84 and high of 8259.22. Intra-day pull-back rally in Indian indices was short lived as traders pressed sell button after European markets turned weak.
Euro Stocks Open Lower; Lloyds Slides
European shares fell in early trade on Monday, with a key stock benchmark hitting its lowest since September 1996, as banks slipped after the UK government increased its stake in Lloyds Banking G
The pan-European FTSEurofirst 300 index of top shares was down 1.1 percent at 655.06 points, while the broader STOXX 600 was down 1.15 percent at 157.69 points, hitting its lowest level since September 1996.
Banks were major losers. Lloyds fell 14 percent after it said over the weekend that Britain would get a stake of up to 77 percent in the bank after agreeing to underwrite 260 billion pounds of risky assets. HSBC lost 11 percent as large investors shorted the stock on hopes that the price would slide further after a big rights issue.
Energy stocks were major gainers on the index as crude rose 1.7 percent.
BP, Royal Dutch Shell and Cairn Energy were up 0.4-1.7 percent.
Across Europe, the FTSE 100 index was down 0.7 percent, Germany’s DAX was 0.7 percent lower and France’s CAC 40 was down 1 percent.
Oil Gains Over 2% to Near $47 on OPEC, Weak Dollar
Oil rose over 2 percent to near $47 a barrel on Monday, extending the previous session’s gains of over 4 percent, thanks to a weaker U.S. dollar and optimism that OPEC would cut output again at this month’s meeting.
U.S. crude [ 46.32 0.80 (+1.76%)] for April delivery rose $1.21 to $46.73 a barrel in the Asian, adding to Friday’s gains of $1.91. London Brent crude [ 44.77 -0.08 (-0.18%)] rose 58 cents $45.43 a barrel. It was the first time since Dec. 11, 2008 that NYMEX crude has gained a premium over Brent at the settlement.
OPEC has already agreed to cut production by 4.2 million barrels per day since September, and a Reuters survey found that members have met 81 percent of their output reductions as of last month. In a sign that oil investors were banking on OPEC to further cut output at this month’s meeting, there were fewer open interest positions at the $25, $30 and $35 put options on the NYMEX April crude oil contract versus the previous week, according to Reuters data on Friday.
Renewed threats from Iran, the world’s fourth-largest oil exporters, could also have offered support to prices, analysts said. Iran has test-fired a new air-to-surface missile, Iranian media reported on Sunday, in the Islamic Republic’s latest display of its military capability.Tehran has sufficiently mastered nuclear technology to be able to produce a bomb if it choose, Israel’s military intelligence chief was quoted as saying on Sunday.
Crude oil speculators on the New York Mercantile Exchange shifted to a net short position in the week to March 3, according to data from the U.S. Commodity Futures Trading Commission released on Friday.
Yen Falls on Weak Japan Data; Euro Dips vs Dollar
The yen fell broadly on Monday as more grim Japanese economic data intensified worries about the severity of the downturn facing the country, while equity market falls caused the euro to dip against the dollar. Japan swung to its first current account deficit in 13 years in January as the global recession crushed export demand and income from overseas investment. Meanwhile, the dollar gained against the euro as weak equity markets left the single currency struggling to correct recent sharp falls, which took it to its lowest level versus the dollar in more than three months last week.
The dollar [ 98.8 0.51 (+0.52%) ] gained against the yen, as did the euro [124.83 0.41 (+0.33%) ] .
Against the dollar, the euro [ 1.2634 -0.0021 (-0.17%) ] dipped.
Ongoing aversion to risk due to fears about the global economy left those currencies perceived to be higher risk particularly vulnerable, with sterling [ 1.3949 -0.0143 (-1.01%) ] and the Australian dollar [ 0.6368 -0.0035 (-0.55%) ] both down versus the greenback.
Later this week analysts will be looking out for trade and industrial production data out of China, with any sign of weakness likely to benefit the dollar, analysts said.
Gold eases, SPDR’s dip from record seen temporary
Gold eased a touch on Monday to hover below $940, pausing after a sharp rebound from $900, while a slight decline in gold ETF holdings, the first since January, was widely seen as a temporary blip.The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings eased to 1,028.99 tonnes as of March 8, down 0.3 tonne from the record 1,029.29 tonnes first hit on February 26.
Gold was at $935.30 an ounce as of 0654 GMT (2:54 a.m. EDT), down 0.5 percent from New York’s notional close on Friday.
In a separate comment that may be supportive for gold, the head of China’s energy bureau said China should use part of its nearly $2 trillion in foreign exchange reserves to buy more gold, oil, uranium and other strategic commodities.
$275 SKF today ?
Into the abyss we go.