Wheee, this is fun!
Will our 7.5% lines hold? As I mentioned yesterday, we expected a test of our 7.5% lines at Dow 10,950, S&P 1,160, Nasdaq 2,400, NYSE 7,450 and Russell 690 and we remain TECHNICALLY bullish if we hold them. The Dollar was doing well until about 3am this morning but then turned down sharply – some sort of rumor is driving the market and, of course, heading into the G20 pretty much any comment made by any Central Banking official is blown way out of proportion.
China is likely to raise rates today, making a small concession to the US on their exchange rates but more so to cool off the massive property bubble that is forming in their cities. That may put some downward pressure on commodities without strengthening the dollar – an interesting combo, but one that illustrates how China is becoming more important in the Global marketplace than the US.
If China is raising their lending rate to 5.56% and their deposit rate to 2.5%, they risk attracting even more money, including a reverse carry-trade from the US, when money can be borrowed from the Fed at 0.25% and lent to China for 2.5% giving the trader a 2.25% profit for the year. 2.25% may not sound that sexy, but when it’s done by Investment Banks and other investors who can lever their money 10:1, that’s a 22.5% on their cash. This is how Japan has supported their economy for two decades but it’s hard to imagine what will happen if the US Dollar, which makes up 62% of all money on the planet, starts flowing out of the country in even faster quantities.
We were just discussing investing in foreign countries in Member chat and I warned that this may not be the best time to make that kind of move as the dollar is very possibly bottoming here and transferring US Dollars to another currency risks hitting a reversal that wipes out any interest gains and possibly even some the principal as the Dollar rebounds and you find yourself in the wrong currency at the wrong time.
I guess I should talk about AAPL although we’ve already discussed it in depth in Member Chat but they do seem to have had some kind of earnings and, although very nice – expectations were already a bit high so they seem to be pulling back from their 33% run since September 1st. Gosh, what a shocker, eh? Who could have seen that coming? Oh right, it was us! I said yesterday that if AAPL did not justify a $300Bn market cap (a 10% gain) that the Nasdaq would fall 5% in 3 days so we’ll see how smart I am this week. We placed our bets on the various Q ETFs as our key hedges and we got fantastic entries (re-entries) on our October Overbought Eight list in yesterday’s market silliness as the Nasdaq tested our 12.5% line at 2,475. We will be thrilled to get a 5% pullback to the 7.5% line at 2,365 but we’ll be satisfied to take some profits at the 10% line at 2,420 as well.
The banking sector kept the Asian markets afloat last night as the foreclosure nonsense begins to subside. As I guy who used to be in the industry, I told Members from day one that this would not amount to much but it sure has been fun listening to all the "experts" in the MSM pontificate on "Foreclosuregate." As I mentioned in the Overbought Eight post, our primary long plays last week were on XLF as we sought to take advantage of the sell-off and Oxen Group’s David Ristau hit it out of the park yesterday with his pre-market Alert to Members to go long on FAS, which flew up from $21.40 at the open to $22.62 at the close, well past the 5% goal for the day so congrats to all who played along at home on that one!
Oil made it all the way to $84 yesterday and that gave us a nice entry on USO weekly $36 puts at .38. We were hoping for cheaper but it was too tempting at the end of the day despite the short time-frame. As I mentioned in "Oil is not Well" this weekend, as well as yesterday’s post, we were expecting a pump job yesterday ahead of the mandatory dumping of the November contracts and there are still 98,423 open contracts for November delivery on the NYMEX with just 2 days to trade. I will be surprised if less than 70,000, representing 70M barrels of oil that could be delivered to US consumers, were not canceled by tomorrow – otherwise people might realize there is plenty of oil available and stop paying $80 a barrel for something that costs an average of $16 to extract from the ground and $10 more to ship.
Imagine the chaos if the US Government forced the traders, who currently are pretending to order 397,209,000 barrels of order for December delivery, to actually ACCEPT delivery of the barrels they ordered – CHAOS! They have NO INTENTION whatsoever of accepting those barrels. As you can see from the chart on the left, we are already over 360M barrels of commercial storage in the US, more than 10% above the 5-year average and pretty much as much oil as can be shoved into every nook and cranny in the US has already been stuffed into the channel in order to fake demand over the summer and keep up the con that oil should be more than $65 per barrel.
The Democrats do the same nothing about this scam that the Republicans did while the American people pay tens of Billions of dollars every month to speculators like GS, JPM, C and other market manipulators who buy oil they have no need of and store it on tankers to fake demand and wait until the last minute to cancel contracts to make sure supplies are in a constant state of disarray – all in order to reach into the American consumer’s pocket and steal as much as they can from one of the few things you can’t do without. These are the same people who are trying to get a market going for fresh water – God help us all!
Natural gas can’t be faked the way oil contracts can because you can’t put natural gas on tankers and drive it around for 6 moths at a time (although that is the promise of LNG if they can get that going). Without LNG, natural gas is pretty much a local product and the natural gas reserves are as full as the oil reserves and, since they can’t scam natural gas the way they do oil, we have a more accurate reflection of true demand in the pricing. That’s why UNG has fallen 25% in the past 3 months while USO has gone up 5% – that’s the difference between manipulated an non-manipulated markets.
The Natural gas traders were hoping a hurricane would come and disrupt production, driving up prices. That didn’t happen of course but oil manipulators don’t have to wait for natural disasters to strike, they can create their own crisis any time by paying a few teenagers to attack a pipeline or giving some Somali "pirates" $10,000 (several year’s salary) to attack an oil tanker or simply buying a tanker full of oil and then not delivering it for 6-9 months, creating fake demand on one end (the purchase of the oil) and a shortage on the other end (the failure to deliver) that drives the price up. With 397M fake orders already out for December delivery, a $1 move up in the price of oil is worth $397M to those traders – kind of puts the $10,000 they pay to the Somalis into perspective, doesn’t it?
Yet the Democrats do nothing, the Republicans do nothing and even the Tea Party says nothing about this constant crime against the American people. Oil accounts for 65% of our trade deficit and the oil trade devalues the dollar as we literally trade $50Bn of hard-earned American cash each month for something we BURN! Oil inflation causes food inflation and increases the transportation costs of all goods and it’s use in extraction of other commodities continues a vicious circle that spawns global inflation.
Why is nothing being done about this? Well perhaps it’s the $12M spent lobbying by COP this year or the $7M spent by CVX or RDS.A’s $6.4M or XOM’s $6M or the $4M spent by Tea Party-backing Koch Industries, who also made over $1M in direct donations this year already!
This is blood money stolen from your pockets and then paid to politicians so they will look the other way while your country is sold down the river to the same people who were allowed to loot an pillage it in our last commodity-driven rally (’07-’08 in case you are one of the many who seem to have already forgotten). Don’t worry though, it’s not like things are any better in Europe, Japan or China – it’s a global sell-out and our politicians are no sleazier than any others. You can read all about the subject on Global Witness or get a nice overview from the NY Times’ "Oil, Cash and Corruption."
So, where was I? Oh yes, so we took the opportunity of that totally BS run-up in oil to short it – as I told you was out plan in the morning post. As I warned Members yesterday, shorting the futures on the resistance lines with our stops is a game of lost $50, lose $50, lose $50, make $250 at best but this morning may shape up to be one of those "best" mornings as oil has been crashing down from $84 all night. I know I get boring telling you what a farce commodity trading is all the time but if you don’t understand the game then how are you going to make money playing it. As I often say to members:
We don’t care IF the game is rigged as long as we know HOW it is rigged so we can play along.
Is that cynical? Well maybe but I can only tell you there is a crime in progress and go to Washington and tell Congress there is a crime and supply evidence to committees that there is a crime and consult and volunteer my time for underfunded groups that try to prevent that crime year after friggin’ year, but I’m not a superhero – I can’t stop it by myself people and, sadly, neither does it seem like anyone can so all we can do is make a little cash and try to elect better leaders.
See, things never change. That cartoon is from ’93 and we changed leadership and ran up the budget and bombed Iraq some more – big deal! Meet the new boss, same as the old boss.
We waited out yesterday’s nonsense and now we’ll have our proper test. Whether or not we hold those 7.5% lines depends on other earnings and, of course, the dollar so lots of fun and excitement ahead. We have 5 (FIVE) Fed Governors speaking today: Dudley, Evans, Lockhart, Fisher and Duke and we have BSX, CREE, GILD, JNPR, SLM, WDC and YHOO reporting after the bell with fairly mixed results ahead.
KO had a beat and we’ll be going over that one in Member Chat as I will be interviewing CEO Muhtar Kent this afternoon unless he cancels after seeing what a cynical mood I’m in this morning… I’m sure he won’t, KO is a very nice company so this should be fun. What’s not fun is ICSC Retail Sales dropping 0.7% this week, the worst week we’ve had since May and this week alone drops the month into the low-end of the forecast 2.5-3% range. Redbook Chain Store Sales looked much better at up 2.7% from last year but let’s watch those trendlines!