Friday, May 18, 2007

Its Friday

Crude had a great day yesterday blasting upward. The 50 dma is north of the 200(chart top left) which is positive, MACD and RSI are turning up and best of all the fundamentals of the sector are mucho bullish long term. I try to keep it simple as the more complex it gets the more confused I get. Gotta like it when fundamentals line up with technicals. What is a great benefit here with oil is the stocks are leading the advance. By this I mean no matter what you follow to monitor the sector, be it the XLE, XOI, the OIX, or the OIH, (I follow them all) they have been leading the way and that is what you want to see. Conversely this is the concern I have with gold, the fact that the HUI, GDX or the XAU for that matter, are not leading the advance. This is a correction phase on gold digesting the big gains but for it to continue we need to see the gold shares resume leadership in a big way. Thats just the way it is. The stock market is the closest thing to a crystal ball we have on the planet, that is when its not being debauched by a Wall Street that can't see further than next quarter's bonus or debased by a Fed that can't see past the next Senate hearing.

Chinese stocks measured by the Shanghai Composite (top right) are completely disconnected from reality. This is no reflection on the Chinese people themselves who are a very hard working, industrious lot. They are gamblers though....dice, cards, you name it, they will gamble on it. (candlestick charting was found to be practiced by Chinese rice merchants hundreds of years ago). Now they have found discovered a new pasttime, the stock market. The majority of companies are state owned and run. and we all know how state run enterprises fare over here !! The companies listed are rarely innovators in their field, rather copycats and reverse engineers. Take for example BIDU which is just a cheap watered down version of Google. I have seen reports that claim if Chinese banks were held to our banking standards that north of 75% of their loan portfolios would be non-performing. Loans made based on your connections and status which would make a Chicago alderman blush . This being said stocks are being purchased for the sole reason that they are going up, which therefore draws more buying which becomes a self re-inforcing process. People are in a mad rush to join the millions who are making their forune. Like trying to get the water from a fire hydrant through a garden hose. This continues, until, well, until it can't any longer. Remind you of something, like maybe Japan circa 1989, the Dow 1929 or more recently Nasdaq in 2000. Those who dont learn from history are doomed to repeat it, sadly this act is playing out again only in a different venue. Pay close attention to this situation,(2750-3000 as a support area) if for no other reason than you a getting another front row seat preview of what is to come in the oil and gold markets. Have a great weekend and good trading you you all.

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