Thursday, June 28, 2007
I wanted to touch on somethingthat is very important in my trading anlysis and that is the fact that stocks lead commodities. Now nothing is 100% certain (except death and taxes) but this does tend to hold true more often than not. For example, the gold stocks should lead the bullion, not because stock traders are smarter than the guys in the gold pit. To the contrary, the guys in the pit are some of the shrewdest and savviest around, rather the gold stocks are heavily levered to the price of the underlying. Therefore, when gold does move, profits flow to the stock's bottom line, assuming no adverse acts of nature. That's why I watch the Gold Bugs Index ($HUI) which should lead the bullion if a move is coming.
I had a lot of clients in resources stocks back in 1998-1999, yes a tough time I admit, I really didn't get it, or this time is different, so I was continually told. Sir John Templeton, who writings and thoughts you all should make yourselves very familiar with,often said "this time is different" are the 4 most expensive words ever uttered in history. Inco was a stock I owned that started coming out of the hole for ahead of the price of nickel and was swimming in dough due to their cost containment during the lean years as anyone who survived started printing money. Shell Canada was another example. The time frame with which stocks lead is subject to debate but what you want to see is leadership in this fashion.
Lets turn to crude of which you know I am a raging bull. I spoke with some friends back in early May who follow markets closely, and most were neutral, some short, and some involved in spreads with crude the short. I explained my position that as I saw it the Oil Service Holders (OIH), along with Amex Oil Index ($XOI) was leading the charge and this was a good indicator. As crude ($WTIC) looked like it was ready to break the OIH was making new highs and this is a good indicator and readers of my earlier post would know I call this a positive divergence. Crude itself should play catch up here to the stocks which would be healthy for this market.
This inverted head and shoulders on crude that I am enamored with implies a target of $80-85(actually $82 is my preferred number but 80-85 is close enough, like in horse shoes and hand grenades) so there is plenty room to run and with 3 carrier strike groups(thanks to Mike over a Futurejacked for bringing my attention to that) in the Persian Gulf, there is no telling how high crude can go. Pssst.... it has a 1 handle and 3 digits are involved. Now how is that for being bullish. I certainly don't want to be labelled a permabear. For those that need fundamentals to make the world go round, which I do, but I take em' with a rather LARGE grain of salt given the state of corporate ethics currently, the true big three the ones we should be familiar with are not GM, Ford and Chrysler but rather Ghawar, Burgan and Cantarell. I am waiting for Don Luskin or Ned Reilly to go on CNBC and tell us how higher oil prices are dis-inflationary and we have less to spend on other items !! and they hit the buy button on Nike and Best Buy, tragic if it weren't so comical.
Speaking of the large grain of salt I take corporate fundamentals for I am no C.A. but what for the life of me I cannot understand is how these mortgage outfits like Countrywide, etc treat revenue for neg-am ARM's. As far as I am aware, they are booking the entire amount as revenue earned even though the homeowner is only paying a fraction of it, and in all likelihood will not pay it. Ethics should be mandatory business school study instead of an elective. Good luck and good trading to you.
Wednesday, June 27, 2007
They are in order form high point:
158.40 (15.84%) on Sep 1981
139.90 on May 1984
102.30 on Oct 1987
80.20 on Nov 1994
67.80 on Jan 2000
SRS - sticking with it even with potential outside reversal bar in progress on heavy volume. I was shaken out of my DIG position Ultra oil and gas proshares prematurely by not being patient with my winner, and it cost me. Entry was 76 and yours truly got shaken out at 86. Yes I know it went to 105, hence we must remember Livermore's advice to be extremely patient with your winners and inordinately impatient with your losers.
For you buy the news traders, (even though I cringe at the thought) ORCL is at major resistance of $20. You will need a 15 yr chart to see it but its there. For you MOT bulls I know a lot of hedgies(SAC especially) and even some value players have some decent long positions in this one. The tape continues to point down though. The gap down Jan 5 this year thru the trend line coming from the April 2003 lows was not a good sign. And speaking of SAC, SHLD better hold 165. A trendline form 2003 was broken thru $170.
Japanese Yen - thru $82 would make me happy as it would break the downtrend line from March 28 this year(yes I am a stickler on trend lines, from the highest high touching the highest high before the lowest low, no cheating). The inherent attraction in this trade for me is that I think we can count on 2 hands how many yen bulls there are globally. I mean really is there a trade out there more one sided?
Consumer Goods - $62 is the line in the sand for IYK. Again my preferred vehicle is the Ultrashort proshares ticker SZK, and no you news traders, a good report from Nike does not change my opinion, actually emboldens it because I am not looking in the rear view mirror, which is what I think of news.
A few blog entries back I wondered aloud on the Saudi equity market (TASI) and the 65% drop since early 2006. Standing over an uphill 6 footer for par (which I don't mind saying I made, need those, keeps ya comin' back) I got to thinking about the decline and the state of the Saudi economy, which is exactly what it is, the state, and it got me to thinking. The nationals of any country regardless of standing and status internationally(1st or 3rd world) are usually in the know. It seems to me that they have been selling and if they are not selling then they sure as heck are not buying( it takes a lot of buying to put a market up it takes a mere lack of buying to put a market down.) Take this a step further why are they not buying do they fear a royal family overthrow. Do they poor economic fundamentals on the horizon, or do they the ones in the know, have any insight as to whether the Kingdom's stated oil reserves (remember these are unaudited and unverified by any outside independent sources) are baloney or not? Something to consider.
I saw a piece over the weekend showing a BP Statistical Review that during the Iran-Iraq war Iran's stated oil reserves went from 60 to 90 billion bbls which represents a 50% increase. Iraq's stated reserves went from 30 to 100 billion bbls. which represents a 233% increase. Now this is during a war that ravaged both countries. Anyone who still believes in the sanctity of these stated reserve numbers of which OPEC member production quotas are based, well then I have a bridge I would like to sell you. Insults what little intelligence I have. Good luck and good trading to you.
Tuesday, June 26, 2007
This is 2 days in a row where they have ramped the market up only to see it give it all back before the end of the day, not what the bulls want to see. Remember though this bull has more than 9 lives and every drop is a buying opportunity. Gets everyone to thinking they can't lose, remember the movie The Sting with Newman and Redford, they sucked that mobster in good and tight, till he was convinced he couldn't lose. The market is very similar, wants everybody in and all naysayers discredited before it will break. Lets let the tape tell us where to go. We want to put our rocks in the wettest bags as they break easiest. Translation don't bother shorting Apple, Google, and Baidu, they're not worth the stress.
Power shares agriculture fund. ticker DBA is pulling back nicely after an above avg. volume break out thru 26. I am in thru $26, so if you missed the first thrust up it is testing the breakout area now on light volume, and adding thru 28.50 which should really ignite a move up.
Real estate continues to tank with the IYR making new lows. The 50 has crossed the 200 on the downside. Good news for us realty bears. I missed the homies and did not want to be fooled twice. My favoured play on this the SRS is making new highs and volume is starting to swell.
Consumer goods head and shoulder continues to develop a break below 62 on IYK would mandate entry. My preferred vehicle of choice on this would be the Ultrashort consumer goods proshares ticker SZK.
Gold is right on its 200 day and needs to be watched closely. Could be margin call selling, could be the games big boys play, who knows, who cares, we will find out later. Trend line from summer of 2005 lows is still intact so we will watch close.
Silver got shellacked today and is inherently much more volatile than gold. No need to ask questions they will be answered later. We need to concern ourselves with the tape and today's action is NOT good. Trend line support from June/06 lows has been broken on heavy volume if you look at SLV the etf. If we break $12 then $10 is the next stop. Now this could be a con but discretion is the better part of valor and above all we want to live to trade another day. I love the fundamental case for silver but unfortunately my margin clerk doesn't care a whit, besides we can always get back in later.
Crude is consolidating above the breakout and still looks good. 3 carrier strike groups in the gulf, peak oil, supply demand fundys spell higher prices.
Natural Gas ($natgas) has some support about $7 just wondering if they are shaking out latecomers to the party. One of my favourites is Natural Gas Services NGS which broke out (I missed it!) and is now pulling back to the breakout area of $16.50 which is where I get in.
Japanese Yen is drifting lower. This could be the the nitroglycerin of the subprime housing cocktail. Lots of these fund managers have been using the Yen carry trade to finance all the crap they've been buying so continue to watch close.
Merrill Lynch should make a run for $77 the old low back in March. Volume has picked up since MER broke $87. Good for bears bad for bulls and very bad for Mr. Market.
Good luck and good trading to you.
Monday, June 25, 2007
Thursday, June 21, 2007
Tuesday, June 19, 2007
Crude - nice breakout thru $67.50 on the daily and weekly,(weekly breakout carries significant weight), and we are getting some follow thru after the fact. Charts look very bullish on all fronts, short medium and long term. How crude at $7something or even higher is good for the market and the economy is beyond my comprehension but mark my words, some shill (probably Don Luskin or Ned Riley) will be on TV harping about the bullish effects of $80 crude. Maybe CNBC will change their theme song to, Dorothy singing we're off to see the wizard.
Real Estate - sub prime, alt-A, neg am, adjustable rate ( shall I go on ?) debacle is well documented, the market cares not a whit for now, but believe me it will and when it does you won't want to be anywhere near it, unless you're short. The IYR has broken the neckline and is testing the old low for a 3rd time. the 50 is headed down but yet to cross the 200 and coincidentally this is happening right at the former neckline of the H&S. Stay short or long the SRS. The IYR had a 3 day rally last week on light volume and cracked down again on heavier(150%) volume
10 year note - sea change event here with major downtrend lines being broken. Expect backing and filling, to shake out the nervous nellies. The news is a smokescreen and as I have said before conforms to the tape, which is what you should be watching. They (the enemy) will say many things but their actions will be reflected by the tape.
Merrill Lynch - still has not bettered its old highs, the bulls need to see $95 then $98. 75 taken out. It does look tired but need to let the tape tell us. A break below $87 would do it.
Spider Financials - The XLF has all the makings of a double top on the weekly. Financials have taken a back seat and that is not a good omen for the bulls, but they never need them in the first place. Good luck and good trading to you.