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Crude
? Although I’m sure not the most popular opinion but I’m expecting choppy action and NOT for oil to surge higher or the huge selloff move that many are talking about. Why?
- First let’s look at the crude futures chart. That area highlighted took months to punch through and trade above. Barring any unforeseen event such as War, embargo or a pipeline explosion, it should take quite sometime to get sell
through those shares as well. Not as long [selling moves faster down than buying moves up] but it still won’t be done in a week. - Now a look at USD/CAD. It broke through 1st support but as you can see, 2nd support is much stronger and again, will take longer to work through shares before CAD brings this currency pair down lower – and this is a WEEKLY chart, not Daily.
- Then there’s COT [Commitment of Traders] chart. You will see that large traders are still net long by a huge margin vs. Commercials. Now one could argue that large traders are possibly wrong in their position and will lose but……..that typically doesn’t happen.
- Lastly, remember those tankers filled with crude floating around the Gulf of Mexico? AH!!! You forgot! Well, just check out this article in Bloomberg on the # of tankers in the North Sea and how capacity since 4/09 has expanded five fold. Now even a simpleton such as myself can understand why would anyone still be storing crude in tankers and expanding their storage if crude prices were going to plummet?
My guess is that equities [companies themselves] may selloff but crude will chop around as some exit their positions during any news-driven event or USD strength. Think of it as shaking out “the weak”. Ultimately I believe large traders will be buying these crude dips and it’ll be held above $65/brl in the weeks, even months to come before heading higher. It’s that or Santa’s going to deliver the black stuff in large traders stockings this Christmas and I find that highly doubtful.
Keeping a weather eye on the EUR/USD trade over the next few days as its forming a triangle which [on a Daily view] is showing Bearish divergence in MACD and RSI. Shown here on the 60min. but you get the picture. As Ashraf Laidi has been quick to point out, crude has been unable to trade and stay above $80/brl as he believes demand [or lack of] is finally catching up with pricing. Cautious comments from retailers regarding their 4Q expectations is lending the USD some slight strength and the markets overall parabolic rise is [in my mind] unsustainable here. I shorted ES_F Sunday evening @ 1098 and again @ 1112 yesterday; covering all this morning ahead of the PPI release. I have now re-shorted @ 1104.50 and will sell further @ $1112, 1118 and 1123. Will cash it in @ 1135 or under a 4% loss if that were to come to pass.
Market popped early in the US after overnight selling in London of the USD propelled commodities higher once again. Mid morning, we’re now going slowly into a snooze fest awaiting the FOMC minutes. This release will be scrutinized even more closely for a change from the “extended period of time” stance will skyrocket the USD and commodities [and overall market] downwards. If wording and sentiment reflect to keep the status quo, I plan to get long TTI and possibly another crude play for the next few days. Crude climbed above $80 resistance and is now perched there. With no change from the Fed, crude will be drawn to $82 then $83.70. Still scaling into my ES_F short as we go higher to re-test the ‘09 market high.
The big selloff just prior to market close today already retraced more than 23.6% of our last leg up so here [on a hourly chart] are the retracement levels I’m looking at in terms of support/resistance for tomorrows session. While normal pivots will apply, I give more weight to retracements in a pullback as *magnets* on settlement. Trading below $1055 will pose as a significant move of over 50% implying a full retracement will be on the horizon. Much will depend on not only the unemployment claim #s tomorrow, but if we experience further Galleon fund selling and there’s no way to predict that; even with a Quija board. I will not be adding to longs at this point but will most likely day trade short breakdowns in the financial and REIT area and monitor the rest of the market. The best advice I could give anyone here is not to force the issue. Don’t push youself into trading without a good setup and defined entry/exit point. To push a trade in this environment will result in a lower % of winners so take it easy. I will say, however, if QM climbs to $84 I will begin shorting the black gold based on ‘08 resistance and the fact that a 20% run up in three weeks is excessive for crude when there’s no demand. I wonder how much of *it’s* pop has been due to true buying or Galleon covering short positions??????
Merely a few items I ran across which I’ll share as I wait for my Chicago Bears to hand a beatdown to the Seahawks; either due to their relevance to market conditions and possibly explain how it is we got in this condition in the first place.
- This article from the Washington Post is one of the best perspectives I’ve seen on the cause of the housing bubble and outlines how cries for intervention fell upon deaf Fed [and Clinton] ears. Having been in the mortgage business for 25 years, I have particular insight on the topic; more than most traders I’ve encountered and the writer did his research as mannnnny were warning of what was to come. I can almost hear Thomas Jefferson off in the distance chanting………Fire…..the……Fed!
- Note the Doji on QM [crude] on the Daily. A reversal higher implied but must be confirmed. Any entry on an crude stock with a stop below Fridays low would lend low capital risk.
- That being said, elections in Germany could move the Euro and impact commodities here.
- Click here to view Ashraf Laidi’s view on where crude **could** head. I’m leaning more towards the Doji reversal higher putting more weight on the markets reaction to mortgage applications and crude/natty inventories. The weekend is over – the Doji is key.
- Note the correlation b/w crude and stocks price movement continues to increase; now at 0.77. Oil @ 66.20 now represents roughly 16% of SPX price @ $1020; the highest since 4/09. Something to keep an eye on as lower crude would put increased pressure on the overall SPX with this high of a correlation.
- Do you have Coup D’ oeil? No, it’s not a biotech company.
- Forex markets are all abuzz tonight with increased volatility on a number of possible subjects:
- The US is seeking tougher sanctions against IranUS is seeking tougher sanctions against Iran after it test-fired three missiles ahead of their face-to-face meeting in four days. Floor traders will try to use this [as they always do] to raise fears in the oil market and push higher crude prices. Something to be aware but as the article points out, sanctions in the past have failed to have any effect on Iran so traders arguments may fall on deaf ears.
- Then consider this piece from the Blog @ ft.com which is no more than rumor but what more does it take for gold bugs to stampede than a rumor. I’ll leave it to the economists and powers that be to debate the China & gold issue but I can smell increased pressure in gold as a flight to safety here.
- Comments from Julian Robertson, Founder and Chairman of Tiger Management, in an interview with CNBC have sent the blogosphere ballistic with this interview. One noted example was the commented “It’s almost Armageddon if the Japanese and Chinese don’t buy our debt,” and continued to imply that’s exactly what they plan to do. This is a two-part interview lasting 30 min. See videos at left margin. One should remember that this all speculation at this juncture but comments such as this can raise the fear factor on a short term basis.
- Here’s one bloggers thoughts after viewing the interview from Fund My Fund.
- Lastly Japan continues to flatten their positions with their end of year drawing near adding further volatility in Forex.
This is when Bulls must stick to their guns. While it appears we’ve completed move 5 of the 3rd wave, I do not believe so when the 3rd wave is usually the strongest of the five so I’m sticking to my guns. If the market remains down, I will reap the benefit of my hedges as we correct. If we break Regression channel support then Fib retracement levels come into play and we go from there.
Good luck
