Oil
another bubble? If so how high will it go?
TOL - Toll Brothers home builder stock price went from $4 in 2000 to $10
in 2002 and people started taking "Housing Bubble" and laying on shorts. By the next
year TOL was $15 - added another 50% in a year and even CNBC was saying Bubble. In
2004 it hit $20 and finally in 2005 TOL peaked at $58 - yikes. Now it is back to
$22. It took many years for the bubble to pop.
Now there is no housing bubble for all the speculative "hot money" to fuel so
they found another one.
Crude oil had a late 2001 low of $17 so has run hard for 6 years and could go
some more but it has some of the same problems that the housing market did.
Speculators is the big one. In housing take Miami as an example and its condominiums
/ apartments. As the prices kept rising, speculators jumped in to buy and ride
the wave. They had no physical use for the condominium but only wanted to unload
it to a higher bidder. In effect they were creating a false market as the need
was not for a place to live but only for a profit.
In the crude oil market now it is similar. It is true that demand from China and
India and others is rising but not nearly at the rate of the product.
OPEC says there is plenty of oil in the market so they do not want to increase supply.
So the demand is not for the physical oil but for the paper contract that gives
you the right to trade it. Future contracts in oil in the past were used mainly by
producers or real buyers to hedge their position / price to protect from the
volatile swings. Now, however it is widely traded by speculators who will never
take delivery of the actual oil.
As, per the radio program
All things Considered, in 2000 all the funds who
invest in oil spent about $8- $9 billion. Now it is over $250 billion - this
adds that much demand that does not take delivery of the actual product. The
California Pension System, the Central Bank of Singapore these are the type of
big buyers, they are not buying to fuel a factory but to fuel a portfolio. Sure
oil is also up because of the falling dollar but the there is to counter that, a
400,000 barrel-a-day reduction in physical demand from the United States, which
is consuming less because of its economic slowdown. OPEC
does not have to add to production as this frenzy is not demand for the actual product.
The media loves to talk of supply and demand but it is demand for contracts not
product. Michael Waldron, Lehman's oil strategist said recently about oil,
"Supply is outpacing demand growth," "Inventories have been building since the beginning
of the year. We have pretty significant projects
starting soon in Saudi Arabia, and large off-shore
fields in Nigeria," he said. Lehman is now predicting prices at $83 a barrel in
2009 and as low as $70 in 2010.
The long term chart trend line connecting the 2001 and 2007 lows is also at
about $70 now. However - like the housing market - it is not over until it is.
So while Lehman is looking to $70 or $80 Goldman Sachs is saying $200 is on the
way. Maybe both will be right. Right now hot money is chasing what is moving.
Investors are looking for a place to make money," says Jim Williams, an oil
economist with WTRG.com, "and the only thing that seems to be going up
is the price of crude oil."
The
commitment of traders
report indicates almost 30% of the open futures interest
in crude oil is from speculators and traders, and not
commercial hedgers.
If this were real demand for oil you would expect
stocks line ExxonMobile XOM to be going up also
but it has been dropping since making a triple top. Here
shown in gold on the chart you see the triple top but we
will not know if this is a triple top reversal or not
unless it breaks the trend line at about $95 currently.
Triple tops generally form over 3-6 months and this one
is 6 months. We will report back if this gets closer to
the trend.
Recently here were were talking about
he "Smoke and Mirrors" the US government uses in talking
about economic growth and especially and outrageously
about employment and unemployment. They manipulate the
figures in various ways such as not counting some groups
and not counting fulltime workers who now can only find
part time work and they have their infamous birth/death
calculations where they can easily add 100,000 or more
fictitious jobs at will.
There is a new site that does not
look at employment statistics at all to get an idea of
the total jobs situation and therefore the economy.
Instead they look at the withholding taxes the
government receives each day from all workers. The site
is named
Matt Trivisonno’s Blog
Using withholding's taxes may also not be
totally accurate as they can shift for various reasons
however they sure have no made up birth/death
adjustment. With Matt's permission here are a couple of
his charts.
First is a year over year growth percentage of
withholding taxes. This shows the weakening economy as
with less work there is less for the government to
collect on.
Next is a quarterly chart that does
not match with what the government is telling us. This
has a recession look.
So take a look at the
site. He also
now includes other studies - like this S&P bear market
comparison of 2001 ton 2008. Sneak Peak - thanks Matt
for your useful site.
The weekly performance of the major indexes. The AMEX
was up as it has many oil stocks listed there.
The weekly winners and loser sectors. Coal is now up
30% for this year and 75% for the past 52 weeks. Talk
about black gold!
The top and bottom industries
actually is all commodity related this week.
We start with the Dow
renko chart as it broke above the
trend line and closed the week back on top of the line. The stochastics issued a
sell signal but not quite yet from the CCI and it will do so if it crosses back under
100.
The Dow daily has the RSI back at 50 which could be support. The Dow ran
right at the horizontal resistance and backed off and is now nears support and
may have additional support at the 50-day EMA at 12653.
A closer view of the Dow with Fibonacci levels shown. The stochastics
gave a sell at the break of 80.
The Dow transportation index has done really well. This seems a bit
strange as about the only shippers who are getting more business are
railroads as it is cheaper with high oil prices and maybe the oil shipper
companies also.
FedEx FDX issued an earning's warning on Friday and they said the
warning was caused by rising fuel costs. I do not
know why they would not just raise their prices as oil goes up. I cannot
imagine someone not buying a book online because the FedEx cost is up a bit.
When wheat price rise so does bread and people still buy it. Seems logical. But
for the Tran - it often rises when an economic decline is about to turn around
but we have seen no induction of that so it seems that this index has gotten
ahead of itself.
The Nasdaq never made it to our second level and is now has pulled back to
the support. If that does not hold we look at the 50-day EMA at 2381.
The semiconductor index SOX ran all the way to the 200-day and so far has
failed to break over.
The Nasdaq 100 chart about the same as the Nasdaq but it is still
nicely above its 200-day EMA. This shows the big money still prefers the big
caps in Nasdaq. (They apparently do not like them a lot though as volume has
been so low)
The NYSE did break above its trend and horizontal resistance and it is
now back under the resistance line but still over the 200-daY EMA and trend
line.
The S&P 500 longer term chart shows a minor break out over the trend
but not for long as it is now pulling back.
S&P 500 50-day EMA is right at the trend line so may be a bounce there at
1372 area.
The S&P 500 bullish percent chart is almost at a sell signal. It would
probably coincide with a drop of the S&P below its 50-day EMA as seen in the
lower portion of the chart.
This chart shows the longer term Russell 2000.
The Russell 2000 still
above its 50-day EMA as it did not drop as much as the
S&P or the Dow. So far the small caps have held up
better than the big ones in this recent pullback.
The QID ultra short
Nasdaq 100 filled the gap left at the start of the year
and bounced a bit so far.
The pro shares short Dow ETF -
DXD closed back over its broken trend line. It is
still under both EMAs and they could meet in which case
there could be a strong move.
The VIX had dipped below its support a couple of times in the week but
closed above it as some fear has returned to the market.
The 30-year T bond yield
ran briefly above the trend line and 200-day but now has
pulled back and closed at 4.52%
The GSG commodity ETF is clearly above the top Bollinger band and in need
of a pullback. It also closed Friday with a typical turn around candle. It has
negative divergent MACD at the moment.
On this oil chart we see that our original $116 target was easily
surpassed. We have placed a Fibonacci projection guess at an appropriate point
and this gives a possible projection to $130. It is a wild one. This move
reminds me of the 1999 biotech days as the price movement is not based on
the cost of pumping, transporting and discovery but only by traders.
This uses the support for the 38% line at $100 as stockharts does not have a
proper implementation of Fibonacci projections
Oil continues its move and it possible that it goes to the top of this
channel.
The oil and gas ultra short ETF DUG gave a sell signals as
stochastics dropped under 80. You could have sold this short or gone long
its long version DIG. It is now at possible support and if oil pulls
back this will rebound.
(By the way, since we started showing 3 Line Break and Renko charts and our
buy/sell indicators we are starting to see other's joining in with
them also - cool) They work best for trending stocks such as JRJC which has been
excellent lately. Here it is in 3 line break but you can look at it in Renko
also.
Here is the Renko
This, our usual longer term gold daily chart, issued its buy signal at the
38% retrace bounce when the stochastics crossed back over 20.
Gold did
bounce right at support very near the 200-day EMA and
there is a MACD crossover but I think this rally at some
point will fail and gold come back down again. The summer
is historically not so good for gold and it often pulls
back to an August of September low.
The gold
renko chart gave a stochastics buy signal
but not yet on the CCI going back over the -100 line. You can imagine the top
trend line, not drawn on this chart, connecting 1001 and 947. This would be
resistance as well as the 892 area from the early April low.
The Gold ETF
renko chart GLD did give a buy
signal as CCI crossed back up over -100.
The gold and silver index
XAU is back at its 50-day EMA but not far overhead
is the trend and now resistance.
The EURO to Japanese yen
ratio chart - now below the 200-day EMA so it could test
the lower trend line one more time.
The Japanese yen which had bounced at the 38% retrace and support closed
back over the 50-day EMA. If it continues than the chart above will continue to
drop.
The US dollar
has been in this range 6 days and still above the
50-day EMA. Stochastics is still over 80 and would be
great if the price can rise again
|
Butch Cooley Market Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Butch is still ill this week and we
wish him recovery soon. He is part of our original group
of about 6-8 people who had a private daily chat room
for several years.
Get well soon
Butch!
|
Weekly economic calendar from briefing.com
- Retail sales, CPI, industrial production and housing
starts data for April could each be market movers to
some degree. Ben Bernanke is also scheduled to speak on
Thursday and there will be several Fed members
speaking during the week and Friday is options
expiration.
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