Oil at new highs but divergences

Oil spiked to new highs the next day following the FED decision. I wrote in the post US dollar prediction and Fed rate pause about some negative divergences in Oil and Gold.

Read this chart carefully. The top bar shows the RSI. Whenever price makes a new high, the RSI should move above 70. We had two new high days in USO but the RSI is still below 70 !!!

Next problem is the CMF- Chaikin Money Flow. I would have really liked to see BIG green bars here but all I am seeing is just one small green bar.

I still have oil stocks such as Pyramid Oil (PDO) and Royal Oil (ROYL). Having tight stops on both of these names. Oil needs to correct these divergences quickly, otherwise we will have a reversal.

Gold however has corrected its negative divergence. I have GLD ETF. Also played a quick round on Yamana Gold(AUY).

Australian Dollar at 25 year highs

*The Australian dollar rose to its highest level in 25 years as prices of the nation's iron ore and coal exports climbed to records and steelmaker ArcelorMittal led companies buying stakes in the country's resource producers.

*Australia's economy, entering a 17th year of expansion, has weathered a global credit squeeze and four interest-rate increases in the past 12 months as demand from India and China pushed prices of raw materials to records.

*The Aussie has gained 5.8 percent this quarter, the second- best performer among the 16 most-active currencies, and 10.4 percent this year, before a Reserve Bank of Australia meeting tomorrow at which policy makers will keep the overnight cash rate target at a 12-year high of 7.25 percent, according to all 25 economists surveyed by Bloomberg News.

*Prices of raw materials influence the Australian dollar because commodity exports contribute about 17 percent to Australia's economy. The Aussie advanced last week as Rio Tinto Group said China agreed to pay a record price for iron ore, the nation's largest overseas shipment.

Source:Bloomberg

As the commodity boom continues, the currencies of commodity supplying nations will continue to rise while the currencies of commodity-demand nations keeps going down.
Australian, Canadian, New Zealand dollar have risen while Indian rupee was one of the worst performers of 2008 even though it supports a good growth.

PDO Chart

This has become one of my best winners for 2008. Rode this from 18s to 41s. After selling at 41, left a few points on the table. I have again taken a small position in mid-33s. Please observe the chart carefully. I have drawn three trendlines. The lines are marked explicitly with red arrows. PDO has to breakout out of all the THREE trendlines.
Now, with oil making new highs, PDO gets support from its sector.
It is important to be in right sectr and right stock to maximize gains.
So, now matter what the general market does, PDO should continue in strength after it breaks out of the trendlines.
Good Luck !!

US Dollar prediction & Fed rate pause

I had prepared this a week back with the above annotation. The annotation was made considering the 'big' possibility of the US dollar breaking out of the downtrend. The best chance for that 'big' possibility was today- FED Funds meeting. The FED kept the statements very vague. They made a pause in their rate decrease cycle and as far as future rate increases were concerned, they have basically left it for the market to decide.As shown on the chart, the Dollar got whacked really hard following the meeting. This gives a final confirmation that we are still in a downtrend and the Dollar still has further downside risk.

Best plays when the dollar gets hit are:
Currency ETFs for Euro, Swenden Krona FXE, FXS
Country Index ETF Funds for Brazil, Russia - EWZ, RSX

Gold and Oil are also great hedges against a falling dollar. I will cover them later. There is some kind of diveregnce in that area.

Chevron's Nigerian oil problem continues

Chevron declares force majeure at Nigerian oil facility


Chevron declared force majeure at its Escravos oil facility in Nigeria because of lost production, The Wall Street Journal reported late Tuesday on its Web site. Under its contracts, Chevron can legally miss deliveries because of circumstances beyond its control. The move comes after Nigerian militants blew up a Chevron-operated oil supply pipeline last week, cutting output by 120,000 barrels a day at the facility, according to the Journal, citing industry sources.

Source: Marketwatch

Saudi Oil Meeting-June 22- Is the oil increase enough ?

Despite all the hyped-up news about Saudi increasing oil production, the real details and impacts are a bit different:

* No specifics on when and how much they will increase the oil production.

* Other OPEC countries are valiantly opposing any further increase. Some of them are even threatening to reduce output.

*The 200,000 bpd increase last week has been already factored in the markets.

* There wasn't any new increase mentioned this weekend.

* The actual increase is from 9.2 million barrels to 9.7 million barrels( 300,000 was announced in May)

*But this is after they decreased their productions in 2006. In 2006 they pumped much more than 9.7 million barrels.

* And we know how much demand has increased in the past 2 years and this is a meager increase.

*Nigeria lost about 120,000 barrels per day after the Chevron pipeline was shutdown.

* Saudi increases oil production by 200,000 bpd and Nigeria is going to lose 120,000 bpd

* So, now you can understand the real impact of the Saudi oil increase.

India China higher inflation higher rates expected

India's inflation accelerated to a 13-year high and economists forecast higher consumer prices in China after record crude oil forced both nations to increase the regulated cost of fuel.

India's wholesale prices jumped 11.05 percent in the week to June 7, the government said today, more than the median 9.79 percent increase in a Bloomberg News survey of 18 economists. China's fuel price increase today may lift consumer prices by as much as 1 percentage point this year, a separate survey showed.

Bloomberg Article:

Dr. Robert Hirsch expecting $500 oil-Peak Oil theory

Dr. Robert Hirsch, senior advisor, Management Information Services Inc came today on CNBC with a $500 price tag for Oil. Here is the summary:

* Oil to reach $500 in the next 3 to 5 years.

* Oil production has reached a plateau and not much oil out there.

* Economists don't understand we are limited by geology. Harder to get oil out of the ground.

* Just to match demand, every year we need to produce NEW 3 to 4 million barrels. This needs to be done every year and it will get worse and worse.

* We need alternate liquid fuels and big push on conservation.

*Coal is a good alternative liquid fuel (That means keep adding coal stocks).

*But political push back in using coal.

CNBC video link here:


Some good coal stocks- Check their YTD performances
FDG - Fording Canadian Coal Trust
MEE - Massey Energy Company
JRCC - James River Coal Company
ACI - Arch Coal, Inc
BTU - Peabody Energy Corporation

Royal Bank of Scotland expects global stock market crash

* This morning Royal Bank of Scotland advised clients to expect a major crash in the global markets.

* They expect crash to come within the next three months.

* S&P 500 to make a trip to 1050. (That is a whopping 300 points on S&P and probably 3000 points on Dow)

* Global banks will be paralyzed with inflation.

* This will be one of the worst bear markets over the last century.

*"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah.

*"The ugly spoiler is that we may need to see much lower global growth in order to get lower inflation," he said.

* Oil spike will continue but then later subside.

I agree with most of the comments made here but I really really doubt if this is all going to happen in the next three months.

Fibonacci Gann Cycle date

Do we go up from here onwards ? Look at this post Fibonacci Gann Cycle date and Stock Market Bottoms
Based on this post and calculations mentioned there for the past two corrections of the Fibonacci Gann cycle, we didn't get a new low today. This means the June 12 low was infact the low of this cycle.
Based on this, we should be only going up till we hit the next cycle low that comes in on Nov 18.

Let us wait and see how the market behaves in the next few days. Historically the Tuesday of the Options expiration week will be very volatile.

Fibonacci Gann Cycles and Stock market bottoms

A good friend of mine provided the four major dates for market bottoms in 2008. These dates are listed according to the Fibonacci Gann cycles.
The dates for 2008 are - Jan 28, Mar 20, Jun 18 and Nov 18.

I took these dates and did some analysis to understand the correlation to US stock market indexes. I used DJIA and S&P 500 as references.

The January major stock bottom was on Jan 22
The March stock bottom was on March 17.

Jan 22 to Jan 28= difference was 5 market days
Mar 17 to Mar 20= difference was 4 market days

So, for this market cycle on Jun 18, the low would be:
3 market days= June 16
4 market days= June 13
5 market days= June 12

June 13, is out of question as we had an UP day.
June 12 and June 16 are left
So, the question that remains is if the low we had on June 12 - if that can be considered as the cycle low. Or if the market closes up on Jun 16, then we can conclude from this CYCLE perspective that the low has been set for the markets till Nov 18.

So, that means no more shorts from here on..only longs. Let us keep a close eye and check if the June 12 low is taken out before Nov.

I really believe in these cycles. I also follow this guy called Charles Nenner. Listed some of his predictions over here.

G8 on Oil- July 2008 meet in Osaka, Japan

As usual nothing great from these G8 meetings.

-The Finance ministers urged the oil producing nations to increase output to control the rising oil and food prices. They expect the higher prices to hurt global growth (thanks for the info).

-Higher prices will increase inflationary pressures

-Some of the ministers point to speculators causing the rise

-Henry Paulson, US Treasury secretary, mentioned "We don't want to misdiagnose the problem. And if you look at the problem, I think it's pretty clear. We have not had an increase in production capacity in oil for the last 10 years."

-US dollar's weakness is considered a major factor that is affecting the price of oil.

-They asked emerging countries to reduce subsidies for oil. Countries like India, Indonesia have recently reduced oil subsidies.

- India and couple of other counties are facing elections soon but they were commended for removing some subsidies but there are several other counties that are not ready to budge as they would like to continue to keep low prices for their vast populations.

-"The world economy continues to face uncertainty and downside risks persist," their statement said. "We will remain vigilant and will continue to take appropriate actions, individually and collectively, in order to secure stability and growth in our economies and globally."

Charles Nenner with more predictions including oil

Charles Nenner the oracle of market cycles has more predictions as listed on this interview on WCBSTV.

Main Takeaways:

* Oil will hit $170 to $180 range
* Oil will hit the top by Q3 2009
* Oil will then start to decline till March 2011
* No worries of recession
* Market will start rebounding by mid-June
* Housing has a long way to go down. Cycle will continue till 2025

Crude Oil's largest price jump and reasons for the jump

Yesterday crude oil jumped nearly $11 to close at $138.54 marking the largest ever increase.
Some of the key factors that contributed to this price jump:

* US unemployment at 5.5% was highest in TWENTY years. What about the second half recovery?- Weaker Dollar

* Trichet says ECB will raise interest rates as early as next month. So, forget about Europe following US in cutting rates. - Weaker Dollar

* Morgan Stanley analyst- Ole Slorer comes out with a $150 price target by July- Oil spike

* Israel's transport minister saying an attack on Iran was 'unavoidable'- Oil Spike

* Workers at Chevron in Nigeria strike affecting supplies- Oil Spike

* Most of the analysts were expecting oil to head to $100 just a couple of days back and had to jump back in oil. Haha these analysts and speculators- Oil Spike


Now the TA part:
------------------------

* $DXY- US dollar spot price hit the upper bollinger band on Thursday morning- whenever it hits the upper BB, the Dollar reverses.

* USO- US Oil fund hit the bottom trendline on Wednesday. Deeply oversold

* All commodity related stocks right at the Trendline.


Thumb Rules on Oil relationships:
-----------------------------------------
* Dollar is inversely proportional to the Price of Oil

* Reduction/disruption of supplies directly proportional to Price of Oil

* Increase in demand directly proportional to Price of Oil

* Global recession fears points to lower demand so lower Price of Oil

* But Recession fears in US mean weaker dollar and hence higher Price of Oil

* Financial problems in US mean weaker dollar and hence higher Price of Oil

* Expectation of second half economic recovery means higher Price of Oil

* Bernanke keeping Interest rates low-weaker Dollar- higher Price of Oil

* India and other emerging economies reducing subsidies, making price of oil higher for consumers in those countries-lesser demand- lower Price of Oil

I firmly believe in Technical analysis and its impact on future movement. So, picked up a lot of commodity names to enjoy this new ride.

Some of the best setups out there are:
IPI- Agriculture
X - Steel
PDO- Oil
ROYL- Oil and Gas
EWZ- Brazil
USO- US Oil Fund
BZP-Oil

Do you have any good stocks to share ?