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: