The U.S. stock indexes closed higher today as the bulls are gaining some fresh upside near term technical momentum. The market place was calmer and in more of a “risk on” mentality Tuesday following the weekend Greek elections that have at least temporarily assuaged the European Union debt and financial crisis.
There were reports Tuesday that Greece will form a new coalition government as soon as Wednesday. Traders and investors are awaiting the conclusion of the U.S. Federal Reserve's Federal Open Market Committee meeting and its statement Wednesday afternoon. The Fed is determining its next course of U.S. monetary policy. Recent downbeat U.S. data has led to growing expectations for further easing of U.S. monetary policy.
Most reckon the Fed will implement some form of fresh easing of U.S. monetary policy at this week's meeting. The key will be how aggressive the Fed will respond with fresh easing.
All quotes are August contracts being reported.....
Crude oil closed up $0.85 a barrel at $84.45 today. Prices closed nearer the session high today and saw short covering in a bear market. The lower U.S. dollar index was also bullish for crude today. The crude bears still have the solid overall near term technical advantage.
Natural gas closed down 8.4 cents at $2.584 today. Prices closed nearer the session low today and saw a corrective pullback from recent solid gains. Prices did hit a fresh four week high early on today. Bulls have gained good upside near term technical momentum recently to suggest a market low is in place. Bulls and bears are on a level near term technical playing field.
Gold futures closed down $3.10 an ounce at $1,623.90 today. Prices closed near mid range today and saw some profit taking pressure from recent gains and some position evening ahead of Wednesday's FOMC results. The key “outside markets” were bullish for gold today as the U.S. dollar index was sharply lower and crude oil prices were higher. Gold market bulls have the slight near term technical advantage.
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Showing posts with label Greece. Show all posts
Showing posts with label Greece. Show all posts
Tuesday, June 19, 2012
Sunday, May 27, 2012
CNBC: Crude Oil May Slip Towards Mid $80s on Greece and Spain Worries
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Many traders and strategists polled forecast U.S. crude futures could make a sustained breach below $90 a barrel and test $85 or possibly $84 a barrel this week. Much will depend on the U.S. labor report on Friday. A solid reading may help establish a floor in the oil market while a poor number could compound the woes of the global economy.
This should create some controversy, when is the best time of day to profit?
Crude oil prices will likely extend losses for a fifth straight week as fears about a Greek exit from the euro zone and Spain's banking system continue to trigger outflows from riskier assets including commodities and into the relative safety of the U.S. dollar, according to CNBC's weekly survey of oil market sentiment.
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The poll showed consensus opinion was overwhelmingly bearish: Ten out of the eleven respondents in the sample group expect prices to fall this week. Phil Flynn of PFGBest, the survey's sole respondent with a bull call, expected a rebound based on technical indicators which suggested markets were oversold and fears that tensions would resurface.
Talks last week between Tehran and world powers did not result in any agreement, with negotiations continuing next month at another meeting in Moscow, Reuters reported. Meanwhile, the U.N.'s International Atomic Energy Agency found uranium particles refined to a higher than expected level than what Iran has disclosed.
"Right now, I continue to expect a general 'risk-off' or 'short the world' attitude," said Tom Weber at Portfolio Managers, Inc. Commodity Futures & Options. "However, I won't underestimate the ability of the political elite to save the day with pronouncements and promises of solidarity. I believe traders have adapted to a 'show me' approach to global markets. The market is going to call the bluff of central bankers regarding QE."
Posted courtesy of CNBC
This should create some controversy, when is the best time of day to profit?
Wednesday, May 9, 2012
The Problem With Greece
Pressure brought on by voters in Greece to try to roll back plans to cut the budget and pay its bills could destroy the European Central Bank plan to avoid a total default. Now the question is whether a Greek exit would be catastrophic or is it destined to happen regardless.
The fear of a Greek exit has not been just about Greece but fear of contagion. If Greece exits the Eurozone, what will happen to other weak members of the zone. If Greece is allowed to just default and walk away after taking others cash that they lent to Greece in good faith, others will have a precedent for an exit strategy. The question of moral hazard now comes into play. If Greece can take the EU money and then walk away, why then would another EU country move to help another EU member?
Of course this raises the larger question of the problem....Read the entire article.
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Sunday, April 22, 2012
Phil Flynn: Precautionary Demand
In other words, countries have been hoarding oil in the event that oil supply might get cut. This has increased demand and prices have gone higher. It is a valid fundamental reason for oil prices to rise and has been a major factor in the pricing oil. The rise is not due to speculators, as the uninformed would have you believe, but the physical buying of extra barrels. As the Iran risk seems to be pushed back that buying has eased a bit.
Dow Jones reported overnight that European Union member states have agreed to postpone by one month the deadline for a review of the oil embargo on Iran. The EU agreed in January to implement a full oil embargo on Iranian crude oil exports by July 1 in response to its nuclear program. But as a concession, to Greece in particular, it agreed to hold by May 1 a review of the effect of a full embargo. That left next Monday's Foreign Affairs Ministers Summit as the last opportunity to agree any change to the embargo.....Read the entire article.
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Tuesday, February 14, 2012
Two Short Term Scenarios for the S&P 500 Index
For the first time since the last week of December of 2011, the S&P 500 Index closed lower on the weekly chart. Recently I have been discussing the overbought nature of stocks based on a variety of indicators. However, the real question that should be asked is whether last week was just a short term event or if we see sustained selling in coming weeks.
The issues occurring in Greece spooked the markets somewhat on Friday as Eurozone fears continue to permeate in the mindset of traders. The U.S. Dollar Index is the real driver regarding risk in the near and intermediate term future. If the Dollar is strong, market participants will likely reduce risk. However a weakening Dollar will be a risk-on type of trading event which could lead to an extended rally in equities, precious metals, and oil.
Friday marked an important day for the U.S. Dollar Index futures as for the first time in several weeks the Dollar held higher prices into a daily close. The U.S. Dollar appears to have carved out a daily swing low on the daily chart from Friday. Furthermore, the potential for a weekly swing low at the end of this week remains quite possible. The chart below illustrates how the 100 period simple moving average has offered short term support for the past few weeks.
U.S. Dollar Index Futures Daily Chart
I would also point out that the MACD is starting to converge which is a bullish signal and the full stochastics are also demonstrating a cross on the daily time frame. As long as the 100 period moving average holds price, a rally is likely in the U.S. Dollar Index in coming weeks.
Should that rally play out, it will likely push risk assets lower. My primary target for the S&P 500 would be around the 1,300 – 1,310 price range if the selloff transpires. It is important to note that headlines coming out of Europe could derail this analysis in short order.
Assuming that a selloff in the S&P 500 occurs it will present a difficult trading environment for market participants. Market participants are going to be in a tough position around the 1,300 price level. A rally from 1,300 could serve to test the 2011 highs. In contrast, a confirmed breakdown of the 1,300 price level could initiate a more significant selloff towards the 1,250 area.
Should price move towards the 1,300 price level the bulls and bears will be battling it out for intermediate control of price action. This is my preferred scenario for the short term time frame, but I would only give it about a 60% chance of success at this point in time. We simply need more time to see how price action behaves the first few session of the forthcoming week.
S&P 500 Index Bearish Scenario
The alternate scenario which has about a 40% chance of success would be a sharp rally higher which likely would be produced by news coming out of Greece and/or the Eurozone that pushes the Euro higher. Right now risk is high due to the sensitivity of price to headline risk. With that said, the bullish alternative scenario is shown below.
S&P 500 Index Bullish Scenario
At this point we just do not have enough price information to give us clarity regarding the most probable outcome. The price action in the Euro is going to drive price action for the S&P 500 and other risk assets in weeks ahead.
Anything is possible in the short term, but I have to give a slight edge to the bears simply based on the price action Friday and the fact that almost every indicator I follow is screaming that the equities market is severely overbought. The price action this week should be telling. Headline risk is excruciatingly high, trade safely in the coming week!
By: Chris Vermeulen – Get Chris' FREE Weekly ETF Reports & Analysis
Co-Author: JW Jones – Get J.W.s FREE Weekly Options Reports & Analysis
Co-Author: JW Jones – Get J.W.s FREE Weekly Options Reports & Analysis
Friday, January 13, 2012
Phil Flynn: To Embargo or not to Embargo, That is Indeed the Question
While the market got a boost on reports that European refiners were meeting with Saudi Arabia and other oil producers and securing an alternative to Iranian oil supply, apparently some in the EU did not like the answers that they heard. An overbought oil market seemingly got a reason to sell-off on a Bloomberg report that the European Union embargo on imports of Iranian oil will likely be delayed for six months to allow countries such as Greece, Italy and Spain to find alternative supply, quoting an EU official with knowledge of the talks and it hit the market at just the right time.
The truth is, as I have said before, the EU would like to put off an embargo until after winter and Italy still wants some of the money that the Iranians owe them. Still do not think that Iran will be able to sell their oil very easily. The bottom line is that all Iranian oil will be sold, but it will be sold at a discount. Is it any wonder that Iran is rattling that saber to keep prices high. They are hopping if they can keep prices artificially high they won't miss the loss of revenue! Which means it will be a saber rattling kind of weekend! With a three day holiday in the US, being short over the weekend might be a dangerous propostion.
Yet Bloomberg News is reporting that.....Read the entire article.
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The truth is, as I have said before, the EU would like to put off an embargo until after winter and Italy still wants some of the money that the Iranians owe them. Still do not think that Iran will be able to sell their oil very easily. The bottom line is that all Iranian oil will be sold, but it will be sold at a discount. Is it any wonder that Iran is rattling that saber to keep prices high. They are hopping if they can keep prices artificially high they won't miss the loss of revenue! Which means it will be a saber rattling kind of weekend! With a three day holiday in the US, being short over the weekend might be a dangerous propostion.
Yet Bloomberg News is reporting that.....Read the entire article.
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Sunday, January 8, 2012
Phil Flynn: Jobs Baby Jobs!
Other counties such as Japan and other Asian refiners are looking for alternative sources of oil which of course would be short term bullish. Yet with weak demand short term right now there is no fear that there will be a shortfall of oil. But back to the bullish word that China will imports a record amount of oil in 2012 as they look to rebuild and expand their strategic reserves. And on balance strong economic data in the US! Now the final piece of all of these forces will be Jobs, baby Jobs.
Reuters News Reported that " Japan's biggest refiner JX Nippon Oil & Energy Corp is talking with top exporter Saudi Arabia and other oil producers to source crude to replace any disruption to its imports from Iran, the company's president said on Thursday. Fresh U.S. sanctions on Iran over its nuclear program could make it difficult for refiners in Japan, Iran's number three crude buyer, to pay Tehran for its oil. Japan is seeking an exemption to U.S. sanctions that President Barack Obama signed into law on Saturday. The sanctions, if enforced, would penalize financial institutions for undertaking transactions with Iran's central bank, exposing the U.S. operations of Japanese banks that deal with Iran."
Bloomberg News Reported " The leader of financially struggling Italy questioned the scope and timing of a possible European Union halt to Iranian oil purchases, raising an obstacle to stiffer sanctions on Iran’s nuclear activities. Penalties set to be announced on Jan. 30 should be phased in and exempt crude sold by Iran to pay off debts to Eni SpA, Italy’s largest oil company, Prime Minister Mario Monti said. “An oil embargo is conceivable as long as it remains gradual and excludes the deliveries that serve to reimburse the billion euros in debts that Iran owes to Eni, our national company,” Monti told France’s Le Figaro in an interview published today.
Europe’s sanctions threat and an Iranian demand that U.S. warships stay out of the Persian Gulf have stirred new tensions between Iran and the West, contributing to higher energy prices. EU sanctions decisions require that all 27 member states go along. An oil supply dislocation might further damage the economies of Italy and Greece, two countries at the forefront of the European debt crisis. Italy is battling to get by without a bailout and Greece is seeking a second package.
Phil Flynn can be reached at pflynn@pfgbest.com
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Monday, November 7, 2011
Phil Flynn: Will He Stay Or Will He Go
While Greece has a new coalition government in place now the focus is on Italy and whether Italian Prime Minister Silvio Berlusconi will resign and open up the gridlock that has slowed the reforms that are needed to keep Italy of becoming more like Greece.
The markets have a lack of confidence in Berlusconi after many broken promises on reform and rallied on the prospect that Berlusconi was gone. For oil it is headline to headline.
We will be looking to play ranges!
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Sunday, November 6, 2011
How to Trade This Headline Driven Stock Market
With all eyes on the unemployment report and Europe, the CME Group’s PR Department nearly created an all out panic with their announcement after the market close on Friday relating to futures maintenance margin. The original statement was vague and I was quite concerned until I checked out the CME Group’s web page and the PR Department sent an update clarifying their position. At this point I think the crisis has been averted, but this is just another reminder that we live in “interesting times.”
Keep in mind that if the CME starts raising margin rates across the board for futures contracts in order to protect themselves stocks and commodities could collapse. Silver recently has is margin rates increased and silver since then dropped 25% in value. So imagine if they raised the rates for more commodities…
The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood.
In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting just a couple hours to 24 hours in length. Aggressive trading which small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.
Right now it is hard to say where price action in the broader indices heads in the short run. One headline out of Greece or Italy could dramatically alter economic history. In the intermediate term I remain neutral to bearish for a number of reasons. One indicator I follow is the bullish percent index on the S&P 500 which at this point is arguing for lower prices.
The chart below illustrates the S&P 500 Bullish Percent Index:
As can be seen above, the S&P 500 Bullish Percent Index is presently at an overbought status. When looking at the relative strength and full stochastics indicators one would argue that a pullback is warranted. Historically when the S&P 500 Bullish Percent Index is this overbought, a pullback ensues which ultimately sees the S&P 500 Index selloff. The more arduous task is trying to determine just how deep the pullback on the S&P 500 Index might be.
It is critical to point out that while I do believe a pullback is likely, I will not rule out a rally into the holiday season. Much of the near term price action is going to be dictated by headlines coming out of Greece and the rest of Europe. In addition to Greece, Italy is also starting to see increased concern regarding an unsustainable fiscal condition. Depending on how the European Union handles the varying degrees of risk in the near term, we could see price action react violently in either direction.
With the market capable of moving in either direction, I wanted to point out some key price levels which should act as clues regarding potential future price action in the S&P 500. The two key support levels to monitor on the S&P 500 Index are the 1,240 and 1,220 price levels.
The daily chart of the S&P 500 Index below illustrates the price levels:
For bullish traders and investors the key price level to monitor is the recent highs on the S&P 500 around the 1,290 area. The weekly chart below demonstrates why this price level is critical and which overhead levels will offer additional resistance should the recent highs be taken out to the upside.
SP500 Weekly Chart Analysis:
While I am neutral in the intermediate to longer term presently, in the short run I have to lean slightly bearish simply because of the future headline risk and also because a major head and shoulders pattern has been carved out on the hourly chart of the S&P 500 Index. This type of chart pattern is synonymous with bearish price action.
The hourly chart of the S&P 500 Index is shown below:
Right now I remain slightly bearish, but should the head and shoulders pattern fail and/or we begin to see multiple positive reactions to news coming out of Europe a strong rally into the holiday season is likely. Unfortunately all we can do is monitor the key price levels and wait patiently for Mr. Market to tip his hand.
Until we see a breakout in either direction, we could see price action inhabit the 1,220 – 1,290 price range for several weeks before we get any more clarity of future direction. Until I see a breakout, I will remain relatively neutral with a slight short term bias to the downside based on price patterns in the shorter term time frames. This is a tough market to trade in, and I don’t want to get chopped around or do any heavy lifting. I’m going to focus my attention on high probability, low risk trade setups until directional biased trades make more sense.
In closing, I will leave you with the thoughtful muse of the late Texas Congresswoman Barbara Jordan,
“For all of its uncertainty, we cannot flee the future.”
Market Analysis and Thoughts By:
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Saturday, November 5, 2011
ONG: Recent Developments Support Gold's Outlook
In the IMF program to monitor Italy's progress of the reforms, the world lender will provide independent and frequent assessments of the economic and financial conditions of Italy. It will also review on the Italian government's implementation of the fiscal policy such that credibility will be built up in the government regarding policy implementation.
The G-20 communiqué stated that G-20 countries 'stand ready to ensure additional resources could be mobilised in a timely manner'. The various channels that countries can contribute to the IMF include bilateral contributions, SDRs, and voluntary contributions to an IMF special structure such as an administered account.
AS happened last week was Greece's announcement and cancellation of the referendum of the EU agreement, FOMC meeting as well as ECB meeting. We will discuss in the precious metal section on these issues and their impacts on gold price......Check out Oil N'Gold.Com's commodities price movement charts.
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Thursday, November 3, 2011
Phil Flynn: Greased Lightening!
Now austerity is one issue but having a sugar daddy to pay your bills is another. Greek PM Papandreou threw caution to the wind for what purpose no one is quite sure. If it was to save his political backside well perhaps he is one. European leaders on the other hand reframed the debate by telling the people of Greece that the referendum vote about the Greek bailout package may be a vote on whether they want to be in or out of the EU.
German Chancellor Angela Merkel and French President Nicolas Sarkozy has pulled the plug on the euro zone rescue aid driving Greek bonds to 100% and perhaps putting the country on the verge on bankruptcy. Sarkozy says that there will be, "no French taxpayer money, no German taxpayer money" until the question is answered. In the meantime global markets tank but are finding hope that somehow the G20 will restore sanity or a split in Papandreou inner circle might find hope that Greece will accept its partners handout.....Read Phil's entire article.
Sunday, October 30, 2011
The Unfortunate Truth About an Overbought Stock Market
Writing about financial markets is probably the most challenging endeavor I have ever immersed myself into. I am a trader first and a writer second, but I have really come to enjoy scribing missives about financial markets because it really forces me to concentrate on my analysis.
Writing for the general public has really enhanced my perception of the market and forced me to dig deeper and learn new forms of analysis. I find myself learning more and more every day and the beauty of trading is that even for the most experienced of traders there is always an opportunity to learn more. As members of my service know, I strive to be different than most of my peers as my focus is on education and being completely transparent and honest.
I want readers to know that I was wrong about my recent expectations regarding the European sovereign debt summit. I was expecting the Dollar to rally based on the recent price action and quite frankly I expected stocks to falter after running up nearly 15% into the announcement. My expectations could not have been more untimely and incorrect.
I share this with you because as I read and listen to market pundits discussing financial markets I find that too many writers and commentators flip flop their positions to always have the appearance of accuracy. In some cases, there have been television pundits that stated we were possibly going to revisit a depression in 2012 no more than 5 weeks ago. These so called experts have now changed their positions stating that we have started a new bull market in recent weeks. How can anyone take these people seriously?
Financial markets are dynamic and consistently fool the best minds and most experienced traders out there. Financial markets do not reward hubris. If a trader does not remain humble, Mr. Market will happily handle the humbling process for him. I was humbled this week. I was reminded yet again that financial markets do not take prisoners and they show no mercy. I am sharing this with readers because I want you to know that I refuse to flip flop my position without first declaring that I was wrong.
When I am wrong, I will own up to it purely out of sense of responsibility. My word and my name actually mean something to me, and while I strive to present accurate analysis I am fallible and I will make mistakes. The key however to the mistakes that I make is my ability to learn from them and the past week was a great learning opportunity.
After regrouping and stepping back after the price action on Thursday, a few key elements really stood out to me regarding recent price action. First of all, in the short term we are extremely overbought. The chart below illustrates the number of stocks in domestic equity markets trading above their 20 period moving averages over the past 5 years:
Overbought Stock Momentum
What is apparent from the chart above is that prices are almost as overbought right now as they have been anytime in the past 5 years. The number of domestic equities trading above their 50 period moving average over the past 5 years is also nearing the highest levels seen during the same period as the chart below illustrates:
Trading Stock Market Momentum
Equities trading above the 100, 150, and 200 period moving averages are somewhat subdued by comparison meaning in the short run a possible correction appears likely. The longer term time frames are no longer oversold, but they have considerable upside to work with before we could declare that they are overbought.
Additionally, the details of the European Union’s supposed solution have not yet been released raising questions going forward. Every move that is made will create unintended consequences. As an example, since Greece had 50% of their debt written down why would Ireland or Portugal refuse to pay their debts in full?
The Irish and Portuguese governments are going to come under pressure from their constituents to renegotiate the terms of their debt based on the agreement that was made with Greece recently. Spain politicians will likely be under pressure as well. The decisions made in these so called bailouts reverberate across the geopolitical spectrum. Moral hazard still exists, it just evolves over time.
The risk premium of sovereign debt has to be adjusted since credit default swaps did not trigger payment as the write downs were considered “voluntary.” Thus credit default swaps are not the answer to hedge sovereign debt as it would appear that governments have the ability to write down debt without triggering a default based on the status of the write down. The long term unintended consequences could be severe and are unknown at this point in time.
In addition to the unknown factors impacting the European “solution”, next week the Federal Reserve will have their regular FOMC meeting and statement. There has been a lot of chatter regarding the potential for QE III to come out of this meeting. While I could be wrong, initiating QE III right after the Operation Twist announcement would lead many to believe that Operation Twist was a failure.
With interest rates at or near all time lows and the recent rally we have seen in the stock market, it does not make sense that QE III would be initiated during this meeting. It is possible that if QE III is not announced the U.S. Dollar could rally and put pressure on risk assets such as the S&P 500 in the short to intermediate term. If this sequence of events played out, a correction would be likely. The following is a daily chart of the S&P 500 with possible correction targets in place:
SPY Overbought Stock Market
Right now it is a toss up in the financial blogosphere as to the expectations of where price action will head. Are we near a top? Is this the beginning of a new bull market? I scanned through several charts Friday evening and Saturday morning and came to this realization. If the market is going to breakout and this is not a top but the beginning of a major bullish wave higher, then the Nasdaq 100 Index (NDX) has to breakout over the 2011 highs.
The Nasdaq 100 Index is comprised of stocks such as AAPL, GOOG, INTC, and YHOO. In order for a new leg higher to transpire, hyper beta names like AAPL and GOOG have to breakout higher and show continuation with strong supporting volume. If the NDX does not breakout over the 2011 highs, a top could potentially be forming. The daily chart of the Nasdaq 100 Index is shown below:
QQQ Overbought Market
In conclusion, the short term looks like a possible correction could play out. However, it is critical to note that the longer term time frames are more neutral at this time. Furthermore, if price action cannot penetrate the 2011 highs for the Nasdaq 100 Index, I do not believe that a new bull market will have begun. If the Nasdaq 100 Index cannot breakout above the 2011 highs, we could be putting in a potential top going into the holiday season.
In closing, I will leave you with the thoughtful muse of famed writer and minister Hugh Prather, “Almost any difficulty will move in the face of honesty. When I am honest I never feel stupid. And when I am honest I am automatically humble.”
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Wednesday, October 26, 2011
Evidence Supports the Bears’ Case for the S&P 500
I am not one to discuss fundamentals or macro views, but this situation in Europe is beginning to morph into a media frenzy. Price action in the marketplace is changing rapidly in short periods of time based on the latest press releases coming from the Eurozone summit.
I cannot help but comment on the seemingly arbitrary actions coming from this high profile meeting. Nothing has happened that market participants were not already privy too. The European Union is going to strengthen their EFSF fund by levering it up roughly 4 : 1. I have yet to hear how exactly they plan on doing this, but this action was no surprise to anyone that has read an article about the sovereign debt crisis in the past month.
There was also discussion about backstopping European banks’ capital position. Since European banks are holding billions (Euros) of risky sovereign debt instruments, it would make sense that their capitalization is a primary concern of Eurozone leaders based on current fiscal conditions. I would argue that the banks should be well capitalized regardless of economic or fiscal conditions in order for a nation to have a strong, vibrant economy that has the potential to grow organically.
The final piece of this week’s political nonsense involves write-downs on Greek debt in the neighborhood of 50% – 60% in order to stabilize Greece’s debt to GDP ratio. Apparently Eurozone leaders want to structure the write down so as to avoid payouts by credit default swaps which act as insurance against default. How does a bond take a 50% – 60% valuation mark down without a creating an event that would trigger the payout of CDS swaps?
If a write down of that magnitude does not trigger the CDS swaps, then I would argue they are useless as a tool to hedge against the default risk carried by sovereign debt instruments. If the CDS swaps do not payout as projected by European politicians, the risk assumed by those purchasing government debt obligations around the world would be altered immediately.
The impact this might have on the future pricing of risk for government debt instruments could be extremely detrimental to their ability to raise funds in the private market. Additionally, the write downs would hurt European banks’ capital positions immediately. If the CDS swaps were to pay out, bank capital ratios would suffer as those who took on counter party risk would be forced to cover their obligations thereby straining capital positions even further potentially.
Price action today suggested that the equity markets approved of the package that European leaders were working on. However, the biggest push higher came when news was released that China was interested in purchasing high quality debt instruments as a means to help prop up poorly capitalized banks and sovereign nations in the Eurozone through an IMF facility.
The market did an immediate about face which saw the Dollar selloff while the S&P 500 rallied higher into the close reversing a great deal of Tuesday’s losses. Inquiring minds wish to know where we go from here? I would be lying if I said I knew for sure which direction Mr. Market favored, however that did not stop me from looking for possible clues.
It has been a while since I checked out the short-term momentum charts that are focused on the number of stocks in U.S. domestic equity markets that are trading above their 20 & 50 period moving averages. The charts below illustrate the current market momentum:
Equities Trading Above the 20 Period Moving Average
It is rather obvious that when we look at the number of stocks trading above their 20 period moving average that momentum is running quite high presently. This chart would indicate that in the short-term time frames equities are currently overbought.
Equities Trading Above the 50 Period Moving Average
A similar conclusion can be drawn when we look at the number of stocks trading above their 50 period moving averages. It is rather obvious at this point in time that in the short to intermediate term time frames, stocks are currently at overbought levels. This is not to say that stocks will not continue to work higher, but a pullback is becoming more and more likely.
Additional evidence that would support the possibility that a pullback is likely would be the recent bottom being carved out in the price action of the U.S. Dollar Index. The U.S. Dollar has been under selling pressure since the beginning of October, but has recently started to show signs that it could be stabilizing and setting up to rally higher.
The daily chart of the U.S. Dollar Index is shown below:
The U.S. Dollar Index is sitting right at major support and is oversold based on historical price action. If the Dollar begins to push higher in coming days and weeks it is going to push equity prices considerably lower. Other risk assets such as gold, silver, and oil would also be negatively impacted by higher Dollar prices.
Members of my service know that I focus on several sectors to help give me a better idea about the broader equity markets. I regularly look at the financial sector (XLF), the Dow Jones Transportation Index (IYT), emerging markets (EEM), and the Russell 2000 Index (IWM) for clues about future price action in the S&P 500.
During my regular evening scan I noticed that all 4 sector/index ETF’s are trading at or near major overhead resistance. With the exception of the Dow Jones Transportation Index (IYT), the other 3 underlying assets have yet to breakout over their August 31st highs. The significance of August 31st is that is the date when the S&P 500 Index put in a major reversal right at the 1,230 price level before turning lower. It took nearly two months to regain the 1,230 level and its significance continues to hold sway.
The daily chart of IWM is shown below illustrating its failure to breakout over the August 31st highs:
The chart above illustrates clearly that IWM has failed to breakout above the August 31st highs. I am going to be watching IWM, XLF, & EEM closely in coming days to see if they are able to breakout similarly to the S&P 500. If they start to rollover, it will not be long before the S&P 500 likely follows suit.
Currently the underlying signals are arguing for lower prices in the short to intermediate term. While it is entirely possible that the S&P 500 rallies higher from here, it is without question that current market conditions are overbought in the short to intermediate terms.
Key sectors and indices are not showing follow through to the upside to help solidify the S&P 500′s recent break above the key 1,230 price level. Additionally, the U.S. Dollar Index is currently trading right at key support in addition to being oversold. At this time I am not playing the S&P 500 in either direction, but I will be watching the underlying price action in the U.S. Dollar Index closely. I will be watching for additional clues in the days ahead.
Market and headline risk is high presently.
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Monday, October 10, 2011
Crude Oil Rallies on Euro Zone Pledge
Light sweet crude oil for November delivery gained nearly three percent Monday, settling at $85.41 a barrel, after the leaders of France and Germany reported progress in developing a comprehensive plan to stabilize the euro zone's economy. The Brent contract price rose at a similar rate, ending the day at $108.95 a barrel.
Presenting a united front during a Sunday press conference in Berlin, French President Nicolas Sarkozy and German Chancellor Angela Merkel pledged to unveil by month's end a complete plan to recapitalize ailing banks, bolster the euro zone's bailout fund and provide financial aid to Greece. Although the announcement was short on specifics, it prompted rallies in equity markets and helped the euro to strengthen against the U.S. dollar. Because crude oil is priced in dollars, a weaker greenback tends to be bullish for oil and other commodities.
The WTI traded within a range from $82.75 to $86.09 while the Brent fluctuated from $105.78 to $109.20.
November natural gas also finished the day higher, gaining 1.7 percent to settle at $3.54 per thousand cubic feet. Natural gas peaked at $3.56 and bottomed out just under $3.46.
Reformulated gasoline for November delivery rose by nearly two percent, settling at $2.70 a gallon after fluctuating from $2.65 to $2.72.
Posted courtesy of Rigzone.Com
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Thursday, October 6, 2011
Rigzone: Greece to Invite Crude Oil Exploration in January
Yiannis Maniatis said the cabinet had approved drilling in the gulf of Patras, the sea region west of Ioannina and Katakolo off the Peloponnese coast, the semi state Athens News Agency reported.
"It is the first time Greece is taking such a step, and it will be done in complete transparency," Maniatis said according to the agency.
A contractor is expected to be appointed within a year.
The gulf of Patras is thought to hold some 200 million barrels of crude oil, while another 80 million barrels are believed to lie near Ioannina and another three million near Katakolo.
The cash strapped Greek state, which is struggling to escape default, could draw up to EUR14 billion over the next 15 years, ANA said.
Posted courtesy of Rigzone.Com
Monday, October 3, 2011
Phil Flynn: Default Fears Flop
Oil prices almost took out the low tick for the year and despite closing at the lowest level for the year, the price is still holding for now with traders wondering whether Europe has the will and the guts to do what is necessary to save the European bank.
The US is very worried about our banks exposure to the situation and we're asking for more up to date information of the European bank balance sheets. The UK treasury is now saying with fear that there are risks to Britain are they very, very great. And those fears that are spreading hit the commodities like a brick wall.
The market was already wobbly on fears of Chinese slowing after China's PMI fell for the third month in a row which was the first time that has happened since 2009. Weak data out of Germany added to those fears. Now it is up to European leaders to try to restore confidence as they meet this week to discuss a permanent European rescue fund. It will have to be something big and spectacular if they are going to get this market to start believing that Europe can get a handle on this crisis.
In the mean time the market is already seeing the impact of Libyan oil. Not only has the Brent WTI spread come in, but we are seeing the added benefit of OPEC oil output hitting the highest level since November, 2008 and they are now producing an astounding 30.055 million barrels per day.
Keep up with Phil by tuning into the Fox Business Network. You can contact Phil directly at pflynn@pfgbest.com!
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Crude Oil Market Commentary For Monday October 3rd
If November extends last week's decline, August's low crossing at 76.61 is the next downside target. Closes above the 20 day moving average crossing at 85.13 are needed to confirm that a short term low has been posted.
First resistance is the 10 day moving average crossing at 81.89. Second resistance is the 20 day moving average crossing at 85.13. First support is last Monday's low crossing at 77.11. Second support is August's low crossing at 76.61. If crude cannot hold the 75.71 level we see a quick move to the psychological 70 dollar level. Crude oil pivot point for Monday morning is 80.32.
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Thursday, September 22, 2011
Chris Vermeulen: Recent Market Trends Remain in Place ..... Get Positioned!
What a trading session Wednesday was with the FOMC meeting and the FED coming out leaving the Fed Funds Rate unchanged at 0.25% and saying the economy is looking weak and will not likely to get better any time soon. This wave of negative news triggered a selling spree across the board in stocks, metals, and oil. On the flip side all that money being pulled out of those investments was being dumped into bonds and the dollar currency.
So the question everyone is asking is why almost every asset class sold off after the Federal Reserve’s statement today? The next question is how do we position ourselves to profit?
Understanding how the market moves is not a simple task, if it was that easy everyone would be pulling money out of the market on a daily or monthly basis. With that being said, moves can be anticipated if enough indicators are pointing to the same outcome.
Gold, SP500 and Oil 10 Minute Charts Showing Todays 2:15 FED News
Over the past few weeks we have been seeing stocks, oil, and gold turn bearish with similar price and volume action. Having three major investment vehicles hinting towards a move in the same direction as each other increases the odds for that move to occur. With the Fed coming out with negative news and no quantitative easing on tap, a rally in the dollar was triggered because inflation (printing of money) is not in the picture for some time still.
Over the past few weeks we have been seeing stocks, oil, and gold turn bearish with similar price and volume action. Having three major investment vehicles hinting towards a move in the same direction as each other increases the odds for that move to occur. With the Fed coming out with negative news and no quantitative easing on tap, a rally in the dollar was triggered because inflation (printing of money) is not in the picture for some time still.
Bonds and Dollar Index 10 Minute Charts Showing Today’s 2:15 FED News
Now if we look at the safe havens we can see the positive side to today’s news.
Bonds have been trading higher for some time and the key in trading is to trade with the trend. Though it’s easier said than done… In this morning’s pre-market analysis I talked about bond prices and how they are looking toppy but we need one more large surge higher before I will consider looking for a short trade setup. Today’s news sent bonds surging higher which I feel will happen for a few more days. Once the momentum stalls out of bonds, then I may be looking to short bonds using the TBT inverse bond fund.
The fact that there is no quantitative easing planned is bullish for the dollar. Stepping back a few weeks we have seen the dollar index rally very strongly. The move up was an impulse wave meaning a trend reversal from the multi-month down trend. Knowing that the dollar had shifted from a down trend to a strong uptrend prior to the Fed’s announcement today was our tip off to being long the dollar several days ago at a much lower price level.
Mid-Week Market Trend Conclusion:
In short, I feel the intermediate trend (5-20 days) remains firmly down for stocks and crude oil. Silver is more of a wild card because it is more of an industrial metal/speculative investment and it can move at times with gold or down with stocks.......
In short, I feel the intermediate trend (5-20 days) remains firmly down for stocks and crude oil. Silver is more of a wild card because it is more of an industrial metal/speculative investment and it can move at times with gold or down with stocks.......
Looking at gold. I am bullish on gold long term but at this time I remain neutral until I see how the next couple trading sessions play out.
Bonds I remain neutral because they have moved a long way without any substantial pause or pullback and I feel one really positive headline news item could send bonds sharply lower.
The dollar index shifted from a strong down trend to a very strong up trend last month and I feel we could see another substantial rally unfold. I have an 80.00 – 81.00 price target on the dollar index at this time.
Consider joining me at The Gold and Oil Guy for ETF trade ideas on the SP500, crude oil, gold, and silver with great accuracy. Check it out at The Gold and Oil Guy.com
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