The Crude Oil Trader

Wednesday, October 20, 2010

How to Buy Risky Energy Stocks

Dan Dicker, senior contributor at TheStreet, reveals how to buy energy stocks in your 20's.

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Crude Oil Surges on Decline in Dollar, Smaller Than Projected Supply Gain

Crude oil climbed as the dollar tumbled to a 15 year low against the yen and a government report showed a smaller than forecast gain in U.S. stockpiles. Oil increased as much as 2.6 percent as the U.S. currency fell on concern the Federal Reserve’s regional business survey will show a slowing economic recovery. A weaker dollar bolsters the appeal of commodities to investors. An Energy Department report showed that supplies rose 667,000 barrels last week, less than half what was projected in a Bloomberg News survey.

“It’s all the dollar,” said Richard Ilczyszyn, a market strategist at Lind-Waldock, a broker in Chicago. The dollar will probably remain weak until after the Federal Reserve meeting and the congressional elections in November, he said. Crude oil for November delivery rose $1.90, or 2.4 percent, to $81.39 a barrel at 12:07 p.m. on the New York Mercantile Exchange. Oil traded at $80.18 a barrel before the release of the inventory report at 10:30 a.m. in Washington.

The November contract expires today. More active December futures increased $1.82, or 2.3 percent, to $81.98. Brent crude oil for December settlement gained $1.91, or 2.4 percent, to $83.01 a barrel on the London based ICE Futures Europe exchange. Futures in New York tumbled 4.3 percent yesterday, the biggest drop since Feb. 4, after an unexpected rate increase by China’s central bank raised speculation that fuel demand will drop in the world’s biggest energy-consuming country......Read the entire article.

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Phil Flynn: Shanghai Surprise

Did China’s surprise interest rate increase rebalance what seemed to be an out of balance global economy? Will this interest rate increase take the heat off the Chinese who are under increasing US pressure to set their currency free? China crushed the runaway commodity complex when it raised its benchmark deposit and lending rates by 0.25 percentage point yesterday for the first time since December 2007. The move was to stem domestic inflation but it could be the first of a series of rate increases could also be seen as a move gesturing to the US for our restraint by not declaring them a currency manipulator.

In the real world a currency that is allowed to float would normally increase the value of its currency. The Chinese, by raising interest rates, it was almost like a de facto increase in the value of their currency. By doing that it raised worries that even a slight slowing in the Chinese economy could slow the growth of neighbors and the uncertainty surrounding their next move improved the value of our beaten down greenback. It also reduced the price of commodities that threatened to derail the global economic recovery. We all know that the US is pressuring China to increase the value on their yuan and that commodities have......Read the entire article.

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New Video: The #1 Reason Why Gold Collapsed

Following the gold market as we do, it was amazing that nobody, and I mean nobody, was bearish on this market. This always creates a problem as the markets tend to reverse when everyone is on one side and there’s no one else left to buy.

Another tip off was on Fox Business News and also on CNBC indicating that gold was going to hit $1400 almost immediately. Well after Tuesday, we know what was to happen to the price of gold. If gold were so strong, should it really have gone down almost $70 in 4 days?

This is where technical analysis and Japanese candlestick charts really shine in my opinion. What happened in gold was a classic candlestick formation that any trader, whether they trade gold or other markets, should be aware of.

In this short video, we illustrate how this formation occurred and how it was confirmed the next day, and I don’t mean on Tuesday. We also have a free candlestick book that I’m making available along with this video.

As always there is no need for registration and the video is with our compliments. Please feel free to leave us a note on this or other videos in the comments section of this blog.

Watch "The #1 Reason Why Gold Collapsed"

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Crude oil was higher due to short covering overnight as it consolidates some of Tuesday's decline but remains below the 20 day moving average crossing at 81.33. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term.

If December extends Tuesday's decline, trendline support drawn off the August-September lows crossing near 77.75 is the next upside target. Closes above the 10 day moving average crossing at 82.52 would confirm that a short term low has been posted.

First resistance is the 20 day moving average crossing at 81.33
Second resistance is the 10 day moving average crossing at 82.52

Crude oil pivot point for Wednesday morning is 81.30

First support is the overnight low crossing at 79.90
Second support is the uptrend line drawn off the August-September lows crossing near 77.75

Watch: The Ultimate Price Target For Gold!

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Tuesday, October 19, 2010

The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It

“Beware of geeks bearing formulas”....Warren Buffett

In March of 2006, the world’s richest men sipped champagne in an opulent New York hotel. They were preparing to compete in a poker tournament with million dollar stakes, but those numbers meant nothing to them. They were accustomed to risking billions.

At the card table that night was Peter Muller, an eccentric, whip smart whiz kid who’d studied theoretical mathematics at Princeton and now managed a fabulously successful hedge fund called PDT…when he wasn’t playing his keyboard for morning commuters on the New York subway. With him was Ken Griffin, who as an undergraduate trading convertible bonds out of his Harvard dorm room had outsmarted the Wall Street pros and made money in one of the worst bear markets of all time. Now he was the tough as nails head of Citadel Investment Group, one of the most powerful money machines on earth. There too were Cliff Asness, the sharp tongued, mercurial founder of the hedge fund AQR, a man as famous for his computer-smashing rages as for his brilliance, and Boaz Weinstein, chess life master and king of the credit default swap, who while juggling $30 billion worth of positions for Deutsche Bank found time for frequent visits to Las Vegas with the famed MIT card counting team.

On that night in 2006, these four men and their cohorts were the new kings of Wall Street. Muller, Griffin, Asness, and Weinstein were among the best and brightest of a new breed, the quants. Over the prior twenty years, this species of math whiz technocrats who make billions not with gut calls or fundamental analysis but with formulas and high-speed computers, had usurped the testosterone fueled, kill or be killed risk takers who’d long been the alpha males the world’s largest casino. The quants believed that a dizzying, indecipherable to mere mortals cocktail of differential calculus, quantum physics, and advanced geometry held the key to reaping riches from the financial markets. And they helped create a digitized money trading machine that could shift billions around the globe with the click of a mouse.

Few realized that night, though, that in creating this unprecedented machine, men like Muller, Griffin, Asness and Weinstein had sowed the seeds for history’s greatest financial disaster.

Drawing on unprecedented access to these four number crunching titans, The Quants tells the inside story of what they thought and felt in the days and weeks when they helplessly watched much of their net worth vaporize and wondered just how their mind bending formulas and genius level IQ’s had led them so wrong, so fast. Had their years of success been dumb luck, fool’s gold, a good run that could come to an end on any given day? What if The Truth they sought, the secret of the markets, wasn’t knowable? Worse, what if there wasn’t any Truth?

In The Quants, Scott Patterson tells the story not just of these men, but of Jim Simons, the reclusive founder of the most successful hedge fund in history; Aaron Brown, the quant who used his math skills to humiliate Wall Street’s old guard at their trademark game of Liar’s Poker, and years later found himself with a front row seat to the rapid emergence of mortgage backed securities; and gadflies and dissenters such as Paul Wilmott, Nassim Taleb, and Benoit Mandelbrot.

With the immediacy of today’s NASDAQ close and the timeless power of a Greek tragedy, The Quants is at once a masterpiece of explanatory journalism, a gripping tale of ambition and hubris…and an ominous warning about Wall Street’s future.

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Commodity Corner: China Increases Rate, Crude Falls

Light, sweet crude futures plummeted Tuesday after China raised interest rates, sparking concerns that demand for raw materials could decrease and sending the dollar higher against the euro. Oil for November delivery fell 4.32 percent, or $3.59, settling at $79.49 a barrel, the lowest in eight months. The November contract expires Wednesday.

In an effort to slowdown China's rapid growth, the People's Bank of China Tuesday increased its lending and deposit rates by 25 basis points each for the first time since 2007. China's oil imports reached record highs in September. Investors fear that China's decision could hinder global growth and decrease its demand for oil and other commodities. Amid increasing U.S. stockpiles, traders turn to global demand; China, the second largest consumer of oil after the U.S., has become an important channel for oil supplies.

The dollar rose 1.8 percent against an index of foreign currencies, indicating wariness that the Chinese move may reduce economic growth. As the greenback gained momentum, demand for oil decreased. Oil prices fluctuated between $79.39 and $83.21 a barrel Tuesday. Meanwhile, Henry Hub natural gas futures rose Tuesday as traders sensed a buying opportunity after oil prices plunged. Front month natural gas settled up at $3.51 per thousand cubic feet, after plunging to a 13 month low of $3.40. In earlier trading, natural gas posted a session high of $3.53.

November reformulated gasoline blendstock, or RBOB, settled at $2.05 a gallon after declining 4.98 percent the biggest one day percentage fall in more than a year. The intraday range for gasoline was $2.04 to $2.15 a gallon.

Courtesy of Rigzone.Com

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Brian Shactman: Where is Crude Oil and Gold Headed on Wednesday

CNBC's Brian Shactman discusses the day's activity in the commodities markets, and looks ahead to where oil and gold are likely headed tomorrow.

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Stock Market and Commodities Commentary For Tuesday Evening Oct. 19th

The U.S. stock indexes closed solidly lower today and were pressured by profit taking from recent gains and on news that Bank of America is in some trouble with its mortgage financing. The stock index bulls still have the overall near term technical advantage as price uptrends are still in place on the daily bar charts. Stock index bulls have been very pleased with price action so far this autumn a time which is normally not favorable to market bulls. My bias is that prices will trade mostly sideways, but with a slight upside bias, into the end of the year.

Crude oil closed down $3.44 at $79.64 a barrel today. Prices closed near the session low today and hit a fresh three week low. Chart damage was inflicted today as prices saw a bearish downside "breakout" from a sideways trading range at higher price levels. Sharp gains in the U.S. dollar index and lower stock index future prices today pressured crude.

Natural gas closed up 8.8 cents at $3.519 today. Prices closed near the session high today and saw short covering in a bear market. Prices hit a fresh contract low early on today. The bears still have the solid overall near term technical advantage.

Gold futures closed down $35.20 at $1,337.00 today. Prices today hit a fresh two week low, closed near the session low and were pressured by sharp gains in the U.S. dollar index. Profit taking and long liquidation were featured in gold today, and no serious chart damage occurred. However, good follow through selling pressure on Wednesday would likely produce some near term technical damage to begin to suggest that a near term market top is in place. Bulls are hoping bargain hunters once again step in to buy weakness in the gold market.

The U.S. dollar index closed up 138 points at 78.52 today. Prices closed near the session high today and hit a fresh two week high. News that China raised a key interest rate today boosted the greenback. Dollar index bears still have the overall near term technical advantage, but the bulls did gain fresh upside momentum today to suggest that a market low is in place.

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