Phil Flynn: A Sad Day For Freedom And The Free Markets

The CFTC took a dangerous step towards damaging the credibility of our nation's energy markets and may have harmed the economy and the average American. The commission's view that speculators are guilty until proven innocent is just another step in the Dodd-Frank regulatory overreach that is freezing our economy and stagnating job growth. This witch hunt against this elusive ghost called "excessive speculation" culminated in a 3 to 2 party line vote that will help drive trading in oil into a less transparent marketplace and will eventually lead to a less liquid and more volatile market.

You think trading is volatile now, well folks you haven't seen anything yet. In fact forget about volatility. I predict that the implantation of these new regulations will create shortages the next time the market is challenged by the type of economic crisis that we saw in 2008.
The spike up in oil to the all time high in 2008 was the catalyst for this damaging regulation and it was based on the false assumption that "excessive speculation" was driving the price of oil to record highs. Of course we now all know that the prices of oil and all other commodities were a relief valve as the market sought safe haven from the greatest economic crisis of modern times. If money was restricted from entering the futures markets at that time, the global economic crisis would have had much more severe consequences. We would have seen hording of supply and the freezing of commodity movement as the big players would have refused to sell to each other because of the lack of real true price discovery. In other words, the global commodity markets would have frozen more than the banks.

Read the entire article "A Sad Day For Freedom And The Free Markets"


Get Today’s Stock Market Club Trading Triangles

The SP 500, Apple Earnings and Feeding The A.D.D. Monster

The last hour of trading was intense on Tuesday and then all eyes were focused on Apple’s earnings which were released around 4:30 ET. The initial reaction to the earnings release is negative although as I write this AAPL is bouncing sharply higher in after market trading on strong volume.

To put the final hour’s volatility into perspective, at 3 P.M. Eastern Time the S&P 500 Index was trading at 1,217. A mere 12 minutes later the S&P 500 Index pushed 15 handles higher to trade up to 1,232. Then sellers stepped in and pushed the S&P 500 lower by nearly 12 handles in the following 20 minutes.

The price action was like a roller coaster and I was sitting watching the flickering red and green bars in real time with the anticipation of a child. It was the most excitement I have had in quite some time, but please don’t hold that against me. I don’t know whether reading my previous line makes me laugh or cry, but the truth must be heard I suppose.

Enough self deprecation, I want to get down to business with some charts and what is likely to happen in coming sessions. The sell the news event in AAPL has the potential to really change the price action tomorrow. If prices hold at lower levels, the indices could roll over sharply tomorrow. The S&P 500 E-Mini futures contracts are showing signs of significant weakness after the earnings miss by Apple in aftermarket trading.

Some other potentially game changing news items came out of Europe where Reuters reported earlier today that the Eurozone will likely pass legislation that will ban naked CDS ownership on sovereign debt instruments. Additionally, Treasury Secretary Timothy Geithner stated this morning that a forthcoming FHA announcement involving a new housing refinance plan was going to be made public in coming days. The statement regarding the new FHA plan helped the banks and homebuilders show relative strength during intraday trading and likely were behind much of the intraday rally.

I would point out that the S&P 500 Index (SPX) broke out slightly above the August 31 highs before rolling over. The reason that is critical is because the S&P 500 E-Mini futures did not achieve a breakout, but tested to the penny the August 31^st highs. I am going to be totally focused on tomorrow’s close as I believe it will leave behind clues about the future price action in the S&P 500 leading up to option expiration where volatility is generally exacerbated. The daily chart of the S&P 500 Index is shown below:



If Wednesday’s close is below the recent highs near 1,230 we could see this correction intensify. The price action on Tuesday helped stop out the bears and if we see a significant reversal tomorrow the intraday rally today will have been nothing more than a bull trap. The price action Tuesday & Wednesday could lead to the perfect storm for market participants where bears were stopped out and bulls are trapped on the potential reversal.

Another interesting pattern worth discussing is the head and shoulders pattern seen on the SPY hourly chart. The strong rally to the upside may have indeed negated the pattern, but if prices don’t follow through to the upside in the near term and the neckline of this pattern is broken to the downside we could see serious downside follow through. The hourly chart of the Spider SPY Trading ETF is shown below:

Ultimately there are two probably scenarios which have different implications going forward. The short-term bullish scenario would likely see prices breakout over recent highs and push higher toward the key resistance area around the 1,260 price level. The 1,260 price level corresponds with the neckline that was broken back in August that led to heavy selling pressure.

Bullish Scenario
If we do breakout to the upside, the longer term ramification may wind up being quite bearish as most indicators would be screaming that price action was massively overbought at those levels and a sharp selloff could transpire into year end. The daily chart of the S&P 500 Index illustrates the bullish scenario below:




Bearish Scenario
The short term bearish scenario would likely involve a break below Monday’s lows that would work down to around the 1,140 level or possibly even lower. If a breakdown took place, a higher low could possibly be carved out on the daily chart which could lead to a multi month rally that would likely see the neckline mentioned above tested around the holiday season. The daily chart of the S&P 500 below shows the bearish scenario:



There are a variety of reasons why either scenario could unfold. Most of the analysis that I look at argues that the bearish scenario is more probable. However, based on what happened in the final hour of trading on Tuesday and the surprise earnings miss from Apple anything could happen.

I will likely wait for a confirmed breakout either to the upside above recent highs or to the downside below the neckline of the head and shoulders pattern illustrated above before accepting any risk. I am of the opinion that risk is exceptionally high in the near term. I am not going to try to be a hero, instead I am just going to wait patiently for a high probability setup to unfold.

Until a convincing breakout in either direction is confirmed, I am going to sit on the sidelines. I am quite content just watching the short-term price action without taking on any new risk. For those that want to be heroes or feel they have to trade, I would trade small and use relatively tight stops to define risk. Risk is excessively high!

Subscribers of OTS have pocketed more than 150% return in the past two months. If you’d like to stay ahead of the market using My Low Risk Option Strategies and Trades check out OTS at Options Trading Signals.Com and take advantage of our free occasional trade ideas or a 66% coupon to sign up for daily market analysis, videos and Option Trades each week.

JW Jones

Get J.W.s Latest Options Trading Signals Articles

Crude Oil Continues to Mirror Action in the Equity Markets

Is the market a buy or short sale? That’s the question that is going through many trader’s minds this week. Should I buy this market, or should I go short this market? At the moment, this market is being driven by perception and sentiment. Eventually that will change and the market will become driven by the direction of the major trend.

Our major trend indicators remain negative on the equity markets. We are also looking at the S&P 500 at the top of the Donchian trading channel. I believe that was the reason for yesterday’s sharp move down.

In order for this market to really get going on the upside it needs to clear the highs of 1230 on the S&P 500 in a convincing fashion.

There is so much confusion in the marketplace right now.....Interest rates, mortgage foreclosures, contagion in Europe and the occupation of Wall Street. The markets always have numerous conflicting thoughts, but eventually the market figures it out and goes the way it wants to go. Our job here at MarketClub is to recognize those changes and alert you to what we are witnessing.

Let's look at todays action in crude oil......

The crude oil market continues to mirror the action in the equity markets. The highs seen yesterday in the December contract at $88.40 a barrel remains to be taken out if this market is going to move higher. With mixed Trade Triangles and a Chart Analysis Score of +70, there is no clear cut direction for this market at the moment. Crude oil is very overbought on the Wiliams % R indicator.

We are looking for a pullback to the $80 a barrel level, which would represent a 61.8% Fibonacci retracement. Our long term Trade Triangles continue to be negative and we expect they will once again dictate the tone of this market. Long term traders should continue to be short the crude oil market.

December crude oil closed up $1.88 a barrel at $88.50 today. Prices closed nearer the session high today, hit a fresh four week high and scored a bullish “outside day” up on the daily bar chart. Crude bulls still the overall near term technical advantage and gained fresh upside momentum today.

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

Now, let’s go to today's video and look at the 6 major markets we track every day.

Adam Hewison


Check out Today’s MarketClub Trading Triangles

Insider Monkey: Wilbur Ross Buys More EXCO Resources, Ticker XCO

Wilbur Ross’s Invesco Private Capital (WL Ross & Co) filed Form 4 on October 17th for its insider purchase in Exco Resources Inc. (XCO). Invesco Private Capital is XCO’s insider and largest stakeholder, and the firm reported 26.78 million shares, or 12.5% activist stake in XCO in its last 13D on August 31th. According to the Form 4 disclosure, Wilbur Ross bought 7,900 shares at $9.99 on October 13th. Although this is just a small purchase he made recently, Wilbur Ross has filed totally 4 insider purchases in XCO since September. XCO is now trading at $11.62, still near its 2 year low.

In the second quarter, twenty nine hedge funds in our tracking list had XCO in their portfolios. Howard Marks’ Oaktree Capital Management had 34.78 million shares, giving a 16.23% stake. Wilbur Ross’s Invesco Private Capital (WL Ross & Co) had 2.10 million shares, or 9.8% stake at that time, after a decrease of 95%. Anand Parekh’s Alyeska Investment Group had 9 million shares, corresponding to a 4.2% stake.

Wilbur Ross is known for restructuring failed companies. He specializes in leveraged buyouts and distressed businesses. He was listed as one of the world’s billionaires with a net personal wealth of $1.9 billion in 2011. His Invesco Private Capital (WL Ross & Co) has a portfolio value of $1.24 billion, with most of the capital invested in Financial, Basic Materials, and other sectors.

EXCO Resources, Inc. is an independent oil and natural gas company. According to Yahoo! Finance, the company “engages in the exploration, exploitation, development, and production of onshore North American oil and natural gas properties with a focus on shale resource plays”. The company had proved reserves of approximately 1.5 trillion cubic feet equivalent, and operated 7,276 wells as of December 31, 2010. The company was founded in 1955 and is headquartered in Dallas, Texas.


Posted courtesy of Insider Monkey. Visit our favorite website for tracking the actions of hedge fund managers around the world at Insider Monkey.Com

EIA: Summer 2011 Electricity Prices Were Mostly Down Compared to Summer 2010

Source: U.S. Energy Information Administration, based on data from SNL Energy.

---

Except for Texas, California, and the Southwest, average on-peak, wholesale electricity prices at trading points across much of the country declined during the summer (May 15 to September 15) of 2011 when compared to the summer of 2010. Wholesale power prices generally mirrored changes in wholesale natural gas prices. One stark exception was in the system operated by the Electric Reliability Council of Texas (ERCOT) where extreme, sustained, widespread heat as well as insufficient capacity resulted in wholesale prices over 100% higher compared to the summer of 2010.

Electric system demand typically increases in the summer months as a result of residential air-conditioning demand. This increased demand usually drives up wholesale electricity prices compared to the spring and fall.

Some key drivers of price changes this summer included:

Weather: Mild temperatures throughout the Northeast and Central United States drove significant declines in average power prices in New England, New York, and the Midwest. The sustained heat wave in Texas resulted in record-breaking load levels. The map below shows the percentage change in cooling degree-days between the summer of 2010 and the summer of 2011, by state. Texas had a 13% increase in cooling degree-days, while Oklahoma and New Mexico had 15% and 13% increases, respectively. August 2011 was the warmest August recorded by the National Oceanic and Atmospheric Administration for New Mexico, Oklahoma, Colorado, Arizona and Louisiana.

Source: U.S. Energy Information Administration, based on data from the National Oceanic and Atmospheric Administration.

---

Natural Gas Prices: Because natural gas is the marginal fuel for electricity generation in many regions of the country, natural gas prices can have a significant impact on the wholesale price of electricity. Overall, wholesale natural gas prices this summer were little changed compared to prices in the summer of 2010; wholesale natural gas prices at the Henry Hub in Louisiana fell about 1% to $4.30 per million British thermal units. There were some regional changes, however. In the Northeast, wholesale natural gas prices were down between 2% and 15%, reflecting both lower regional demands and growing natural gas production from the Marcellus shale play. Natural gas prices were about 4-7% higher than last summer in the Southwest and California markets and supported modestly higher wholesale power prices in those markets.

Hydroelectric Output: Power prices in the Pacific Northwest were driven down by the availability of inexpensive hydroelectric generation and mild temperatures in the early part of the summer. The average on-peak wholesale electricity price at Mid-Columbia zone (along the Washington/Oregon border) decreased 6% as hydroelectric output increased above five-year highs.

Gold, Crude Oil and Natural Gas Trading Numbers For Tuesday Morning

Crude oil opened lower Tuesday morning as it consolidates below the May-July downtrend line crossing near 87.11. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term.

Multiple closes above the aforementioned downtrend line would confirm a trend change while opening the door for a possible test of the 38% retracement level of the May-October decline crossing at 90.65. Closes below the 20 day moving average crossing at 82.61 are needed to confirm that a short term top has been posted.

First resistance is the aforementioned downtrend line crossing near 88.40.
Second resistance is the 38% retracement level of the May-October decline crossing at 90.65.

First support is the 20 day moving average crossing at 82.61.
Second support is this month's low crossing at 74.95.

Crude oil pivot point for Tuesday mornings trading is 86.81.

Free Weekly Low Risk Stock Picks

December gold opened lower as it consolidates some of the rally off September's low. Stochastics and the RSI are overbought but remain neutral to bullish hinting that a short term low might be in or is near. Closes above last

Wednesday's high crossing at 1693.90 are needed to confirm that a short term low has been posted. If December renews the decline off September's, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target.

First resistance is Monday's high crossing at 1696.80. Second resistance is the 50% retracement level of September's decline crossing at 1729.40.
First support is September's low crossing at 1535.00.
Second support is the 38% retracement level of the 2008-2011 rally crossing at 1476.20.

Golds pivot point for Tuesdays trading is 1679.60.

Get My Free Weekly Index & Commodity Forecast

Natural gas was lower overnight as it consolidates around the 20 day moving average crossing at 3.671. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term.

Multiple closes above the 20 day moving average crossing at 3.671 are needed to confirm that a short term low has been posted. If November renews this year's decline, monthly support crossing at 3.225 is the next downside target.

First resistance is the 25% retracement level of the June-October decline crossing at 3.859.
Second resistance is the reaction high crossing at 3.926.

First support is last Thursday's low crossing at 3.446.
Second support is monthly support crossing at 3.225.

Natural gas pivot point for Tuesday morning is 3.702.


Just click here for your FREE trend analysis of UNG, the Natural Gas ETF

Adam Hewison: Was Last Week’s Market Rally a Head Fake?

Last week, the equity markets rallied along with many other markets. We felt at the time this was a counter trend rally and with Monday’s action we have probably put in an interim top. We also expressed the feeling that professional traders would be selling against the recent highs around 1220 to 1230 basis the S&P 500 index.

The rally was pretty unusual in the fact that it was on very light volume and it took off to the upside very quickly without any kind of market consolidation.

This is going to be a big week! Are we going to continue going up? Or are we going to see the longer term downtrend kick in? A downside reversal could be quite dramatic. This also holds true for the crude oil market, which has been mirroring the US equity markets.

The problems in Europe remain and we see little reason to celebrate any victories on that front. Greece will eventually default, and it remains to be seen if Ireland, Spain and Italy will dodge a bullet.

Every week it seems we go from “the world is coming to an end” to euphoria. Eventually the markets will sort out this conundrum. Our view longer term remains with our Trade Triangle technology which remains negative on the equity markets indicating long term weakness.

Now, let’s go to the 6 major markets we track every day. Click here for unlimited access to this and other trading videos FREE!


Take advantage of our free weekly low risk stock picks

BP Shares Surge After Anadarko Settlement

BP shares opened sharply higher Monday after the U.K. oil company reached a $4 billion out of court settlement with Anadarko related to a deadly explosion and oil spill at a U.S. offshore drilling platform.

Anadarko followed Japan's Mitsui & Co. and Weatherford International in agreeing to pay BP to settle claims over the Deepwater Horizon platform disaster, which killed 11 and led to the largest accidental marine oil spill in U.S. history. Drilling contractor Transocean's Deepwater Horizon rig had been leased by BP, while Anadarko and Mitsui also held stakes in the Macondo prospect.

Anadarko also agreed to drop its gross negligence claims against BP and transfer to BP the 25% interest it still holds in the Macondo well, which caused the devastating oil spill.

Like the Mitsui deal, BP's pact with Anadarko shelters the Houston based company from claims brought by private businesses and property owners seeking compensatory damages. But it doesn't protect Anadarko from punitive damages or penalties that might come from the U.S. government. Civil liability trials on the matter are scheduled to begin in February.....Read the entire Rigzone article.



The Most Complete, Current Trading News!

Phil Flynn: Seven Days

It's now 7 days to fiscal sanity, or is it the alternative? It is do or die with an October 23rd deadline. A deal to save Europe which has to be done in seven days and France and Germany have to do the heavy lifting.

The G20 told the EU that they have one week to come up with a "comprehensive plan" that includes the details on how much of a haircut Greek bondholders will have to take and a plan to recapitalize all of the debt ridden European banks. It seems that all are agreed and Europe will be saved yet again.

Yet not so fast. Perhaps that 7 day deadline is not as hard and fast as the markets at first believed. Dow Jones said that German Finance Minister Schauble said the upcoming EU summit will not present an ultimate solution for the crisis. What?

The bottom line is that oil is living and dying with the twists and turns in this European nightmare. If Europe fails to come up with a viable plan then the word sinks back into crisis mode and the demand for oil will plummet.

Iranian revelations are also disturbing. Fears that perhaps this could escalate to some type of military conflict could keep some upward pressure on the Brent WTI spread.



You can get a free trial of Phils daily trade levels. Just email him at pflynn@pfgbest.com.

Gold, Crude Oil and Natural Gas Numbers For Monday Morning Trading

Crude oil was higher overnight and is challenging the May-July downtrend line crossing near 88.40. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term.

Multiple closes above the aforementioned downtrend line would confirm a trend change while opening the door for a possible test of the 38% retracement level of the May-October decline crossing at 90.65. Closes below the 20 day moving average crossing at 82.90 are needed to confirm that a short term top has been posted.

First resistance is the aforementioned downtrend line crossing near 88.40
Second resistance is the 38% retracement level of the May-October decline crossing at 90.65

First support is the 20 day moving average crossing at 82.90
Second support is this month's low crossing at 74.95

Crude oil pivot point for Monday morning is 86.00

Make sure to check out our Free Weekly Index & Commodity Forecast

Natural gas was higher overnight as it extends last Friday's rally above the 20 day moving average crossing at 3.685. Stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term.

Multiple closes above the 20 day moving average crossing at 3.685 are needed to confirm that a short term low has been posted. If November renews this year's decline, monthly support crossing at 3.225 is the next downside target.

First resistance is the 25% retracement level of the June-October decline crossing at 3.859 Second resistance is the reaction high crossing at 3.926

First support is last Thursday's low crossing at 3.446
Second support is monthly support crossing at 3.225
Natural gas pivot point for Monday morning is 3.653

You have heard about it....The Most Profitable ETF Trading Newsletter

Gold was slightly higher overnight as it extends the rally off September's low. Stochastics and the RSI remain bullish hinting that a short term low might be in or is near. Closes above last Wednesday's high crossing at 1693.90 are needed to confirm that a short term low has been posted.

If December renews the decline off September's, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target.

First resistance is the overnight high crossing at 1696.80
Second resistance is the 50% retracement level of September's decline crossing at 1729.40

First support is September's low crossing at 1535.00
Second support is the 38% retracement level of the 2008-2011 rally crossing at 1476.20
Gold pivot point for Monday morning is 1677.00

Get our latest Options Trading Signals Articles