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Wednesday, September 3, 2008

Down Oil Won't Save The Bulltards...

Oil peaked at $147 (grey, area) and equities (SPX, candle) hit bottom. It is clear, that the fuel for this rally in equities is the decline of oil prices specifically and commodities prices more generally. Unfortunately, the Bulltards have misunderstood (again). A declining commodity complex is not 'good for the consumer' (although that is true in the longer term). In this case, right now, commodity prices are signaling a serious and sudden halt in GLOBAL ECONOMIC GROWTH. Ultimately this is BEARISH for those very same equities currently rallying...

On the S&P 500, this last high was a lower high. Prices failed to exceed 1313, stalling around 1309. Yesterday, despite a massive drop in oil, equities couldn't hold on to their gains, leaving a large SELLING TAIL on the candle.

Consequently, prices are going to plunge to the bottom of the trading range around 1262. From there, prices are likely to break down.

There is no leadership in the market. Financials (XLF) have popped on short covered and are now overbought and at resistance. Energy (XLE) was turned back at resistance is about to breakout OUT and DOWN. Consumer Discretionary (XLY) bounced on falling oil and is now at resistance. The consumer is dead. Cheaper gasoline won’t help you make your mortgage and credit card payments. Basic Materials (XLB) made a lower high. The fast money is coming out of all commodities. Industrial (XLI) are also making lower highs as it becomes apparent the rest of the world is slowing as well. All manufacturing will suffer.

Down oil won’t save the Bulltards…

3 comments:

Richard said...

You say "a declining commodity complex"...

We may have reached Peak Dollar today; I have been thinking it was here many times only to be disappointed.

We may have seen Peak Dollar today as the US Dollar failed to move higher as the USD/JPY fell, even though the EUR/JPY fell lower decimating natural resource stocks.

The EUR/USD has finally hit the long-term uptrend support line that has been in place for at least two and a half years. Poking slightly below the line during the first half of European session on Wednesday, price has since rebounded somewhat to settle slightly above the trendline again at 145.01 in chart courtesy of OneBrownGuy. Greg Michalowski of FXDD reports that is 1.4357 is 38.2% retracement.

Yes, perhaps Peak Dollar is finally in, as the Yahoo Finance 5 day onoing chart of the usd/jpy relative to the eur/jpy shows that the fall of the USD/JPY has put a cap on the US Dollar, DX, moving higher.

The very important economic report comes out on Friday, I hope it will be a turning point lower for the US Dollar

The Dollar Bull ETF, UUP, shows the same topping out as the US Dollar.

The gravestone doji in the Dollar, DX, http://tinyurl.com/556br8 in article Charts in the Babson Style Midweek 3 September 2008 by Jesse http://tinyurl.com/6f64s3 is remarkeable And note that this is full retracement to the October Citigroup CDO Bust. This gives extra credence to possibly finally being Peak Dollar.

I recommend the purchase of gold at BullionVault.com and GoldMoney.com as protection against systemic risk events.

In as much as gold relative to US Stocks GLD:VTI is above 1.15, I believe there is an ongoing investment demand for gold

US Treasuries are no longer a lifeboat of safety as they seem to be topping out -- look for gold to soon arise as the defacto world currency and measure and means of garnering and preserving wealth as people flee fiat assets and world conflicts escalate.

I am not a licensed professional; I am a low income blogger; I recommend that one consult an lilcensed investment professional before making any investment decision.

steve said...

Ben,

I'm in full agreement and am positioned accordingly. Your track record gives me added confidence (you're on my hero list).

The one place where I would appreciate some reassurance is the financials. Based on lots of recent attempts I've been reading about to seriously handicap the total losses involved (and subsequent survival/recovery prospects), I'm nervous about whether recent sector strength might actually be a result of more informed bottom-fishing than the spring rally.

The possible survival of a couple of the monolines and mortgage insurers previously though certain to be dead has made me wonder of the next down cycle will actually be all that large. Also, the list of likely-to-be-dead (as in FDIC Friday) banks circulating , while probably not complete, includes only a few medium fish and no whales (yes, I realize IndyMAC was not on the list). It's just making me wonder whether I would have been better off buying puts on specific names rather than goiung long SKF (I'm under water only a few dollars but with a fairly large position). I'm also wondering if SKF will lag if insurance companies become a hideout for money seeking shelter from other failing trades.

How confident are you that what we are currently seeing is really short covering as you say (and why? unwinding the short finantials/long commodities trade? why not leave the short financial side in place at these levels?) and not actual long positions building by value players?

Assuming you are right though, what's your price target for SKF this next cycle?

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