Sunday, January 30, 2011

Watching Egypt

 The price of Crude Oil  skyrocketed Friday as all eyes were turned to the drama in Egypt.
My experience has been that the THREAT of supply disruption is responsible for price spikes. In the actual event oil always finds it's way to the market. The overthrow of the Shah of Iran may have spiked oil to $40 but it sold off from 1980 to 1986, from $40 to $9.75, despite the 1980 to 1988 Iran-Iraq War.
The 1st Gulf War saw it's highest price point, $40, in Oct of 1990, (note it did not exceed the 1980 high) well before military action by the  United States, and it came off those highs rather quickly, eventually falling to $12.50 in '93 .  So during these periods of major armed conflict in the richest oil producing areas, prices actually came DOWN.
The Iraq War began in Mar of '03, WTI peaked at $41 in the last week of Feb. prior to the start of hostilities and promptly fell to $26, where it basically stayed for the next 6 mo. (The subsequent price rally to historic highs of 147 in 2008 is arguably a result of monetary stimulus.)
Again the THREAT of supply disruption causes the spike.

The first and last order of business with any government new or otherwise, is continuation of the cash flow.

Most likely Fridays spike was speculative momo buying and tail risk covering as reported by Bloomberg
and  Mish in Oil ETF Call Trades Soar to Record, Crude Futures Back Near Highs; What Will Next Week Bring?


Oil price spikes as a result of geopolitical upheaval are very quickly worked out. In fact there is a good argument to be made that the short term effect of rapid increases at the pump destroys consumer demand longer term. Hence the prolonged declines in price that follow. See
Oil Shocks and Aggregate Macroeconomic Behavior:
The Role of Monetary Policy*
BTW The above paper references Ben Bernanke's 1997 paper on same topic...guess what his solution is?

The  unrest in the Middle East this year has been triggered by the rapid increase in food prices. . All of the countries affected have limited freedom of expression and authoritarian leadership protecting the status quo. Their large populations of unemployed or poorly compensated are particularly hard hit by inflation and rising food prices. Does this profile bring any other countries to mind?
Food accounts for 40% of the average Chinese household budget.
From Econoforcast; China vs. Inflation: A Love-30 Match So Far
"The prices of food was up 7.2% year-on-year in 2010, just based on the official number. Meanwhile, various news reports indicate that the food price inflation in China is actually running in double digits, and the government had to release strategic grain reserves just to keep a lid on prices."

One thing we can be sure of, China is watching Egypt very very closely.  Renewed efforts to contain inflation and slow down China's economy are certain.

Friday, January 28, 2011

Natural

The looked for X wave down, see Natural Gas Wave Count
extended past the 50% retrace of the "y", and currently stands at .68. It MAY be complete.
 Active Mo. Daily

click to enlarge
However as stated previously, the structure up could well turn out to be a double zig zag, which allows for a much deeper move down. I DO think another zig zag up is likely, for a "z" wave. This is because there is a clear historic low at 2.40 and Natty hasn't spent enough time or price working up from there. The move up is structured in abc, x's, unfortunately, making it a tough flat trade.
Active Mo. Hourly
 
The 'x' wave down now has an abc structure. There is no RSI divergence as yet.

5 min.

click to enlarge
So is the X wave done? NG needs to hold here and take out the 4.35 level.



WTI Alternate Counts

WTI has trended down very consistently over the last 2 weeks.
 March Hourly
click to enlarge
This is the update on the Elliott count from the chart in the previous post, Crude Oil Breaks Trend.
Note the most oversold point on the RSI is  at the wave labeled -3-.  That is usually a characteristic of 3rd waves. The extension occurs in the -5-, as there wasn't one in the -3-. And -5- = -1- through -3-.
As it happens this is a very bearish count implying a 3 down is imminent, and the moment of recognition
occurring on new lows under 85.11. Downside targets for a 3  would be Fibonacci multiples of the 1, so lets say 1.6 for a target of 76.48. Frankly I think we would have to see a move down in the SP and Euro for that right now. Plus the 2 wave in the above count is shallow ( might be expected in a long overdue supercycle C wave down though).

The alternate count ;

click to enlarge
Here the extension occurs in the  -3- .
Basically this allows for a deeper retrace of the move down, into the 4th of lesser degree area, at a minimum, around 88.00, also the .382 retrace area.
A correction up would be the 2 , and they can be deep, so caution would be in order. The 50% retrace, also the break down point, at 89.06, should hold it however.

So new lows under 85.11 would of course negate the alternate count.


Thursday, January 27, 2011

Heating Oil on Fire

HO's on fire and dragging the rest of the complex up with it. Imagine how WTI and Rbob would be trading if the Euro/ SP and HO were coming off.
The big picture;
Active Mo. Weekly
click to enlarge
A few very important things jump out on this chart; the 50% retrace of the A is just overhead at 2.71 and the . the c=.618 of the a  at 2.70 . These charts are slightly different from a strict spot mo. chart so at the 2.70 level HO will have retraced 52% of the actual spot month  move down, still within a rough 50% zone.

This move up looks like B wave and acts like a B wave ; it's choppy, hard to count, and taking forever.
Expect the C wave down to begin any moment. It should look a lot like the A after all the permutations of the B.

Wednesday, January 26, 2011

Natural Gas X Wave

Natural has retraced 50% (roughly) of the preceding abc up, the Y, as expected. Please see Natural Gas Wave Count
 Active Mo Daily
 click to enlarge
As stated in the last NG post,  " I am thinking NG ends up with 3 series of abc's for the "z", but not without an intervening "x" down...
The last "x" wave  shown on the daily active mo. chart retraced 50% of the "w". A similar retrace of the "y" targets 4.35. (the ultimate high print on Sun evening was 10 cents higher making the 50% 4.45)
Of course this may unfold as merely a double zig zag up, with the next move down an X wave of greater degree allowing anything down to 3.28 really."
It has bounced but so far the move down has unfolded as 5 waves and it's too early to tell if the bounce is anything but a corrective 2 or b.
If we have an "x" wave at the 4.39 point, and eventually get another abc up for "z", it will equal .618 of "y" at 4.96.
Meantime watching the upswing to see if  Natty is able to clear the Fib retraces of the move down from 4.88, the 50% at 4.64 etc. the preceding Y wave took off after it cleared the .618 retrace.
Active Mo. Hourly
 click to enlarge



Tuesday, January 25, 2011

Crude Oil Breaks Trend

Or does it? Please see below.
Active Mo. Daily
 click to enlarge
Certainly looks like the usual trend measures have been taken out in the above chart.
Not quite yet in the March contract.

click to enlarge
As expected WTI has broken down , see Crude Oil Outlook  ,  WTI - Bubble in the making? and Crude Oil Update
Taking out the 87.25 suspport level rather definitively this morning. It will be interesting to see if it can close below it. 
Typically this market reverses after taking out significant overlaps, but it's diverged from typical behavior lately, like correlating with the euro.
Note that none of the longs since Dec ! are positive and the spec open interest has been growing and quite high.
Shorter term; could be we have a 1 down with 5 subwaves complete. Still early though.

Friday, January 21, 2011

Natural Gas Wave Count

Active Mo. Daily
click to enlarge
Note the repeated negative 14 RSI divergence. 
So far it looks like a double zig zag completed. The second series of abc's, "y",  is equal to .618 of "w".
I am thinking NG ends up with 3 series of abc's for the "z", but not without an intervening "x" down.

Here's the Feb contract;
 click to enlarge
Here the "y" ="w".

Feb. Hourly
click to enlarge 
There is some minor negative divergence on 14 RSI.
Taking out the .618 retrace on this at 4.53 will indicate additional weakness , and the .618 retrace of the "y" structure is at 4.23. The last x wave  shown on the daily active mo. chart retraced 50% of the "w". A similar retrace of the "y" targets 4.35.
Of course this may unfold as merely a double zig zag up, with the next move down an X wave of greater degree allowing anything down to 3.28 really.


Thursday, January 20, 2011

Crude Oil Update

First WTI
Active Mo. Hourly
 click to enlarge
Structured in abc's, sure looks like it's complete, with a series of 3 abc's labeled w,y,z.  The spot month  failed to exceed the Jan 5th 92.58. Implications and downside targets are discussed in Crude Oil Outlook, from Jan. 5.
Daily

Right on daily bar support.

Brent
Active Mo. Weekly
click to enlarge
Almost .618 but not quite.  On this chart it's a .606 retrace. Good enough.
Recent talk of a squeeze in the press might be a coincident indicator of it all being done.

Daily
 click to enlarge
 I believe this is all structured in abc's as well, including the "y".

Bottom line here is the long awaited C wave is likely under way. As I update this post at 10:30, the daily support line on the WTI is being taken out. Rbob is well under.
On the downside, it'll probably take out previous lows, ie 88.45 on Mar WTI, and reverse as usual.
Any bounce will likely be contained by the 50% retrace (from wherever)  if we are now, as I believe, in a -3- of 1 down. As it stands that would be 90.33






Wednesday, January 19, 2011

How bout that Stock Market?

9th inning on the rally;

Daily
click to enlarge
Note the RSI negative divergence.  The labeling reflects a series of abc structures that mimics a  5 wave impulse wave "look". Either way the move up from July looks very complete with 'z" or "5" = "w" or "1" just overhead at 1297.5
 The important thing IS the big picture...all the choppy action makes for a high potential of mislabeling at the
 sub wave level. The wedge shown here certainly COULD eke out another new high, but it aint gonna be by much.


On the Dow it's "z" or "5" =  .618 of "y" or "3"

 Enjoy


Tuesday, January 18, 2011

Rbob Retraces .618

Rbob Active Mo. Weekly
click to enlarge
Note the 14 RSI negative divergence and .618 retrace of the entire move down. On the actual spot month chart that .618 retrace is at 2.543. Current highs of 2.50 produce a .605 retrace of the spot mo.
Rbob is definitely in the ballpark now for the completion of the correction up from the .7850 low of 2008.

Rbob active mo Daily
click to enlarge
Again note the 14 RSI divergence. There is some measured -c- =  -a- resistance at 2.53, not far from the spot mo/. 2.54 .618 retrace. If the Rbob tries for another high the wedge resist line also will cut around that point.
So we've got serious Fibonacci resistance, tired RSI, very high spec open interest (see previous post) and an ending wedge formation.

Any approach toward 2.543/2.54 should be taken advantage of.
To the downside the 2.23 level represents a cluster of fib support and taking that out would confirm that THIS latest structure up from the Aug. lows is done. Kaput.



Sunday, January 16, 2011

Rbob Fundamentals and Stuff

Recent highs in the Rbob motivated a troll through the ether for some sort of explanation; turning up lots of interesting charts, not much in the way of concrete answers leaving speculation and a weak USD as the default cause.
First lets start with the EIA inventory's from last Wed. (I know very old news but still kinda relevant.)
 click to enlarge
Not exactly tight.

And the Crack is high, esp for this time of year, so have to imagine runs will stay high. 
                                                                321 Crack Spread


 Demand HAS picked up a bit, but in general the trend still has some catching up to do according to the following pieces out this last week; 
from the NY Times OpEd pages, Peak Travel? 
and
Adam Millard-Ball and Lee Schipper of Stanford University, ARE WE REACHING ”PEAK TRAVEL”?
TRENDS IN PASSENGER TRANSPORT IN INDUSTRIALIZED COUNTRIES


Here's a recent Dept. of Transportation chart;

Leaving us with this:

 courtesy of Reuters.

I guess they're figuring all the Fed actions will eventually produce some significant uptick in the economy and long term demand but as the following  piece on Historical Oil Shocks*  illustrates, there is a significant correlation between rapid increases in oil prices and economic recessions.










Thursday, January 13, 2011

WTI - Bubble in the making?

Today there was a brief discussion on Reuters re potential for a "bubble"  forming in Crude ,
"
One of the key indicators of a financial bubble is that price rises (or in the case of a crash/inverse bubble price declines) accelerate towards the peak (trough)......

the question is whether we are seeing the emergence of a bubble in oil"
Accompanying chart ;
Brent
click to enlarge
Looking at the Brent chart, the blow off top of '08 and the wave acceleration from 1999 is a classic.  Here's another chart (WTI) using a slightly different time frame that illustrates a classic retracement rather than a  bubble in the making.








Weekly
click to enlarge
Note the acceleration phase during the -3- of 3 subwave, in Oct of '08.  Also classic. The subsequent rally has all the characteristics of a corrective retrace; one of which is to spend time in the price area that the acceleration occurred in. You might say it's done that;  1.5 years! Please see Crude gains 5% in 2010 ! (Almost) 
It's also interesting to note the levels we are achieving today correspond roughly with the beginning of that wave down in Oct of '08 and have retraced 52% of the move down.
Guess it's all how you look at it.


Monday, January 10, 2011

Crude Update

click to enlarge
It is possible that the point labeled "2" is merely "a" of "2", but  in either case the short term outlook would be for a "3" down. Taking out this last nights highs at 89.98 would force a reevaluation on the short term count of course.

Friday, January 7, 2011

Wave 3 ?

Looks like it 's right at the point of recognition.
click to enlarge

Fresh lows under 87.85 ought to kick it off. Note all Fib extensions get WTI below the Dec 15 low of 86.83.
That will wipe out all of the December gains. Of course since crude retraced .618 of the 1 down, if the next leg down is a Fib 1.618 of the 1, it targets the 83.60 level seen as 100% extension in above chart.


This has to contribute to to the Crude downside;
Euro Daily
 No doubt  all noticed the fresh daily lows on the Euro today, but where's the next support?

Not Goldilocks

So much positive news has been priced into the commodity/ crude oil space, that we are now at the " any news is bad news " point. A healthy improvement in payrolls = strong USD weaker Crude, a disappointing number =  a constrained consumer and retail products demand destruction.
Unemployment 9.4% NFP 103 ouch

Wednesday, January 5, 2011

Crude Oil Outlook

WTI has spent the last 6 mo.s overcoming repeated sell offs to gain new highs at 92.58 , retracing 52% of the 2008 plunge of  $114 . That  move up very likely completes the -C- of B, or the entire correction up from 32.40.
 click to enlarge
Using the actual spot month low of 32.40 as the pivot point; -C- = .62 of -A- at 92.58. It also was roughly equivalent in time; 7 mo.s vs. 6 mo.s. 
If the above count is correct and the B wave is complete, the outlook is for the C wave down to be underway. That will be a major decline that has some relationship in price and time to the A wave.
The A wave was a Fib. 78% PULLBACK from the 147 high. An equal move in PERCENT targets 20.37.
If the C wave = .62 of the A in nominal terms it targets 21.90.  And the C= 50% of the A at 35.58 roughly a double bottom. So 35 or 20.
The A wave down was very very abrupt taking only 5 mo.s vs the 24 months up of the B wave. My guess is the C wave takes something in between...splitting the difference wiill be 13 mo.s, also 2.6 x the 5 mo. A wave.
How will it look?
This market struggled to clear the April 87.15 high and it took over a month to gain $5 above that point. 
That was accompanied by record spec long O.I  climbing right into the highs. My gut is that a break below the 87 number will get the momentum going pretty dramatically.
 Daily
click to enlarge

Note the .382 and 50% retrace points lining up horizontally with prior tops and bottoms. Taking out the 50% retrace will be the final call. Most likely the biggest downside gains will be early on given the O.I.
15 min.
 click to enlarge
The initial move down sure looks like a 5 count. There will almost  certainly be another leg down and very likely that will take out the 87 level.  If it is a "3" , and that is likely, it should be some Fib multiple of the first  $4.48 move down; and even an equivalent leg down from say 90, takes out that 87 level. There is a high risk of an acceleration to the downside from whatever point this mornings bounce reaches.









Monday, January 3, 2011

Crude gains 5% in 2010 ! (Almost)

Thats right, looking strictly at the February '11 contract, Jan 4th 2010 printed 88.35 and today's high of 92.58 gives it a grand total gain of just under 5% for the year. WOW. With all the excitement re the commodity space you can be forgiven for thinking it might have been a little different figure.
It did move around some in the meantime..
Feb 2011 Daily 
click to enlarge
Note the $11.65  nosedive into the Feb. 8th low.  The contract has yet to exceed the $93.87 high of May 3rd
Of course rolling spot month longs through the 2010 period would have produced even more feeble returns as holders of USO discovered; DOWN 2.5 %  on year.
  USO Weekly



Think This is Discounted?

From the Telegraph;
European debt markets 'face second credit crisis'
"Banks alone must refinance about €400bn (£343bn) of debt in the first half of the year, but add in the more than €500bn European governments must replace over the same period, as well as further hundreds of billions of euros of mortgage-backed debt maturing and there is the potential for chaos in the credit markets."...and
"Mr Amore predicts a rush to sell assets, much like that which kicked off the first credit crunch in the summer of 2007. However, many fund managers and other large institutional investors are looking to reduce their exposure to bonds, leading to warnings that there will not be enough demand to buy all the debt banks and governments will need to sell."

I suppose the ECB will pick up that paper...which I guess must mean they are going to be printing Euro's. Maybe China will buy it...but then who's going to buy our debt? Oh yeah I forgot.