Monday, October 19, 2009

2x As Slippery On The Upside In Crude Oil w/ UCO

My focus this week is on the front month crude contract /QM_Z and the 2x beta etf UCO. On some days the service companies could outperform front month crude, but i think the big guys are loading up for a December spike in oil futures based upon USD$ seasonalities. And that is where the action will be. The measured move out of that ascending triangle is roughly 16.68+/-. So a move to 91.68 is definitely under way now from the break out at 75. $100 is attainable, but I think the easy money will be made by buying now any serious correction down from 79 (a throwback testing the 75 break out) in front month crude. Stops at 72.50 can be placed under buys at 75 on the retest of the break out. A break below 70 would cancel my bullish view of a sharp increase coming.

For the hyperactive trader SCO can be day traded against an accumulation strategy in UCO. Longs in SCO can be deployed on down days in crude, but should exercise a "close at end of day" mantra. This should be most effective in balancing out the beta shock incurred when playing this type of accumulation strategy on a juiced up derivative etf that re balances daily. Unless of course I'm wrong about the whole trade! If so you better be able to flip flop over to SCO fast.

The front month crude break out will be uncorrelated from the broader market, and actually should cause a 5-15% correction in the equity indexes. Because generally when oil begins to become more than 4% of GDP it causes a strain on business activities. This will cause analysts to adjust earnings models again with a downward bias on the most input cost sensitive firms.

Also, I think crude may get a run at much higher levels from here based upon several other reasons. As in Saudi bail outs via the American gas pumps. And it also serves as a job creation engine as "Drill, Drill, Drill" becomes a louder chant in the Halls of Congress. In order to keep the national debt buoyed up by "friends in the Middle East" they'll drag their heels on CFTC regulations. Doing so will allow for another speculative push in oil, so that the Saudis may capture higher prices in order to give them their bail out. Also, Texas regions hit with unemployment due to uncertainty in oil prices (less drilling activity) could see speculative drills put back to work as crude moves higher. BHI has already seen the rig count stabilize and begin to expand ever so gradually again. YoY eps comparisons should begin to see double and perhaps even triple digit percentage gains going forward; as earnings begin to re accelerate against crash level comparisons. All of this will be made possible by a steadily increasing oil price.

And what about those alternative energy jobs? Believe it or not higher oil is needed now more than ever in order to push capital back into those industries too. If you want green jobs they have to be economically viable. Oh, and don't forget about Iran. Sprinkle in some saber rattling from them and add it to the above outlook, and voila`! You get a push into much higher levels. It has begun. The Speculators are on the loose again!

**UCO trading notes:
Holding 13.89 or the 38.2% retracement line is important, but could see a dip below as I expect crude oil to revisit it's 75$ break out level once more. That could make UCO dip to as low as 11.91 - 12 area if that were the case.

On the weekly chart UCO is moving out of a descending channel, and this data also translates into a bull flag on the monthly chart. All signs seem to be pointing higher in this name. A move to 10 would cancel out the bullish bias.

Wednesday, October 14, 2009

TCM Notes : 10/14/09

  • Wednesday should provide ample action as JPM is set to announce Q3 eps pre-market. INTC already got things moving by beating their numbers and guiding higher for the 4th Q. As it stood going into the after hours close the markets were set to gap higher today. If JPM doesn't please the crowd though we could see some serious selling. Which works for me too since I want to buy pullbacks into support. However, my belief is that Jamie Dimon will speak well about the future of banking and the markets should have a 1%+ up day. A key level I've been watching in the SPY held (107.32) and after INTC reported the SPY moved all the way up to 108.52. That's a new high in this move. There are plenty of bears out there with buy stops above this level, and they are getting squeezed pushing us higher still. I actually added more UYG at 6.18 into the close of after hours trading. Today should be electric. I can hardly wait!
  • STAR a company featured here back in April found itself being bought out by CSCO Tuesday morning. 2.9B or 35$ cash per share. It validates the fundamental and technical work we did in the name, but there is one thing we did wrong. We didn't hold it long enough! A nice trade from 14 to 19 is good and well, but realizing a trades full potential is something I sabotage myself on regularly. I knew STAR was a winner, but the grass looked so much greener else where. Oh well. Another lesson learned.
  • BX blew threw the 15.30 buy point Monday. I would expect that level to become support.
  • IT spending has already been in focus and received numerous upgrades by various analysts. While the stocks associated with this have run; they should still be considered at major moving average support on any weakness.

Saturday, October 10, 2009

What Mr. Market Is Telling Us

With all do respect to the flamboyancy and arrogance of Mr. Market (an irrational man, with a disposition for brashly telling you on a whim, the worth of a viable company's market capitalisation) he is now telling us one simple thing. EMBRACE RISK! The global flow chart for capital is showing this very phenomenon now. Fiat dollars are being sold and rolled out into almost every risk asset imaginable. The fastest place to put all this capital to work at is within the equity / currency / commodity markets. Viable businesses in the real economy are seeing some forms of lending returning to their disposal (perhaps not on the terms they would like.) However, most of the money at this point in time is only being pushed into the capital markets. By forcing artificially low interest rates on money market instruments, investors are being forced to take on risk in order to capture some price appreciation. Indeed this price appreciation could go on far longer than anyone is willing to concede at this point in time. It doesn't make sense to the rational thinker. A jobless recovery. How does that work?

Well, by forcing capital off the sidelines into the waiting hands of risk; Mr. Market is able to repair the otherwise impaired portfolios that make up the entire equities universe. In doing this folks begin to get "uptick fever" again. The notion of confidence reappears within this emboldened group of investors, and then real economy decisions begin to get made. Partnerships are entered into, LLCs are formed, charitable contributions are made, tax incentives are created, and slowly but surely American business begins to re surge from the funk. Does it happen overnight? Nope. It takes time. And Mr. Market is usually the determining factor of the primary trend, so it's best not to fade his collective wisdom.

Dollar and Treasury watchers fear of an oncoming currency/debt crisis is prevalent. Rates on treasuries are too low and the steady fall of the dollar undermines our recovery. However, rates are just right for those seeking mortgages and signaling to me that capital is still better put to work in risk assets. The decline of the dollar actually fuels this move to risk, as most materials are priced in dollars. Foreign demand increases in our goods and services as their currencies give them an embedded leverage that was unavailable before now. And we begin to export our way to recovery. Except this time maybe we won't export all of our jobs. The potential for a Rust Belt revival could become self apparent. This all can go on for a while without hyperinflation kicking in as deflation remains the primary concern. The beginnings of the Fed Funds rate being raised again will not end this cycle immediately, but will be a warning that the emphasis on CAPITAL vs RISK should become our focus again. Last time the move was from 1% to 5.25%. 425 basis points higher until the risk appetite was killed. This time should see a sharper rise.

So how long will it last this time is the $2 question? The best answer is to just follow Mr. Market's lead. To fight against him is to fight in a losing battle. He'll tip his hat to us at some point in the future and let us know when he's favoring an approach to capital preservation again. It's best to look at the weekly charts to get a less noisy picture of where we're going for now. Here's a hint: think up! For the time being Mr. Market is paying up for stocks. We should listen, and follow his lead.

*** The 50sma on the weekly chart of the SPY has bottomed, and is now hooking upward; increasing by .30 last week. This is very positive from a support standpoint, and should continue to aid in the beginnings of a new uptrend.

Wednesday, October 7, 2009

TCM Notes : 10/7/09

  • Despite a higher volume gain today IBD still has the "uptrend under pressure" status in the Big Picture column today. The level I'm keying in on for refreshed upside momentum is 105.99 in the SPY. This was the low seen on the 9/23 outside reversal day. Getting back above that level could trigger many buy stops in the market that would naturally send the index higher. There is still a 50% retracement up around the 1121 level that is a viable target. The type of action we're seeing as far as market breadth is concerned is impressive. One day the XLF will lead the charge. Another day will see the XLE lead the charge. Rotational leadership in my eyes is very healthy, and lends itself to refreshing momentum on these shallow pullbacks. Still plenty of major moving average support beneath this market. And with the debasement of the dollar one should be very cautious about holding a short bias for too long in this market.
  • BSBR completed it's $8B ipo. Starts trading today. Careful not to chase this one. Fair value according to many is $13. Anything over that is nothing more than trading demand.
  • The 50ma hooking upward in the SPY weekly chart is something that should be made a note of. Last time this happened was in 2003. The golden cross did not occur until 7/11/04. So this very well may be 2003 again.
  • BX has been on my screen, but my attention was called back to it by another trader last evening. It caught nice support off the 50ma and saw a bullish engulfing pattern the next session. Appears to be in a cup with handle pattern as well. Buy point on this one is 15.30 with volume.
  • PTEN was another one talked about. This one looks like it's finished dancing with it's 23.6% line at 14.49. That level has become support now. With the rig count starting to creep up again this one could start moving soon.
  • MGM looks to have a buy point on the weekly chart from a perceived cup with handle pattern. 14.25 - 14.35 is the buy point.
  • WMS has a buy point in a high channel at 44.50 - 44.90.
  • WYN has a channel set up. 16.50 - 16.60 with volume is the buy point.
  • AOI could see a powerful cross over soon with the 50ma crossing upward through the 86ma.
  • WCRX is shaping a six week cup without handle pattern. Buy point is 23.04.
  • KFN needs to get through it's 86ma on the weekly chart before it can move higher.
  • AMX was raised to a buy by a few firms yesterday putting a target price of 50 to 53 on it. Something I learned in looking at this is that T owns 8% of this one.

Brazilian Watchlist

Seems that everyone wants to emphasize the "B" in BRIC again as Brazil has received the 2016 bid for the Olympics. Well that's fine, so long as you realize it has ran quite a bit already. And the growth of Brazil is not a new market theme. All that said here's my list :
  • EWZ - broad market index etf
  • BRF - small cap index
  • BZF - real currency etf
  • PBR - oil and gas
  • GGB - steel (although half of their output is US)
  • SID - steel (concentrated in Brazil)
  • MELI - internet
  • CZZ - agriculture / sugar / ethanol
  • BBD - finance/banking 3160 branches
  • ITUB - finance/banking 4895 branches
  • STD - finance/banking 80% owner of BSBR
  • BSBR - $8B ipo starting trading tomorrow. fair value $13 per morningstar
  • CBD - grocery stores
  • GFA - building/ residential & commercial with operations in 18 states
  • ERJ - aerospace
  • VIV - telecom
  • AMX - telecom - this is a Mexican telco play as well, but they are large here too.
  • GOL - transports - airlines

This list may expand and contract as different plays emerge. For the moment the most viable play is the BRF, and the financial names. BRF is more heavily weighted in consumer discretionary names. EWZ is more energy/finance related. Looking to deconstruct them both soon to see who the outperfomers are.

Friday, October 2, 2009

TCM Notes : 10/2/09

  • We kick the 4th quarter off with a bout of selling again on Thursday. While most indices escaped another day of distribution the Nasdaq was not so fortunate. IBD has changed it's market outlook to "uptrend under pressure." Count stands at 5 for Dow, 4 for SP500, and 3 for NYSE and Nasdaq. Thursday's action was very similar to Sep 1st's action. GS lowered their job number estimate to -250k in line with what was seen from the ADP numbers today of -254k. The street is looking for -175 to -180k jobs. Not sure if we have another "less worse" rally in store. Generally these job numbers have been bought into the last few times and a trend day up has been the result. We'll know soon enough if this is the case.
  • As noted in my Sep 14th UYG pattern piece we are getting near my "ultimate load up zone" in this etf. 4.71 to 5.13 is that area. Currently it aligns itself with the 23.6% fib line and the 86ma. Currently I had an after hours order in the system for a few thousand @ 5.40 or the 50ma. 5.43 was as low as UYG ticked in the after hours. I'll be looking pre market to see if the selling will exhaust itself before the market open. Jobs number will be the key to the day.
  • TWI coming back down to it's 200ma would be an ideal spot to try a few long shares. GTI hitting back down in this channel between it's 38.2% and 50% line looks like it might be good for a few. HF at 6.09 would be a good spot for a few if it can hold that level which is it's 23.6% fib line. KFN still trading below management's stated book value of 5.79. Appropriate stop measures should be put in place as always on new buys. 7% stop is the rule of thumb.
  • Doug Kass points out in his Thursday piece that the ISM was one of the indicators that got the upside move juiced up. It's disappointing showing the other day has juiced up this move we're seeing to the downside. If indeed SP500 eps turns out to be 73$ as is expected for 2010, then the current forward multiple rests at 14.17 +/- for the SP500. This is a level that could be perceived as "value," but we have seen instances of single digit multiples several times before. Albeit inflation levels were much higher when those single digit multiples were achieved. So whether the market is offering "value" at these levels is a hotly contested notion at best. The bears are becoming more emboldened as we sell off here. Opportunity is being created again. For whom though is up to Mr. Market to decide.
  • I did get filled for a small buy of GRRF at the 50ma of 4.42. Stock closed a few pennies underneath it. Stronger support lies beneath at the 4 level. I've been buying this one on weakness since it's earnings gap in early August.