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Short Term Oil - Update 2 (Intraday)

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January 28, 2009 – Comments (35) | RELATED TICKERS: USO , UCO , DXO.DL.DL2

This is an update for my last 2 posts: Jan 7 (Short Term Oil) and Jan 23 (Short Term Oil - Update) looking at the technical picture of oil.

There has been a nice pullback in oil and presents (IMO) a very good entry point. Here is a 30 minute intraday 10 day chart of USO (the best proxy for current futures oil).

Click here for a larger version of the chart below:

The MACD is about to cross and it is forming a rising wedge against resistance.

There has been a pullback based on supply reports. Which are not all bearish when viewed in the proper context. Vet67to82 has the best interpretation of the drivers for the near term future price action. Check out the blog post: Crude and the Contango. Very good read, and look at the previous posts as well.

As always I would love to hear your comments!

The binv standard disclaimer: This in no way constitutes investing advice. All of these opinions are my own and I am simply sharing them. I am not trying to convince anybody to do anything with their money. I am simply offering up ideas for the sake of discussion. As always, everybody is expected to do their own due diligence and to ulimately be comfortable with their own investing decisions.

35 Comments – Post Your Own

#1) On January 28, 2009 at 1:17 PM, darroj (33.98) wrote:

I bought some UCO this morning :) will sell on another big momentum day.  Made 18% last week, hoping for similar results within 2 weeks time frame. Will probably sell at $12.50 (I'm new to short term trading and don't want to be too greedy)

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#2) On January 28, 2009 at 1:19 PM, Vet67to82 (< 20) wrote:

Another great chart. 

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#3) On January 28, 2009 at 1:32 PM, anchak (99.85) wrote:

I think currently Oil is a much better investment in the commodity space vis-a-vis Gold.

 

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#4) On January 28, 2009 at 1:33 PM, anchak (99.85) wrote:

Binve....would you update this one or the old one.....that way I will know which one to follow

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#5) On January 28, 2009 at 1:41 PM, Tastylunch (29.28) wrote:

Pretty chart Binve. what program is that?

I'm mixed on Oil, there's the super contango situation but yet OPEC Oil cuts  (which will start to take effect on supply in a couple months?), i guess it's hard for me to be bullish as long Contango keeps happening. There's still a supply glut. Techincally it does seem like we are in a weak uptrend.I don't haveenough conviction in it to trade it either way.

FWIW I've been tracking this ETF timer guy and so far he seems to be right more often than wrong

http://etfstocks.typepad.com/markets/2009/01/update-dug-will-rise-and-xom-will-crumble.html

http://etfstocks.typepad.com/markets/2009/01/usodxodto-oil-support-at-30-confirmed.html

he does seem kinda all over the place on Oil though.

Right now I'm beginning to look at Natural Gas (just beginning I have done very very little work on it), this winter is shpaing up to be a very very cold one up here  which may spark demand and it looks pretty cheap/oversold at first glance.

Also I'm not liking the action on Gold today, looks like it may not breakout just yet.

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#6) On January 28, 2009 at 1:42 PM, binve (< 20) wrote:

darroj, I am with you on this one. I did the same thing. I trade USO, UCO and DXO for a nice profit when oil bounced from $35 to $50. But now it has consolidated around $40 and is getting ready for a much larger sustained move.

Vet67to82, Thanks! I really appreciate that. You blogs are great, very good perspective and insight. 

anchak, I agree. Oil is the better call, the technical picture is stonger for a rally. However a lot of people have been talking about gold being "overvalued" recently and point to the high historic gold-oil ratio. This is extremetly fallacious and a very bad interpretation in my opinion. GOR is high because oil is undervalued, not because gold is overvalued. It will be interesting how gold moves in the near-term to see if it can take out the $920 resistance. The only advice I can give to people about gold is: I you think it is "overvalued" then don't buy it. But for Pete's sake DO NOT SHORT IT!!!. The gold market is so small (compared to equities, commodities, Forex, etc.) and is very manipulated (easy to find information on this if you search for it). At some point, and probably without much warning, there will be a short squeeze of gigantic proportions. 

So for the time being, in the short term, I like the technicals of oil better than gold. But (to anyone reading this), do not go short gold here. The breakdown of the uptrend is not confirmed and if gold takes out $920, it is going to run hard.

Thanks anchak!

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#7) On January 28, 2009 at 1:43 PM, Tastylunch (29.28) wrote:

also re: contango it's my understanding the facility in Oklahoma is nearly full which if that happens may force non-endusers to sell Oil to avoid taking receivership.

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#8) On January 28, 2009 at 1:48 PM, binve (< 20) wrote:

anchak I like to keep the conversation rolling on the most recent post. Some people like to answer the old ones, and if so no big deal. I answer the old ones too. :)

Tastylunch, I hear you man. It is hard to interpret the news on oil. That is why I think the chart is telling the compelling story for the near term. Oh, and the chart is just from TDAmeritrade.

I hear you about gold action. I don't like it much either. You can see I closed most of my miners in Caps (I took partial profits in real life). I still have a few open. It still could go either way at this point. But I still have long exposure, in case it could move up.

But definitely see my comments in the last reply to anchak. I definitely would not be short gold here. Thanks man!

 

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#9) On January 28, 2009 at 1:52 PM, binve (< 20) wrote:

Looks like it is starting to breakout, larger version here

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#10) On January 28, 2009 at 1:54 PM, marktsgooch (< 20) wrote:

Can anyone explain the difference in stock behaviour of the same oil companies (e.g. BP) on FTSE & NYSE.

On FTSE, BP dropped 30% in Oct/Nov, but has now returned to Aug-Sept 08 levels (and Apr 08 levels), whereas BP on NYSE is still down at the Oct  08 low.

http://www.h-l.co.uk/shares/security_chart/sedol/0798059

Fall in pound vs dollar by 30% means BP UK has to pay 30% more (in GBP) for the same amount of oil, to supply their refineries / petrol station.

Is the FTSE rise a reflection of most of BP's assets being held in (effectively) a foreign currency & priced (by the market) in dollars? In which case the NYSE profile gives a truer picture, and implies that oil stocks on all exchanges still have a long way to rise as the price of oil goes back up?

Thanks to anyone who can shed light on this! :)

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#11) On January 28, 2009 at 2:04 PM, anchak (99.85) wrote:

Binve.... I own gold.....so I  willl either add some ( for a trade) if its breaks above $920 on Good Volume. Otherwise if it starts retracing I may put in a small hedge - using possibly GDX put.

Gold is at a technical balance - and its hovering. Of course Cramer is saying sell - it would be interesting what it does after his herd dissipates.

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#12) On January 28, 2009 at 2:09 PM, binve (< 20) wrote:

anchak, I know that you personally know everything that I talked about above. Most everything that I said wasn't directed at you at all. It was really directed to anybody reading the post. It was just that your comments sparked the thought. Sorry about that :)

I have no doubt that you are playing gold correctly for the short term and long term.

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#13) On January 28, 2009 at 2:12 PM, darroj (33.98) wrote:

binve - larger and sustained? what's that based on? I'm still new to this, so I'd like to pick your brain a little :)

anchak - really appreciate your previous blog about leveraged ETFs (just thought I'd throw that in here for others who may have missed it)

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#14) On January 28, 2009 at 2:20 PM, Tastylunch (29.28) wrote:

binve

I read somewher the action in oil is being drivn by retail investors, which is a worrisome sign. Usually retail investors are considered "dumb money " :-( That wa sthe oher stumbling block I forgot to mention.

uh look out Oil supplies greater than expected

http://blogs.wsj.com/marketbeat/2009/01/28/oils-contango-rebound/

I just don't like the oil trade right no BInve too clouded too crowded.

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#15) On January 28, 2009 at 2:25 PM, Tastylunch (29.28) wrote:

That I should qualify is just my opinion and I hope you make money no matter what you did. :-)

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#16) On January 28, 2009 at 2:38 PM, amassafortune (29.49) wrote:

binve, your charts and opinions are becoming a source I check regularly. I've owned oils for years and shipping stocks for a couple years without hearing of contango so it is good to have regular comments on its effect on oil and shipping results.

Today, I'm looking at San Juan Basin Royalty (SJT) trust. It's hitting a 52-week low and is near a 5-yr low. It goes ex-dividend today, but it makes no sense to drop 6% just because it's about to pay out 12.5 cents (0.55%) in dividends.

I'll check its cost of production to see if oil in the low 40s is too low. If anyone knows what else might be affecting SJT, please comment.    

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#17) On January 28, 2009 at 2:39 PM, binve (< 20) wrote:

darroj, The larger and sustained is based on the weekly technicals. The move a couple of weeks ago from $35 to $50 in a matter of days was very short term. I got in an got out based on the daily technical chart. The weekly chart is showing a similar setup and if it plays out (which I am positioning myself that it will) the rally should also play out longer. Like Goodvibe mentioned on my last post, the target should be $65-$75. This bottom looks like an inverse head and shoulders. And so a 38% retracement from the bottom looks like a reasonable target. There are a lot of things that can happen between now and then, so this could be a very volatile rally.

Tastylunch, I hear you man. I really do appreciate that you are taking the contrary position here and that you are letting me know. I do believe there will be a rally, but I am also very tempered about it, largely because of our conversations. I am definitely not "all-in" on this oil move. I have a portion of my portfolio allocated, and that portion is split between a few well-timed (I hope) positions. I am very cognizant of the the deflationist argument. I definitely seek it out, because I don't ever wish to fall into the "gold bug" or "commodity bull" category. Things are always more complicated than a one sentence investing thesis. And in my short term portfolio I am really looking for trends and technical setups, which means I am very willing to go against the long term trends because there will always be (very profitable) counter-trend moves.

So, please let me know you opinion. It is always valuable and always welcome. Thanks man!

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#18) On January 28, 2009 at 2:50 PM, binve (< 20) wrote:

amassafortune, Thanks! I really appreciate that! I can't say that I know very much about SJT, so I cannot comment at all on the fundamentals. But I just looked at a daily and weekly chart. Both are extremely ugly. I have to go back to 2003 to find some support at these levels, and 2001 to find stronger support at about $18/share. That is a tough call getting in right here, I would be a lot more comfortable with even the beginnings of a technical bottom. Also I looked at the dividend at the yield is only about 2.37%. That is also not very comforting. For trusts I like Canadian Royalty Trusts better (usually) and my favorite CANROYs are: PWE, PVX, ERF, and BTE. All have 10-20% dividends. I also like motleyanimals suggestion of WHX which has about a 40% dividend right now. The CANROYs all cut back their dividends recently so I think the new levels are pretty sustainable (assuming oil stays at >$40), maybe a few more small adjustments.

Sorry, I wish I had a better take for you :(. But thanks for the comment! Please feel free to comment anytime!

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#19) On January 28, 2009 at 2:50 PM, TheGarcipian (63.28) wrote:

binve, nice charts, man. I've not had time to read all the good comments to this blog, but I will. For now, I certainly hope oil is on the rise. I've got lots of positions in it: XOM, MCF, DO, HERO, MDR, OII, to name most of them. It certainly looks like oil is on the rise. My fingers are crossed. Will try to follow up later.Got work to do for now.

Cheers,
--Gar

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#20) On January 28, 2009 at 2:54 PM, binve (< 20) wrote:

TheGarcipian. Thanks Gar! Yeah, I hope so too :)

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#21) On January 28, 2009 at 3:06 PM, Tastylunch (29.28) wrote:

binve

fair enough,i think that's the way to play it since if you are right I think Goodvibe's scenario is the most probable one. If you are right you may get a double on your posiition, if you are wrong your portfolio won't get crushed. :-)

I will say I like how oil is taking the bad news so far selloff was weak, it's like a reverse Gold.I'm beginning to think you may be right. If it gets a little more strength the quants will carry carry it no matter the fundamentals.

OT did you see TBT today (Holy toledo!)? The Fed freaked people out by not clearly promising to buy Treasuries immediately(they said they will if they feel it's necessary)

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#22) On January 28, 2009 at 3:20 PM, madcowmonkey (< 20) wrote:

Added DTO in the morning as a red thumb this morning from a few more investigations I have done. Also added BOM....doube bear on Metals. Not sure I made the correct decision, but I did it anyway:)

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#23) On January 28, 2009 at 3:22 PM, madcowmonkey (< 20) wrote:

sorry...double short:) Although a double beer would be better.

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#24) On January 28, 2009 at 3:23 PM, binve (< 20) wrote:

Tastylunch, Thanks for keeping me honest :). Yeah, there are a lot of interesting trends occuring.

1. Oil report, supply is increasing, oil does mild selloff and bounces back up
2. Fed meeting: Blah, blah, interest rates, blah, blah consumer. But! exactly like you point out, they do not push Treasury purchases hard enough for the speculators and the long bond is down 3%!
3. The dollar rallies at this point.

Now here is the interesting thing. Treasuries are in a bubble we all agree. We also don't know when it will pop (and per our last conversation, I don't think it is the short term, not even based on the Fed statement). But this rally in the dollar coincides with the bond selloff. For the last few months, the dollar rally coincided with the bond bubble inflation and the stock crash (money moving out of stocks, espcecially foreign stocks, and buy dollars to buy bonds). But now stocks are not going down with the dollar rally, bonds are. 

I think we are going to see a pretty spectacular move / short squeeze in the stock market base on the above observations.

People are buying bonds becuase if they are risk averse. But if the Fed won't support bond prices, then why stay in bonds? Low yields AND falling prices? Nope, money is going to move into the markets. I think this will be a big move.

I ultimately think it is countertrend. Earnings will suck all year. People will ultimately go back into bonds and/or gold. The equity market will go lower (IMO much lower) than the Novemeber lows ... eventually. I think we will get a really big counter-trend rally first.

Thoughts?

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#25) On January 28, 2009 at 3:26 PM, binve (< 20) wrote:

madcowmonkey, Double beer. Oh yeah. I could go for a nice Belgian Dubbel or Tripel right about now. Yeah, that would be most excellent :)

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#26) On January 28, 2009 at 3:31 PM, anchak (99.85) wrote:

binve..... Are you kidding man? You are great.....I didn't take offence .....I understand your rationale for CAUTION.

This is a crazy market.....Yeah you short something like GG or ANV ( which incidentally.....Tasty is doing...ahem..bro in CAPS) - and Gold moves the other way and you loose your shirt - or whatever TRAILING STOP you put in ( 5-10%) in a jiffy. 

Again one outstanding post in the making! 

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#27) On January 28, 2009 at 3:34 PM, amassafortune (29.49) wrote:

SJT is about 98% natrual gas, by revenue. I'll move that one to a different spreadsheet. Excuse me for asking a question before doing the research.

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#28) On January 28, 2009 at 3:36 PM, Tastylunch (29.28) wrote:

binve

my thoughts are I agree, you have all this money freed up now that Auction rate securitities have been unfrozen from last year and the strength of equities and low yields on bonds/treasuries are not attractive to that money.Neither are funds in the wake of madoff and the worst year just about ever for mutual funds. Plus Obama has restored some confidence to the market/public so you may see a dogpile back into equitities and perhaps a FDR election ish 1932 mini rally.

But like you I don't think it lasts. Whether the money then goes back into Gold remains to be seen but I don't think this is the big move for Gold, not yet. I do think it does go back into bonds at some point probably late spring when stocks are typically weak anyway.

Earnings will contarct all year as the credit crunch is different than analysts are used to, but perhaps in the late part of the year they start to get too bearish. A lot will depend on the banks and what happens to them.

I'm personally expecting a rally through Feb and a correction/crash in equities perhaps in March (mortgage resets and the next round of Hedge fund redemption dates might be triggers, we will start to see some retailers report Feburary sales which I expect will be just awful for apparrel and one year anniversary of Bear Stearns)).Goodvibe I guess sees a similiar scenario.

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#29) On January 28, 2009 at 3:45 PM, binve (< 20) wrote:

anchak, Thanks man :) Yep, the one statment that everybody can 100% unequivocly agree on: The is market is Volatile. :)

amassafortune, No worries!. That makes a lot more sense. Natural gas is still looking for a bottom. I put a green thumb on UNG WAY too early. I am interested to see what natgas does if oil starts to rally. Thanks!

Tastylunch, Yep I think we are in near 100% agreement on this. Even if it doesn't happen exactly like we are saying, I think it is proabably a very likely scenario. I think the timing is right. Through Feb. Then when everybody thinks the crash is over and starts moving from bonds to equities in their 401-k's that's when the bears will awaken hardcore and take this market down. It is nothing I relish, not at all. But the trend is what it is, and you play it, bullish or bearish. 

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#30) On January 28, 2009 at 3:55 PM, anchak (99.85) wrote:

darroj: Thanks man!

The props and link appreciated greatly!

As you can see we between binve,tasty,me and madcow we are what can I say : -  loquacios ( my $2 dollar word for the day!) bunch .....

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#31) On January 28, 2009 at 4:13 PM, Tastylunch (29.28) wrote:

anchak

hah well GMX thinks ANV is crap and I think this is not the big move for Gold just yet but I'm no expert timer. I agree with Goodvibe on his outlook for it (maybe 950 then perhaps back down to as low as the 600's and then look out to the upside possibly)

I wouldn't dare short it in rl as you said it could kill me if it breaks through resistance but in Caps I play it like a watchlist, if I have an idea 75% of the time I'll put it in. :-)

I took care to only redthumb the junkiest of the minersand only a few to try to save my skin. It's also a hedge for me since a lot of my redthumbs are "the world is ending" thesis kind of picks. 

Holy cow what a day on the market, I made some good coin daytrading banks. Very glad it was so snowy here at work so I didn't have customers bothering me. :-)

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#32) On January 29, 2009 at 12:38 PM, binve (< 20) wrote:

I would be remiss if I didn't show this as a possibility. The current trend on the intrady is sporting a possible falling wedge, which is bearish. Both the daily and weekly show bullish setups, but this cannot be ignored. I am not doing anything myself with this development. I am still long USO, DXO and UCO and sitting on ~6% paper losses. But I am watching the situation and just wanted to give you the latest trend. A breakdown below the base support might require reevaluation of the "nearness" of a possible rally.

Click here for a larger version.

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#33) On January 29, 2009 at 3:00 PM, Tastylunch (29.28) wrote:

binve

thanks for the update, Oil is just too hard for me to get a good read on right now. It just seems to be all over the place doesn't it?

 

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#34) On January 29, 2009 at 5:32 PM, binve (< 20) wrote:

Yeah, it is very tough.

Oil down, stocks down hard, bonds down, dollar up, gold up ...??? There seems to be some major pieces being repositioned on the chess board right now (or chips on the roulette table, actually that is probably a better metaphor :) )

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#35) On February 02, 2009 at 4:52 PM, madcowmonkey (< 20) wrote:

Is the dollar really having that much affect on oil? If it is, I would hate to see what happens if the $ crashes. Oil will get a boost, even if demand/economy is down. Crazy stuff.

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