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Why I am still bearish right now: A look at Oil and the S&P 500

Recs

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April 29, 2009 – Comments (49)

I have been away for a few weeks, but when I looked at the market this morning after coming back, I saw nothing to change my bearish outlook that I had before I went on vacation. In fact I am even more bearish now. Many of the markets are overextended and extremely unhealthy. And like a rocket that can't quite achieve escape velocity, this market will come careening back down to earth. Here is a look at oil and the S&P 500

First Oil. As we have talked about many times on this blog, oil and the market should NOT trade in tandem. There are certain times where they will positively correlate (such as growing economic conditions which require increased energy consumption). However this time is not now. Yet oil and the S&P are showing very similar patterns and neither are healthy.



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Why I don't like this chart:

If oil had pulled back 3 weeks ago when I was calling a top, and had been diligent, pulled-back, retested the 50day MA, and got the correction out of its system, oil would be in an awesome position right now. And I would have a lot of money in it. But now?? No, I have no position (short term trading position, I still have all my long term positions). Oil has been trying to defy gravity. It made no significant pullback from $55 in early April, and instead tried another run at $55 last week from overbought conditions. Simply a recipe for disaster. Now it is flirting with the 50day MA. But as far as I am concerned, this is now false support. The 50 day MA is now at a much higher level (~$48), vs. the $43-$45 it should have been at for a good retest. Now that oil has spent so much time in this overextended state, I believe the correction could be more severe. Will it? Who knows (I don't), but I will not even begin to be bullish at this point until $44 and not start putting down real money until $40-$42. 

Intermediate term, I am still very bullish on oil and think a run up to $77 is still very likely, but I firmly believe it will not originate from these levels. I will not put money into oil until I see a constructive chart, and this is far from a constructive chart IMO.

S&P 500.

Geez, What a train wreck.



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I think the notes on the daily chart above are fairly self-explanatory. This still looks very overbought, and every move up was accompanied by more moves down on the indicators. Ugly. That's all I have to say.



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A look at the hourly chart, Here is what I think this is the most likely count: 

All of the analysis that I put together on Goodvibe's blog 3 weeks ago still stands. The reasons I listed for being bearish when I was putting together my preferred count vs. a more bullish count are still in full force. But why is this the right count (at least in my opinion). Besides those reasons, here are a few more:

From EWP, Frost and Precter pg. 78

Wave 3 - Strong and broad, trend is unmistakeable (definitely the case)

Wave 4 - Differ from second waves of the same degree, more often than not they tend to trend sideways (I say the count above captures this spirit)

Wave 5 - Always less dynamic than the third wave in term of breadth. Usually display a slower maximum speed of price change as well. Look for lesser volume as a rule in the fifth wave as opposed to the third (again, this story fits here as well).

The ending diagonal for the 5th wave showed a marked break. The rally last week has been unable to top the end of Wave 5. And if the count above is correct, this will be the case for the next several weeks as we will see much lower lows.

So when I reviewed the charts last night and this morning, I used up almost all of my cash reserves am now nearly 100% short. I think the markets have been really overextended the last 3 weeks and this will make the retest that much more painful.

To reiterate, all of this is just my opinion of course. I do believe there will be a very large rally that will last for months after this pullback, but I just simply don't believe the rally will originate / continue from these overbought conditions.

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.

49 Comments – Post Your Own

#1) On April 29, 2009 at 2:22 AM, Adam512 (< 20) wrote:

I think your bearish outlook is correct. More "leaks" from the Stress Test...

 Google, "Fed is said to seek capital for atleast six banks after stress test"

 

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#2) On April 29, 2009 at 2:28 AM, KamranatUCLA (29.25) wrote:

agreed 100%.

I didn't even read the post, all I read was 2 words "bearish" and "oil" and you have my rec....

OK, now I will read the whole thing in quiet. 

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#3) On April 29, 2009 at 2:44 AM, awallejr (85.49) wrote:

I dunno, with respect to your last chart I can see it falling to your little blue b, then heading up.  That's the beauty about charts, shows you what happened, remains to be seen what will happen.

 

As with oil, it has been fighting the $50 mark.  But it is coming into its "season" now (through June) so not quite sure why you are bearish short term.  I would expect a rise then a pullback in July. Of course, anything goes with this swine flu story (tho personally I think it will pass).

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#4) On April 29, 2009 at 2:54 AM, KamranatUCLA (29.25) wrote:

There is a very simple thing called supply and demand...but I believe post 2007 oil hikes people think about another thing that has to be entered into the equation: sustainablity

what good is supply and demand in setting the price when no one knows how long the supply can last.

Lets say you bring some rare stone in the market to sell. Now you can have a lot of this stone in your inventroy, but if you tell your customers that this inventory is all there is on earth...would the immidiate supply and demand help to set the price?? I don't think so.

I think supply and demand works for production...lets say proucing guns and wine...we have more than 800 years supply of iron (or even 3000 years according to other estimates), and wine can be made easily from grapes and I think there is no sustainility about that (we have land and water and sun for many thousands of years to come) . So when something can easily be produced...then yes supply and demand works for setting up a price.

OIL is a very different story. Some people underestimate how valuable oil is..it affect sooo many aspects of our economy...just think about this: in many country pumps that run on gasoline supply water to people...without gasoline many regions in the world would not have water! think about it.

Now...there is a very big discrepency as how long the oil will last. When prices were around $150/barrel some said we only have oil for another 20 years! What has changed?? Nothing. I think we still have oil only for the  next 20 years and after that finding and producing oil will be like finding and mining gold. Not that gold is valuable, I am just comapring it as how we will find it..it will be in small amounts and it will cost a lot to bring that oil to surface.

People have not forgotten the fact that oil is on the verge of peak production. I think that is teh reason why everything stopped suddenly in its track.

When thinking that oil will reach 200 bucks/ barrel and some even said it will be $1000/barrel we all stopped spending...we all stopped and started to think:

If oil goes up to 10 bucks a gallon like in Europe, can I still afford to live in the subarbs and commute 2 hours each day ( in southern california even 3-4 hours for some) in my car?!

These are tough tough decisions...and I tell you what: the last thing in people's mind is buying a new car...even if that car gives you a better milaege, the shock will be so much that many people will just play dead...stay home and live off social wellfare.

So someone has to come out and tell these truth to American people...hybrid cars are good but I believe it came into the game too late! Now we have to skip hybrids and go straigtht to something better...otherwise our country won't function.

Obama said (after I said the same thing in my blogs months and months ago) that a ford focus gives you as much miles/gallon as a Ford Model T car 100 years ago!!!!

My point is this: there is no process right now in place that we can price the value of oil. Price discovery of oil is corrupted because Oil companies don't tell us for how many years oil can last!

I remember 4 years ago or so the former CEO of Exxon was on Charlie Rose. Charlie asked him straight: "how long will the oil last?" He said: " I don't know! All I know is that I can get as much oil today as I want!"

This is what a guy said who cashed in 780 million in his stock options when he retired and bought a 2000 acre land in Texas that has its own lake and comes compelete with an underground oil reserve. And his ranch is also blanced out on Google map.

So yes...with market trancparency like this I wonder why we don't have price discovery. 

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#5) On April 29, 2009 at 6:46 AM, devoish (98.65) wrote:

One small point.

Obama said (after I said the same thing in my blogs months and months ago) that a ford focus gives you as much miles/gallon as a Ford Model T car 100 years ago!!!!

A Model T gets 12-18 mpg's depending upon who you ask, usually the lower end. A full size SUV gets the lower end of that mileage. President Obama compared the Model T mileage to "an SUV", which will get around the higher end of that range, not a "full size" SUV, and especially not to a Ford Focus at 30mpg.

 

I would not suggest that Modet T fuel efficiency is similar to a Focus mpg, because it is not.

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#6) On April 29, 2009 at 7:17 AM, Pharaohflex (< 20) wrote:

Kumran, We are not running out of oil. The claims of peak oil have been around for 40 years...they keep saying ok NOW is the peak, then a few years later they move the curve to the right and once again ok NOW is the peak. All the speculation on oil supply is based on culling info from publicly available data about places (National Oil Companies) that are very secretive about what they really have. The International Oil Companies are still replacing their annual production with new reserves, and this doesnt include the oil that they know is there but cant book as reserves because of the strict definition of that term (they are classified as resources). This is my field of expertise (PhD) and most of the alarmists out there are not technically qualified nor have access to the data to be making the assertions they espouse. However, I do hope that the fear continues so that when the world economy picks up, oil can skyrocket again and I can make some more money :)  Regards.

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#7) On April 29, 2009 at 7:37 AM, IIcx (< 20) wrote:

Just a guess and great charting binve; Thanks. 

We're at the end of the month so the markets are likely to rise for the next several sessions. May isn't looking pretty though.

Russell is currently within points of its rally projection and the Nasdaq transports are already in decline. Utilities have been showing modest strength which may be some of the first safe haven moves or moves out of gold into something stable.

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#8) On April 29, 2009 at 8:53 AM, lemoneater (82.08) wrote:

Devoish, thanks for your comment about the Ford Focus. We own one. When I heard that it had the same fuel efficiency as a Model T, I thought that was a ludicrous statistic. What bothers me most about many politicians of EITHER party is that they speak dogmatically on a given subject whether or not their facts are accurate. Doctors have to pass exams before they are allowed to practice, so do lawyers, why not politicians? History, economics, logic and some science and proper research methods would be on the exam.

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#9) On April 29, 2009 at 9:11 AM, rofgile (99.30) wrote:

Couple of thoughts: 

 

1) I thought oil prices were a leading indicator - when oil prices are rising that means that there is increasing usage and a rising in economic activity.  When later it becomes apparent that there was an increase in economic activity it causes valuations of companies in the markets to go up.  - So by this, oil's price rise and the subsequent (started about 2 weeks later) rise in the equities makes a lot of sense. 

 

2) As an earlier poster noted, oil prices typically rise in the summer months.  Just look at last year. 

 

3) Equities have already lost huge - for them to regain some is not an over-buying condition - it may just be a return to the low end of sane valuations.  

 

And for PharaohFlex - There's lots of oil in the world, but what remains is increasingly harder to access at low cost.  This is reflected in the rise of tar sands projects, deeper sea drilling, investigating the arctic for oil, companies like Sasol that do gas-to-oil.  These are indications that the major easily accessed oil is running out.  The biggest current sources of oil are the Saudi's reservoirs, and there is some questioning about how much still remains.  While new sources such as near Brazil have shown up - oil is getting hard to get at, while demand (over a many year trend, not this last year blip) is rising.  Oil prices should keep rising in this case..  

 

-Rof (Thanks for the blog and charts) 

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#10) On April 29, 2009 at 9:34 AM, binve (< 20) wrote:

Adam512, Thanks. Yeah, of all of the things I am most bearish on, financials are at the top of my list. They are now nearly up 100% from the bottom (via XLF) and have no momentum and a lot of open chart gaps below.

awallejr, Do not take my projections that seriously (in fact take nobody's projections that seriously). That is a rough expecation of what might happen. The only thing I can guarantee is that the move from A to B will not happen exactly as I have shown :). But what I am looking for is a general move that looks something like that.

As with oil, it has been fighting the $50 mark.  But it is coming into its "season" now (through June) so not quite sure why you are bearish short term.  I would expect a rise then a pullback in July. Of course, anything goes with this swine flu story (tho personally I think it will pass).

Here we have agreement. Oil is coming into its season, and I think oil is going much higher before the end of the season. I am simply arguing that it does not go from $50 to $75-$80 without some significant pullback first. And so far there has been none.

KamranatUCLA, Thanks for the comments, but I have to disagree with some of your assertions. I think you are confusing a few issues and I want to help clear them up:

Now...there is a very big discrepency as how long the oil will last. When prices were around $150/barrel some said we only have oil for another 20 years!

This is not true, and I don't think anybody that is credible was saying this. What is true, and will not be able to be proved until we have passed it, is when PEAK OIL will have occurred. You may be familiar with the concept, but let me summarize for those that are not familiar:

Peak Oil: An oil field is discovered by test wells and once it is established more wells are drilled to maximize output. At some point, all of these wells reach a maximum output rate (eg: bbl/day), and eventually this rate begiins to go down. Essentially the production capacity of an individual oil field "peaks". This is a well established phenomena that has been observed for all of the really old oil fields. There is a finite amount of oil in the world. And so what is true for an individual oil field is also true for collections for oil fields. This is where "PEAK OIL" comes from, that the maximum production capability for the entire world will peak as some point.

This discussion in the last few years revolves around whether or not we are experiencing peak oil. Based on the lack of new discoveries, the size of new discoveries, the accessbility of new discoveries, and the age of the current major fields, peak oil could be soon or we may have already passed it. Gawhar, the biggest field in Saudi Arabia, has data to suggest that it may have already peaked, and there are other major fields already on the decline.

This in not the same as "we have only 20 years of oil left". The peak is the peak. It took us hundreds of years to build up to the peak, it will take more that 20 to use up the other half.

Now getting all of that out of the way, I agree with you 100%. This is a serious issue, and one that has been politicized so much that there is a lot of false information and bad interpretations. This is ulitimately why I am long term bullish on oil and alternative energy. Because the world is finite, but the population is growing as if it is not. It is easy to see the disconnect here IMO.

Thanks for the comments!

KamranatUCLA and , devoish,  This is a good discussion. I think deviosh is providing the correct counterpoint to Kamran's comments. But let me add my $0.02.

First of all, CAFE standards should be higher, and should have been raised a long time ago. We have the technology to make more efficient engines and small investment years ago would have resulted in much more efficient engines today. 

Devoish, is right on. Also Model T's only had 2 forward gears, compared to 5 common today. Tranny weight for the Model T was much less. Also the top speed of the Model T is much lower than todays cars. So while you may expend the same fuel in an SUV, it will take you 3x as long to get there in a Model T. Weight-necessary saftey features exist in today's cars travelling at today's speeds that do not exist on the Model T, further skewing the efficiency argument.

So while I am highly in favor of more efficient engines, and think we should invest in them today, I think the comparisons that are being made to the Model T and today's cars are irrelevant and add nothing useful to the debate.

Pharaohflex, I am not sure I agree with all of your assertions, I have been researching peak oil for a couple of years now. It is a critical issue, and one that must be looked at on the facts, and not though a political lens. Since this is your Ph.D. area of expertise, I hope you write a blog on this. I would most definitely be interested in reading this. We need a lot of educated and informed people talking about this topic. Thanks!

IIcx, Thanks! Yeah, I am looking across other sectors too looking for confirmation and non-confirmations. This is another reason why this looks like a top. Not all indices are moving up or down in tandem. The breadth is very weak, which is another toppy sign.

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#11) On April 29, 2009 at 9:49 AM, binve (< 20) wrote:

rofgile, Thanks for the comments! I think oil is a leading indicator, and in times when the economy is truly growing, I think it is a reliable one. However, I don't think the economy is growing right now.

I think oil and the stock market are just rallying off oversold conditions. Thats all. Oil was more oversold than stocks and so it rallied first. I do not think the relationship between oil and the market is forshadowing an upturn in the economy. I am very bearish on the US economy right now. I think companies are overvalued, and nowhere near true bear market bottoms.

Now that doesn't mean there would be a really big rally in the market. After the pullback I think there will be.  But nothing rallies in a straight line. A pullback needs to happen before the larger rally can take place.

As far as oil, yes I agree that this year there will be a large rally during the summer driving months. But I don't think it will happen from these overbought levels. I think there needs to be a real pullback first..

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#12) On April 29, 2009 at 11:07 AM, darroj (32.75) wrote:

binve, welcome back from vacation! Hopefully you enjoyed your time off, but I'm glad to see you right back at it.  As always, I appreciate your time and efforts.

I know you're near 100% short, what are you buying? I may want to pick up something as a hedg. I've liked the mini-rally (for my long term plays) but would like to try to protect them a little.

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#13) On April 29, 2009 at 11:26 AM, binve (< 20) wrote:

darroj , Hey thanks man! The short in my trading portfolio consist of:

1. Financials (largest position)
2. Small Cap Growth
3. Broad Market

Finanicals are ridiculous right now IMO. 100% off the bottom?!!, and instead of a pullback on April 12, we got a huge gap up. (looking at XLF). The whole sector looks inflated and unrealistic. Just my $0.02.

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#14) On April 29, 2009 at 12:21 PM, portefeuille (99.60) wrote:

... it will take more that 20 to use up the other half.

"the other half" could of course be much larger than the first ...

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#15) On April 29, 2009 at 12:39 PM, binve (< 20) wrote:

portefeuille, Hmmmm.....

... it will take more that 20 to use up the other half.

"the other half" could of course be much larger than the first ...

While that is possible, I don't think it is likely. We tend to use the most easily expolitable resources first. E.g fields with oil very near the surface, needing only shallow wells and small pumps. We have already found every one of these fields on the planet.

That is why we have so many rigs and deepwater exploration comapanies now. This is why we have been looking into the Tar Sands. We don't put rigs out in the middle of the ocean because it is fun or safe, we do it because there are no better safe inland sources.

Now, will the size of these deposits be larger? Perhaps. But consider the big field discovered off of the Brazil coast a few years ago, which is the biggest one to be found in a couple of decades, is much smaller than the Saudi fields. And it is not like explorers haven't been looking. This doesn't give me a lot of confidence that there is a vast amount of oil just waiting to be discovered.

But now you have to consider the other half of the peak oil argument, which is the ease of extraction.

Shallow surface fields give a huge energy return. Maybe 1 barrel of oil (or its energy equivalent) is required to pump out 100 barrels of oil from the ground. Then it is easily moved through a pipeline.

Rigs are not like that. You need to move the rig, drill down several miles, pump up through the ocean floor, move crews across the ocean to the rigs. Tankers need to move the oil from rigs to ports. This is very energy intensive to extract the oil.

Surface wells in the Middle East (lowest cost in the world) have an energy return of something like 10-20:1. Rigs are on the 3-5:1 range. Tar sands? Much less. 

So while there may be the same amount of oil on the other half of the curve, extracting it will be a much harder job.

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#16) On April 29, 2009 at 1:09 PM, madcowmonkey (< 20) wrote:

On the tar sands.......don't stop to mention how much natural gas and water is used to acquire the oil ontop of the heavy machinery to pull the oil out. I have been working on the estimate to find where the price of oil will make the oil sands profitable. I put a question out to others if they know, but haven't heard anything back. I don't think anybody really even knows, not even the companies that are in the projects.

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#17) On April 29, 2009 at 1:17 PM, binve (< 20) wrote:

madcowmonkey, Exactly. Once you factor in the cost of water, pumping, storage, cleaning before discharging, natural gas, equipment, waste rock / material removal and processing, etc. I bet the energy return on the tar sands is about 2:1. Not that great.

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#18) On April 29, 2009 at 1:33 PM, tahoestock (29.98) wrote:

binve...welcome back!  Missed your charts and insights (the lounge was okay in your absence, especially columbia1, but way too long to follow). 

Just an observation on the oil chart:  it's interesting to see price consolidating around $50 with declining stos.  While I agree with your long term assessment (I'm long), in the short term I could see a move to the $75 level without a pullback.

Re $SPX:  yeah, this puppy is confused.  I chart SDS as well to give confirmation on market direction.  Given today's current action SDS might have completed wave 5, at least by my indicators; I am 75%/25% long/short; more than likely it flips today.

Looking forward to your future analysis.  Regards.

 

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#19) On April 29, 2009 at 1:59 PM, binve (< 20) wrote:

tahoestock, Hey thanks man!

Yeah, I will agree with you that oil can go from here ($50) to $77 with no pullback, but I don't like it. That is a very risky trade to me. The move from $147 to $35 was such a strong move down. And it based for a couple of months. Which was good. But then it succeeds on the first major breakout to go from $40 to $77 without any major corrections?

It may happen that way, but I won't be a part of that. That seems untradeable for any real portion of my money. $55 was a fantastic exit point, but makes a really crummy entry point. I am waiting for a better entry, or not at all.

Yeah, the move above 875 on the $SPX is very problematic. My count in now invalid as Wave 2 (which is what is being extended today) has now travelled past the beginning of Wave 1. This is a no-no. I have to think really hard now to know what the chart is saying. Meanwhile I am still short while thinking about this. All of my other analysis is still screaming weakness.

Thanks man!

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#20) On April 29, 2009 at 3:38 PM, tahoestock (29.98) wrote:

binve....I'll share my $SPX count with you just for conversation (the direction is right but the count may not be).  With today's wave-5 extension I have Wave A (of A-B-C correction) complete.  I know others are maybe calling it wave 1; in this economic environment I don't see a 200-point wave 1 followed by are larger wave 3 and/or 5.  By my count SDS could be completing wave 5 today, or at least shortly.  So a change is near IMO (and investing accordingly).       

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#21) On April 29, 2009 at 3:48 PM, binve (< 20) wrote:

tahoe, thanks man. Could you post a chart here? I would love to see how you are making the count. But I definitely agree a change is near. However, I have been thinking a change is near for the last month :). Shows how much I know :)

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#22) On April 29, 2009 at 5:13 PM, awallejr (85.49) wrote:

I am kind of liking this market now.  People are finally concentrating more on earnings than fear.  Surprisingly or not, earnings have been beating expectations quite a bit.  And if there really are legs to this rally, small caps will probably move the most percentagewise.  While I was spoton about April going to be an up month from a seasonal viewpoint, anything goes for May. 

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#23) On April 30, 2009 at 1:37 AM, tahoestock (29.98) wrote:

binve...don't know how to post a chart; need a set of instructions some day, but do have a stockcharts account.  GV's post on the lounge at 2:00am (doesn't that guy ever sleep!!?) is real close to what I have; I just run wave v through today like I said above.  

Really appreciate all you do...I have been profitable on every trade this year with much of the credit going to you and GV.  Hope it holds up through the continuing chaos.  My best for you in tomorrow's trading. 

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#24) On April 30, 2009 at 8:44 AM, binve (< 20) wrote:

tahoe, below are the instuctions on how to embed a chart. And thanks for the compliments man! Most of my trades have been profitable too, but the recent ones, not so much :) Best for you as well my friend!

To embed an image, here is the deal:

1) Go to www.flickr.com and sign up for a free account (easy, takes less than 3minutes)

2) Chose the picture and upload it to Flickr through the upload page.

3) After you upload the photo, go to your "Photostream" and click on the photo. There will be several links / buttons above the photo.

 3a) Click on the one that says "All Sizes"

 3b) After you do you will see at the top "Small / Medium / Large" etc. Click on the Medium or Small one.

 3c) Now at the bottom of the photo there are some text boxes with HTML in it.  Go to box 2 labeled: Grab the photo's URL

4) Come back to Caps and write your comment

5) At the end of the comment, write this code:


But replace URL_TO_SMALL_PIC with the smaller picture URL from Flickr, same with the large one.

- Use the small photo URL inside the IMG Tag
- Use the large photo URL inside the a Tag

You are set!

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#25) On April 30, 2009 at 12:44 PM, tahoestock (29.98) wrote:

binve...thanks for the info; looking forward to trying a chart when I have a few minutes.  As I'm typing this the market is off 100 points from the high...hmm.

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#26) On April 30, 2009 at 12:53 PM, binve (< 20) wrote:

tahoe, Yeah Financials ($BKX and XLF) and Oil are down hard. Also financials have not been making new highs with the S&P the last few days. Breadth is decreasing. This thing is about to tank IMO.

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#27) On April 30, 2009 at 1:20 PM, kstarich (30.59) wrote:

Binve

So glad you're back from vacation!  I like your perspective here.  I keep questioning GV on the count.  I thought maybe we just ended corrective wave 2 from 666 but as I see on your chart and reading EWP pg. 78, I agree we have no "wonder to behold" third wave here.

I have set tight stops on longs and can't wait to buy my fav's when they are real cheep!

Thanks for all you do :-)

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#28) On April 30, 2009 at 1:36 PM, binve (< 20) wrote:

kstar, Hey how have you been! Thanks, I really appreciate the compliments :)

Yeah, I when I look back at the wave personalities, I think we have a finished 5-wave impulse from March 6 - Apr 20. I was originally working on the assumption that the larger degree 1-2-3-4-5 would have a zigzag as the 2 (since this is where they usually happen, not in 4). But the last 2 days completely violate that assumption (since the impluse in wave 2, the subwave 2 travels past the beginning of 1)

But both tahoe and I are not conviced that 666 marked a [5]/1. In fact, I tend to lean pretty hard that it is a [3], which means the larger wave we are operating in right now is a [4]. This means we are tracing out an A-B-C and are currently in B (I have been carrying this alternate counts on my charts for a while).

If this is the case, then the B we are currently in is shaping up to be an expanded flat. But I think the correction will be a lot nastier with more surprises than most people think.

I have no idea this is right, but I tend to think the correction with be very surprising, somthing like what I show below. Obviously this is a lot of supposition, but my thinking goes like this. The Wave 1 (or Wave A if you go by my assertion) was very long and held longer than most people expected), this sets up wave 2 (or B) to be very complicated with a lot of heartbreaking corrections. Becuause there are still a lot of bulls around who don't want to accept a correction right now.

I would love to get your thoughts on this.

Thanks!



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#29) On April 30, 2009 at 4:16 PM, PrestonCheek (31.87) wrote:

Binve, sorry I was so long reading and rec'n your blog.

Great work on the charts, I'm long oil and I was hoping for the pullback to add to my position as well. I understand your logic behind your call and I don't know if the upcoming summer months are going to be like the previous summers we have had, people are going to stay home and save I think.

Welcome back and I will seeing you in the lounge.

Preston

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#30) On April 30, 2009 at 4:29 PM, binve (< 20) wrote:

Preston, hey man, no worries :). Thanks I appreciate that. Yeah, I want to be in oil, but I want to get a good entry. $40 to $55 was a nice move. But $50 to $77 based on the chart above is not a nice move. $45 would be better, but based on the technicals and patterns, and the struggle at $55, I think a move down to $40 would be a lot more consructive. So right now I am short the market, and when a good entry presents itself in oil, I will cover and go long in oil.

Thanks man, and take care.

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#31) On April 30, 2009 at 4:45 PM, darroj (32.75) wrote:

binve

I read your discussions above about the oil sands and I've previously heard a lot of chatter about players like BQI and NOA. What are you thoughts on these guys at this point? While clearly they need the higher oil prices to become profitable, it could be a a decent entry point (BQI especially just got hammered by offering more shares).  What are your thoughts on these oil sands companies in general? BQI looks cheap at $.75.

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#32) On April 30, 2009 at 4:53 PM, binve (< 20) wrote:

darroj, Man, I don't know. Personally I stay far away from these guys. In the future, the oil sands need to be explored, because I believe peak oil is near term (we have passed it or it will happen soon - years not decades) and the size and number of discoveries (which have been declining) will continue to decline. So while this will be an investing area, it seems like no one knows how to value the energy content in the the sands or what the true total extraction costs (including environmental considerations) will be. Estimates are all over the place.

And while BQI is proabably in the lead right now, the price of oil may be low long enough for them not to survive. They have lots of debt and oil may stay sub $80 for a couple of years before it gets back into triple digits. Maybe it will happen faster, maybe not. 

They are way too risky right now IMO. Might be the buy of a lifetime, or it might be throwing away your money. I like trades with a better defined outcome :)

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#33) On April 30, 2009 at 7:10 PM, kstarich (30.59) wrote:

Binve

I am going to do more research on this tomorrow.  If we are in [3] as you suggest then at what # are you starting [1]?  I assume we are in intermediate ABC corrective pattern.  With EWP it seems you need to follow for months to truly grasp it.  For me the Fib. lines/support resistance etc. seem to be better measures for me.

Also, I do believe  there is some credibility to the astrological factor.  I will try to add more on this topic tomorrow.

All in all I always like to see your perspective.  Keep up the good work.

I still love STP.  I keep buying and selling.  Wash, rinse, recycle.

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#34) On April 30, 2009 at 7:35 PM, binve (< 20) wrote:

Hey kstar, I don't think we are in [3]. I believe we are in [4], I think [3] ended on March 9. So the A, B and (eventually) C in bold purple in my charts above are A of [4], B of [4], etc. I think the rally that will eventually take us to ~1000 (the end of C of [4]) is ulimately just a corrective wave before we head further down. 

That is simply a interpretation. I am very unfamiliar with the astrological factors, but you and missmalibu definitely have some things to say about it. I am very interested in your take!

I am very glad you come here to comment on my posts. I absolutely positively do not have the answers (because no one does), and so everybody's different opinions will add clarity to the overall discussion.

STP is a good vehicle for trading. Nice work :) and thanks!

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#35) On May 01, 2009 at 12:09 AM, Tastylunch (29.19) wrote:

binve 

not much material stuff to add other than to say the fundamental situation doesn't much more action in Oil probably now. The supply situation continues to worsen.

http://pragcap.com/oil-held-hostage

I don't expect much more now until at least fall. Memorial days is nearly here after that I expect slack demand. We'll see.

dunno about the market I'm not seeing any catalysts for any major moves barring swine flu going ballistic

nice charts man.

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#36) On May 01, 2009 at 8:39 AM, binve (< 20) wrote:

Tastylunch, Thanks man. Yeah, the demand situation is going to be very interesting. We will see if summer vacations turn into shorter but driveable vacations, which might mean increased demand.

I think the market catalyst here is time. 

It has spent to much time overextended on "fear of missing". Look at the S&P chart above and look at the time required to make new highs from March 6 - Apr 1. New highs are very frequent. Now look from Apr 1 - Aprt 29. New highs are now occuring once every 4 days to a week. Slowing down a lot. And breadth is decreasing in the rally too. Finanicals did not make a new high with the S&P this past week. 

Rally is puttering and now needs to correct. How will it correct? Who knows. But because there are still a lot of bulls around, I think the correction will be very spiky and violent in both directions. And because of this I think we will be getting several headfakes before the corrective phase is over (say +/- 30% moves in a few weeks). My chart in #28 above outlines one possible scenario. Am I right? Almost assuredly not :). But the time has now passed for a nice simple correction and a straightforward continuation of the rally up.

Thanks man.

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#37) On May 01, 2009 at 10:58 AM, CanZen (24.77) wrote:

Binve,

Thanks for your perspective.  I'm currious to hear your thoughts on a few things if you have a moment or two.

What are your favourite vehicles for investing in oil?  I've heard from Sinch that there really is no replacement for actual futures contracts, but I don't know if there is a way for the average joe shmoe to purchase these.

Do you use any short ETF's for shorting financtials/small caps and if so, are you concerned about so called 'decay'?

In terms of gold and PMs, I understand Sinch's and other's arguments about manipulation in the market and therefore it may be more difficult to make a timely purchase.  But could a bull run into early summer not bring a more attractive entry point?

Peace and cheers,

CanZen

 

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#38) On May 01, 2009 at 11:14 AM, binve (< 20) wrote:

CanZen, Not a problem, I am happy to share.

As far as oil right now, I am very bullish on the commodity, and neutral on most producers. Absolutely, futures are the best way to go. However, I also cannot trade futures so I use these vehicles in order of preference: USL, UCO, USO, DXO.

USL is based on a fractional buy-in of each futures contract up to 12 months out. It is the best proxy for oil that can be bought on the stock market, and it tends to track Cushing spot pretty well.

I do short through ETF and yes, I am very concerned about volatility decay. It is a real phenomena and it will kill your return from a LTBH perspective. Therefore 2x and 3x ETFs are trading vehicles only. I typically hold them for a week or so, maybe a month at most.

As far as gold, I am a huge bull. In fact I think gold is the only legitimate bull market that exists right now. A large portion of my long term holdings are in gold.

The question you ask is very similar to one the darroj asked me a few weeks ago. I will post that response below. Please feel free to ask for clarification if needed. These come from this post: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=175404&t=01008419310939784033. Look at comments #10-#16. Thanks!.

For a proxy for bullion, CEF is by far the best investment. Avoid GLD, SLV, DGP, etc. with long term money. CEF is in Canada, rigours auditiing, excpetionally good management.

GDX is good a a miner basket and that is a good place to start while you research others .  :)

For and education on miners here at Caps, there is absolutely 100% no one better than TMFSinchiruna / Christopher Barker. Read his blogs, read his pitches, and then look for his articles. Check out this post

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=176983&t=01006124249416869148

Yeah, if you go back and read the Gold section of  Technical Investing Themes: MacroTrends... post you will see where I enumerate why it is hard to "fairly value" gold. Technicals are tricky because of the inflation response to Fed policy argument I outline above.

So if this is your initial purchase, and you are investing for long term protection against dollar devaluation, then in my mind price is much less relevant. I would suggest in this case to set an amount aside and Dollar Cost Average into CEF.

If you are treating gold as a trade (which I recommend that you do not do), then you can perform some TA on it. I don't because I do not trade gold. I am a long term accumulator of gold and simply buy dips when I have money to do so.

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#39) On May 01, 2009 at 11:53 AM, CanZen (24.77) wrote:

You're generosity knows no bounds.

Thanks Binve

 CanZen

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#40) On May 01, 2009 at 12:22 PM, binve (< 20) wrote:

CanZen, Thanks, glad it was useful :)

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#41) On May 04, 2009 at 12:19 AM, tahoestock (29.98) wrote:

binve...okay, let's try a chart.

enlarge

Hopefully some of this information may be helpful to others:  I use EW to provide a general sense of market direction and among other indicators TRIX to help determine the end of a wave.  Truth be told I do not follow EW rules per se; I don’t worry about wave 4 overlapping wave 1, or that wave 3 is not the shortest wave, wave 5 extensions, diagonals, degrees, zigzags, whatever.  I do, however, pay attention to (and respect greatly) the work of others who are much more adept at EW than I am.  It’s not sacrilege; just for me, not necessary to successful trading.  Comments on the chart:  At this time I’m not sure 666 is the bottom.  Rarely (if ever in my experience) has TRIX indicated the beginning of two waves using the same entry point (marked A on the indicator graph).  That’s why I’m leaning towards a new [5] wave low, but who knows?

enlarge

This is the level I trade with.  Intermediate waves may not match Russ or Columbia or you but I think the major wave counts are pretty close.  I also do a third chart using a 10-minute period that helps confirm this chart.  I know this is simplistic charting compared to the work of others but it has enabled me to be profitable on every trade since last October (I am grateful Mr. Market!).  I can add to positions on wave 2 and 4 retracements, hold an extended wave 5 (like it is currently), and begin to set up positions for the next major wave, all without too much detail work.  (I have also traded futures this way for twenty years….amazing how a modified EW (mEW) system works with pork bellies!  I’ll see if I can post a chart.) 

 

The chart indicates there may be more upside available before the next down wave. 

 

Thanks for your input and encouragement.  Ask questions and make comments if you wish.  Have a healthy and prosperous trading week.

 

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#42) On May 04, 2009 at 10:34 AM, binve (< 20) wrote:

tahoe, Thanks for the charts man! Yeah, based on your comments it seems like we are thinking very similarly.

At this time I’m not sure 666 is the bottom.  Rarely (if ever in my experience) has TRIX indicated the beginning of two waves using the same entry point (marked A on the indicator graph).  That’s why I’m leaning towards a new [5] wave low, but who knows?

Yep, same here man. Below is a chart that I have posted on GV's blog before (or a variation of it). It is my chart interpretation of your statement above. Again is it right? Who knows. Right / wrong is not as important as general directions. But if we are in the middle of a corrective wave (either {4} on my chart or [2] if you go by a larger count) I believe it is setting up to be a complicated correction, with lots of twists and turns. The market has passed the point of no return for a simple correction now IMO.



Enlarge

The chart above is a general description, and the chart in comment #28 is a possible corrective scenario.

As far as the upside goes, things will get very interesting if we see the scenario that columbia1 has been laying out:



Enlarge

Either way, this promises to be a very interesting week :). Take care my man, and prosperous trades for you!

 

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#43) On May 05, 2009 at 3:57 AM, automaticaev (30.88) wrote:

ive been short the whole time messed up once with FAZ.

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#44) On May 14, 2009 at 3:01 AM, Alwaysgolong (< 20) wrote:

Been away for a while myself. I need to get back in the saddle too. 

This has to be the best thread I've read in a long time. I'm not very sharp when it comes to TA and charts but the parts and exchanges I DO get -- are awesome by themselves.

I don't nessasarily agree with some of it, but again its a great read. IMHO: The notion that we are fixing to run out of oil, or we have peaked and that somehow we will slide down hill from here is just not as big a deal as some people make it out to be.

I mean, I realize that there is a finite amount of pretty much everything. Yea, you can grow more corn, but theres only so much dirt you can grow it on. The wind will last forever for sure. I live on the caprock in the Texas Panhandle. I know all about wind. But again, how many windmills will it take?

I've been to California. Windmills everywhere you look. Its an ugly site if you ask me, but beyond that, the state is still broke. Their economy is in the crapper. And they have rolling blackouts. Obviously there are some other causes to these problems, my point is -- alternative energy didn't prevent it and can't fix it.

I'm a blue collar energy worker. Been one all my life. I don't have a proper education, certainly don't have a PHD (did I spell that right? :) But I grew up in the oil fields of Texas. I've worked my entire life in the energy sector. Almost all of my investing experience is in the energy sector. I've been a lot of places including Saudi Arabia. I think I know a little bit about the oil sector. I would LOVE to play devels advocate and debate a lot of the points made in this thread, but every time I step into the arena of ideas, I get slammed as a neocon or some other non productive mud slinging waste of time. There lies the problem with educating people about this subject. Most people hate oil so bad, SO BAD, that listening to the opposing veiw is out of the question.

Disclaimer: At present, I am mostly cash stashed. I own 2 stocks. Both of them are Alternative energy green stocks. I too am waiting for a better entry point to get back into oil stocks. I don't trust 60 dollar oil as far as I could throw a train right now.

 

 

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#45) On May 14, 2009 at 10:39 AM, tahoestock (29.98) wrote:

Alwaysgolong.....those of us who travel with binve would welcome your insights on oil.  If you found this discussion helpful then check out his May10 blog too.  Regards.

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#46) On May 14, 2009 at 11:15 AM, tahoestock (29.98) wrote:

Alwaysgolong....don't know if others will pick up this thread (though binve always responds) so I have a second thought - maybe start another thread related to oil (and/or energy in general) on your Caps blog.  I'll list you as a favorite and pass along a recommendation for others to check it out; then we can get a discussion going.  Just a thought.  Profitable trading in the meantime.    

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#47) On May 14, 2009 at 12:01 PM, binve (< 20) wrote:

Alwaysgolong, (Love the name by the way :) ), Thanks for the comments! Yeah, I am really happy with all of the intelligent discussion that occurs on the posts. Good stuff.

Yeah, people confuse Peak Oil with "we are about to run out of oil" And that's not the case. Peak Oil means we used up about "half" of the worlds oil, that we have "peaked" in the maximum output. The thing that is more troubling (and why oil makes a particuarly good investment right now) is that the first half of the oil supply was easy to extract: Oil is just bubbling to the surface in many places or via shallow surface wells. This wells are all found and / or tapped out. The second half of the oil will be much harder to extract: whether it is in the middle of the ocean under a few miles of rock or in the oil sands. An the cost of extraction necessarily will rise eventually. Which means prices, over the long term, have only one direction. UP. This is why oil and good producers are in my long term portfolio.

'm a blue collar energy worker. Been one all my life. I don't have a proper education, certainly don't have a PHD (did I spell that right? :) But I grew up in the oil fields of Texas. I've worked my entire life in the energy sector. Almost all of my investing experience is in the energy sector. I've been a lot of places including Saudi Arabia.

That is great!! I would love to get your thoughts on oil supply and extraction. If you read some of my older posts on oil (Dec/Jan) I think you will enjoy them. I have been researching oil for several years myself. And having the opinion from someone who works in the industry will add A TON to the conversation.

Thanks! You are welcome on my posts anytime!

tahoestock . Hey man! Yeah, thanks for the responses! And I think your suggestions are great! Alwaysgolong, definitely write a post on this. I think that would be very educational! I will add you as a fave too and follow you.

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#48) On May 15, 2009 at 3:49 AM, Alwaysgolong (< 20) wrote:

binve : I would absolutely LOVE to write a post on this subject. But I must warn you, it will be a looonngg one. I'm just not gifted in sound bites and catchy phrases. But I can throw something together than hopefully makes sense.

I think I will go read your previous posts first though. There are so many poster's here its crazy sometimes. A lot of them are over my head. I've been at this for quite a while, but I've always made $$ staying on the simple side of things, so I've stuck with it.
Tell ya what I'd really like to do, is spend about 8 hours a day for a month with you and learn more about TA and Charts!

Anyway, I have added you and Tahoe to my very short list of Favs. I love yall's stuff and thanks for the replys.

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#49) On May 15, 2009 at 8:12 AM, binve (< 20) wrote:

Alwaysgolong, LOL! No worries on the length of the post. Mine are not exactly short either :). I tend to like more detailed posts anways that try to sink their teeth into an analysis. So I think that would be great.

Yeah here are a few you would like: 

Short Term Oil. In this one I talk about Oil in the main post (mostly TA but a little FA too). But the really good discussion takes place in the comments section. 

Short Term Oil - Update. Comments in this one are good.

Technical Investing Themes: Macro Trends. This shows where I evaluate oil in conjuction with the other sectors I like to look at regularly.

Tell ya what I'd really like to do, is spend about 8 hours a day for a month with you and learn more about TA and Charts!

LOL! Actually you might consider going to GoodVibe's blog and doing almost exactly that. We have a lot of TA discussions on his blog. And he has a chatroom that talks about TA and the markets. It is usually very good. Go to this blog http://caps.fool.com/Blogs/ViewPost.aspx?bpid=190406&t=01009449456398254945, and go down to comment #49 to listen in. You are more than welcome there.

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