Monday, January 22, 2007

Mid Morning Comment

Crude oil continues to rise along with natural gas.. but the nat gas rise is only part of the equation. The latest COT data is the real reason why crude is going higher. Wow is all I can say to the latest COT data and some of the expert analysis I've seen. Let me put it this way, if you don't know what you're doing, you're liable to make the wrong conclusion that with open interest as high as it is that crude should be headed for a total implosion. There's much more to it than that. It may be too early to call a bottom in the crude market, but things sure are getting interesting.

Stock market at lows of the day. Boeing downgrade is getting some of the blame. Wachovia had downgraded to Market Perform from Outperform saying commercial aircraft order cycle has peaked and that the company's 787 program could experience delays. Pfizer rose pre market, then the real players came in to bid it down by less than 1 percent, but PFE's dip does get the recently strong pharma stock group off to a bad footing this week. By the way, good analysis by the guy who commented in my weekend thread about there not being much bullish conviction about PFE.

50 dma melts today for QQQQ and for stocks like AAPL. It would have been better if I had lapsed into a 3 week coma and just woke up today to be back here at this point again for the market, plus I would have missed this miserable cold/sore throat/stomach virus/screwed up liver enzymes condition. But back to the market, I am now looking for a close below 1414 on S&P cash to spell greater opportunity for the bears. So 99 off the Dow today still keeps us in the range bound neck of the woods. VIX up above 11 today... but let's face it, until VIX can break above its 200 day of 12.95 this is also remains part of the range bound script.

With energy higher today, energy stocks in general are going higher. Ahead of the President's state of the union message Tuesday night, ethanol stocks are lighting up. The Preisdent is likely to call for more use of cleaner burning fuels. What we really need is an energy Manhattan Project to come up with a real alternative to fossil fuels, but we sure won't be getting that from Mr. Big Oil President and never mind that it still takes about 2x the amount of energy to produce corn based ethanol vs the energy the ethanol yields - that's what I mean by a scam. And be that as it may, the ethanol scammers, err.. the ethanol company shares are on the rise today... names like ADM, PEIX, AVR. What's good for ethanol is also good for grains too. But I'll be honest, I'm long in this space (always smart to chase the scammers who are getting our tax dollars), for now and perhaps longer if the government pours more money into CELLULOSIC ethanol research.

4 comments:

Lauriston said...

Second week of earnings - I wonder how long it will take for the message to sink and markets to take cue from guidance. The momentum plays are starting to break down GOOG AAPL YHOO NYX AKAM, and today when everyone expected oil stocks to be up (from rising crude), they are also joining the selling. I think we need some good drop before any rally can commence (if at all). This range has been frustrating both bulls and bears.

Anonymous said...

Jim,
The COT report for oil is showing the largest short position in history. The end users (refiners)are buying heavily at this time but the producers are selling as much as they want to buy. Every bottom so far in this bull market has been accompanied by a fairly large net long position and a reduction of shorts. I commented months ago that even after the huge correction from the summer the net position never got to an extreme long like before. I expected at the time to get a mild bounce and then more weakness. That's exactly what has happened. Unless something has changed I would expect any bounce from here to be rather weak. I personally would prefer to wait till a get the big boys on my side before jumping in on oil. This extreme weakness in commodities seems to be suggesting global weakness. I guess we'll see in the coming months. BTW the S&P futures have been at extreme short positions for a couple of months now. If the markets getting ready to correct I would think it would take everything with it.

Gary

Jim K said...

Gary, digging deeper into COT, what gets me is that the large specs bought back 90% of their short interest last wee while the commercials sold of 90% of their NYMEX length. There were also rumors last week that a state owned oil co was setting up hedges. This is why I'm not ready to call a bottom, but wary of over bearishness, for the time being. Anyway, I was long this morning... shorted down to 53.30 when the run ran out of gas... now back out. My rant earlier was in reax to some reading i did over the weekend elsewhere.. not sure it's a completely safe bet that the path is clear to $47-$48.

Anonymous said...

Jim,
I tend to look for extremes in the commercial positions. The spec's are trend followers. The Commecials are regression to the mean traders. The commercials are producers and users of oil however and not just a hedge fund looking at charts so I put much more weight behind what they are doing than the specs. The commercial buying or selling is what will turn a trend. It just doesn't appear that at this time the oil people think the decline is over.