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The chart at the top is all-important OIL. It just fell back to the middle of its channel to 84.91, after hitting a low of 83.60. Meanwhile, the Dow didn't rally. It's not a good scenario. Now OIL has room to run to the top of its channel, currently at 89, sending the Dow on another leg down. We're predicting a sharp jump in OIL to the top of its channel triggering a capitulative washout move in the Dow, allowing at least a short term bottom to be put in. But when?
Meanwhile, the chart of MOS (bottom chart) is getting too "comfortable" hanging out near its support. Charts usually bounce off of support levels quickly. When they hover over them for extended periods of time, it's often (but not always) a warning sign. If MOS does break down, it will not be a slow, multi-day event. It will be a sharp drop, gaining momentum as more and more traders realize that support has been decisively broken. It does not mean that Ag is dead. As long as the majority of the stocks in a sector remain in their channels, we can have a new move to the upside. CF is nearing the bottom, but POT and AGU are far from a breakdown. If a break of the channel happens, we're going to treat it as a buying opportunity, loading up primarily on shares of AGU. We would normally be more heavily invested at this stage of the game, but the action of the broader market makes us cautious. We're only 51% invested, and hedged with a healthy dose of SMN to boot.
Channel trading unfortunately is sometimes not as simple as it appears. Every time stocks approach the bottoms of their channels, you have to prepare for the worst, and try to get in with the least possible damage. Even when our timing is excellent, our portfolio spends some time under water before making new highs. Let's just hope we get that OIL spike soon to stop this slow bleed, which is never a comfortable market to be long in.
20 comments:
In January and again in March, ag stocks in general (see the chart for MOO) spent a day or three well below the channel. Let's hope that the intraday low today is it for this correction of ag -- for the same of your 51% investment and my 15% in ag. I'm still over 1/2 in cash. Man, this is a tough market.
This is the first time that MOS has broken its 100dma since an intraday break in Aug 07. Before then, you would have to go back to Aug 06 to see it below its 100dma. Fortunately, POT and AGU aren't even close to their 100dma's, levels that both of them have broken in recent corrections. We bought some more POT, CF and AGU today. We're 60% invested, still waiting for a washout move. What bothers us is that despite OIL dropping sharply (to 81), the Dow is not up. This makes us think that when OIL does spike to 89 (up 10% in a day or two), the Dow will plunge. It would be a good thing, but will be painful when it happens. The last time OIL ran from the bottom of its channel to the top (early June), the Dow lost 400 points one day. A downtrending channel on the Dow that goes back to mid 2007 suggests that the Dow could drop to as low as 10600 before recovering. That's if it were to spike as severely as it did in Aug07 and Jan08. That would mean a 600 point move. A move like that would create enough fear to put in a very solid bottom which would likely hold for the rest of the year, at least.
Here is a chart of the Dow showing that although it is already oversold, a capitulation day could take it to 10600. We're willing to bet the farm that if we get to 10600 quickly, it will be the low for 2008.
http://img37.picoodle.com/img/img37/4/7/8/f_dowm_33b9c69.jpg
Oil spiked in June when the congressional committee hearings announced that there was manipulation of the price of oil but it wasn't illegal. Instantly the spike in oil occurred, since our government had declared open season for speculators.
When do the major ag companies begin reporting and what effect do you think that will have on ag equities? Will it mean relative strength compared to the market as a whole?
T Boone P. was on CNBC this morning. He didn't put the blame on Bush. He said that we have not had an energy policy in place for the last 40 years. I got the impression that he laid the blame on just about everybody.
The FED was in a fix going into the rate cuts, the inverse quandary exists when the fed begins to tighten. higher rates means - lower bank earnings or lower commodity prices. For this market to rally, we need financials. Financials needs lower rates. We definitely have a stalemate in fundamentals here. The only way earnings can be strong are if estimates are reduced.
I am not in the capitulation camp. But AA and GM earnings could be a swinger. I am leaning towards a washout earnings and dipping futures and a strong market rally tomorrow onwards.
We are 40% invested in SSO and UYG and a fun play uaua. This is probably risky, but we believe we got a good deal yesterday on the FNM panic. We are awaiting further confirmations before the next move.
--clarke
FXI and QLD have decisively flipped. FXI or QLD both look like good bets.
And keep an eye on UYG. It looks like it's about to break out.
There is no fundamental reason for a 30% gain in UYG, but then again there doesn't need to be.
The financials are definitely oversold, at least on a short term basis, but UYG is still a risky bet because time is against you. UYG is a downtrending chart, so unless your timing is excellent, it's easy to lose money going long. You're swimming upstream.
Still, admittedly, it looks very overdue for a rally back to the 50day moving average at 28. 26/27 by the time it gets there, though. It's dropping every day, hence the "swimming upstream" analogy.
We're 60% invested after buying a little more into the Ag dip today. We're thinking that the Ag names we're buying now will be held for 3-4 months or so until euphoria brings them to unrealistic p/e's again. In this sector, it only takes a p/e of 30 to scare people away. Apparently, the multiples of commodity-related stocks cannot get too far ahead of themselves because commodity prices are too unpredictable to sustain extended growth forecasts. This worries us a little about investing in this group. In the past, we've focused on companies with longer term growth prospects, such as MSFT, DELL, AOL, GOOG, etc. Considering you have to stick where the growth is, commodities seem to be the place to be, for better or worse.
We secretly cannot wait until the Ag names get replaced by a new growth story with a little more sustainability. But until then, this is the best we've got.
I am aiming to unload at the 20d home base touch point on the uyg. Admitted I could not catch the bottom. I have been averaging down since the high 20s. My avg now stands at 19.67. I am hoping UYG at least makes it as far as 27, in the next 2-3 weeks.
--clarke
any thoughts on QTWW? Long downtrending history that appears to have broken decisively for the upside. Volume's building, and its nearing the 40 SMA again (short term). Been watching it for a while, and am tempted to buy a little if it drops much more.
I guess the economy is not as bad as we thought? Up 150 points today..
QTWW might bounce off its 50dma, but the chart reads as a screaming sell for me. But then again, so does MEE, so I dont know. QTWW is at the bottom of its channel right now. It's just a question of whether you think energy stocks are going back up or not. I feel that they will, but cant trade based on a feeling. One thing I do know is that IF the energy stocks rebound, then QTWW is heading for $4 the next couple months. If I had the money to burn, I'd buy a stake at 2.40 or so and sell if it falls below $2. That makes it a 20% downside with a 80% upside. Not a bad gamble I suppose.
Snot - What do you think of today's AG action? Seemed to have bounced pretty well in their channels. Even MOS made a comeback in the end (that too w/ good volume). Do you think we go up from here?
- G
U gotta have guts of steel to gamble on UYG. I think it is going back down. Buy when rsi drops to 20.
I agree about UYG. Better traders than the home gamers who haunt this board have tried to call a bottom in the fins numerous times, and have been shellacked every time. A prime example is K-Fine recommending C at 22. Ouch!
If you're back to even clarke, get out while the gettin's good!
CNBC just flashed on their screen that the DOW and S&P are no longer in bear market territory. It must be all over!!!!! Whew.
Agreed UYG is dangerous.
I am sitting on some more profit now in UYG. I am careful about how much I bite into UYG of course and not to be too greedy. This is surely a testing time.
As snot says SMN is the VIX for Ag stocks, likewise SKF is the VIX for Fin stocks. The SKF needs to come down around 135, where we may think of switching sides. We believe this market has long been due for a short squeeze rally. I like today's pause action so far. I am hoping tomorrow and the day after also we get this sort of drip-drip pause action. It bodes quite well for a huge run up later this week or early next week. Also, the market cannot run up without financials.
Meanwhile our plan is to make short sharp excursions, we made a decent profit in DRYS from yesterday. We took some off the table at 80.
Snot, what do you think are Ag stocks holding their channel. The volume burst is are not looking very good.
--clarke
Snot, do you ever trade the USO? I believe that you're right in that oil is going to spike back up in the very near future, so wouldn't that be money in the bank for you?
Thanks for taking the time to post your thoughts and charts, it's helped me greatly, and I for one really appreciate it.
Craig
Why do you think USO will spike up? I am just curious. Also, what do you see on the charts that suggests a spike, rather than a gradual bearish upwards flag?
--clarke
What a selloff!! Electronic dumping must be getting triggered.
We got out of our UYG exposure. Got out for a push. Today's close is not a good sign. Not what we want to see for rally building. I still have some SSO with me. There is a support area underneath us.
--clarke
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