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 June 7,
2009 Commentary (monthly edition)-
Well, I sure
got a lot of comments about what I wrote last time. I guess I'm not the only
one tired of hearing 'green shoots'. I even think a few guests on financial
television must read my commentary, as they borrowed a few of my lines, it
seems. I think I'm too wore out to do another long diatribe on the state of
things, even though that seems to be a real popular part of the commentary.
We'll see, I'll give it my best. Now, as far as the market, let me quote a bit
from the last commentary: "Maybe as summer approaches, given we are now in a
'bull' market, it may get a little slow. We are already getting some 'grindy'
action that is typical for this period." In my opinion, that's pretty much what
happened. A more slow, grindy kind of action, as we will see later when we look
at the daily chart.
I'll start out mentioning that I have posted some
comments on the obvious nature of some things we are seeing in the market
lately over at the public KT forum at MyPivots. If you don't follow that you
should check it out. It will give you a little of the background heading in to
what I am about to say. I'd give a link for the forum, but since web addresses
change over time, I'd rather you just go there, find the forums section, and
scroll down until you see the public KT forum. That way, I don't have to worry
about creating possible broken links down the line from linking all over the
place in my various commentaries.
I'll start with a follow up post I made in
that forum: "The really curious thing here is what I see, sentiment-wise, on
the news. Today I was listening to the two main TV channels we all watch, and
also reading a mainstream news website. Every last person discussed how far the
market will go. Not one bear in here. Many partial bulls going full bull, every
newsletter writer, every analyst, every fund manager, it was 100% bull, the
only discussion (between the ones I saw on TV and the articles I skimmed, which
must have been at least thirty total) was how far it was going to go. Now,
normally I'd say once we reach that point, a sharp reversal is imminent. This
is akin to the everyone is on the same side of the boat analogy.
But, alas, in
this era of monstrous government manipulation of the markets, I came up with a
new, revised analogy. Everyone is now on the same side of the boat, but the
boat is being held up on that side by the strong arms of the government, in all
their infinite wisdom. But the party is starting to get loud, and the guests
are eating and eating like piggies. They are getting fatter and fatter, and
they are having so much fun that they are shaking the boat a lot, with little
worry. As they get fatter and fatter and wilder and wilder, the time will come
when that boat just can't stay upright any longer. I've just never seen so many
people, even good traders I respect, all say the same thing at the same time,
and even the very experienced traders have little worry about this. The one
thing I will note is, if we get any kind of market shock event this boat will
capsize so fast, and drown everyone so fast, it will be something to
see."
I think my point is obvious, so I won't belabor it. I just want to
reiterate that what really has me on alert is how many traders I know that are
saying the same thing. I understand newsletter writers, fund managers, and
talking heads on financial television all saying the same thing, heck, I expect
it, but when the top traders I know are sounding identical to talking heads on
television, I really get worried. I'll be the first to admit, they are doing a
great job trying to convince even me that this thing has a long, long,
long ways to go before it even slows down a little (sounds just like a talking
head, eh?). So, maybe it fools the greatest number of people not by turning
down here, but going even further than they all say it will, without any
pullbacks? Are we headed for DOW 20,000 or higher without a checkback?
That would fool a lot of people.
Now, back to reality. Look, one of the things
I don't do is make predictions. It's completely and absolutely unnecessary for
my methodology, in my opinion. Usually I get 'driven crazy' when I hear traders
talking about where things are going. I'm not a psychic, I have no clue where
things are going, and don't need to. I'm not sure what the obsession is with
always talking about where things are going. For me, trading is about finding
areas where I feel I have an edge. I spend all my time looking for these areas,
not in saying whether I think the market is going here or there. Let me give an
analogy I've given in the past.
Let's look at a poker hand. You tell me what
you think of the two players and their approaches. Player one looks at the
table and his cards, and calculates the odds. If the variation played is no
limit hold 'em then a read on the other player comes in, where it generally
doesn't in limit hold 'em, where the odds are really all that matters. He comes
up with his plan from there, based on the odds and his read on the other player
(or players). If he has an edge, he bets, and sizes his bet according to what
he sees and what he formulates for his plan. Now, player two.
This guy, he
sees the same table, can see the odds the same as player one. But all he
focuses on is predicting what the next card will be. But he doesn't do that as
a series of probabilities. He doesn't say, there is an x% chance the next card
will be an ten of hearts, a y% chance of it being a seven of spades, he
instead, with great confidence, says 'The next card, I think, will be a jack of
clubs.' 'Why?', someone asks. He replies something like, he just has a feeling
that will be the next card. His work clearly says so. And on and on he goes,
always predicting the next card. Yes, I can see all you card players out there
begging me to send this guy to your game.
You see, we would all love to play
against that guy. It is a losing, and meaningless, game for him to focus
specifically on what the next card will be. It makes not a lick of sense, and
we can all see and agree on that. Yet, when the same thing happens in the
market, everyone is all aboard, ready to listen to more. Even traders. Even
some top traders. I'm sorry, I guess it's just a pet peeve of mine, because it
just makes less than zero sense to me. I'm not saying I don't calculate 'odds'
on whether I feel a trend may have more to go, or if the odds favor a reversal
off a key area, but that is totally different than saying the market is going
here, then it is going there, and after that... The former is like figuring out
in poker the odds of various scenarios, and trying to figure out where an edge
may lie. The latter is like stating which card is going to come up
next.
So, do I have any point in all this rambling? I don't know, maybe,
maybe not. It all started with my observation that I can't recall seeing so
many people on one side of the boat, and so many, including top traders I
respect, making so many calls about what is going to happen from here. I'm not
saying that I haven't been respectful of this uptrend, as I have been. I've
loved the move we've had so far. I'm just saying I have to deal with feeling
incredibly uncomfortable, as I always do in any situation where I find I'm part
of a crowd that is clearly showing mania and crowd behavior symptoms. I don't
like to be part of any crowd, it's just my nature. I wanted to let everyone
know I am feeling very 'freaked out' by how much I am now seeing even trading
buddies getting sucked in to this. So, check yourself out, and see if you are
looking for edges, or spending time thinking about where this is going,
especially if the answer you get is the same exact one everyone else is
getting. Enough said on that.
This is all part of a greater theme I have
been thinking about, and it all relates to crowd behavior, and even more so,
history and odds. Like, for example, here's one I wanted to point out last
time, but forgot. What is the biggest leader in this new rip-roaring 'bull'
market? Financials. And, according to what I just saw on television, the number
two 'leader'? Homebuilders. Now, what sector led this bear down and got killed
the most? Financials. And what led right behind that and got crushed the second
most? Homebuilders. (This is according to my data, if you have another sector
in there feel free to send me a note.)
Now, I saw some research going back over a
hundred years, and it showed that not once in that time has the sector or group
that led down ever led on the way up and out. It takes new
leadership to start a bull market. The old are done. They are forsaken.
Forgotten. Toast. Yet that is not what we see in here. The old are now leading,
by a long ways. I just heard the financial ETF has now doubled off the low.
Many, many financials are up 300%, 400%, 500% or more. I can hear the arguments
now: 'But Jim, they were so beaten down, it's no surprise...' That may be well
and good, but they are the leaders. We are being led by the biggest
losers of the bear. Where are the new leaders? This has never
happened before in history, from the studies I have seen. So, you say, this
time is different? You can believe what you want, but I am a firm believer that
this time is never different. Those that don't remember the past are
doomed to repeat it.
I guess I'm just trying to point out that I'm seeing the
same things I saw in the tech bubble, the housing bubble, and on and on. It
seems things never change. In a way, that's great for us traders, but I am
trying to make sure none of the traders out there fall into the 'public' trap
along with the 'suckers'. Let's look at a few other curious things, then we'll
get to some chartwork. I was also noticing a curious pattern with my book
sales. In the 'old days' I used to talk about my e-mail indicator, and how I
noticed various market aspects correlating with the number of e-mails I was
getting. On another site I saw a guy had developed his own indicator based on
amount of traffic he got to his website, with intermediate tops hitting right
around high volume spikes in site visits. I saw something similar, in a sense,
with books sales.
I was looking at a graph of my books sales and I overlaid it with a
chart of the market, and saw that it looked strikingly similar. Now granted, I
don't have a lot of data points for my book sales, from a statistical
standpoint, so this is just an observation and nothing more. I noticed that my
book sales started to drop, and get less and less, as the bear deepened. As we
got near the lows sales almost completely dried up, to the point I wondered if
I'd ever sell another set again. I thought that was odd, since my personal
opinion, and that of my mentor students I discussed this with, was that the
market was the best for trading, by far, that I have ever seen. I would have
thought sales would be through the roof. But they were essentially zero. Then
the market 'bottomed' and started to rise.
And what do you think started to
happen? Sales slowly started to rise. The market kept going up and up, and then
sales really picked up. By the time we got to where all you heard on the
television was where is this going, 1,500 S&P, 1,700, higher, sales were
'brisk' to say the least. The 'bull' was back, and so were sales. I'd have to
look, but I think I had the best sales recently for a given time period I've
ever had. Don't quote me on that as I haven't looked over all my records, but
if it wasn't the best, it was right up there, I think. But that seems
incredibly odd to me. Here's why.
As you all know, I cater to a very small,
select group of very serious traders. Only a handful of the most serious want
to take an approach like mine, one of hard work, using Fibs, patterns, lines,
'context', and so on. A real long-term, study hard and try to make a living at
this approach. These are the kind of people I would expect would know that
traders play both sides of the market, and that great volatility usually is
viewed as great potential opportunity, and that bear markets can frequently be
a lot better for trading than bull markets. Yet what I saw seemed to imply my
average buyer wanted to buy when he or she thought a bull market was at hand.
Yes, there could be other explanations that I haven't thought about, but it
does seem to go along with my e-mail indicator from the old days, and this
other guy's traffic indicator.
It was things like this that got me off on
this tirade about top traders still displaying a lot of 'public' behaviors.
Curious to ponder, isn't it? Lastly, I want to quickly point out (as I am
getting wore out, and ready to hit some charts) that it seems like we are
seeing a lot of changes to formulas used to calculate various economic data
sets. I was thinking back how at one time I was watching the commitments of
traders report, and how I had a lot of historical points collected, and some
various conclusions in my notes. They changed the formula for how they reported
this, and overnight it seemed to change all the numbers. The report implied one
thing to me, and the next day it implied the opposite.
That's all
fine and good, but I went back to their historic data, and that all said
something different. All my past conclusions, going back years, the data now
said something completely different. I never followed up on this, but it seemed
like they 'adjusted' the back data for the formula. I noticed a similar thing
when the amount of program trading was approaching 80%, and they changed the
formula. It dropped to under 20% instantly, I think it was on the next report,
and the old data was no longer available. One story I heard was how they didn't
like the impression it gave of such a high level of program trading. Who
knows.
Point is, formulas change, and sometimes maybe they change to serve
an agenda. I got to thinking about this as I saw the much better than expected
jobs number. I also received a report that said that they just changed how they
are calculating the numbers now. I'm not saying anything about our wonderful
government here (you hear that, Mr. Government, don't come knocking on my door
to lean on me for saying anything negative or 'inaccurate' about you...), only
that some may think that it is interesting that a new formula may have come
out, and the job losses aren't near as bad as we thought, as the new formula
clearly shows. Enough said, you get the point. If the formula is right,
everything may be all right after all. The economy may be recovering handily,
and the green shoots are growing strong. We just had to get the formula
right.
I could go on and on like this, but I won't. The debate is still
raging, deflation or hyperinflation. I'd like to create my own index for
middle-class people. One that takes into account all the things they actually
have to pay for, like food, gasoline, health care and health insurance,
household items, and on and on. I can say that for me, every single time I go
to buy anything, prices are up like crazy. And not small jumps, 30%, 50%, 100%
jumps at a crack. I went to buy a soup mix I use, and it was up 100%. Another
item, up 60%. I don't recall seeing anything drop in price. My medical
insurance likes to pop about 20%-30% a year, year after year. Yet we have
deflation?
You tell me, say you are a struggling family, you rent
(no, your rent hasn't decreased, it increased), and you don't own stocks. You
see no 'deflation', and prices for everything you use going up and up and up.
What is the reality for your life? Say you are on a 'fixed income', that is,
you are retired and have you money in CD's or the money market, and that income
is a big part of what you need to live. And prices going up everywhere. You
want to call that drop to zero income 'deflation'? Okay, let's 'inflate' so you
can get back to a 5%-6% return on those CD's, and pay a great deal more at the
store. No, thanks. Here's my theory.
We have deflation in housing and stocks
because they were insane bubbles. We have huge inflation in everything else.
Some of that is due to the weak dollar, but we are seeing inflation in other
countries who have relatively strong currencies. Hence, what we likely have is
inflation across the board because of 'competitive devaluation' of all
currencies, i.e. printing presses running full time for everyone, trying to
have a weak currency to gain an edge in exports (and to reduce debt, in a
sense, by 'monetizing' it).
So, just as in the 70's we had a new term,
'stagflation', to describe inflation and a slow economy (stagnant economy),
something that was, by definition, not supposed to be possible, we now need a
new term for something equally impossible. We now have inflation (soon to be
hyperinflation in my opinion) and deflation at the same time. I propose
we call this 'Indeflation'. I was also thinking of 'Dehyperinflation', and
'Hyperindeflation'. Or 'Deinflation'. You tell me. The first one? Any other
thoughts? Mark my words, before this is over, they'll have a new term for
this.
Before we begin, let me mention that I didn't get to adding those
books to the Recommended
Reading page, or the new testimonial or two to the Testimonials page, but, again,
hopefully this weekend or soon after. And as I said last time, I'll put a note
in the What's New section
after I do that, in case you want to check there to see when it's done.
Let's move on
to today's work. I'll quote from the last commentary to start: "Also, go back
and look at my chart on those ten-year rates and look at the time factors on
there. The low was, again, at the time factor I suspected (or should I better
say 'seasonal time'?), and now we are getting into the May/June seasonal time
for a high. This will become more interesting after today's work in the
indices. Make sure you go back and look at this before you read on." Today we
are going to look at those rates. Before we get to that, I ask that everyone go
back to the January and February 2009
commentaries, conveniently hot-linked here, and get caught up with what I was
saying about rates back then. This way, we can all be on the same page when we
get to that.
Before we get to those all-important rates, let's start with last
month's chart of the month, and we'll get caught up on the broader market
first.
Here's last month's chart of the month,
posted on 5/1/09. The first arrow showed how the market was bumping up against
the first level of interest, but had exceeded the key lines, so I didn't think
it was too likely to have much effect. The arrow above showed the next level if
it decided to burst up strongly. Note that I commented that I had planned to
move that arrow to the right, closer to the little 'triangle' that formed from
the lines and the Fib level, but I had forgotten, and I wasn't going to go back
and redo the chart. I wish I had done it, because as we will see in the next
chart, where I did move the arrow, it would have looked better if I had done it
'before-the-fact'. The highest arrow was pointing out the spot I was watching
if this just exploded up. Finally, the question mark area was where I wanted to
watch if this decided to do a summer grind up along that red line, using more
time than price to keep moving. You know me, always with the scenario
games.
Please understand, none of this is ever a 'prediction', I am not
saying I thought the market would continue up, I am simply saying that
if it went to any of these areas I may be looking for a short-side play
if I got a setup and trigger I liked, and the market behavior led me to believe
that odds favored some downside. There's a big difference between saying it
will get there and saying that if it gets there I may be looking for a
potential trade. It may seem like a small and subtle difference, but it's
not.
Let's move up to where we are now.
The S&P went right to the spot, shown
better now with that second arrow, right at that key time factor. It was a
little shy from the price level, but right at the key lines. It rolled over on
cue, but stopped in an area I would not want it to stop at for long if the
short side was to begin playing out. Those that know my work can drop down in
timeframe and quickly find the area and see why it was a key spot to watch. If
you read (you should have) my post at MyPivots on the ES Rising Wedge, you can
see why this might have been an 'upside breakout' or headfake to spoil that
pattern and trap people. That may have also primed it for more downside after
that 'breakout'.
So, the S&P moves up off the smaller area on the lower
timeframe, 'tests' that key daily area once again with an .886 test, and drops
back down to 'test' the lower level again. This surely looked corrective, and
may have been forming a triangle, or just some type of generic 'coil' (I had my
own pattern layout in there, too). I discussed this, again, at the forum, so
please read that. It was getting pretty clear to me that this wanted to break
out to the upside, and that the pattern was corrective. The S&P continued
its grind up that red line, right to the next set of lines and to fully test
that same level. I also added in that key .382 at the 962 level, as the press
was getting more and more vocal about that, too.
Now, notice the S&P has indeed
been doing the summer grind right towards that question mark, and it hits right
about at that one June time factor (there are other June time factors to
consider, too). Just look at how the lines as they come in, and the grouping,
or slightly above at that .382, all come together. If that doesn't turn this
down, there is the next level above, which is also talked about by every last
person on the earth, it seems. (Again, read the forum for my unfolding thoughts
on all this. It's free, so you might as well. I haven't posted in the public
section in quite awhile, but recently got a few threads going.) There are some
lines coming into that higher grouping, they just aren't on this chart.
Let me add
one thought in here and then we'll move on to rates and some other cool stuff.
I am not trying, with these areas, to 'call a top' or anything of the sort. One
of the key things I look for is an ABCD pattern. I am an ABCD trader
for the most part. It's the epicenter for my trading, the place where I start
from, and then build groupings and lines and such. There is no ABCD here, and
there frequently isn't in bear market rallies. This may go right on up to new
all-times highs with no break, as all the pundits say. Who knows. Without an
ABCD to work off of, I can't find areas I know I want to commit to if I get a
trigger.
When I say 'commit to', I mean get off the call side and load up on
puts. The trend is up until proven otherwise, for now. But certain areas have
me watching closely, looking at potential shorter-term plays, and looking for
clues for the intermediate plays on the long side. The areas I have shown here
are some of the areas I am most interested in watching. If something starts to
develop off any of them, I am ready to take action, if I choose to. If the
market just keeps going right past them, or reacts slightly and then goes
through, so be it. I'm 100% fine with that, I can just stay long side. I'm not
saying the market will get there, and I'm not saying it will do anything if it
does. I'm saying if it gets there and does something, I'll be assessing that,
ready to take action if it gives me a setup and trigger.
Let's move on
to some work on rates. Make sure you looked over those January and February
commentary before moving ahead here. I'll start with that same 'we've been
looking at this same chart for years' chart, the monthly 10-year rates.
When we left off, I wanted to see if rates
would drop off that median line area, coinciding with the previous jump up off
the grouping shown. Rates didn't care at all about that area, and launched up.
I thought with the Fed's plan to buy treasuries they might turn it back down,
so I watched there. Instead, for now, sanity seems to have prevailed, and rates
are moving up. I added, as best as I could by eye, the upper division line onto
the chart (notice if you add your own lower division line onto the chart that
reversal in '01 was right off that). Rates are headed right for that, as we now
hit into the key 'seasonal' time factor. I added just two time factors on there
to show how the rhythm this thing has had for so long is still unfolding. There
are additional time factors you can add, but the chart is getting too cluttered
here for clarity to add any more.
So, will rates turn down somewhere right in
here? Notice how that division line was used as both support and resistance at
two major swing points in the past. This, again, as the market hits a key area
and time factor. Notice, too, the upper, grind up and to the right area that
hits in June or so of 2010, at around 4.5%. I don't see that happening, so slow
and up so little, but it's worth noting. I'm wondering if this could explode up
on some news or treasury sell-off, to hit that upper // in this time factor
here. Now that would be something.
Overall, though, for treasuries to sell, the
money has to go somewhere. It could go to the stock market, blowing that to the
upside, or to the money market. But when money wants little risk things are
usually bad, and treasuries are a safe haven, so they would be going up. Can we
have bad where treasuries and stocks sell, and money moves into the money
market? That would be odd, for sure. Recall how I said way back that they need
a new bubble to inflate, and that I thought treasuries were surely in a bubble?
We looked at the TLT chart and such back then (we will look at it again in a
moment). I still think that treasuries were/are a bubble, but I found the new
bubble, in my opinion. Debt.
Government debt is the new bubble. Via treasuries, money
printing, monetization, or whatever method and means you want, the answer to
the massive bubbles of tech, the stock market, housing, oil, and so on, was a
government debt bubble. I knew they wouldn't face the music, let the system
correct itself, and start fresh, I knew they'd find another bubble to inflate.
I should have seen this as the most likely one, but it took me awhile to figure
it out. Same old, same old. Kiss your savings and standard of living
good-bye.
Let's revisit that TLT.
If you read those two commentaries I asked
you to read, then you know about when I first discussed this TLT as an example
of a bubble, and what bubbles do when they deflate. The arrow shows where I
first started discussing this. And look at it now, just like the other bubble
examples. But, alas, we would have to go much further back to really see just
how big this bubble is, and I can't get the data into here to show it. Everyone
should go back and look at a multi-decade, or even longer, rate chart, or
preferably if you can get it, continuous contract treasury chart. The point is,
what you see here is what the Fed is trying to push up, in a sense. The market
wants down, and the Fed wants up. Are the bond vigilantes back? I sure hope
so.
If so, this may go a lot lower. Will sanity prevail? I'm not
sure. I'm afraid so much damage was done inflating all those bubbles that we
have to pay now, those of us that didn't do anything wrong, one way or another.
I don't want this bubble to be reinflated, and I don't want to see it burst
further. No matter where I look, no matter what scenario I look at, all I see
is pain. Ouch. I hope there is a solution I just can't see...
Let's jump
back to that rate index, on a daily timeframe.
As rates moved up I was watching for a
possible ABCD, which might have been just a touch over that monthly median line
(with an offset line for that lower parallel, it all could have come together
very nicely). Notice the price action around that 1.000 price projection. That
was a clue this thing had no intention of cratering. I got to thinking this
looks more like a 'wave 3' to me. So, I sketched out a rough scenario here
using some basic areas, like a 'wave 3' price projection of 'wave 1' of 1.618,
a .382 pullback (which coincides here with the level of that 1.000 price
projection from the potential ABCD), and a 'wave 5' equal to 'wave 1' (I put
all the waves in the single quote marks because I'm not a staunch
Elliott-waver, I'm just throwing out some very basic outlines). That puts this
up near that 4.5% area from the monthly, and still within the 'seasonal' time
frame.
This is just one potential scenario I am looking at. I have no idea
what will happen, especially when you have trillions potentially available for
Fed purchases at any given time out of the blue. They say don't fight the Fed,
but if the bond vigilantes show up in full force, you'll see one heck of a
fight, and I don't think the Fed will win. If this enormous appetite for U.S.
Treasuries ends, there will be the dickens to pay, as they used to say in the
early part of the last century.
I've had enough of rates, so let's switch
gears completely, for fun. Let's look at something in GS on the daily
chart.
GS has an amazing 'rising wedge' on the daily
chart (feel free to wave count this and decide if you can also call an 'ending
diagonal' there, too). Usually these play out to the downside, sometimes with
tremendous ferocity. Somehow, though, I say the chances of this very obvious
pattern playing out to the downside are less than 1%. Go back to that fantastic
S&P rising wedge/ending diagonal that everyone saw and it didn't play out.
This is so obvious, and GS is absolutely the 'golden child' of this new 'bull'
market, I just don't see it, no matter how hard I try. Look what happened when
this looked to be ready to make the break down on on that last approach to the
lower line. A few narrow range days that looked very weak to me intraday, and
then as it looked ready to give way, a quick pop. The next day, Oops, upgrade,
huge gap and run, to new highs for the entire 'bull' market, back at the upper
line.
What will they do next time it gets close to breaking down, sweep
the stops, then another upgrade, a major allocation swap, one of the big heroes
of the 'bull' making a new announcement of a big investment, an early release,
unexpected, that earnings will be much higher than expected? I suspect it will
be something. I posted my thoughts, mostly covered here, now, though, at the
forum in a thread on this pattern. I'm keeping an eye on it, I'm ready, but
shorting a stock that has about tripled off its low in a market that never
seems to stop rising, well, no matter how cool this pattern looks, that's not
the game I play. I'll see if it gives me something, though, and I'll be
ready.
Let's finish with something I have been following for a long, long
time, nat gas. I'll show the tracking ETF, UNG, on a daily.
I wanted to show this from the high, and a
bit before, which was well into the 60's. For some reason I couldn't get the
data into the chart, despite a very frustrating hour spent trying. I ask that
everyone pull up a longer-term chart and look at the 'context'. It also would
be good to look at a very long-term continuous contract of nat gas, going back
decades if you can get it. I show UNG because many stock traders like to use it
instead of futures. Nat gas is on the lower end of the range it has traded in
for decades. It may be basing here. Whether it is or not, it is on the low end
of the range, when crude is playing with 70, up like 100% off its low. Look at
gasoline, up way over 100% off its low. Energy is getting expensive again, and
nat gas, well, it's trying hard to break to new lows, and touch multi-decade
lows. It doesn't make sense to me.
I don't have the time or energy to go over
all the fundamental factors why nat gas should be so low, from potential
massive LNG imports, to huge stockpiles, and so on. All I can say is, energy is
expensive, and seems to be getting more expensive every day. The oil to nat gas
ratio is at an all-time high (if the data I heard is correct). The last times
it got to near these levels was '90 and '91, and I heard that led to over 60%
pops in nat gas. We are now back at an extreme here. Like farmers that rotate
crops as there are shortages (and price increases) in one crop over another, I
would expect they would be starting to use nat gas for anything and everything
possible right now instead of oil, since they are just about giving it
away.
The one thing that bothers me is that I am starting to hear about
the trade for going long UNG and short USO, and such. It isn't 'mainstream' to
talk about this yet, and if anything it's really a surprise that no one seems
to care that nat gas (along with cattle, hogs, and lumber) seems to be one of
the few commodities not simply exploding. I heard the CRB monthly pop was the
biggest in history for a single month? Is that right? And nat gas they say will
break down to new multi-decade lows? I'm thinking of buying some big storage
tanks and buying enough for my energy needs for the rest of my entire life.
Seriously. Lock in my energy needs for life at dirt cheap prices.
So, let's see
what I am looking at technically here.
I was just playing around, seeing what I
could find. There is this nice almost two year time factor that hit right in
this area. On my nat gas continuous contract, where I do all my actual work
that anything I would do in UNG would be based off of, hit it to the day. I saw
UNG using the set lines here, and doing an .886 'retest' at that lower
parallel, as well as another 'test' of that line, which then became a trendline
retest for the masses. I also threw on that 1.272 external retracement, which
coincides with about a 2.75 price in the nat gas itself, which would push it
down into the low, low end of the range. As an aside, I used a lower high point
for the upper set point here, not that spike high, for a reason (although it
doesn't change the technicals much either way). If I look at intraday data,
that spike looks like a bad tick, but on the nat gas futures it also spiked,
and that looks like valid data. I just wanted to explain why I chose such an
odd-looking point there.
So, I was watching UNG here as a potential long-term
hold type of a thing, perhaps even a few years. In a way it comes down to the
same argument they are now using on rates. Are rates backing up a sign of the
coming hyperinflation, or a sign that the economy is turning around and things
are going to be great again soon? Is oil rising because the China demand is
rising, and the economy is turning around, or are we back to speculation, too
much loose money that has to go somewhere, and an ever weakening dollar that
they assume is going to get hammered, and hence oil would skyrocket? I don't
know the answer to that one, I wish I did.
So, the future of nat gas may
depend on that very same answer. Maybe it will be dead money for years, or have
downside pressure for quite awhile. On the other hand, if I have retirement
money earning me .01% (that was what it actually was the last time I looked) in
'cash' (only slightly more in the money market), is a long-term 'investment' in
UNG something I want to look at for a reasonable fraction of that money? I'm
just tossing some ideas out there, not making any recommendations (of course).
Just trying to look at using the trading skills and knowledge to look at
positional investments, too.
Well, that's all for now. My hands are almost crippled,
I overdid it again, and maybe I finally learned my lesson, not in keeping it
short, but in even bothering to say I'm not in the mood for going on and on,
since we all know I wouldn't be the notorious 'Jim Kane' unless I rambled on
and on at length about everything. It kind of reminds me of a joke I could make
up, spinning off something I heard many years ago, one version of which was
'How do you tell if a politician is lying'? Answer: 'See if his lips are
moving'. How can you tell if Jim is going to ramble on and on, endlessly, with
an overly long discourse? See if he starts talking/writing...
The next
commentary will be next month's edition, posted by Sunday evening, July 5, 2009
(Ouch, I have to do one on the holiday weekend?).
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