Slick oil or oil slick?

I've been following oil and it looks like the price is finally getting out of the contango it has been in for the last few weeks thereby reducing the incentive to hoard the commodity. For futures prices, see
http://online.wsj.com/mdc/public/page/2_3028.html?category=Energy&subcategory=Petroleum&contract=Crude%252520Light%252520Oil%252520Comp.%252520-%252520nymex&catandsubcat=Energy%257CPetroleum&contractset=Crude%252520Light%252520Oil%252520Comp.%252520-%252520nymex

A couple of other things that can break the oil market are
- US inventories: The demand side is equally important as the supply, and from what I see, it should be getting weaker. Now when the hell will that show up in inventories? Tomorrow??
- US dollar rising since 10 yr yields are now approaching 4+ %: There are very important levels in the 10 yr yield at around 4.06%. A rise above that, and we should start seeing some real $ strength as money flows to capture that yield.

However, I don't think a fall below 100 will happen anytime soon. It's true folks...the demand has been really strong from Asian countries and the Fed is flooding the system with $$. But $200 oil within this year? I think not!!

NOTE: Be very concerned. 130 oil sucks but even 110 oil is a significant tax on the consumer! So expect to start seeing real weakness in the consumer side of the economy sometime later this year. I hate to be a bear but that's the way I see it right now.

Nice S&P 500 trading range plot

I find this very interesting. Make your own conclusions. Mine is...we will see a bounce now and I don't think we get as far as the upper trending channel but hit the downtrending line, and then break down hard!

GE

An investment recommendation..I was not going to post about individual stocks, since I think (and know) that they can be extremely volatile, and its hard to know the right valuation of a company - even the pros mess up big time. But with GE, a company that always met its earnings estimates to the penny, except for last quarter, i think the time to buy is NOW! It's had such a massive pullback that it's at 5 year lows! Now this is a pure play on the health of the global economy. GE owns a very diversified business portfolio, be it nuclear power plants, NBC, manufacturing turbines, medical imaging etc. etc. It comes with a sweet dividend of almost 4%. And this stock has tumbled dramatically in the last 2 months to now trade at a measly 14 times trailing earnings! I say BUY BUY BUY, with the stock now at 30.4.

A neat plot to show how overbought we are, with explanation

Ok people. Here it is. Now this is a plot that will need some explaining. Of course all of you know the S&P 500 index which is plotted on the right axis. The other graph plotted using the left axis is the ratio of the VIX to its 50 DMA (50 day moving average).

VIX (use ^vix is yahoo finance) measures volatility, or in simple terms, the fear factor in the market. When it gets really low, it means that there is not much fear out there. By itself, the volatility going low would not be an issue, but what is a big concern is that it has gone so much lower than the mean to the extent that it's not outside its 1 sigma std. deviation! This is serious optimism on the part of investors! An moreover, this doesn't even include today's datapoint!!!

Close to pulling the trigger..

For the impatient ones (like me), I'd say go ahead and buy some QID/TWM/MZZ. If you want to really wait and pick the top, and 1% move from here (Nas currently at 2520, S&P at 1415) is possible.

Getting there

We are getting close to the near term top. My estimate says that it will be between 1430-1440 on S&P and close to 2535 on Nas. Check this post from one of the people whom i respect. Although we should be headed for a serious decline in 1 or 2 weeks, I see a big pump and dump happening here where the retail crowd gets really suckered in. In the link, you'll see a graph with a decline in the VIX:VXN ratio between Dec 17th to Dec 25th. That corresponded to the Nas rising from 2580 to 2720! So I encourage selling longs into strength, urge caution while going short and be patient!

When will oil finally cool down?

I just can't believe the run crude oil has had in the last few weeks. Granted that 70 to 100 had its reasons but this latest push is simply nuts.

The one indicator to watch in my view is the dollar index. Notice it broke above it 50dma and is now consolidating. When it resumes its next run, which i think is up, it should quickly move to about 76 and that should atleast pause the oil run short term. Another thing to watch is a tightening of margin limits for speculators that is surely in the cards.

Further down the line, it's going to be supply demand fundamentals doing their work. Recession is going to reduce demand, prices themselves are going to eat into demand, more investment will come in alternate sources of energy.

Technical and fundamental analysis

Two analytical models

When the objective of the analysis is to determine what stock to buy and at what price, there are two basic methodologies.

1. Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.
2. Technical analysis maintains that all information is reflected already in the stock price, so fundamental analysis is a waste of time. Trends 'are your friend' and sentiment changes predate and predict trend changes. Investors' emotional responses to price movements lead to recognizable price chart patterns. Technical analysis does not care what the 'value' of a stock is. Their price predictions are only extrapolations from historical price patterns.

Investors can use both these different but somewhat complementary methods for stock picking. Many fundamental investors use technicals for deciding entry and exit points. Many technical investors use fundamentals to limit their universe of possible stock to 'good' companies.

The choice of stock analysis is determined by the investor's belief in the different paradigms for "how the stock market works".

As for me, I trade using both of these in different accounts. In my trading account, I rely more on technical analysis and in the medium to long term account, I rely more on fundamental analysis. Both are very powerful and at the same time deficient in their own ways!

Time to play some qidditch, make some quid

Get it? QID, ultrashort QQQQ. I'm waiting for that final burst of energy from the QQQQ, looking for them to come closer to the 50 target before dipping into QID. I'm doing this more for speculation but it would be a good idea for other to hedge their positions right now. I see only about a 2 to 3% upside move in QQQQ before we go back down atleast 5 to 10%. Then what? Well, we shall see when we come to it.

Some thoughts for today

CSCO will make or break this recent leg, but i think that when oil starts weakening and money pours out from commodities and into financials, tech will this rally really falter. What could cause the commodity collapse? USD? Opening of the SPR? OPEC saying they will increase supply? I am really concerned how the USO has rallied to almost 99! I think the QQQQ gap at 50.26 is a real target, and more so if I remember right, 2535 was an important point for the nasdaq last year.

Welcome

Hi everyone.