Archive for the ‘Commodities’ Category

Oil Rally Faces Big Test This Week

Monday, March 14th, 2016

Business Plans Did Not Include Oil Prices This Low

The issues facing the oil industry can be summed up via a quote that recently appeared on Bloomberg:

“Asset managers bought the story that we’d have $100 oil forever,” said Tim Gramatovich, chief investment officer with Peritus Asset Management in Santa Barbara. “Bondholders are left holding the bag.”

Is The Oil Bounce Running Into Resistance?

The trendlines on the weekly oil chart below were drawn and presented on January 22, 2016. As you can see, oil has rallied back to a logical level in recent weeks, but it has thus far failed to break the downtrend that began in late 2014. Oil rallied back to the same trendline on two other occasions (red arrows). In both cases, the rally ended and crude oil resumed its primary and bearish trend.

We will learn something either way near the trendline shown above. If oil breaks to the upside and prints a weekly close above the trendline, the odds for the crude oil rally continuing will improve. If oil reverses this week, it is possible the countertrend rally has come to an end. Time will tell.

Have Longer-Term Stock Trends Improved?

This week’s stock market video covers twenty-one long-term trends including oil (USO), energy stocks (XLE), emerging markets (EEM), S&P 500 (SPY), Dow (DIA), and NASDAQ (QQQ). 2016 charts begin at the 14:50 mark.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode.



Oil’s Impact On Stocks And Bonds

The oil business requires quite a bit of capital investment (rigs, tankers, storage facilities, refineries, etc.). Therefore, access to the credit markets is important. With oil industry revenues being adversely impacted by low oil prices, it is getting harder for some companies to service and refinance their debt. The examples below were highlighted by Bloomberg on March 11, 2016. Missed interest payments and potential defaults include:

  1. Energy XXI, with $2.875 billion in debt, and SandRidge Energy, which owes $4.131 billion, both failed to pay interest due Feb. 16 and will default unless they reach agreements with their creditors by March 17.
  2. Ultra Petroleum, which owes $3.197 billion, said last week it has until April 30 to hammer out a deal with its lenders.
  3. Goodrich Petroleum, which owes $455 million, said this week that it won’t pay interest due March 15 and April 1, and that it’s asking bondholders and shareholders to participate in a restructuring plan.
  4. Chaparral Energy Inc., with $1.798 billion in debt, missed a payment on March 1, starting the clock on a 30-day grace period.
  5. Pacific Exploration & Production Corp., with $5.428 billion in debt, likewise has until the end of the month under an extension granted by its creditors.
  6. Venoco Inc., facing $708 million in debt, skipped an interest payment last month. The company must cut a deal with creditors by March 17.
  7. Warren Resources Inc., which owes $453 million, said last month that it may file bankruptcy without a creditor deal. The company faced a default on March 2, when a 30-day grace period for a missed interest period had been set to expire.

Other Relevant Oil Charts

If we zoom in on a weekly chart, it is easier to see the area of possible resistance for crude oil.

A daily chart using high/low/close paints a similar “we should learn something soon about the oil rally” picture.

Investment Implications – The Weight Of The Evidence

A multiple week countertrend rally is not uncommon during a long-term downtrend. For example, the 2000-2002 bear market experienced four countertrend rallies that lasted four weeks or more. In the 2007-2009 bear market, stocks rallied for four weeks or longer three times. If the S&P 500 can clear and hold the levels described in this video clip, the odds for a longer-term trend reversal will improve. Under our approach, we are always open to improvement. However, we want to see improvement rather than anticipate it.

Most Recent Comments Via Twitter

Wednesday, February 24th, 2016

You can access them here (@CiovaccoCapital). You do not need to know anything about Twitter to view our comments or use the links to view charts.

Long-Term Bullish Signals In Silver

Wednesday, September 19th, 2012

Traders use moving averages to filter out day-to-day volatility, allowing them to focus on longer-term trends. The 200-day moving average is commonly used as a bull/bear filter. Conditions are most favorable when price is above the 200-day and the slope of the 200-day is positive.

As shown below, following the recent announcements of additional money printing from the Fed and European Central Bank, silver’s 200-day moving average is beginning to tick higher in a bullish fashion (see green arrow).

The chart below provides some perspective on recent bullish and bearish turns in silver’s 200-day. When the 200-day turns down (red arrows), it indicates a bearish longer-term trend. Conversely, after the 200-day has turned up in the past (green arrows), silver has experienced big gains over the subsequent months.

Information-Packed Stock Market Video Tomorrow

Saturday, June 30th, 2012

Video covering numerous ETFs, including SPY, GLD, SLV, GDX, JJC, DBC, EWI, EWG, EWQ, EFA, & VEU coming tomorrow. Weekly “risk-on vs. risk-off” charts will be included, as well as CCM model updates. Information will be of interest to both bulls and bears. Will post here when completed.

Commodities and Materials: Good So Far

Friday, March 23rd, 2012

This morning before the open we said:

Some firmness in commodities and materials stocks would also increase the odds of the recent breakouts holding (S&P 500 > 1,370).

We have it today (as of 12:44 pm) - good sign, especially if it holds into the close.

Gold Drops $35 In Skittish Market

Tuesday, March 6th, 2012

On March 5, we noted concerning trading action in Apple. On February 29, we highlighted similar concerns about gold and silver. It is only a matter of time before central banks print more money, which means we want to keep an eye on gold for a possible entry point. Wall Street is already looking for the Fed to ramp up more QE in April.

The gold ETF (GLD) is near support around 162, which includes the 200-day at 162.72. Given the current daily DeMark counts and the chart below, even if gold bounces soon, GLD may eventually head toward the 155 to 157 range. The chart below is as of Monday’s close.

Precious Metals Sell-Off Concerning For Risk

Wednesday, February 29th, 2012

If you were in commodities in 2008, you remember the July waterfall declines, which offered little in the way of countertrend rallies. The collapse in commodities was a bad omen for risk. The S&P 500 dropped from 1,250 to 666 over the next eight months. That is an extreme example, but the concepts still apply to the present day.

It is also hard to forget the crash of silver in May 2011. The S&P 500 peaked simultaneously before dropping 20% over the next six months.

We have no idea what will follow today’s high volume sell-offs in gold and silver, but we do know recent history tells us to pay attention and be very careful with risk assets. The gold ETF (GLD) had a four-minute span to remember today. Today’s drop was void of any real countertrend rallies and it occurred with almost a three-fold increase in volume relative to a typical day. GLD normally trades 12.1M shares per day; today’s session saw 34.9M shares change hands.

The silver ETF experienced a mini crash today losing 9.7% in about an hour and a half. SLV’s average daily volume is 18.3M shares. Today an eye-popping 91.1M shares traded.

Both gold and silver experienced high volume and sharp sell-offs in spring 2011. As shown below, the stock market also experienced rough seas in the following six months.

We have no idea what tomorrow will bring, but we do know it is prudent to respect high-volume, waterfall declines in any market. A close this week below 1,354 would add another check to the list of correction concerns. The bulls are still in control, but they may be losing their grip a little.

Gold Performing Well

Wednesday, February 22nd, 2012

Gold is up $46 since this post. Looking for bullish MACD cross on GLD (not there yet - still hurdles to cross).

The 60-minute chart of the S&P 500 leaves the door open to 1,372ish.

Copper/Gold Waving Red Flag

Tuesday, February 21st, 2012

You can think of the ratio of copper to gold as an economic confidence index. Both copper and gold can be used as hedges against inflation since they are “hard assets”. Copper has more industrial uses than gold. Therefore, when the economic outlook is positive, copper’s performance relative to gold tends to rise. Conversely, when the economic outlook deteriorates, copper’s performance relative to gold tends to weaken.

The chart below shows the S&P 500 at the top. Copper’s performance relative to gold is shown at the bottom. Notice the S&P 500’s performance in the weeks that follow weakness in the copper/gold ratio (see red arrows). Even in the cases where the ratio worked well as a market indicator, it should be noted there can be a lag before stocks become weak, which can last as long as a few weeks.

Gold’s Pullback An Opportunity?

Thursday, February 16th, 2012

We mentioned Wednesday that we were interested in the charts of gold and gold mining stocks. Gold mining stocks responded today with sharp gains. Given that more money printing is on the way (much more), we added gold and gold mining stocks to our allocation today. Gold has been correcting for two weeks allowing for an improved risk/reward entry. Gold remains $195 below its peak made last year, and $37 below its recent early February peak.

There are numerous takeaways from the chart of gold below:

  1. There are three steps required for a basic change in trend. Step one is a break of an established trendline. Gold had been in an established downtrend for four months as shown via the blue trendline. Step one, a trend break, was completed in January (see orange arrow).
  2. Step two is to make a higher low, which may be happening now near the pink arrow. Notice how gold held at the up-trending pink dotted line, which may be acting as support. Gold also bounced Thursday at the thin black trendline dating back to early 2012 (above pink arrow).
  3. Step three will be completed if gold can exceed the early February high of 1,766 (near green arrow). With the ECB due to print even more money at the end of February via the second round of unlimited three-year loans to insolvent banks (see video), there is a sound fundamental case for gold.
  4. Today’s candlestick is known as a “hammer”, which often occurs near a point of reversal.
  5. The 200-day moving average, which was recaptured in mid-January, continues to have a positive slope, which is indicative of a rising trend.
  6. A retest of the 200-day is possible, meaning more downside is possible in gold.

What is the biggest short-term risk for gold? If the market feels an “all clear” has been given in Europe, gold may drop further based on the perceived reduced need for safety. Regardless of what the market feels, the odds are remote any perception of “all clear” will prove to be lasting relative to Europe’s unsustainable debt levels (see December video).

In the chart below, the three steps for a trend change appear to be in place for gold mining stocks (GDX): (1) a break of the orange downtrend line, (2) a higher low, and (3) a higher high.

If GDX can continue higher, it does have to contend with a downward sloping 200-day moving average, but that is still 3.6% above Thursday’s close. If GDX can move back to the top of the pink channel, it would represent a move of 7.4%. The green arrows above show a series of higher lows which mark the uptrend off the late 2011 low.