Wednesday, June 25, 2008

Thanks to Big Ben, The Commodities Look Set to Run Again

Before I write anything, let me preface all of this with the obvious fact that has been stated a million times today by all sorts of bloggers that it is very hard to tell the true reaction of the market after a Fed decision until several days has transpired. I have a hard time understanding how any trader would take anything positive from what the Fed did today, but that doesn't mean they won't and we'll trade higher. I will, however, take a brief quote from IBD tonight that explains why I think today's decision does nothing to help this market.

"Until then, "They're caught between the rock of sluggish economic growth and the hard place of escalating inflation," said Argus Research chief economist Richard Yamarone. He sees the Fed raising rates, but not for another six months.

Meanwhile, the European Central Bank has signaled it'll raise rates next week. That could push the dollar even lower and lift the price of oil and other imports.

"It makes the Fed's job much harder," said Robert Dye, senior economist at PNC Financial."


I continue to believe this market has no chance whatsoever as long as oil holds steady or heads higher. If Europe raises rates, the dollar will continue to fall and oil will continue higher. That's what it looks like will happen as of now. Things can change, but I don't know how they will. Trade accordingly. Overall, though, I am trying not to have any strong expectations going into tomorrow so I won't be overly surprised with whatever happens.


Ok, all that being said, here are the major indices. You can see that the 9 day moving average was resistance for the afternoon bounce. Even if it gets above this, all three of the major indices are in channels now and I can't see them getting past the upper trendline of these channels. At the same time, even though we are oversold, I can see the indices going lower through these channels, especially if oil goes higher. Tonight, RIMM put out disappointing earnings, and I assume futures will be down tomorrow morning as a result. Things still don't look good.

Major Indices

Because of Big Ben, most commodity stocks roared back this afternoon after being down a lot earlier in the session. As of now, I can see most of these continuing higher. The USO fund still looks bullish and found support at its 20 day moving average today. The charts below represent the best oils I see right now. The only problems I see is that not all of the volume patterns are perfect. I am interested in getting into a few of these, but I may wait for the market to reveal its true feelings tomorrow or Friday, just in case.

USO, GW, SWN, MCF
CRK, BEXP, CLR, COG
ENG, APWR, PBR, KOG

Agriculture stocks were getting hit earlier in the session as well, but most bounced back very nicely. The charts below look bullish to me, although, again, the volume patterns aren't perfect.

DBA, MOS, POT, AGU

The coal stocks (PCX, ANR, ICO, NCOC) also bounced back from being down a lot - I did not post those charts because I am not as interested in going long those stocks. Other commodity stocks I am watching include HUSA, FPP, MMR, and ENER.

I am still watching some of the shorts I posted the past few days (CDS, TIF, IR, CHL, ADM) for breakdowns. I also think WFR, PCLN (I still hate this stock) and VMI are setting up as possible shorts. The ones I have below could use a bit more of a bounce, but if they do, I think they will be nice short possibilities. BWLD is my favorite. Overall, however, I just may add to my CRDN and HSC shorts and leave it at that. As always, it depends on what the market does.

NILE, NCTY, BWLD, CMG
Charts from Telechart2007, Courtesy of Worden Brothers, Inc.

We'll see what tomorrow brings, but I am expecting a negative tone in the morning with the RIMM earnings. That doesn't mean the market can't try to bounce again - it may very well do so, as we are still oversold. The overall outlook remains the same however - things aren't good technically, the Fed seemingly did nothing to help things, and the long commodities, short everything else still looks like the best game plan for the forseeable future. Best of luck Thursday.

10 comments:

Anonymous said...

Sometimes it seems like the Fed just replace one bubble with another.

Mac said...

That's exactly what they do. That is not the sign of a healthy economy in my opinion. It's not true growth, and at one point, you won't be able to produce more bubbles. They'll all pop and you be standing there not knowing what happened.

Ron Paul talks about the fraud called the Fed a ton in his writings and is worth reading if you want to learn more about the topic.

Anonymous said...

Mac
your email address is broken mail keeps bouncing.

Mac said...

I keep getting email, so I don't think it's broken. I've never had problems from my end.

Mac said...

Took a position in DGP as gold seems to be busting out here. Tight stop as always but I think this could run again.

Anonymous said...

tried from 4 different email accounts this morning.

PERM_FAILURE: Google tried to deliver your message, but it was rejected by the recipient domain. We recommend contacting the other email provider for further information about the cause of this error. The error that the other server returned was: 550 550 181d58d948d8bdbd2968c8b5594d89c115911c0900cc45393ce52d584941bd352949b1ec6cb16cfc7dccd578197908 (state 18).

Mac said...

Sorry - I really don't know why it would do that. You can try my other email account at mac_rmm@yahoo.com, although I don't check that one too much.

Anonymous said...

thanks for the alternate, sorry to be a bother! Love the commodities piece, I think you're dead on.

Please check your yahoo mail!

cheers,
brian

Anonymous said...

Took WFR at open, still holding, might hold it longer term, thinking it could go down to $62. Looking at Stochastic on a daily chart, it's nowhere near oversold. Same with SOL. Took position Tuesday and still holding, thinking it might go to $17.
Chased after VMI today and ended up with a mediocre position. Should have known better.
I've been holding a short position on EBAY for a week, it might finally break through it's recent lows. Looks like an upside down cup and handle over the past two weeks.
I looked at RIMM a few days ago and thought it would make a great short, strong divergences, but didn't take it, thought it would be too risky. Sometimes it seems like technical analysis can forecast earning reports.
Looking at SPY, we might be headed for 127.5 now, maybe with a smaller bounce on the way.

Mac said...

WFR and SOL both look good - the only reason I didn't short SOL up in the low 20's is the volume on the bounce was very high. If it was a low volume bounce, I would have jumped on it. I did reshort SYNA today - we'll see how that goes.

It's hard to say how low this market goes. I find it interesting that the put/call ratio has fallen throughout the day. I haven't sensed any panic selling. The VIX is still in the mid 20's. We may get a short-covering oversold rally soon, but without more fear, I think this leg down is just starting. We'll see.