Oil and the economy

When I look at commodity prices, I think of supply and demand. If demand is expected to fall, then the futures market prices in a lower price.

Some will blame these sharp moves on the recent raising of margins on the futures contracts. My view is that the margins are raised to protect the exchanges from price volatility. And in the end, the price does reflect supply and demand. So I have to assume that the oil market is pricing in oversupply, or lack of demand. Or both...

And the bond market is pricing in deflation......

And finally, a technical look at the SPY. Will old resistance give support? I am troubled by the lack of volume on the breakout of the "cup and handle", as well as the increased volume on the recent down days. If the recent trendline fails, there will be a lot of sell orders below.





Something to do while watching and waiting...

And then I read this

Go to the Mad Hedge Fund Traders' site for this:

May 3, 2011 – Quote of the Day

May 3rd, 2011

“We are starting to see signs that the smart money, the 1% who make most of the money, are starting to get out of the market,” said Harry S. Dent of the HS Dent network.

Why I think the stock markets are weak...

Here are four reason that makes me think the stock market in the US is set for a correction. Most of them have to do with the US Dollar weakness that has been the case for the last several months. Commodities have been on a tear until recently. But for the last few weeks I have noticed what I think is distribution, ie. the big holders of commodities stocks are selling.
The first case is the US Dollar. Long steady decline. But over the last few days signs of an imminent rally???? Look at how the last two days have finished near the highs of the day. And the volume has stayed exceptionally high for the last 4 days as the price went sideways. I know, it is "bottom picking", BUT....

The second case is the continued strength in TLT, which is a fund that tracks the price of the 20 yr. US Treasury Bond. A steady uptrend for the last few weeks. This is at a time when the talk in the markets is of the Federal Reserve discontinuing the purchase of US Govt. debt, which should cause the long bond to go down in price/ up in yield. Usually a rising treasury market signals a lack of inflation. But everybody is screaming "inflation!!". So why is the long bond going up? Is that where the money, that I believe is cashing out of the stock market, is going?? Maybe... The only caution is the volume. Not impressive.

And then there is the silver market. It has been on a tear lately that can only in the short term be called a "bubble". A hard correction the last two days. Hard enough that it will probably turn into at least a several week correction.... Precious metals in decline means deflation. Deflation means declining prices for assets. Like stocks.

And along the same vein: RIO. Rio Tinto, a copper and gold producer. I see signs of distribution since about January 20.  High volume with sideways action through April 18 or so. And then the big down volume again today.....

And then today. Clorox down hard. Up since early March on low volume, and then the earning disappointment today. Clorox with an earnings disappointment. Clorox.

And here is the story:
http://online.wsj.com/article/BT-CO-20110503-714622.html
Here is the chart of the S&P. Up for the last two years. Lower and lower volume on the advances......

Our markets have been going up on the back of a weak dollar. The rest of the world is tightening interest rates to prevent inflation. We will have to tighten to support the US Dollar at some point. The US cannot have interest rates that are LESS than the inflation rate. I think the markets are starting to price in higher interest rates and a more restrictive monetary policy. Not to mention a tighter fiscal policy that is coming from the Federal Govt., and the states are already cutting back.....All hard on the unemployment rate....
To sell the indexes now would be a case of "top picking". Not something that a trend follower should advocate. But.... the signs are there.

Reasons to not be in the stock market....

There has been a good bid in the TLT lately. I see an inverse H&H on the daily, with the right side shoulder higher than the left. Neckline just above where we are now. Buying in the present market where everybody is screaming about inflation just has to be flight to quality.

I have been seeing a lot of individual stocks that have what appears to be distribution over the last couple months. Including many of the natural resource stocks.

And I would have to conclude that there is a massive short interest in the USDollar, with the possibility of a violent countertrend rally at any time. When the US dollar goes up the indexes go down lately. (For the last year?)

I just can't get myself to stay long the indexes lately. And got a little short the S&P today. Tops are a process and it seems to me that stocks have been trying to top out for some time now. Maybe wrong. It is all in the timing and I'm probably early.

OH, I almost forgot. I got short silver again. Made a little on the last shorts, made some  on the long side early today, short a little again...
Here is that 20 yr. long US Treasury chart,

And something to ponder:

A new paradigm is coming..

https://www.gmo.com/America/CMSAttachmentDownload.aspx?target=JUBRxi51IICi3XDk3kgSh6vLtzbPwJWv9j9b13l0dYjF9rvqA%2bOemQJnKCUtBlLDQGoZefVzk4SHgb7XFBPhF9TB5NDqRGhNovIh7Uv8y28%3d

Is there another problem with the banks?

There are a lot of things in the markets that seem to be signaling trouble. The apparent accumulation in the financial short ETF SKF.

The continued weakness in the U.S. dollar even as the end of QE2 approaches.

The skyrocketing price of silver.

Is there another banking crisis coming?
Here is an interesting link:
http://www.businessinsider.com/hussman-on-bank-cfo-departures-2011-4

And the update on SKF:

I still see accumulation.

Can you spot the inverted Head & Shoulders formation in TLT?

And then there is the 20 yr. US Treasury ETF: TLT.
Why is it so strong after the warning of downgrade by S&P?
If the dollar is so weak, and inflation pending, who is buying treasury bonds?

When trading or investing it is not profitable to be afraid to miss a rally.
Instead, fear losing money.

"He who loses the least..... WINS!"
                             Richard Russell

Standard & Poors places United States on watch...

Standard and Poors, a credit rating agency for the world, put the United States on watch for a downgrade of the debt of the U.S. government. This will place much more pressure on our elected officials to balance the U.S. budget. This also means that we as a country need to balance our books, or at least make a credible effort to do so.
As far as the stock markets go, this latest development will give investors pause, as they ponder and wait to see what develops in the Congress. I see the bid for U.S. stocks being weak for the foreseeable  future. The indexes should be weak for awhile. Despite the risks that bond funds hold in a world of rising interest rates, they may be the best way to limit risk now...
Here is the link to the story of the S & P story:
http://www.bloomberg.com/news/2011-04-18/standard-poor-s-puts-negative-outlook-on-u-s-aaa-rating.html

updates

Here are some updates on past predictions and charts.

Recent action in Cameco shows that the "bottom" did not happen...

And SKF, the short financial ETF, still looks interesting. Still a bottom forming, with increased volume on the up days and declining volume on the down days. This usually means accumulation.

From Feb. 22, the chart of RIO was definitely a failed breakout, but is now back near the highs, although on lower volume.....

And TBT, the short U.S. Treasury ETF did go down....

Lira on the Dollar

I urge everyone to go to Financial Sense and listen to Jim Puplava's interview of Gonzalo Lira.

http://www.financialsense.com/financial-sense-newshour/big-picture/2011/04/09/02/gonzalo-lira/hyperinflation-why-it-is-coming-to-the-US