Post by Savant on Aug 19, 2004 3:38:00 GMT -5
Market Strength Defies Gravity - Published 04:38 EDT Thursday August 19 2004
Last Friday, we wrote: Election years tend to bring a bevy of surprises and this year is proving to be no exception and also recently commented on how many analysts had gotten very bullish earlier on this year including even some of Wall Street's biggest bears and with good reason: Historically, election years have had a upward bias, often but not always finishing the year higher. It's what happens during the year that these analysts may have overlooked as invariably there is some kind of severe mid to late year selloff that usually turns out to be a great buying opportunity before a late rebound can carry prices significantly higher, into or sometimes after elections.
That late rebound began to take shape on Friday as the market seemed to refuse to want to go much lower, in spite of impending storms and the continuing rise in the price of Crude Oil we called for and it became apparent to us, that a significant rally could unfold at any time as we alluded to early Friday that there was: "A slim chance that these trends are so close to reversing that some kind of surprise reversal could happen at any time". We also commented earlier to be ready for a stronger than expected rally to unfold. So far the market has shrugged off pretty much all the negatives and defied all odds and gravity itself, to mount one of the most impressive rallies we have seen in some time and it now looks as if this rally could actually accelerate to the upside, right into the end of the month at least. In our second last report of August 6th we did actually state: It now seems as if a mid-month low may be the ticket.
Since Sunday night going into Monday August 16, essentially traversed the exact mid-point of the month, so far that call has turned out to be quite prescient. And what actually potentially strengthens this argument is the near 30 point rally in the S&P 500 off the lows and the fact that a deeply oversold bottoming condition, against a backdrop of considerable albeit subtle divergences have conspired to make this a low point of year long significance. Although there is an argument that we have risen in three waves so far, some risk still exists of a stronger opening succumbing to some selling pressure and a consequential re-test of some sort.
Alternatively, should the market continue stronger, preferably with an opening gap that will hold its gains and power through 1,100 on the S&P and 10,100 on the Dow, then the ingredients for a powerful weekly reversal and upper range close will be set in place.
The remaining influences that could imply extreme volatility is Friday's expiration, which could create unusually profitable trading opportunities in the case of an extended trend or wild two-way trading. It's been a while since we had a really volatile expiration and this Friday could be the ticket.
As for the Oil market, it feels like there is about a week left in this move, although that could be truncated into just hours or days. Mid- morning Wednesday the API statistics registered a drop in inventories of 1.1 Million Barrels or so and this caused some early profit-taking to occur, before the rebound in Crude Oil prices resumed, again illustrating the buying power of short sellers who fear a market going way against them and potentially facing catastrophic losses from further un-controlled gains to the upside.
Somebody is hurting big-time by being short and is probably having many sleepless nights of late. What may be a key fundamental change will in all likely-hood be an increase in inventories, perhaps by a larger than expected amount. An event like that could be the death-knell of this move but it has yet to happen and until it does, or is anticipated, the trend appears to remain upward.
Whilst all this has been going on, the blowout trade deficit number of $55.8 Billion has caused the US Dollar to act very heavy losing 2 points on the Dollar Index and is now only 2 points or so away from making new lows for the year and duration of its entire downmove.
What this implies is the possibility of a strong new upwave developing in the European Currencies and a strengthening continuation of the downtrend in the US Dollar. This is starting to have positive consequences for the Precious Metals which are close to breaking up through significant resistance levels, that if broken could produce some swift and powerful upmoves. The Reuters CRB index is also acting fairly strong and appears poised for a breakout to new interim highs which should also be supportive of precious metals.
In conclusion: Last week, some of our esteemed readers challenged our views on the longer term reserves of oil and in order to clarify this point I would like to state that what I was really referring to was a little known chart published by BP (British Petroleum) that tends to indicate that the ratio of Global reserves versus production is not as bad as the current anxiety about high Oil usage tends to imply.
World Energy demand shows no signs of slowing and that is why we made the analogy to 1987: That beyond whatever correction in Oil prices lies ahead, the potential for Oil prices to increase exponentially into the end of this decade cannot be underestimated and on that scale, tends to suggest that $100 per barrel is a reasonable longer term price objective.
How long will it last?
The short answer is no-one knows, but even the oil industry suspects the world "peak" is now approaching. It says it has 40 years of proven reserves at the moment - but it also said that 30 years ago. In fact, the estimate has actually increased in recent years as production has fallen. Cutting consumption would prolong oil's life.
OPEC HISTORY - World demand for oil remains high
1960 - founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela
1965 - Moves from Switzerland to new headquarters in Vienna, Austria
1973 - High oil prices cause world economic crisis
1990 - Iraq anger at Kuwait over-production sparks Gulf War
1998 - World oil price drops to $10 a barrel
2000 - Opec puts squeeze on production to boost prices
2001- Opec puts pressure on non member countries to cut production
The cost of oil
For a century the price of oil remained stable. But it soared when the oil cartel Opec blocked exports to the West after the 1973 Arab-Israeli war.
Prices tripled, plunging the West into recession. The Iranian revolution had a similar impact, and prices peaked again after the two Gulf wars
Salutes once again to Jim Rogers for calling for this very strong new up-trend in oil prices long before most other players and giving it such a high weighting in the Commodity Fund and Index he created, co-incidentally with the beginning of this latest resurgence in oil prices at the turn of the Century. Its weighting illustrating the importance oil plays in the overall economy, even though as a percentage of GDP, oil is of less importance than during prior eras.
Have a Great Weekend
Trade Well
Savant
Last Friday, we wrote: Election years tend to bring a bevy of surprises and this year is proving to be no exception and also recently commented on how many analysts had gotten very bullish earlier on this year including even some of Wall Street's biggest bears and with good reason: Historically, election years have had a upward bias, often but not always finishing the year higher. It's what happens during the year that these analysts may have overlooked as invariably there is some kind of severe mid to late year selloff that usually turns out to be a great buying opportunity before a late rebound can carry prices significantly higher, into or sometimes after elections.
That late rebound began to take shape on Friday as the market seemed to refuse to want to go much lower, in spite of impending storms and the continuing rise in the price of Crude Oil we called for and it became apparent to us, that a significant rally could unfold at any time as we alluded to early Friday that there was: "A slim chance that these trends are so close to reversing that some kind of surprise reversal could happen at any time". We also commented earlier to be ready for a stronger than expected rally to unfold. So far the market has shrugged off pretty much all the negatives and defied all odds and gravity itself, to mount one of the most impressive rallies we have seen in some time and it now looks as if this rally could actually accelerate to the upside, right into the end of the month at least. In our second last report of August 6th we did actually state: It now seems as if a mid-month low may be the ticket.
Since Sunday night going into Monday August 16, essentially traversed the exact mid-point of the month, so far that call has turned out to be quite prescient. And what actually potentially strengthens this argument is the near 30 point rally in the S&P 500 off the lows and the fact that a deeply oversold bottoming condition, against a backdrop of considerable albeit subtle divergences have conspired to make this a low point of year long significance. Although there is an argument that we have risen in three waves so far, some risk still exists of a stronger opening succumbing to some selling pressure and a consequential re-test of some sort.
Alternatively, should the market continue stronger, preferably with an opening gap that will hold its gains and power through 1,100 on the S&P and 10,100 on the Dow, then the ingredients for a powerful weekly reversal and upper range close will be set in place.
The remaining influences that could imply extreme volatility is Friday's expiration, which could create unusually profitable trading opportunities in the case of an extended trend or wild two-way trading. It's been a while since we had a really volatile expiration and this Friday could be the ticket.
As for the Oil market, it feels like there is about a week left in this move, although that could be truncated into just hours or days. Mid- morning Wednesday the API statistics registered a drop in inventories of 1.1 Million Barrels or so and this caused some early profit-taking to occur, before the rebound in Crude Oil prices resumed, again illustrating the buying power of short sellers who fear a market going way against them and potentially facing catastrophic losses from further un-controlled gains to the upside.
Somebody is hurting big-time by being short and is probably having many sleepless nights of late. What may be a key fundamental change will in all likely-hood be an increase in inventories, perhaps by a larger than expected amount. An event like that could be the death-knell of this move but it has yet to happen and until it does, or is anticipated, the trend appears to remain upward.
Whilst all this has been going on, the blowout trade deficit number of $55.8 Billion has caused the US Dollar to act very heavy losing 2 points on the Dollar Index and is now only 2 points or so away from making new lows for the year and duration of its entire downmove.
What this implies is the possibility of a strong new upwave developing in the European Currencies and a strengthening continuation of the downtrend in the US Dollar. This is starting to have positive consequences for the Precious Metals which are close to breaking up through significant resistance levels, that if broken could produce some swift and powerful upmoves. The Reuters CRB index is also acting fairly strong and appears poised for a breakout to new interim highs which should also be supportive of precious metals.
In conclusion: Last week, some of our esteemed readers challenged our views on the longer term reserves of oil and in order to clarify this point I would like to state that what I was really referring to was a little known chart published by BP (British Petroleum) that tends to indicate that the ratio of Global reserves versus production is not as bad as the current anxiety about high Oil usage tends to imply.
World Energy demand shows no signs of slowing and that is why we made the analogy to 1987: That beyond whatever correction in Oil prices lies ahead, the potential for Oil prices to increase exponentially into the end of this decade cannot be underestimated and on that scale, tends to suggest that $100 per barrel is a reasonable longer term price objective.
How long will it last?
The short answer is no-one knows, but even the oil industry suspects the world "peak" is now approaching. It says it has 40 years of proven reserves at the moment - but it also said that 30 years ago. In fact, the estimate has actually increased in recent years as production has fallen. Cutting consumption would prolong oil's life.
OPEC HISTORY - World demand for oil remains high
1960 - founded by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela
1965 - Moves from Switzerland to new headquarters in Vienna, Austria
1973 - High oil prices cause world economic crisis
1990 - Iraq anger at Kuwait over-production sparks Gulf War
1998 - World oil price drops to $10 a barrel
2000 - Opec puts squeeze on production to boost prices
2001- Opec puts pressure on non member countries to cut production
The cost of oil
For a century the price of oil remained stable. But it soared when the oil cartel Opec blocked exports to the West after the 1973 Arab-Israeli war.
Prices tripled, plunging the West into recession. The Iranian revolution had a similar impact, and prices peaked again after the two Gulf wars
Salutes once again to Jim Rogers for calling for this very strong new up-trend in oil prices long before most other players and giving it such a high weighting in the Commodity Fund and Index he created, co-incidentally with the beginning of this latest resurgence in oil prices at the turn of the Century. Its weighting illustrating the importance oil plays in the overall economy, even though as a percentage of GDP, oil is of less importance than during prior eras.
Have a Great Weekend
Trade Well
Savant