The High Price of Oil
In less than four years, the price of oil has risen about 300%, or over $50 a barrel. The Light Crude Continuous Contract (of oil futures) hit an all-time high at $67.80 a barrel Friday, and closed the week at $67.40 a barrel. Persistently high oil prices will eventually slow economic growth, which in turn will cause oil prices to fall, ceritus paribus. The two charts below are same period daily charts of SPX (S&P 500) and OIH (an oil ETF, which is a basket of oil stocks). Over 15% of SPX are energy & utility stocks. The two charts below show SPX started the recent rally about a month before OIH. Also, the charts imply, non-energy & utility stocks fell over the past week or so, while energy & utility stocks stayed high or rose further. SPX held its 10 day MA until just over a week ago, while OIH continues to hold its 10 day MA. The Parabolic SARs (red dots) indicate SPX is on a sell signal, while OIH continues to maintain the buy signal. SPX would need to rise to about 1,242 3/4 to trigger a buy signal, and OIH would need to fall below 115 3/4 to trigger a sell signal (see upper left corner of chart). Perhaps, the safe play would be to wait for OIH to close below its 10 day MA, or fall below the Parabolic SAR buy level. However, I believe, if oil tests $70 (e.g. next week or the following week), that will be the OIH sell signal, and perhaps an excellent opportunity to buy OIH Sep puts (or puts on overvalued oil stocks). SPX has sold into weekends over the past three weeks, which is typically bear market behavior. However, next week is options expiration week. So, direction will be somewhat skewed next Friday. The following are current August Max Pain expirations: SPX 1,225 with the value of calls about three times the value of puts (which is bearish, since the put/call is a contrarian indicator). SPX closed at over 1,230 Friday. OEX (S&P 100) 570 with the value of puts over three times the value of calls (which is bullish). OEX closed at about 571 Friday. QQQQ 39 with the value of puts twice the value of calls. QQQQ closed at about 39 1/4 Friday. It's interesting that the OEX put/call is roughly the mirror image of the SPX put/call, which may suggest institutions, which tend to buy large cap stocks, are skeptical of a rising stock market. Economic reports next week are: Mon: Empire State Index, Tue: CPI, Industrial Production, Capacity Utilization, Building Permits, and Housing Starts, Wed: PPI, Thu: Unemployment Claims, Leading Indicators, and Philadelphia Fed. Fri: None. Recent data showed slowing and above trend growth with disinflation. A higher Capacity Utilization Rate would indicate future inflation. The high price of oil tends to slow economic growth rather than cause inflation (in part, because the high price of oil is a tax on consumption, which lowers demand for non-energy goods). The big play may be buying Sep puts when OIH and overvalued oil stocks bounce, because OIH may continue to lag SPX. Also, options expiration week tends to be volatile, and the trading range may continue. So, there may be several other excellent trading opportunities next week. Charts available at PeakTrader.com Forum Index Market Overview section. Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998. Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time. This methodology has resulted in excellent returns with low risk over the past three years.
Related News
|
 |
|
|
RELATED ARTICLES
Discipline in Investing and Trading
Discipline can be simply defined as your ability to follow your investing and trading plan.
What My Horse Had For Breakfast
Let's see, he had some oats, fresh alfalfa and his vitamins. I know from the mixture that is great food and he will win the seventh race this afternoon. He can't lose because of his diet and a great jockey will be riding him.
Preholiday Trading
The Light Crude Continuous Contract closed at $66.13 a barrel Friday, after hitting an all-time high at $67.95 a barrel earlier in the day. A week from Monday is Labor Day, which marks the end of the summer driving season. Consequently, I believe, oil hit a short-term top Friday or will top next week.
Annuity Investment - The Whole Truth
Do you ever feel like you haven't been told the whole truth? Kind of like something is missing? Well, you are not alone.
Just Say NO to Your Stock Broker
We have all heard that slogan that started back when Nancy Reagan was in Washington. It was all about drugs. Now I want to remind you this can be your slogan when you get one of those telephone solicitations from a strange broker or even your own stockbroker who is acting a little strange. By that I mean he wants you to buy something.
Forex market offers opportunity and information
The forex market is what is called an international exchange currency market, where currencies are exchanged on a daily basis. There are five forex market centers around the world ? New York, London, Tokyo, Frankfurt and Zurich. One does not need to be on the trading floor, so to speak to be involved in the forex market. Today, forex trading can be done from home on a computer.
Maniac Investment
Let's first understand what maniac
means. According to Webster a maniac is "mad;
raging with madness; raging with disordered
intellect". You don't know anyone like that, do
you?
Why Should I Use Penny Shares to Build Wealth?
A strategic question. Why indeed?
The High Price of Oil
In less than four years, the price of oil has risen about 300%, or over $50 a barrel. The Light Crude Continuous Contract (of oil futures) hit an all-time high at $67.80 a barrel Friday, and closed the week at $67.40 a barrel. Persistently high oil prices will eventually slow economic growth, which in turn will cause oil prices to fall, ceritus paribus.
Should You Put Your Annuity in an IRA?
Let me start by answering that question...if an annuity fits your investment objectives than there is no reason that an annuity should not go in your IRA. Okay all you smarty pants out there who keep arguing that it is tax deferred and it does not belong in your IRA...SO WHAT??? The fact that it is tax deferred is only one reason why people buy annuities.
Direcway & Wildblue Set to Square Off this Fall?
There is a cat fight brewing between Direcway LLC, Starband and Wildblue Communications for the large number of people in the U.S. who can't get some type of broadband internet and are willing to pay $50 or more to get better speeds. The combatants are telling investors there are 20-30 million "potential users" out there in rural or underserved America...true, but the historical fact of the matter is that up to now, only 500,000 or so have been willing to pay as much as $50-$100 a month for the "so called" high speed services offered by Direcway, Starband and now Wildblue.
What has changed to stir all the press and advertising hubub by the companies? The claim is that both the Wildblue ka band and new Direcway 7000 offerings will finally give consumers a more DSL/Cable-like internet experience...ie lower latency and higher upload speeds. They expect that tens of millions of rural Americans will flock to their doors to pay over $50 per month to be "connected". To a degree they are right. It has become virtually impossible to funcion as a business without broadband internet and it is more and more difficult as a consumer to do without it. Even retailers (who obviously target consumers) are building sites that are very difficult to navigate unless you have a fast connection to the net. Pictures chew up bandwidth.
Remembering TEOTWAWKI and Learning from It
Its only been about 5 years since we had major scares in the marketplace regarding Y2K. You might recall that many computer systems were not programmed to be able to understand the change from 1999 to 2000. There was a tremendous amount of panic created by those who were convinced that as the clock hit midnight on on New Years Eve 2000 that we were going to enter the Dark Ages.
Property Investment Just Got Exciting
There is an area in Brazil that has lower crime & lower property prices than where your are probably sitting right now!
Delist My Corporation Please
It use to be said that once a company was de-listed from the NASDAQ it was the kiss of death, not so any more. With Sarbanes Oxley and all the insane reporting requirements it might save your company from incessant lawsuits from investors and the government regulators who are out to destroy free enterprise. Many small NASQAQ companies have spent over $100,000 initially to set up the controls for accounting compliance of Sarbanes Oxley and now the ongoing scrutiny for transparency runs a good 1-3% of gross sales. But that is not the kicker; the real problem is when company executives make decisions for the regulator over sight compliance and what is best to keep the company out of trouble or from receiving a letter from Elliot Spitzer or the SEC. Once that happens the stock price tumbles and once in the sites of a regulator they are going to have to find something to prove self worth, even if they have to lie a little or fudge their investigation to make something up. Which is all to common as any insider will tell you.
Guru Focused: Robert Olstein?s Short Sells
While it is rather rare that value gurus sell stocks short, Robert Olstein has been selling short in his Financial Alert Fund. The accountant-turned fund manager spots values by looking behind the numbers. In the second quarter of 2004, Robert Olstein sold short American Italian Pasta Co. (PLB) at $31. After about 6 months he covered at $20, easily made more than $1 million for his fund. Currently he is shorting two stocks: Computer Sciences Corp (CSC) and Fleetwood Enterprises Inc (FLE), although things do not always go that smoothly.
Forex Trading Best Practices
FOREX, the term for the FOReign EXchange market, is an international exchange market where currencies from many different countries are bought and sold. Both long-term hedge investors and short-term investors that seek quick profits use FOREX. Trade reaches between 1 and 1.5 trillion US dollars per day. Needless to say, FOREX is a very lucrative market. Many wonder how to gain the most profits by trading with FOREX. There are a few simple trade practices that can help any trader, either an amateur or a professional make significant profit from FOREX.
Hedge Fund 101 - Make Money with Hedge Funds
Investors are always looking for the best investments that will yield the most profit. Any investor who can afford the extra cost should consider investing in Hedge Funds. Hedge Funds were started in 1949 by Alfred Winslow Jones, who pioneered non-traditional investment strategies. Jones innovated this new investment strategy by selling short stocks, while buying other stocks (long stocks). Hedge Funds are very similar to Mutual Funds, except that there are fewer regulations on Hedge Funds. As a result, Hedge Funds usually require a much larger investment.
How to Terror-Proof Your Money
"To drift is to be in hell, to be in heaven is to steer." -George
Bernard Shaw
The Basics of Tax-Free UK Financial Spread Betting
Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.
The Cost of Green Eggs and Ham
Young readers know that March 4th is the birthday of Dr. Seuss. Many parents trip their tongues over Seuss stories like "Green Eggs and Ham". "Do you like green eggs and ham?/I do not like them, Sam-I-am./I do not like green eggs and ham".
|
Comment by Frank O'Donnell