Monday, July 17, 2006

Oil Your Shorts

Wow, was that the rally? Maybe, maybe not. Perhaps it's just more basing behavior before we push higher.

Good bear that I am, I couldn't bring myself to go long. The bounceback seemed horribly flimsy. And with 8 points on the board at the end of the day it seems that, for today at least, the bulls haven't seized control back yet.

One relatively safe haven, I think, for shorts is in the oil services sector. Oil has obviously been on a tear for a couple of years, although this article in Forbes helps put it in perspective. But the per-barrel price of crude is sky high:


In spite of this, when I look at the oil services sector (in this case, OIH) I see a head and shoulders pattern shaping up. I must state once again that a pattern in formation is not the same as a completed pattern. One shouldn't normally jump the gun. But if you set your stops tight enough, this might be worth a look. It may seem hard to believe, but if the H&S pattern breaks beneath its neckline, the target zone is that area wayyyyy down in blue.


Let's look at what I think are some juicy opportunities in stocks related to oil. Many of these have puts available, or you could just do a straight short sale. We have Atwood Oceanics (ATW):


Cleveland Cliffs (CLF):


EOG Resources (EOG):


Frontier Oil (FTO):


Massey Energy (MEE):


Marathon Oil (MRO):


Petro Brasil (PBR):


SunCorp (SU):


If we continue lower this week, it will show the bears finally have firm control of the market. Otherwise, it'll be another passing of the torch and a bit more wasted time before the fall can start in earnest.

33 comments:

Mike Stone said...

Often times the oil stocks & gold miners lead the commodities themselves. So if the XAU & OIH crash hard like you're talking about it won't
be long before crude & gold fall hard too.

When that happens the commodity boom has temporarily ended.

I'm beginning to think we're in for a period of deflation like Japan. If you take commodity prices out of the equation we haven't had much inflation
(health care and education costs are more strucutural problems within the economy - not due to inflation).

Anonymous said...

I've been watching the potential formation of a large head & shoulders pattern on the OIH as well, and it may play out that way. However-- with crude pushing record highs and the possibility of all-out war in the Middle East looming, I think you also have to contemplate the potential for a shorter-term inverse head & shoulders-type pattern to develop here. In this scenario, the June low would be the head, and today's low the "top" of the right shoulder, with a move up off this area needed to complete the formation. I could see it working out either way, but I do think it is a tad risky to be short oil with everything that's going on in the geopolitical arena right now. Minute to minute headlines could shoot the sector sky-high if traders smell supply being threatened. Either way, we should find out soon.

Hbarr said...

The potential H&S top pattern on OIH from January to July is very obvious, but if you focus on the right side, between May and July, it could be a smaller H&S bottom which projects to 170. At 170 we could have a double-top to 130 which still projects down to 90!

Isn't chart reading a blast? ;-)

Mark said...

DOW temp bottom, or pause on the way?
That is the biggest question for today.

For those that haven't shopped for their August+ puts, it is probably a good time to look. Especially if the market sprints North like most peoples' guts are telling them. Hard to say how long this pause in the DOW will last, like the last couple lasting 7-9 days each. And which way will it break?

It should get over 10900 to complete the second sholder. But if there is enough catalist, it doesn't even need to do that and just drop to 10400-10500. If it does drop to that level, it will likely spring back up to 10700 right after.

I think Tony said it sometime recently, it may be Wed or Thurs before we see movement again. If it heads North, it makes for a really good technical bottom for the h&s to hit 10900-11000.

costas1966 said...

Tape action was terible on the energy sector today. Nasty selloff today on rising volume. It seems to me they are selling off the last areas where they can still take some profit for the year. Something bad is cooking but I havent figured it out yet.

As for the market, to say that the rally off Friday's low is anemic would be an overstatement. All I see at this moment is just sideways movement without much to the upside. The market is catching a breather before a further move down. The tape action is horrible. I see no bullish setups whatsoever exept pawnshops and utilities. The A/D line not only broke the May low but it is also challenging the low of March 2003. I interpret that as extremely bearish. The market is just starting to roll over and the A/D line is breaking multiyear lows, it could not get any worse than that. The head and shoulders top is still in force with price below neckline support.
The last few leaders, energy and gold stocks are rolling over experiencing serious selloffs today on high volume. I suspect this market will continue to sell off until the next line of deffense at 1168.

cristri25 said...

just short GRMN, EXPD aned BA

:)

TR said...

Continue to be impressed with the posts and the comments. Have these "guys" (not being sexist) been watchin all the right trends and doing their homework?

Few areas that look to show some strength: Financials - fed slow down?, utilities (agree - guess the yield bearing stocks are grabbing $$$; should have seen that coming), the rest looks ugly.

Any thoughts on where strength will come from in the NDX? Such a low for the past 12 month, can't believe it. Truely don't believe it can keep going down so hard.

I think we will get some news strength this week to close options expiration and build the momentum into selling. Best of luck all!

PB said...

tr - being long financials in this market is akin to going for a picnic on a minefield. I am pretty sure there are a few financial institutions out there that have managed to fukk things up in the last 5 years with these low rates. Fed fund rate is now 400% higher, I am pretty sure there is a disaster looming that not many are willing to acknowledge. Stocks and the underlying commodities can and do de-couple. So what if oil falls to $65??? It's still damn expensive and double what it was in 2003.
Any one know why BIDU is at $93 today??? --- to me it's begging to be shorted.
It shd be clear to everyone by now that the bear has awaken!

Anonymous said...

BIDU received the second upgrade/raised price target in as many trading days. I'd wait for it to show signs of rolling over before taking it short. The weekly chart suggests it may be heading higher near-term.

TR said...

PB - did not say I was going to be long in financials, I don't want to be long in anything with this trainwreck ahead of us. My credit spreads are doing great and keep me growing.

Have to say the new proshare's ETF's that double the indicies up and short the indicies look outstanding.

Finding nice opportunities to put a few stocks when conditions present themselves. Looks like CME / GOOG may be ripe for a short term bounce (don't look to be good short candidates yet).

Mark said...

BIDU bounced off 2-month resistance today. Another line I drew takes it up to ~99, which it could hit tomorrow. If it does that, it will plummet back down - going off the patterns it has shown in the past. The head will be formed, though on the candle-stick chart it will look like a pin-head.

GOOG may go up all week, but max I think it will hit is 415, unless it is strong enough to double-top.

CME is interesting for a very-short low long - top may hit 480, unless it gets some (buffalo? - well, related to cows...)wings for a double-top.

AssetStrategists said...

Hello Traders!

This is my first post to a blog...

GRMN: Filed a Def 14 with the SEC so they are set for a stock split soon. They are showing unusual strength in this market so I would set a tight stop.

Gold: Anyone know of Gold, Oil, and Silver ETF that have options?

Prosperous Trading!

Chris

Anonymous said...

Mark-- Resistance on BIDU is at 94.03, the June high, which it hasn't quite tagged yet. I had been watching for a head and shoulders pattern to complete, with the neckline around gap support, but Monday's move and close near the high is above right-shoulder height. It may have trouble around $94.00-- but shorting something just because it is up a lot and "bucking the trend" very often backfires. They also have earnings next week, which I believe are expected to be strong. I'll be watching the $94 resistance area closely. Best of luck.

Old Soldier said...

To add my "2 cents" to the thoughts on BIDU I see it in a Continuation Diamond Pattern(Bullish) with an expected pattern move (distance) of up to around 99-101 before it turns back.

I would also offer one more interesting stock to look at which is CTSH that is in a Top Triangle Pattern (Bearish) with an expected pattern move (2 separate gaps to fill) down to around 50 or so.

These are two that I am involved with based on where I see the "market" and what the trends and patterns are doing. As I always say, history will prove the analysis of the expected move which is why I choose to rely primarily on trends and patterns. Even when the pattern/trend indicates an expected direction and distance things can change such as news events (good or bad)that will directly affect the stock so I am always ready to react to it. A case in point was last Friday with FRX. It should have had a very good down move but positve news that morning pushed it up $6.00 in one day. Good lesson to be prepared for the unexpected. Thankfully I did not enter the trade that morning and was just watching it for a more defined indication of it's intention.

It will be a very interesting day and week ahead for sure.

PB said...

Ok, so BIDU, has another good day ahead of it, but this sucker is even more over-valued than GOOG. I hv a hard time imagining how BIDU will hold up in all this malaise. Thank you all for your input.

Anonymous said...

PPI figures came in fairly high today. Not a good sign for manufacturing.

And don't think for one minute that the higher PPI won't lead to higher CPI. It's inevitable.

The bear isn't turning anytime soon. Might be a good time to start scaling into some of the PSQ or DXD positions.

-Tony

Anonymous said...

tony i follow ETFs left and right, i knew when profunds came out with ETF they were suppose to release 12 but only did 8, now I know what the other 4 are. this is kick a$$.

DXD
QID
SDS
MZZ

think ill be buying some SDS

Super Bull said...

Trader Tim, like you, I am not impressed with the rally so far. I am reentering my short of the tech names (ebay, yhoo, goog, aapl).

Anonymous said...

sad rally. yhoo reports tonight, if they disappoint expect nasdaq 2000 tomorrow.

market is extremely weak. I think the s&p goes to 1150 before we see somewhat of a bottom.

PB said...

CNBC has a bunch of air-heads. Today they had a guy on saying that PPI #'s don't matter any more! UNBELIEVABLE, anything to get the losers to buy!!!

Anonymous said...

i would refrain from new shorts for the indices this week ... they look poised for a bounce ... most likely to the 50 dma

bsi87 said...

anon,

Agree. Time to open shorts is up against resistance areas. Not at support. Note gold and OIH are dropping. I have been opening long positions yesterday and today but they're .25% of my equity so they're not huge and gonna sink my portfolio. Note the -1000 tick this AM and the drop in the VXN. Trannies making a higher low compared to the June low.

Anonymous said...

Well, the Dow just broke through support. We'll have to validate it on a closing basis today, but the volume has definitely picked up to the downside and right now the index is at 10,687. The S&P is in no-man's land right now at 1,226.

The tone of the market is decidedly negative. Without price support, there can be no trading. It almost looks like people are getting out of the market at all costs. The big players have decided that it's time to get out and stay out for a while.

I'm pretty sure that even tomorrow's CPI data won't save the market at this point.

Interesting development. I would never have guessed that today's action would be so negative so far.

-Tony

Hbarr said...

I get the sense that the bulls are experiencing a sense of resignation that this is indeed more than a correction and that the market will head lower.

Anonymous said...

I think when everyone is totally negative it might be time to buy, im seeing that today, after tomorrow cpi I think it may be time to get in, the federal reserve is going to raise rates .25 on august 8th so this news is not anything new. However a pause is what investors want at the 8th meeting, if they dont get it the markets are going to tank.

Anonymous said...

Naturally, the INSTANT that I wrote that message, the Dow rose from 10,687 to 10,719. The bulls are looking to put a small rally together, it appears.

Go figure.

-Tony

PB said...

Barring a financial accident/mishap, the fed will not stop at the Aug meeting.

I can hear hurricane5 crying now. Pls stop, this hurts!!! Sorry pal, the bears a hungry!!!

Anonymous said...

wowwwwwwwwwwwwwww

bsi87 said...

Well, I can be wrong going long but the VXN is lined up, the DJIA is showing spinning tops at the bottom of a 20 day BB, the MACD is diverging (higher lower than in June), and even the slow stochastics looks like a cross over to the upside. No one said trading was easy.

Anonymous said...

I think this rally could be a 1-2% rally especially if the data tomorrow is in line along with yahoo earnings tonight.

Anonymous said...

looks like we are bottoming ...

bsi87 said...

DJIA resistance is at 11060, the neckline for the H&S. There's a double right shoulder. Resistance line is 11250. Probably where we'll go since no one expects it in face of oil prices, wars, etc. Grin.

Anonymous said...

Just out of curiosity, is anyone here really trading with a large percentage of their portfolio??

For example, in my case, I've got probably 60% of my money in a managed portfolio (mainly funds), 30% in fixed-income investments (mainly CDs), and I'm only playing around with 10% or less of my overall portfolio for trading purposes.

What that does, of course, is leave me wide open to the broad market crash in a large portion of my portfolio, but I've hedged it with a goodly amount of fixed income stuff. The rest is just gravy that I'm playing with. I guess that makes me a "net long" in the market, but I'm actually quite bearish on equities (and bonds, for that matter) at the moment. But hey, you name it, gold, oil, metals, stocks, bonds, whatever... they're ALL going down right now.

Is anyone really serious about their money and playing with a larger percentage? I couldn't imagine working with (and risking) large amounts of capital on the daily swings in this market.

Just thought I'd ask.