Tuesday, April 10, 2007

Energy's Strength

It's true - the market (as measured by the Dow 30) was up for the 8th day in a row today. This hasn't happened since 2003. So the press is all over that.

Less touted is the fact that today, for instance, the Dow was up all of 4.71 points. In percentage terms, that's the equivalent of a person with a six-figure income rushing home to tell their spouse their gross salary is going up $37.45 per year. Whoo hoo!

One quick note on American Home Mortgage (AHM) before we get started in earnest..... the stock continues to tumble. The tough part - and this is always much tougher than picking out opening positions - is when to close it. I took a look at a long-term chart, and the next really meaty support level is literally in the $6.50 to $7.00 range. Does that mean the stock will go that low? I have no idea. But this short position looks even better today than it did yesterday.


As for the market in general.....same story from me. Take a look at the DIA graph below. The bulls just keep wrenching things higher, but we're still below that busted trendline. Looking at this one graph, it seems the bulls are losing steam. But we know how easily they can recharge those locomotives, don't we?


I've been impressed and surprised by the strength of energy stocks. I have a substantial investment in natural gas fields, so I'm happy to see NG prices creep higher. But my feeling a few days ago that oil stocks were topped out was off the mark.

What's tough about buying into hot stocks is that it's difficult to see them going higher. But they often do. Here's a great example....Entergy (ETR), shown below, had pushed into a new high of about $78. Not that many months before, this has been a stock trading in the high 20s. It's hard to get excited about getting into a stock that has risen hundreds of percent like this.


But look what happened after the breakout (shown with the same horizontal line). This sucker just kept climbing. I admit that I am lousy about getting into stocks pushing into new highs.....it just seems too risky. But the fact is that this is how fortunes are made. Technical breakouts on strong volume often indicate many more gains ahead.


But when thinking about energy stocks, it often helps to at least have a passing awareness of what the commodity itself is doing. The main one, crude oil, has a long-term chart shown below. Obviously oil has had an amazing push skyward since the late 90s, blasting off about 600%. I'll leave it to you to decide where you think oil might go next. I truly have no strong opinion.


Looking closer, it could be argued that there's a head and shoulders pattern in the recent history. Not a textbook-beautiful one, but a visible one nonetheless. That would suggest future weakness. But, again, I truly have no strong view on where energy prices might be going.


Having said that, here are a few energy-related stocks with impressive charts. Dril-Quip (DRQ):


Schlumberger (SLB):


And Questar (STR).


A couple of mentions that are not directly energy-related.....first, I got bounced out of Continental Airlines (CAL), but I'm still eyeballing it. I've inched the neckline up a bit to accommodate the price move. This is not as clean a pattern as it was, but it's still worth watching.


Lastly, Sears Holding (SHLD) continues to be amazing (for bulls). I've mentioned this beautiful cup with handle pattern before. I have no position in it now, but if I were long, I would be delighted. This is an amazing-looking chart.


That's it for today. Let's hope the market gets a little more interesting soon. Otherwise, we'll have a 9th up day in a row, and it'll be +0.35 on the Dow.

28 comments:

Tim Knight said...

I have a comment about comments.

Some of you have noticed a particular individual posting what are basically advertisements for his fee-based site here.

From now on, as much as I am able, I plan to delete comments which:

+ Serve little or no purpose than to advertise a site - particularly a fee-based site

+ Are blatantly abusive, either to me or to others here

+ Are racially offensive or otherwise highly offensive

I certainly welcome criticisms - even sharp ones - of my own trading ideas. But ad hominem attacks and comment spam won't be tolerated.

stock_trad3r said...

2nd post....

Markets moving higher. This rally will continue till all the indexes make 52 week highs in a couple months.

What ever happened to the weak volume argument? Or the interest rates argument? Iraq? Or the subprimes?

Tim, you were very bearish 2 weeks ago as the market was going lower and now you seem somewhat bullish; yet your timing is off since you should have been bullish 2 weeks ago when the market was several percentage points lower. It doesn't do anyone any good to keep changing your outlook based on the present price.

And what about those puts? The expiration period is nearing. Let us know when you sell them.

Tim Knight said...

"And what about those puts? The expiration period is nearing. Let us know when you sell them."

Do you think I have APRIL puts? I'm buying autumn puts, and some of them don't expire until January 2008. I don't have a single April put. I've stupid, but I'm not crazy.

RLgtGLgt said...

Ouch, I got out last week with some profits on my puts. Flipped a few hot prospects into biotech and oil (both doing well).

As always, your posts are great. I really like both sides of Tim K . . . the bull and the bear! Keep up both sides of the posts!

Another Tim

Anonymous said...

I came to know about AHM when you mentioned it in your earlier posts. Too bad, I already someother sub-prime puts and did not pull the trigger on AHM :-(

Finally, thanks for fixing the advertisement non-sense in the comments section.

-Jack

JakeGint said...

Tim,

I'm a little nonplussed here, given that you are not making a bigger deal about the Dow going eight straight days w. out a break. I don't know how you can be losing your faith w. regard to bearish sentiment, since I'm nervous as hell about the few long positions I have left.

Not a criticism, I'm just generally curious about your "feel" for this market. I wouldn't be surprised if we didn't lose 100 pts tomorrow, but I sure wouldn't be shocked if we did, either.

_____________

Also, wanted to let you know about how popular that "Charlie" unicorn flick you posted has been with everyone I've sent it to. I don't know if you'll be able to outdo yourself on that one...

______________

The secret word is "grkzqwbt"

Anonymous said...

Hi Tim & all,
Could you take a look at ONT? On a 5 year chart there is a huge not-yet-complete rounded bottom formation with resistance around $3.50; on a 2 year chart there is a beautiful cup & saucer that completed at the end of March and already retested support on huge volume. Any thoughts?
Thanks,
Debbie Davis

Anonymous said...

That's supposed to be cup & handle--sorry!

Debbie Davis

Tim Knight said...

"Also, wanted to let you know about how popular that "Charlie" unicorn flick you posted has been with everyone I've sent it to. I don't know if you'll be able to outdo yourself on that one..."

I agree.

Debbie - I took a look at ONT and it's gorgeous!

Alok said...

Tim thanks for taking charge of the comments, it was getting really ugly.

Jake try this one 'ybetnnjq' :)

Dennis said...

Dow up 8 days in a row. The bulls are truly living on borrowed time. The unemployment report last Friday is OK but not great and it is a lagging indicator anyway and I fully expect that indicator to show serious weakness in the coming months. With real estate in a recession, unemployement is going to weaken and inflation running higher, this bull market's days are numbered. I really believe that the bull market will terminate any day now.

TradeitLikeitIs said...

There are 2 ways to look at low volume IMO..

1... its a sucker rally...
Best to buy stocks when they are leaping - and sell when they are creeping like the last few days.

2... One the other hand - if the bears couldn't take at lower after drifting nowhere for 3-4 days - then its going higher...

Either way we get a move starting soon - probably tommorrow.

good trading

the blog peruser said...

Tim, you're reference to the the market being up "ONLY " 4 1/2 pts today is true, but not really telling. We had the S&P up almost 4 pts ( a lot on 4 DOW pts ) and the $NYA up 40pts. In other words,strong internals.That has to stop before there is an obvious "signal" to short.A fairly bullish day actually .

Anonymous said...

bullish is the way to live the good life and buy index options for the weekly runs to maximize gains,

Anonymous said...

And what happended after that in 2003 ?

It's true - the market (as measured by the Dow 30) was up for the 8th day in a row today. This hasn't happened since 2003. So the press is all over that.

Anonymous said...

I know this is long but it is interesting reading about the Federal reserve and their function......

“It is well enough that the people of the nation do not understand our banking and monetary system,for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford



“our citizens, their property and their labor, (are) passive victims to the swindling tricks of bankers and mountebankers." -Thomas Jefferson



You may have heard these quotes before, but have you truly considered what is being claimed? Were Henry Ford and Thomas Jefferson paranoid crackpots? Or perhaps, were they simply more aware than the average citizen? It’s an important question, not only from an historical perspective, but in direct relation to your personal wealth and freedom.
Few people understand the true nature of money and finance, and for that very reason, few people are able to gain or maintain wealth today. Instead, the average American lives in a state of servitude to a mortgage, taxes, and a job. At any moment, everything can be taken away if a constant cash flow is not paid. The middle class’ current situation is not very different from historical serfs or indentured servants. How did this happen and who is the beneficiary?
Look at the tallest buildings in any city or town throughout history. They always belong to the ruling class. Today, the skyline of most large cities is dominated by banks. Incredibly, all of this wealth was basically created out of nothing. That’s right, our enormous financial industry, which rules the country economically, has arguably never made a single product of value. Just remember, when nothing is created there must be a loser for every winner. The loser in this case has been the average American. Without even knowing it, the middle class has had its prosperity and freedom siphoned away to support the financial establishment.
I’ll try to give as simple an overview as possible for this purposefully complex system of wealth transference.
Today we refer to America’s Central Bank as the “Federal Reserve” because the name Central Bank had a bad connotation from experiences in Europe. The Central Bank is basically a quasi-government agency which takes its direction from consensus within both the Federal Government and the financial industry which it was created to serve. Regardless of who controls the Central Bank, its purpose is fairly straightforward once you cut through the opaque language and theory with which it disguises itself. The Federal Reserve/Central Bank’s overriding purpose is to create ever greater quantities of currency and inflation.
The creation of controlled inflation has proven immeasurably valuable to the banking industry and Federal Government at the expense of the American people.
First, how does the Central Bank create currency? Basically it just prints (or types into a computer) as much new currency as it wants. This currency is then “lent” out to the banking industry and the Federal Government. When these loans are repaid to the Central Bank, the money is just lent out again along with even more newly created currency.
A simplified example can help illustrate this purposefully complex process. One day the Central Bank may create $1,000,000,000 out of thin air. This $1,000,000,000 is then lent to a commercial bank (let’s call it Local Bank), at the Central Bank’s loan rate of say 5% annual interest on a one year loan. In turn, Local Bank loans the $1,000,000,000 to area businesses at a rate of 8% interest on one year loans. Ideally, at the end of the year, the business loans are repaid to Local Bank at a value of $1,080,000,000. Local Bank must now repay its loan from the Central Bank, which is $1,050,000,000 including interest. That leaves Local Bank a profit of about $20,000,000. Not bad for having produced nothing.
As you can see, this system insures profit for Local Bank regardless of inflation. Imagine an individual trying to lend money in competition with Local Bank. The wealthy person would lend his $1,000,000,000 at 8% interest and get a profit of around $80,000,000. Next the wealthy person, just like Local Bank, would subtract out taxes for a final profit rate of maybe 5%. So far so good right? The problem is, if inflation is greater than 5% then the wealthy person is losing money. If inflation gets extremely high at some point, then the wealthy person will be wiped out and quit the loan business. Local Bank, on the other hand, doesn’t have to worry about inflation. Local Bank is not using its own money. It is just playing with, and then repaying, the Central Bank’s money which was created out of nothing. After a while under this system, banks which are granted access to Central Bank funds are left as the only viable lenders. These banks are insured a virtual monopoly on the money loaning industry.
But that’s only half of the story. Part of the genius of the Central Bank system was that it also aided big government and the politically connected. This assured that big government would become dependent on the system and unable to change it
First, the government takes “loans” directly from the Federal Reserve Central Bank but with one critical difference. The Central Bank gives back the interest “paid” on the loan. This is a convoluted way for the government to obtain perpetual zero interest loans – more correctly called free money. As if that were not enough, the US Treasury is also given the Federal Reserve’s interest charged to commercial banks on the money created out of thin air. This practice of giving the Central Bank’s interest to the government basically insures that all inflation on all money in existence is split as profit between both the government and the commercial banks. These benefits alone transfer a vast and well-hidden source of income to the government.
A simpler way for the government to achieve exactly the same result would be for the Treasury Department to print itself free money every year. However, this method would be more straightforward and citizens would intuitively realize that the resultant inflation robbed them of their savings and earning power. Secondly, this method of printing free government income would not allow commercial banks to also skim their percentage of the inflating money supply.
The government’s free benefits don’t end there, however. Next, as the currency inflates, the government’s zero interest debt obligation is gradually erased. This debt is continually rolled over and eventually inflates away to nothing.
Lastly, the government gains enormously in one more hidden way. Taxes on the public's savings are based on the imaginary “gain” from inflation. If a person owned a home or gold under a stable currency, the value would remain relatively constant. Under an inflating currency, however, the government is able to tax the “gain” on savings as their cost in dollars rises every year. Basically this amounts to a well-hidden tax on only those Americans who save money. The more you save, the more you are taxed. Is it any wonder our savings rate is now negative and the general population looks to the government rather than savings in difficult times?
Individuals under a Central Banking system have less money available for large purchases and must take out loans for nearly everything. The net result is an ever growing number of people who need loans in place of savings, and a banking industry with a virtual monopoly in issuing these loans. This system has fueled the financial industry’s immense profits without production.
The system of currency inflation being created, skimmed, and kept by banks and government may seem subtle. Some people don’t realize the damage done. Try to view the most simplified form. This process is the same as a counterfeiter printing money and earning a free living without producing anything. Imagine the simplified economy of a small town with it’s own currency. Imagine the town has all the normal industries plus a counterfeiter who can print as much free money as he likes. Guess what? First the value of the townspeople’s savings will be eaten up by inflated counterfeit currency. Next the counterfeiter will buy up all the valuable goods from the town’s producers. The working townspeople will have to work even harder to try to buy what’s left. But the harder they work and the more they produce, the more the counterfeiter can buy. Ultimately, the counterfeiter will be left as the only person in town with wealth. He will then have ultimate control over the town newspaper and government. It will become difficult to educate anyone or pass a law against counterfeiting. Unless the townspeople learn a method of personal or collective escape, they will be left in a state of servitude to the counterfeiter.
So there you have it. After less than a century under the present incarnation of this Central Banking system, we now have a middle class deeply in debt, a negative savings rate, an enormous but often unproductive government, and a wholly unproductive financial industry. What's more, our government has been in increasing stages of financial default for the last two generations and can no longer honor its previous pledges to redeem currency in gold or anything of value. Most amazingly, the entire structure of wealth transference was so well hidden and self-fulfilling, that few individuals grasp what is occurring or the negative impacts to society.
Before you get too depressed or angry about the situation however, it is important to remember one thing. Once you understand the system you can become wealthy.
Escape from theft will only hasten any parasitic system’s collapse. Communism, for example, wasn't defeated by a popular rebellion but by countless individuals gradually freeing themselves from economic exploitation until that system went broke. Once you understand how the Central Banking establishment operates, you can benefit immensely. There is not even a need to rally others towards a reform movement. You can simply watch your wealth and freedom grow while setting an example for others to follow.
In brief, to become wealthy you must first understand how the Central Bank robs your savings. Once you understand the multiple venues through which wealth is transferred to the banking establishment, you can cut off every one of them.
The next step is understanding and shielding yourself from conditioning by the press. Always remember, most “news” stories about investment are little more than paid advertisements initiated by press agents. Meaningless statements are repeated so often that they are taken as truth. For example, no one questions claims like, “the value of all stocks on the NYSE has increased 10,000% over the last 50 years” or, “the value of the Dow Jones Industrial Average has increased 5,000% over the last 50 years.” Yet, these are meaningless statements akin to saying, “the value of all houses in America has increased 10,000% in 50 years” or, “the value of the 30 biggest houses in America is now 5,000% greater than the value of the 30 biggest houses in 1950.” These misleading statements disregard the fact that houses are constantly being demolished and new ones built. If you had purchased a particular house 100 years ago it would likely be worthless rubble today, despite the fact that the average home is worth much more in inflated dollars. Looking past the financial industry's hype, stock analysis is an extremely complex field with an enormous number of variables. Let's try to simplify it. The fact is, nearly all corporations eventually go broke. If corporations didn't go broke the stock exchanges would be dominated by names like the British East India or Hudson Bay Company.
Popular investment “advice” generally leads people to take a gambler’s perspective. Experts herd investors into one sector or company this year and another next year - all the while stirring up commissions and giving the impression that investing is a fast paced and unpredictable field. Once you learn the basics of value investing and long term cycles, however, investing becomes much more of a science while retaining the potential for spectacular profit.
The final step in escaping financial exploitation is to understand the multiple ways in which brokers earn a living off of your savings. You gain little or nothing in return for paying a broker commission, so it is necessary to learn to minimize commissions and even outright broker theft whenever possible. After understanding and minimizing this last drag on wealth, you have achieved the basics of financial freedom.
In summary, most of us are born into an economic system stacked against us in ways which will never be advertised by the financial establishment. To gain real wealth, it is vital to understand the system. Knowledge and action can eventually give you an unimagined prosperity once your efforts are no longer subtly siphoned away by others. Hopefully this information will assist you in beginning or continuing to learn about a misunderstood topic - and eventually improving your life to enjoy the happy and fulfilling wealth and freedom which should be the birthright of everyone.

Joe

Jason said...

charting energy stocks is tough. It's all about the underlying price of oil... you really need more of a crystal ball than normal stocks.

JakeGint said...

Joe, you need a blog, buddy!

Gotta think you have "The Creature From Jekyll Island" on the shelf, and probably a hard bound, signed original, I'd warrant...

_________

the secret word is "xfudtmr!"

AssetStrategists said...

IMHO, the market will rise in the morning as the pundants will tout AA's better than expected earnings just like railroads rose after news of Warren Buffet buying in to rails Monday. BTW, check out the bearish pattern on RAIL. Go Puts!

-----
2nd time around Secret Squirrel says, "gspfhigq"...

beanie11111 said...

Did you know the chance of your baby being a girl or a boy is NOT 50/50?

beanie11111 said...

Certain characteristics of mostly the mother increases her chance of getting a boy or a girl!

The scientific studies from other countries as well as the USA have been around for a long time, yet the pediatrician fools didn't do enough research before they became pediatricians.

Anonymous said...

who cares about the chances of a baby or girl/

arswenson said...

Tim,
Could you please look at ROST? Would you call this a cup w/handle dating back to Mar-03?

The Finance Dude said...

Tim,

Perhaps you should read a lot about the history of oil. KSA is peaking as we speak and the production on OPEC is flat. Matt Simmons is calling the peak in KSA and I think he's a bit more conservative in his estimate. All data points to peak being made especially when you consider declining production from KSA, all the while tripling rig counts! It's over, and they have a political motivation to lie. Dig a little and you'll have a CLEAR view which why oil is going, especially within 2-3 years at most. It's about to get hairy!

beanie11111 said...

Stop playin around! I want you in ASTI now!!! Solar stocks en fuego!

Tim Knight said...

ROST doesn't appeal to me. ASTI looks very interesting, although it doesn't have much history - - - but solar definitely has been getting huge press lately.

Market Speculator said...

Tim,

The lack of conviction on the bulls part is SO obvious looking at Price/Volume action! Another thing to keep in mind the little guy, retail investors has been bouncing up and down with its feeling on the market. I point to the AAII Bull/Bear numbers. Been pretty volitile day!

2pm EST will be real interesting to see how traders react to the FOMC meeting minutes. It was their 3/21 meeting that sparked the follow-through day. Will their minutes spark another bull party????

MS

TradeitLikeitIs said...

Now's your chance Bears.

Otherwise its buy the dip and we go back up.