Which Way Wednesday - For Oil!

by Phil - August 20th, 2008 9:10 am

Boy this week is flying, that was two very exciting days.

I was going to be excited about today too as this was going to be the comeback.  GS pulled out the big guns and kicked LEH, MER, GS and JPM while they were down and I thought Goldman was done attacking the economy but this morning, around 6am, they reversed a sell-off in oil by coming out with yet another "report" stating oil prices will head back to $149.  This shot oil back to $115 and turned gold around back over $800.

This fits in with my impression that Goldman is very much on the wrong side of the trade, long on commodities and short on financials and the action post-July 15th simply caught them with their pants down, so they are doing their best to engineer a reversal.  GS and their hyena pals have been attacking the financials all week, forecasting a global economic meltdown and a protracted US recession.  Now that they have taken down the financials low enough to weasel out of their positions, they are going to tell you how strong global demand will support high oil prices. 

I noted yesterday that there are only 65,000 contracts left to dump on the NYMEX.  Even though the market is not driven by speculators according to former GS CEO Hank Paulson, strangely all but 65M of the 320M barrels that were "demanded" at the…

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Lehman: Here we go again

by Andrew Wilkinson - August 20th, 2008 8:52 am

Today’s tickers: CMA, LEH, SPLS, AMLN, XLF, RKH, XLE, DIA, COF, TASR, GEOY

CMA - Unusual option activity in Comerica Incorporated on Tuesday drove overall option activity to nearly 15 times the normal level. This occurred against the backdrop of a 4.3% decline for shares to $28.06 that still has the stock nearly $9 above its mid-July low. With so many dyspeptic headlines surrounding financial stocks great and small these days, it’s no surprise to see many traders turning to put spreads in order to express bearish views while keeping trade costs low. Tuesday’s trader, however, settled upon a long put butterfly spread in the October contract between strikes 15, 20 and 25, in an approximately 10,000-20,000-10,000 combination. This struck us as a somewhat unexpected strategy, given that the long butterfly with puts is traditionally a volatility-bearish, directionally-neutral trade – hardly the descriptor for the grinding losses and unsettling outlooks attached to much of the sector these days. However, the trade is constructed so that the short position at the middle strike – the body of the butterfly – is the price that the trader wants to target, and by deploying the out-of-the-money 20 strike in this instance, we can conclude that the trader is bearish on Comerica over the next two months. A close at this level by October 17 would give back most of the stock’s gain since July 15, while keeping it slightly above that low – remember, the trader is short 20,000 lots at the middle strike. Comerica shares have lost about half their value over the past 52 weeks, consistently underperforming the S&P Financials in a difficult year. The company’s next earnings announcement coincides with the expiration of that October contract on the 17th.

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Tuesday Tear-Down

by Phil - August 19th, 2008 9:35 pm

Ouch, ouch and ouch again!

Oil moved higher for the first time since last Wednesday, moving up 1.5% to close at $114.53 a barrel.  We noted the strength in the sector at 10:36, when I commented that OIH was holding up well against the drop, then we saw the airlines heading down at 11:18 along with travel stocks.  The Ags started making a move along with gold stocks too and, as I commented at the time "not the groups we’re rooting for."  At 11:45 we caught the front end of the rally when I said to members: "Oils making a comeback despite flat crude, I think a lot of people are betting on inventory tomorrow.  Only 65M Sept barrels remaining to get dumped at the NYMEX."  So the conditions were there for a rally and oil exploded up $1.50, just after that comment.

Talk about the writing being on the wall!  One thing we missed was that the dollar had bounced off resistance at 77.50, which is just about the 5% rule above the 50 dma at 73.52 so the stars were properly aligned for a commodity comeback.  Fed Governor Fisher was no help as he made comments in the morning that he "expects economic growth to “decelerate to a snail’s pace, if not completely grind to a halt” in the second half of this year, with a slowdown that may extend into 2009."  Fisher is the Fed’s dissenter, who favors easing rates and is out "talkng his book" to the media but someone should put a muzzle on this guy as his ill-timed statements amount to nothing more than a temper tantrum, thrown by a kid who didn’t get the rate cut he wanted at the last meeting.  Fisher did save himse…

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Testy Tuesday Morning

by Phil - August 19th, 2008 9:11 am

And another hurricane bites the dust!

This is turning into another disaster for natural gas traders, who ran up the price up to $14 just 4 weeks ago from $7 at the beginning of the year and now, 30 days later, it’s back to $7.  Of course, as Secretary Paulson will tell you, this is due entirely to fluctuations in supply and demand as speculators play only a very small part in the futures market but I’m not even sure we’re done going down yet.

The "demand" for natural gas futures at this time of year is based on the "supply" of people who believe there is going to be a hurricane or a war or something to cut off the very plentiful actual supply of natural gas, which we do not import from overseas and is (see Zman’s chart) drifting along at the upper end of the 5-year average storage levels, a little below last year, when we were bursting at the seems with natural gas in the US.

We won’t get into the scam that is LNG here, other than to remind you that this is a scheme to INCREASE imports of energy into the US of one of the only things we have plenty of.  The key to the drive to build LNG terminals is that energy companies can store months’ worth of natural gas in the ground, rather than be forced to sell it at market prices as it’s produced.  …

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Monday Mop-Up

by Phil - August 18th, 2008 11:55 pm

What a difference a day makes!

That was one hell of a bad one, showing us how skittish the markets still are and how easily investors can be chased out of the financials.  I misjudged investors in the morning, thinking surely they can’t possibly fall for the same old rumors about FRE and FNM for the second time in 30 days but I was wrong, FRE was chased back to the July 11th low of $4.39.  That was the day investors were also stampeded out of LEH, who hit a low of $12.40 that Monday and is still hovering around $15.

FRE had a choppy few days, then shot up to $11 on July 23rd after getting some verbal support from Paulson and Bernanke, which sparked the huge financial recovery but, in the great world of "what have you done for me lately" no news has become bad news as the hyenas who were driven off last time are coming back to poke at their prey. 

I want to take you back, back in time…  All the way back to July 11th, whenFRE had fallen from $25 to $4.39 in 30 days as GS, Cramer and they usual pack of hyenas went on the attack and stoked fear of holding the GSEs.  That day, Piper Jaffray came out with a note that said: "There has not been one significant piece of macroeconomic or company-specific news on either compan…

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Trivia Time!

by optionsage - August 18th, 2008 11:38 pm

Let’s say you decide to deposit $100,000 into a brokerage account.  You decide you will check your portfolio on a weekly basis.  Now let’s further assume that the first week has passed and you are about to log in to your account.  But before you do, you are told that one of two things has happened in the past week.

[1]  Your portfolio went up $10,000 and then dropped $10,000

[2]  Your portfolio went up 10% and then dropped 10%.

So, the trivia question is:  In case [1], what should you expect your account value to be and is that the same figure as in case [2]?

If you answered $100,000 in case [1], you would be absolutely correct!  If you answered that this is the same as in case [2] you would be absolutely incorrect!  Why?  Well let’s take a look at what happens when the portfolio rises 10% first; it goes from $100,000 to $110,000.  But then we’re told it drops 10%.  10% of $110,000 is $11,000.  So the portfolio drops from $110,000 to $99,000. 

Now how can this help us in our trading decisions?  In its simplest form, this tells us that if we were to simply buy stocks that over the long run had a tendency to rise up substantially and fall down substantially ie starting at 0% and rising up and ultimately falling back to 0%, the volatility is impacting long-term returns.  In statistics, that percentage swing would denote variance, which in turn is often equated with risk.  Another term for risk is beta.  High beta stocks tend to move more than the market and tend to have greater variance.

So, if you are in the market for the long-term, you should certainly pay close attention to the impact of variance.   Over time the impact to the $100,000 portfolio is not just a drop of $1,000 as in the period shown above, but that portfolio erosion continues over time to the detriment of overall wealth.  Unless….

Unless,…

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Just Another Manic Monday

by Phil - August 18th, 2008 9:26 am

What a nice weekend!

Musharraf is resigning and Russia is actually responding to diplomatic pressure and pulling troops out of Georgia while being villified in the WSJ.  On top of that, MTU upped it’s bid for UB to $3.5Bn- a huge sign that the banking crisis, even in California, may finally be bottoming out, at least on the commercial end, where UnionBanCal specialized.  Mitsubishi already owns 65% of UB so we can assume they know what they are buying so we have an "insider" buy of a $9Bn California bank back at the top of their trading range, close to 100% off their lows of just last month.

This caused the dollar to turn back up in pre-markets, pushing oil back to negative numbers after trading as high as $114 in Asian trading.  Commodities in gerneral continue to fall, led by gold’s biggest weekly decline (8%) in 25 years - so very bad timing for Micheal Phelps, who just won a ton of gold in Beijing…  That did not stop BHP from posting amazing…

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