Tuesday Top Off

Wow – we haven’t had one of these days in a while!

After appropriately peaking out at $66.6 last week, oil fell all the way back to $64 yesterday but, since that’s just a 4% retracement, we know they’ve got at least another point in them.  This run really started at $52, back in January and we finished the day (not counting the .20 closing pump) at $64.40, so yesterday’s drop was just $2.20 of $14 or 16% and our members know that means we are much more likely to test 20% at $63.20 than go back over $65 on this run.

In the longer view, we have made a strong retracement of the drop from $75 in July and August to $60 (-20%) that held through Jan (some might say artificially, but we don’t truck with conspiracy theorists) but the downward "spike" (some would say natural move) to $52 (some would say desperately propped up before crashing through $50) represented another 15% down move from the $61 median price and, unless that is balanced by a move above $70 (+15%) that last’s for a couple of weeks, then we are still in a pretty big downtrend.

Speaking of investing, look at the monthly NYMEX volume on the last link – the majority of trading goes through the ICE, who just reported energy futures volume was up 69% this March.  11.5M contracts, representing 11.5Bn barrels of oil were exchanged on the ICE, while the NYMEX rolled about 9Bn barrels during the month.  The reason traders prefer ICE is because it is far less regulated so they can play games (like taking both sides of a trade just to churn barrels higher) more easily than on the NYMEX, which has rules.

Still 20Bn barrels of oil represents some pretty active turnover for a country that "only" consumes 20M barrels a day but I’ll leave you to draw your own conclusions as to why there would be a 69% increase in activity this year on the ICE alone when, back in 2003, when there was just the NYMEX and oil was $30 (and this was AFTER 9/11), the whole country got by just fine trading 3M contracts in a month.

Oil rose from $30 in 2004 to $75 last year trading an average of 4Bn barrels a month on the NYMEX and the rise took 30 months.  Even if you assume that the ICE traded a similar amount on average, the rate of exchange is now up 125% at least, meaning we could be subject to significantly sharper moves in either direction but I think the very sharp surge in volume this quarter represents the desperation of the oil roaches as they scramble to prop up the price of oil, simply in order to maintain the value of the $4T worth of energy stocks that they simply can’t get out of fast enough.

What will someone do for a Billion dollars?  What will 4,000 people do who each have $1 Billion on the line?  What will 40,000 traders do who have $100M on the line, their lives, their careers, their reputations?  Thank goodness we can all count on these people to behave morally and ethically and take their losses with grace and dignity should they find themselves on the wrong side…

The transports certainly loved today’s oil action, jumping up 52 points, their strongest gain since February and resting just under the 50 dma of 2,813.  It was up up and away for the Super Markets today as the Dow ran right through 12,500, joined by the rest of our indices:

That’s a nice looking chart!  I am very worried about the SOX though as they had a late-day pullback after spending almost the entire day above 470.  The exact 50 dma is $469.46 and you can see how it firmly rejected the index as they attempted to regroup at 3:30.  We’ll watch that closely tomorrow.

Gold continued to nothing and the dollar gained 1/3 of a point, clawing back to 83.18 but I’m not going to get my hopes up on this one…

Tomorrow should be a very interesting day, hopefully we will get some follow through because we really don’t have enough slack for a big pullback!