Thrill-Ride Thursday – Here We Go Again!

Wheeeee – isn’t this fun?  

To paraphrase Lloyd Bridges in "Airplane" – looks like I picked the wrong week to short oil.  We attempted to short oil at $100 and that did not work.  Then we attempted to short it at $102 and that did not work but $103 finally worked like a charm this morning as Oil Futures (/CL) plunged back to $100 between 4am and 7:30.

The trick with playing the futures is to play them like a series of momentum trades with tight stops (see our Strategy Section) above a certain resistance point.  As long as you manage your losses, you can simply re-enter at the next resistance and try again.  For example, if you picked the $100 line yesterday to short with a stop at $100.10, loss of $100.  Then the $102 line seemed like it would work but another $100 lost but $103 (we play the crosses back under, of course) became a huge winner, without a serious pullback until the bounce off $100 for a gain of $2,500-$3,000 – depending on how tightly you set your stops.   

So far, the $100 line held up (only because the Dollar was slapped back down from 78.65 to 78.35) but there are still 86M barrels of oil open on the NYMEX and scheduled for December delivery.  That’s right, as I predicted yesterday, 60M barrels worth of oil contracts scheduled for December delivery were cancelled yesterday in a blatant attempt to create an artificial supply shortage for oil in the US.  

Like any good Ponzi scheme, the TOTALLY FAKE DEMAND is pushed along into the next month to maintain the APPEARANCE of tight supply while the REALITY is that, just like this month, the CRIMINALS at the NYMEX will eventually cancel over 90% of those orders as well as they build their TOTALLY FAKE DEMAND for February up to over 300M barrels, of which they will end up cancelling 90%.  This happens EVERY MONTH and your Government does NOTHING about it – leaving the American Consumers holding the bag, paying top Dollar for oil the traders never really wanted!  

Like the lady says, the scam is 10% sleight of hand and 90% teamwork.  It took a village to jam oil prices over $100 this week and kudos to T Boone Pickens and CNBC for his featured spot in the critical morning pump making ridiculous statements like this:

Listen, that thing is going to fall apart over there. it’s coming up fast. you’ve got king abdula, saudi arabia. they produce 9.7 million barrels a day and he is 86. 300 pounds and diabetes. you know, an actuarial table on him would be days or weeks. so when that goes, what happens? big question. somebody says, oh, well the libyans will cover for the saudis. no, libya can only produce, right now they’re producing less than a million barrels a day. they were up to one six. so you’ve got nine seven, if that starts to get squishy, the price of oil, looking at $300 to $500 a barrel.

Forgetting whether or not the Saudi King will be dead in "days or weeks" or whether that would immediately cause the Saudis to cut off all oil production (some people will believe any fairy tale from a far away land – especially poorly educated and poorly traveled Americans) – who in their right mind thinks the people of the Planet Earth can afford $300 to $500 a barrel oil?  You can ask for it but oil is not a Rembrandt painting you sucker some rich guy into paying $60M for when I have a perfectly good copy of the same thing in a nicer frame that I got for $500.  No, oil HAS to be used and the producers have to sell (move product) 89M barrels of it a day or THEIR economies collapse.  

89,000,000 barrels times $500 is $44.5Bn a day.  That’s $16Tn a year.  I don’t have that kind of extra money to pay for oil – do you?  Is T Boone Pickens then a senile old fool who’s forgotten his math or a devious con man looking to incite fear and panic in order to manipulate the commodity markets and enrich himself?  We report – you decide… 

Meanwhile, speaking of reporting – does ANYONE on CNBC challenge this quack?  He was on for two hours and there wasn’t a single guest or announcer offering a contrary position on oil going through the roof.  Instead CNBC ran 432 news items since midnight on Tuesday using the word oil (I kid you not) and NOT ONE had a contrary opinion to the overall premise that oil prices were going higher because of Iran, Iraq, Libya, Hurricanes, Conoco Selling a pipeline that will change life on Earth as we know it, CHINA,  Russia, Solar firms failing, IEA reports, troop deployments to Australia…  Item after item of news that all led to the INEVITABLE conclusion that oil was going higher.  

And they were right.  It went from $98 on Tuesday to $103 yesterday.  A very impressive move but not so much in the context T Boone’s march to $500.  CNBC, of course, knows that you can fool some of the people all of the time (Fox calls this "their audience base") so they don’t really care whether or not what they are saying makes any rational sense, as long as they can jack up the price of whatever stock or commodity they have been paid to pump that day.  

Speaking of pumps – how about those markets?  What a week we were almost having there.  Fortunately, you only have to fool us 20 or 30 times with BS fake rallies on low volumes before we wise up and, as I said yesterday morning – we weren’t buying this one.  

Aside from my fabulous list of winning short plays from the morning post, we flipped uber-bearish in our White Christmas Portfolio in Member Chat at 11:22, cashing out the bullish positions and letting our short plays ride.  We survived the head-fake the market took after lunch and rode into huge profits in the afternoon, as the market finally fell apart.  The afternoon pump job came courtesy of the Fed’s Eric Rosengren, who primed the pump by saying "the current crisis may warrant coordinated action by the Fed and the ECB."     

As usual, any hint of MORE FREE MONEY sends the bulls into a frenzy but, as I said to Members:  

So we’re up for the same reason we were up yesterday – doveish Fed speak. Piantalto (another dove) speaks tomorrow at 12:30 but should be safe to be bearish between now and then with Housing Starts, Jobless Claims, Consumer Comfort and Philly Fed scheduled for tomorrow morning.

So far so good (9 am) and they’ve managed to stop the bleeding in the Futures by jamming the Dollar back down to 78.20 and that should give us a nice re-load on oil shorts (/CL) at that $102 line but hopefully not $103 as that would indicate we’re still completely irrational.   Gold (/YG) is right on the $1,750 line and that makes a good bullish play if the Dollar fails to hold 78.20 with the odd pricing of $33.20 per Dollar move in gold so very tight stops are key on that trade but $1,750 is a very good line to play off.  

I don’t think the Dollar does break down of course so keep in mind gold is just an upside hedge, not a bet!  There’s a rumor floating that the ECB is about to massively intervene in the Bond markets and, if true, we could flip back up really fast so it’s good to have something prepared to cover our generally bearish short-term bets but that too is a song we’ve heard over and over and over again and I’m not sure it’s going to be able to make the markets dance anymore.  

Be very careful out there!