Weekend July 7, 2012
In an effort to n increase demand for the natural gas it produces, Apache paid about $1.3 M for a compressed natural gas station near Bush IC Airport. It began fueling the Houston Airport system's fleet of 30 CNG p;powered parking shuttles last month. Using CNG rather than diesel should save about $360,000 a u year at today's prices as natural gas is one third less.
Apache Touts Natural Gas for Transportation Fuel
Last weekend on Fox News Sunday Boone Pickens expressed his frustration that Congress would not grant tax incentives to speed the conversion to natural gas. Sure as he observed, industry will get this done in ten years but with tax incentives it would get done in two to three. Still natural gas has already advanced a dollar from its $1.94 low only a month ago.
The Big Picture
Gold, then various commodities and then stocks have bottomed during may and June. The rocket launch from last Thursday Friday got ahead of itself. Earlier this week we told readers to expect a pullback the two days after July 4, it began Friday. While the media cited the employment report, the market had just gotten ahead of itself. Yes the Dollar has advanced and the Euro faded again but solid gains are in on commodity prices and commodity producers form their lows of May and June.
There remains considerable doubt among bloggers, websites, and other analysts that this rally is for real. There are plenty of them still calling for a top here. That cannot possibly happen with the public snug in the safe harbor of bond funds. They must be pulled into risk assets before a meaningful decline can begin. That will happen this summer. Let's examine the psychology of the public via EWT and tech analysis.
Elliott Wave and Technical Analysis
Elliott Wave Theory attempts to identify stages of the development of human psychology as a market advances or retreats. At this point in the summer rally, recall the Wave One and Two. Wave One is an unexpected move up, a change in trend. Most observers doubt the move. This doubt seems to be confirmed in the first pullback. Aha they say, told you so, it is not to be. This is precisely what happened in the wake of the Friday sell off as observers are again calling for a market top citing the collapse of the Euro (what else is new).
Technical Analysis attempts to discern mass movements using charts and various momentum indicators. This worked well when a minority of players had access to such information. However, once everyone has this information, everyone does the same things. Then the indicators no longer work, everyone is doing precisely the same thing.
Therefore we need to identify other ways of seeing what is happening. I suggest that money sloshes from defensive, risk off, investments like bonds and the Dollar to offensive or risk on investments like stocks, metals, and foreign currencies. Indicators like the Commitment of Traders reports, commitments to giant bond funds like TLT, and the pronouncements of some gurus like El Erian become important in tracking where the money is flowing.
Numerous analysts have called a top in markets for this last week. The Dollar jumped back to its recent highs on Friday sending gold down but GDXJ and other assets remain above recent lows. This was the end of a quarter and that may have figured in a bit on what happened. That was thin trading on Friday and the local floor traders were free to do as they pleased .If the Euro collapses it will do so with the commercial traders long the Euro, take a look.
Commitment of Traders Report
The maroon bars are the increasing long positions of commercial traders in the Euro. This group is more often right than wrong. We noted last week that bonds are priced for the end of the world and that the public was heavily long bonds.
COT US bonds
Here one can see that traders are increasing short positions in US Bonds. Will they be wrong and the public correct, not likely. It may be that the Euro has one last plunge to drag in more shorts and pull more people long while the dollar is at the top of its range.
Let's look at different time settings for the same security and see what we can discern.
XES Energy Service Hourly
XES took off a few days before crude oil really got moving. It shows the sort of launch typical of the beginning of a move. At bottom the Chakin Money flow hit its low June 14 and has advanced since.
Again we told you not to worry about all the supply and demand nonsense, oil is th most emotional commodity on the planet, Shazam, and of course there are photos aplenty of iranian machine gun equipped speedboats to keep prices up.
Notice how the entire August to December left side is looking like the May to July right side. Higher lows, the market is advancing. THe counter argument is that SOX failed at the MAs and will therefore continue lower. We shall see.
We are long various commodity plays like XES and Central Fund CEF.
Summer drags on. The lack of any definitive position by the US on Iraq, Afghanistan, Syria, et al leaves a real void in that area. it would not be surprising to see the Obama administration in serious trouble just as Carter was at this point. They have led from behind giving those in the area reason to doubt the US will do anything, period. This has emboldened the Assads in Syria and taken Turkey to their border. Russia and China see the US Secretary of State supporting WTO membership for Russia, why fear supplying arms to Syria?
Our point is that the lack of involvement there after spending so much money and so many lives is likely to make things worse. It is as though we kicked over the hornet's nest and then took off running.
Years ago I recall seeing one blogger label the entire area, Chaos stan, that has come to pass.