Itz Weekend Market Review

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The best hope for stopping the flow of oil from the blown-out well at the bottom of the Gulf of Mexico has been compared to hitting a target the size of a dinner plate more than two miles into the earth, and is anything but a sure bet on the first attempt. >>READ MORE
Crude oil prices declined slightly but oil drillers and service companies imploded on the six-month moratorium mandated by the president, which will be shutting down 33 deepwater rigs operating in the gulf and putting a halt to new drilling permits for six months. President Obama's decision seems like an extreme over reaction and politically driven. As is most common with our government, it's a reactive and not proactive decision maker. One should question as to- why did this administration exempt BP's Gulf of Mexico drilling from an environmental impact study? >>READ

Deutsche Bank (DB) estimated a six month shutdown would reduce gulf oil production in 2011 by 160,000 to 200,000 barrels per day. Over 80% of gulf oil production comes from deepwater wells along with 46% of gulf gas production. Over the last 50 years there have been 50,686 wells drilled in the gulf. Through 2007 more than 16.8 billion barrels of oil and 173 trillion cubic feet of gas have been produced. Out of 50,686 wells the number of major spills are in the low single digits. There were 19 blowouts in the last 20 years and none produced a material spill. The biggest gulf spill came from the Pemex Ixtoc 1 in 160 feet of water in 1979. >>READ
On top of this NOAA said that this could prove to be one of the most active seasons on record. The predictions exceed the averages of 11 named storms, 6 hurricanes and 2 major hurricanes. 2005 was the record with 28 named storms.


Transocean's stock is down more than 30 percent since the Gulf oil spill. Waqar Syed, of Macquarie Research, tells CNBC whether investors can use this as an entry point.



From the trouble in the Gulf to Wall Street...the month of May ended with the worst S&P performance in May since 1962 with an 8% loss. For the week ahead, one can expect geopolitical events to weigh on markets. Weighing in will be several economic data points: The ISM report on Tuesday could be market negative if it falls below 59. The ADP report could be negative below 150,000 jobs. Traders will take positions ahead of Friday's Non-Farm Payroll report based on the numbers from the ADP report.

Markets Rally

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The S&P500 bounced off of 1040/1050 continued with a close over 1088, indicating conviction in this rally. Doug Kass was on CNBC's Fast Money this evening citing that this market would most likely be rangebound (1080/1180) until the 2nd half of 2010. Even the always cautious Barton Biggs called the market very oversold, but the real market mover was China, saying it would not sell it's Euro bonds.
Yesterday Itz cited that the drillers, more specifically Transocean (RIG) was 'way oversold', it came out of the gate on the opening this morning up 8%, however gave some back as President Obama announced that the 30-day moratorium on new offshore drilling would be extended was expected, but his stand-down on 33 new rigs in the Gulf came as a shock to some industry watchers. The 180-day halt in drilling activity would imply 200,000 barrels/day of lost capacity or 37 million barrels. That along with the NOAA 8-14 seasonal hurricane outlook sparked a rally in crude oil, which is now closing in on $75. Itz recently suggested the ProShares Ultra Crude Oil etf (UCO) @ $8.75 rallied to close Thursday at $9.93 up 13.5% in 1 week.

Transocean (RIG) Way Oversold!

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The stock of Transocean (RIG) owner of the Deepwater Horizon drilling rig, has been drastically oversold and presents an unbeliveable value. RIG has been in the Itz Pix portfolio since the blogs inception of July 2009, entering at $67, the stock is presently at $58.58. Even with this enviromental disaster the fact remains that global demand for crude is rising. >>Read >>Chart

Ultra-deepwater production has become significant only in recent years, as noted by Royal Dutch Shell executive in video below. Up until the BP rig disaster, the Obama adminstration was 'for' offshore drilling, because they see the our insatiable need to find more crude oil. Check out this week's EIA report >>LINK

Although BP initially took financial responsibilty for the spill, they have been trying to blame others...besides a recent 60 minutes report that was very unfavorable towards BP, news out today sheds more fault on their part and is postive for Transocean >>READ

During CNBC's Fast Money today, Waqar Syed, Sr. Analyst at Macquarie Capital noted that Transocean (RIG) with $10B free cash flow over the next 3 years has a NAV of $106![go to 8:30 minute mark for report]

Bounce Or More?

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Well the 1040/1050 'Line in the Sand' S&P500 level held support and we're now seeing a bounce. The $SPXA50R had hit an extreme low level of 6% last week and a bounce was to be expected. The $SPXA150R & A200R remain neutral and a reversal there needs to be confirmed to give this bounce any sustainability. We could see this bounce carry a few days and possibly have some sort of profit taking as we enter the holiday weekend. As always stay hedged and remain cautiously optimistic near term.

Itz Weekend Review

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A few weeks ago Itz posted this focusing on the 'Flash Crash' & Euro Contagion....>>link

Itz made numerous posts on Twitter today and just prior to the meltdown posted --'Capitulation!'--, But was it really. Selling on Friday will follow through with out a doubt as Asia chimes in. The possible pivot and catalysts maybe the Jobs Report @ 8:30am. Today was a 'Preview' of how low markets can trade off from overbought conditions. .....Itz Stock Chartz has for a few weeks now been repeatedly telling readers to protect against a correction, with either options, ProShares ETFs like SCO, DUG or SDS or just taking some money off the table. Things move fast, volatility as seen in the $VIX, $VXN & $OVX or the divergence in rising gold versus copper & silver warned that something was going to give ...soon. Was it a computer glitch, human error or whatever excuse the problem comes down to the FEAR of a Eurpoean Contagion that could spread into a global problem. That the credit markets and the cost of capital is going up (dejavu 2009). The 1000 point move in the Dow Jones if anything reinstated the fear and lack of confidence into the retail investor just as they were getting hopeful about stocks. That said we could see more selling either way on the Jobs Report, good or bad. Stay hedged, have your shopping list ready and tighten those seat belts!

Well it appears we got that selling and retest of the lows, now the question remains...will there be more? Itz in the near term believes the markets are extremely over sold. The 'line in the sand' 1050 S&P500 levels or February low remains near term support. The Euro rallied Friday as Germany approved the $1 Trillion bail out package. While most watch the Euro, the Australian dollar was the currency to watch, as Itz stock chartz has mentioned over the last several weeks. Both the Australian Dollar and Swiss Franc saw substantial declines this week, prompting speculation that the central banks in those countries intentionally intervened in the currency market. The Reserve Bank of Australia would do so to prop up its currency-- while the Swiss National Bank actions would weaken the Franc against the Euro.

Itz Pix entered an energy play this week recommending the ProShares Ultra Crude Oil ETF (UCO). Veteran trader Mark Fisher commented on CNBC that investors shouldn't be buying gold, but rather crude oil/energy (see past posts). Itz agrees, energy stocks account for about 11% of the S&P 500's sector weight and the index. The time to buy oil is when it's on sale, need we forget global demand for crude is rising >>Read >>Chart

There are some analysts calling for crude to head lower $60, maybe so...but the way to view it is $60 downside risk, versus $80..$90 or more upside. Gold may be a global currency & insurance, but so is oil as well as a necessity!

Time To Buy Is When There's Blood In The Street

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Today, Itz Stock Chartz suggested an energy play, getting long crude oil via the ProShares Ultra Crude Oil ETF (UCO) under $9 and to phase into this position. Oil has been overdone to the downside, the UCO is leveraged 2:1 on the movement of $WTIC. Why energy? Itz believes that the economy is doing much better than most believe and that the selling in the markets is out of FEAR and UNCERTAINTY...which should be resolved soon. Doug Kass posted a very astute report today-- Fear is the Friend of the Rational Buyer >>LINK
Another indicator that is giving a bullish economic signal is the railcar loadings indicator from the AAR >>LINK

You had all the bear's out today giving dire outlooks and pessimistic downside targets for the S&P500...which was actually a bullish contrarian signal. Nouriel Roubini was in full force calling for another 20% decline in the indicies from here. >>READ

This is interesting, Hedge Fund Managers: Drowning in 'Liquidity' >>READ

~~BREAKING NEWS~~ US Senate Approves Sweeping Wall Street Reform Bill >>READ

MARKET SENTIMENT:Why investors are turning more bearish, with Mark Hulbert, Hulbert Financial digest editor.

Oil Oversold This ETF Looks Attractive

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With oil hitting an intraday low on futures trading of $64.24, suggesting phasing into Proshares Ultra Crude Oil ETF, which is leverage 2:1 on crude oil movement. Ticker symbol UCO, enter under $9, phase in over next few weeks. Itz entry level $8.75

Silver Wheaton (SLW) Covered Call Followup

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Those that did a covered call against the Silver Wheaton (SLW)  suggested April 8th LINK for $0.65, should consider buying back those calls to close the position. Sold May $18 call for $0.65 ~ buy back to close $0.40 Ask. That places the cost basis @ $11.80 or $12.05-$0.65 + $0.40.

ITZ Mid Week Update

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In April Itz alerted readers to pay close attention to the Australian Dollar Index $XAD, noting as follows..."oil rallied and is approaching the recent $87 highs. Itz is keeping an eye on the Australian dollar $XAD, it has over the past few years peaked as oil has peaked." >>READ
I couldn't help but smirk as CNBC's Rick Santelli pointed out the move in the Australian Dollar and that it has not been a closely followed indicator....um I guess he's not a reader of this blog?
Below are some updated charts.
Oil is cheap, but could get cheaper, as can the S&P500. The markets are continuing to deal with uncertainty and the hedge funds are reducing risk. For those who watch Fast Money Half-Time today, veteran trader Mark Fisher made a very insightful comment that was spot on. He noted that Gold is Not the global currency and that traders are chasing the wrong sector. He believes that Oil/Energy should be bought. Exactly how Itz is positioned,actually Itz Stock Chartz strategy is to buy energy & industial metals, oil, coal, silver, copper platinum & palladium.

How Much Lower Will Crude Oil Go?

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Crude oil has now broken under $70 on concerns that Europe's debt crisis will slow economic growth, and hence demand for energy, next support level will be $65.
Interesting report from AOL Finance today ... 'The World Can't Live Without Deepwater Oil'... >>READ

SELL GOLD!

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"We want out...entirely," Gartman tells clients regarding the gold trade.
Investors should get out of gold immediately as the metal reaches a technical top and is due for a pullback, says Dennis Gartman, hedge fund manager and author of The Gartman Letter. >>LINK

In a post last week, Itz sounded the caution alarm on the recent runup in gold and the euphoria... "there have been those that hyped the S&P500 @ 1250, those that suggested oil was going to $150 when it was at $87 and now that gold is at $1230...it's a buy??? Sounds like a crowded trade...just be careful. As always diversify & be hedged." >>LINK

While Gartman is exiting the gold trade, John Paulson, remains firmly long. In a 13F filing released yesterday, it was revealed that Paulson did not liquidate any of his GLD position. Paulson and Co. holds 31.5 million shares of GLD - in addition to huge holdings in AngloGold Ashanti (AU), Kinross Gold (KGC), and a number of other smaller gold companies. Note...this 13F filing was as of holding ending March 2010. If you look at the chart below GLD was testing the 150ma a buy, who knows what Paulson has done with his positions in recent days?

Itz Stock Chartz recently suggested Stillwater Mining SWC under $16, if the global economy is recovering then industrial metals should outperform.

Itz Weekend Review

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To sum up the weeks events, the market as Itz pointed out over the last several weeks, was looking for an excuse to sell from it's overbought levels. The spreading contagion from the Eurozone was just that excuse. The Eurozone contagion is similar to the Lehman problem. Once banks and brokerages started smelling blood in the market they refused to loan to anyone until they were sure it was safe. That meant Lehman and others could not get funding they needed to stay alive. Almost a year past before banks started lending to one another. Paul Volcker raised doubts over the euro's long-term prospects saying, "You have the great problem of potential disintegration of the euro." Also, "The essential element of discipline in economic policy and in fiscal policy that was hoped for" has not occurred. A break down of the Eurozones debt and problems LINK

Gold was on the lips of everyone this past week, but if you noticed the dollar rallied too. What does this mean? Its a sign of INSTABILITY!

ITZ PIX New Position Stillwater Mining SWC @ $15.25

What's ahead for trading this coming week? I suspect that Monday and Tuesday could see a continuance of last weeks selling, use this as a buying opportunity. Economic data points this week, PPI, Philly Survey and FOMC minutes.