The 'Exodus' from commodities continues, Proshares Ultra Crude Oil (UCO) just hit ITZ $45 STOP, as suggested we exited the position with a $4 loss or -8.3%. Note, ITZ may re-enter again in the near term...stay tuned. Follow on Twitter for updates. Past Posts
Oil market volatility rose sharply after the release of inventory data from the U.S. Energy Information Administration, sending the CBOE's oil volatility index out of a narrow trading range to hit a high of 43.8 percent. In addition to the surprise build in gasoline inventories, the first rise in stocks after 11 consecutive declines, the EIA report showed a large rise in crude oil stockpiles as gasoline demand continued to trail year-ago levels.
The underlying fundamentals haven't changed enough to see this kind of price change. This market is on edge.
Gasoline futures hit the New York Mercantile Exchange’s floor on price drops Wednesday, triggering a brief but unusual halt in oil and gasoline futures trading, and prompting the exchange to allow for even deeper losses. Read Story
Itz Pix is long oil via Proshares Ultra Crude Oil (UCO) and believes one should be a buyer of this decline. That said, make sure you limit any losses, maintain STOP on UCO @ $45. Cost Basis $49.08. Follow ITZ on Twitter for current updates and charts. Link to past posts
David Greenberg, of Greenberg Capital, discusses why the CME is raising oil margins with one hand, and increasing trading range with the other.
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Itz suggests adding to 2nd half position on ProShares Ultra Crude Oil (UCO) @ $49.50. As mentioned last Thursday & in this past Weekend Review. Prior entry position $48.54, average cost basis $49.08. Past Posts
Well, last week finally witnessed silver's parabolic move implode declining nearly 27% for the week! Crude oil right behind with a 13% decline, gold managed to sneak by with only a 4.53% drop. Several events led to the decline in commodities. The first major geopolitical event was the Navy SEALs killing of America's Most wanted Osama Bin Laden, which sparked a rally early Monday morning. The most watched economic event being the Non-Farm Payrolls which showed a gain of +244,000 jobs compared to a gain of +221,000 in March. The private sector created 268,000 jobs but that was offset by a -24,000 decline in government positions. February and March numbers were upgraded by another 55,000 jobs. To put the April report even more into perspective you have to realize that the labor force expanded by 235,000. That means if you just look at the +244,000 non-farm additions and the increase in workforce additions of +235,000 unemployment only decreased by -9,000 jobs.
The big news last week was of course the commodity implosion caused by the silver crash.The CME raised the margin requirement for silver five times in two weeks or roughly every 48 hours. Every margin hike created thousands of margin calls that had to be covered immediately either by selling silver or some other commodity position.
To complicate this problem the dollar reversed its decline and rallied , while the Euro imploded. Since QE2 was announced we have seen nearly every hedge fund and speculative trader shorting the dollar to buy commodities and equities. Made sense, if the Fed is printing money that is the trade to be in?! The dollar declined to nearly three year lows with traders leveraging up on every down tick and every Fed speech saying QE2 would continue.
Then the surprise of the week came from Trichet.... ECB failed to raise interest rates on Thursday and that sent the Euro into free fall and the dollar rocketed. Throw in the rumor that Greece would leave the Eurozone and now everyone short the dollar and long commodities had another reason to panic sell. The Perfect Storm!
Currency traders are normally leveraged between 10 & 100 times more than commodity traders. That accelerated the margin call problem significantly as they tried to cover the growing back hole in their accounts. ITZ doubts we would have seen anything close to the correction we got in oil without the margin panic from the silver crash. It's not a normal cycle move when oil falls nearly 10% in one day. We basically saw a mini flash crash in commodities where the interrelationships among certain types of trades and traders removed the fundamentals from consideration.
Itz called back in April that oil was set to pullback towards the $100 level, based on the gold 4 month lag chart, which has appeared on this blog several times over the last year or so. Itz Stock Chartz 'Itz Pix' portfolio in the past has traded in & out of the ProShares long & short oil etf's SCO & UCO, last week ITZ suggest shorting oil via SCO and Thursday was stopped out intraday, making 16%, could've made more but for 3 days not bad. Currently ITZ has suggested a 1/2 position long oil via Proshares UCO. Here's what some of the other large brokerages alerted investors to do....
Goldman, who had been recommending selling oil just three weeks ago said oil should make new highs after the correction is over. They said prices will surpass recent highs by 2012 because of shrinking capacity and increasing demand. "It is important to emphasize that even as oil prices are pulling back from their recent highs, we expect them to return to or surpass the recent highs by next year." Also, "We continue to believe that the oil supply-demand fundamentals will tighten further over the course of this year, and likely reach critically tight levels by early next year should Libyan oil supplies remain off the market. The sell-off yesterday (May 5th) has likely removed a large portion of the risk premium that we believe has been embedded in oil prices, which could suggest further downside may be limited from here." They did not rule out a further short-term decline but suggested this was a buying opportunity.
Barclays said the current levels represented a good buying opportunity."While further downside weakness cannot be ruled out, the general trend should be higher rather than lower. Fundamentals have not changed. We have diminishing spare capacity, global demand increasing and supply side issues so the factors pushing prices higher are still there."
JP Morgan actually raised its estimates on Friday saying Brent crude will rise to $130 in the third quarter and that would restrain demand in the fall. JPM said, "While financial bushfires or perhaps a rapid resolution to the Libyan civil war could radically alter market dynamics, the balance of both risks and fundamentals still points to a supply-constrained world."
JPM said its current supply and demand projections show a supply shortfall of 600,000 bpd in Q3, even assuming OPEC increases output by 1.2 million barrels per day in the coming months. They believe that shortfall could narrow to 300,000 bpd in Q4 if Saudi can raise production to 9.5 mbpd, Angola 1.7 mbpd and Iraq 3.0 mbpd. Not likely.
The silver ETF (SLV) saw inflows of $726 million from January until last week. Prices rose from $26 to $48 over that period. Last week the ETF saw outflows of $1.2 billion. On Thursday the ETF closed -9% below its net asset value. Since this is the favorite silver vehicle for retail traders it is a clear example of how involved the retail investor was with silver speculation.
So where does the market go from here? Will the old adage -"Sell in May"- hold true? Most likely we may see in the near term at least a bounce in the commodities once the dust settles. But if economies are slowing down globally, ITZ believes that even though Bernanke insists QE2 will end in June. Most likely we'll see QE2.5. Itz continues to see the dollar eventually heading lower, the ECB will raise rates in July. The geopolitical problems in Libya, Syria & surrounding nations are far from over. Expect retaliation from al-Qaeda over Bin Ladens death. Most likely we'll have a consolidation period in equities for several weeks. Previous Posts
Happy Mother's Day to all the Moms!!!
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ITZ VIDEOS
Daryl Guppy, CEO of Guppytraders.com charts the price trend of silver and gold.
Oil prices are down 13% this week but a recent reports says prices could return or surpass recent highs. Is there an trade here for investors? Daniel Dicker, "Oil's Endless Bid" author and Pavel Molchanov, Raymond James weigh in.
The Fast Money traders weigh in on which trades you should put down today, and David Greenberg, Greenberg Capital with a check on oil prices.
Advice on how investors can take on the markets, with Jim Iuorio, TJM Institutional Services; Lawrence Glazer, Mayflower Advisors; Jim LaCamp, Macroportfolio Advisors, and CNBC's Simon Hobbs.
Insight on where markets are headed this morning following silver's selloff yesterday, with Boris Schlossberg, GFT Forex; Stephen Schork, The Schork Report; and Dan Denbow, USAA Precious Metals & Minerals Fund.
CNBC's Steve Liesman with details on falling commodity prices and European inflation fears.
ITZ is suggesting taking a 1/2 position ahead of the Jobs Report tomorrow on ProShares Ultra Crude Oil ETF ticker symbol UCO around the under $49 level or better, currently trading @ $48.65.
ITZ was stopped out of the ProShares UltraShort Crude Oil (SCO) trade @ $43.20. The move in WTI crude oil this morning was fast the days low so far is $101 & SCO touched $45 @ high. ITZ plans to enter the ProShares Ultra Crude Oil (UCO), on the radar, but will wait for the BLS Non-Farm Payrolls number tomorrow morning. Follow current updates follow Itz on Twitter
Bottomline a +16.76% gain in 3 days...
Trichet's comments this morning are placing pressure on the Euro, sending the dollar higher. This along with CME again raising margin levels on silver are sending the commodities lower. WTI Crude Oil is breaking under $106 and looks as if it may finally be heading for ITZ $100 target as noted several days ago. Futures Oil Chart ProShares Ultra Short Crude Oil ETF (SCO) in prehours is trading at $41.80, as noted yesterday, ITZ suggested those in this trade maintain a trailing stop of about a $1. On open Raise STOP to $40.80. Itz suggested entering Tuesday @ $37.
On the metals trade, silver is now back to where the rally started back in March, the $38 level. Silver Wheaton which had lagged the physical metal itself for several weeks and noted by ITZ here & on Twitter. Is now actually seeing a smaller decline than the metal itself. ITZ is suggesting adding or buying SLW at these levels. We are at levels that have just about exhausted the speculators and suspect the stock can see a rebound. That said set this market is very volatile and as things over shoot to the upside, so can it on the downside.
Transocean reported earnings last night and disappointed. LINK ITZ suggests accumulating SLW, SCCO & RIG at these levels.
For those that entered the Proshares UltraShort Crude Oil ETF ticker symbol SCO, ITZ is suggesting raising the STOP to $38. Entered @ $37 as of early trading SCO is currently trading intraday @ $38.91. Suggest using a $1 trailing stop, ITZ is targeting $42 near term. For upto date posts follow Itz on Twitter SCO CHART
Time to get short WTI Crude Oil again via Proshares UltraShort DJ-AGI Crude OIl ETF (SCO). Those familiar to Itz Pix have traded both the SCO & UCO. Again if you enter the trade set your stops according to your risk level. Itz is suggesting entering around $37 setting a tight STOP @ $36. SCO Chart ITZ is targeting $42. CHART If $111 breaks support...most likely WTI Oil will head to $106. Futures Chart
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