Bullish Percent Index

The bullish percent index is a momentum-based indicator that generates buy and sell signals based on oversold and overbought conditions. A sector is overbought when the BPI rallies above 70 and then turns lower. The oil sector is oversold whenever BPENER drops below 20. It generates a buy signal when it turns higher from oversold levels what exactly happened last week.
Once again...

Look to the red line which is the BPENER(GY).

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PowerShares Wilderhill Clean Energy ETF

Another failed breakout. That’s what the PowerShares Wilderhill Clean Energy ETF (ticker: PBW) is showing. In the point and figure chart we recognize a quadruple top now, which failed.

The daily renko chart is confirming this failure. Where are the Obama-bucks?

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the bullish percent index

The bullish percent index is one of our favorite instruments in order to gauge the trend. This indicator is based on the point and figure technique.
Point & Figure chart analysis has been popular for a very long time. Part of its original appeal was that it was very simple for someone to maintain a large collection of P&F charts back in the days before computers. In less than an hour, using just a pencil, a newspaper and some graph paper, P&F chartists were able to update and analyze 50 or more charts every day. When computers arrived, they made it much easier to create bar charts and P&F charts started to fade in popularity.
The NYSE Bullish Percent Index is calculated by reading either a buy or a sell signal from the point and figure chart of each of the 2800+ stocks on the NYSE each evening. The value of the index represents the percentage of stocks listed on the NYSE that signal a buy.

One can look to the bullish percent index of the index. As an example we take the S&P500.

But we can learn a lot more if we look to the different sectors making up an index. As is showed below:

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Going down.

NASDAQ had yesterday the most daily new lows since March 20. The cumulative advance/decline line recently made a lower high. This just confirming that the break down of the indices is shaping further up.
Also metals and mining were slammed yesterday with a loss of more than 5%. The Natural Gas ETD reached a 52-week low.
Oil prices are down 9% in one week.
And several regional banks hit new lows while the sector lost 25% form the peak in May.

Oil lost yesterday another -2.59 USD/barrel at 64.14 USD. Which trade is unwinding here? Now Solar stocks are trading lower again. They seem no differently than a leveraged bet on oil prices. The biggies in solar land First Solar, Suntech Power Holdings and SunPower Corporation, all traded lower. Even the Claymore/Mac Global Solar energy ETF (ticker: TAN) was hit.

Now, if this correlation is working to the downside, what about the upside?

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No more energy...

Looking to the bullish percent index of the energy sector (as one of the sectors of the S&P500) we observe that all bullishness has evaporated in a week or so. Now, this sector was one of the strongholds of the rally and is now sinking form overbought to oversold.
Not time to buy, yet, but worthwhile to follow, this fellow.

Another observation: if we take a peek to the Russell 2000 than it becomes clear that the last 8 weeks where a waste of time for the big indices while individual names tanked already. A stealth correction is going on. This can result in a correction of the big indices later as the big names can not hold up the whole weight with just some happy few.

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Gassssss

We know that ETF’s have become a playing field for the Big Boys as they discovered you could use this stuff for arbitraging futures. The least we can say is that Exchange Traded Funds were not developed for that purpose. This, however, is causing some strange things from time to time.
If we look to the Natural Gas ETF and more in detail to the Open Interest than we see something strange:

While the price is barely moving:

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We're going down

After a couple of sessions with losses, everything went fine again today. The major indices in the US all ended in the black. Attention. Looking to the different sector bullish percent indices we notice how more and more stocks are not longer in buy mode. Profit taking is under way. Especially in the energy sector.

This indicator is build on the point-and-figure technique adding up all stocks of a particular sector with a buy signal;

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The oil-scam

Now, here is a nice one. It has to do with the contango situation in the oilmarkets. Due to the fact that there was such a huge difference in spot and forward prices some months ago, the ETF’s shadowing the futurecontracts were not picking up at the same pace as the futurecontract itself. The reason is that these ETF’s have to deal with volatility and other specific technical factors.
So the last couple of months the USO ETF could not perform in the same way as the underlying.

From Phil’s Stock World we have following comment – by the way guess who is handling all that USO cash flowing in? Right. Goldman Sachs. –

So here you are giving your money to an ETF that gives its money to the biggest shark in the ocean, who chews off your legs in transaction fees and contango spreads BEFORE they even bother to circle around for the kill by gaming the market. NOT ONLY THAT, but the idiotic rules of the fund lead them to PUBLISH THE DAYS THEY ARE ROLLING IN ADVANCE so every little shark in the sea knows exactly when and where to feast on your bloody, bobbing carcas this month - and the next and the next and the next. Don’t worry though, once you are chewed up and digested, there will be a fresh round of suckers herded back into commodities and the commodity pushing stocks and ETFs every time GS, MS or Cramer need another payday.

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Accumulation - something is goin' on

Investment wise we like natural gas more than crude oil. Some big things are happening there, right before our eyes. Who is accumulating at these levels? Strange.






TGIF - Time to go for a pint in the pub. Ireland had a wonderful week. Not only outside the countryside but everywhere. God bless Sphere: Related Content

Natural Gas

Natural gas was going down for months and months in the US. But now it’s back. And the price is going higher. Since May started, NG is rising and not looking back.
Is this normal?
No it isn’t.
What more can we say.
We’re looking to the US Natural Gas Fund (ticker: UNG) renko chart . This is way overbought, but look to the volume: it comes in bundles of positive price action.

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An odd couple

What’s this?
It’s a very odd relationship.
What could be the relation between the ratio of long term yields versus short term yields and between gold and silver?
On a monthly basis - and maybe this is a complete coincidence – we observe that as the yield curve is inverse, silver is rising more quickly in price than gold. And vice-versa.

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No evidence - part 2

More amazing stories are popping.
This one is about Semgroup.
We go back in time. To 21st July 2008.
From Reuters:

NEW YORK (Reuters) - Semgroup LP declared bankruptcy on Tuesday after $3.2 billion in oil trading losses torpedoed the formerly 12th-largest private U.S. company.
The Tulsa-based company racked up the massive losses as oil prices ran up record gains, undercutting short crude futures positions Semgroup bought to hedge against its 500,000 barrel-per-day trading business.

And

Semgroup took a $2.4 billion loss on July 16 after it transferred its New York Mercantile Exchange oil futures trading account to Barclays Plc, converting what they called "loss contingencies" into an actual loss.

Included in the NYMEX loss was $290 million owed to Semgroup by a trading company owned by co-founder and former chief executive Thomas Kivisto, who was placed on administrative leave on July 17.

We all remember that right at that time oil peaked at 147 USD/oz. Then this peak momentum turned rather quickly. Is this a coincidence?
SemGroup got themselves in trouble because they sold NYMEX furtures beginning round 70/80 USD as a hedge. Now, these guys were professionals. How come oil went higher to 140 USD/barrel?
Should it be possible that the steep hike of the oil price was orchestrated to bring down Semgroup?
At least that’s what Forbes writes:

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.

“What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

This article mentions that Citi, Merrill Lynch and especially Goldman Sachs knew the trading book of Semgroup. The biggest counterparty of Semgroup was J. Aron & Co, the commodities trading arm of Goldman.

Forbes continues:

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Semgroup went out because they couldn’t come up with the margin anymore. A classic if you want to take out somebody.
Then came Barclays:

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays Capital. Barclays’ bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn’t comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: “With the portfolio in Barclays’ hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed.”

Of course all conspiracy theories are flatly denied.
But how much the world has paid for this game?
And now we pay up again to save these guys…

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Citi of Sins

If we run a scan based on our renko charts than it’s worth to note that of the 26 names with a sell signal in place 80% are oil producers.

And Citigroup.
The huge rally – due to a short squeeze – seems to be over and out. For the time being. A down trend was established and is taking his toll.

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Halliburton

After the huge blow-up on Monday we had some pause yesterday and it seems more has to come. But for the moment we think it will be rather a consolidation than a new attack of the bears.
We’re looking for some long set-ups.
If there is a rally coming, will this be a big one? No one knows, but there is a fat chance that some money of the huge sums governments are throwing to banks will find its way to Wall Street.
One picture we like is the chart of Halliburton

This is what we call bottoming…

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Hibernation

A lot of commodities went down in price in the second half of 2008. But especially natural gas has performed worse than any other. The price fell from a high of 13.5 USD to 3.50 USD or more than 75%.
As a result the industry went in forced hibernation. Last summer more than 1400 rigs were pumping gas, now only 884 are operating.
Supply is going to shrink soon.
Not mentioned here are investments into gas-powered vehicles or industries switching to gas.
Oil has risen 43% since Christmas. Gas has to follow soon.
Even better: in the futures pit we discover that speculators have bet heavily against a rise of prices. Commercials are long.
In a typical cycle the industry shrinks when a commodity is unprofitable, only leaving the most efficient outlets in operation.
There is a natural gas ETF (ticker: UNG). Observe the huge spike from last week.

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Titanic

According to Bloomberg: About 45 percent of U.S. rigs have been shut since September, which means fourth-quarter gas production will tumble 5.2 percent, faster than the 1.9 percent decline in use, the Energy Department forecast. Prices will rise to $7 per million British thermal units by January from $3.897 today on the New York Mercantile Exchange, according to a Bloomberg News survey of 20 analysts. The gain would be the largest since the first half of 2008.

But this is Bloomberg.
We become a little prudent as prices are going nowhere.
Last weeks we mentioned natural gas and copper.
All their upward price movements are stalled.
Even de Baltic Dry index is not going higher for the moment. Now be careful with charts where you can click in the box for a log scale of not.
As markets are at the bottom charts without logarithmic scaling are less sexy than with a log scale.

But anyway…

Rapidly deteriorating conditions in the shipping sector are squeezing the ratings on European banks exposed to the shipping industry. Many shipping companies are struggling following a sharp downturn in global trade and challenging funding conditions. We expect these difficulties to result in a material increase in banks’ loan loss provisions. We see pressure on banks coming from an increasing number of loan defaults, rapidly deteriorating shipping company credit quality, and weaker recovery expectations due to falling asset values. In addition, we believe banks’ capital ratios may decline as deteriorating creditworthiness feeds through internal rating models and increases the relative risk-weighting under Basel II.

European banks are especially exposed to drybulk and container shipping, the fundamentals of which are “particularly weak.”
The S&P analysts highlighted seven banks with significant shipping exposures - DnB NO, DVB, KfW IPEX-Bank, NIBC, HSH Nordbank, Norddeutsche Landesbank Girozentrale and Nordea.

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Natural gas

The crisis is hitting. In every corner of the financial universe we observe phenomenons illustrating this.
Since 2000 natural gas prices typically peaked between December en February. A bottom was put in between August and October.
But energy consumption has changed recently and there is no natural gas spike at the horizon. This year the prices will stay flat, we think.
A collapsing price is caused by a lack of demand and demand is not there because industrial production collapsed.
In March 2008 a 30-year high in natural gas production was reached and even now gas reserves are the highest ever seen.
In a recent past we had tar sand production using up excess reserves. But that’s gone for the moment.
So prices could stay low for a long time. It’s better to speculate on something else than natural gas.

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