 | Outlook for the Week and Monday Gameplanby Phil_from_Brazil on August 4th, 2008 at 12:28 am |
(7 votes, average: 4.86 out of 5)
Loading ...Here’s my take on the action going forward…
The oil trend is broken for the next few weeks. Sure, we may bounce for a day or two here on storm fears, but I don’t think storm jitters will do much to alter the technical damage and institutional outflow we’re seeing right now.
The USO is below its 50-day and just a whisker above the 100-day. I also didn’t like oil’s inability to sustain a more protracted bounce from the 100-day in recent days (unlike what we saw in January 2008, when we had at least 3-5 straight green days upon rallying from the 100-day). There’s serious selling pressure just above. The sell-off in the last 10-15 days also occurred on very high volume — a sign the big boys are exiting.
I don’t see any stabilization in the USO (and, by extension, resource stocks as a category), until USO taps $90 (that’s about $10 below current prices). And when that happens, I wouldn’t play oil, but gold. The relative strength right now in the yellow metal against oil is impressive. From its recent high a couple of weeks ago, GLD is down just 6.86% vs. 13.93% for the USO. The oil-to-gold ratio (913/126) is also at a historical extreme of 7.24.
Here’s a chart of the historical ratio: http://www.zealllc.com/2005/gorex3.htm to illustrate this point (ie. good risk-reward for gold in terms of its odds of outperforming its resource sector counterparts when bounce-time arrives).
Btw: when you do decide to play gold, fuck the miners. There are too many issues. Here’s a breakdown of recent fuckery in the majors:
1) Kinross Gold Corporation (USA) [[KGC]]
- Just announced a takeover bid for Aurelian in Ecuador (another asshat major ingresses into the unknowns of Third World fuckery)
2) Goldcorp Inc. (USA) [[GG]]
- Guided production lower for the year, announced higher cash costs (due to rising input prices and lower grade ore mining) and a $1.5B takeover of Goldeagle
3) Agnico-Eagle Mines Limited (USA) [[AEM]]
- Reported problems at its LaRonde mine (Canada’s largest mine), delays in the startup of its new Finnish mine and higher cash costs (because its zinc credits are now worth less due to deterioration in zinc prices, so costs/oz of gold production have rising from minus $500 to plus $100/oz).
4) Yamana Yamana Gold Inc. (USA) [[AUY]]
- Reported operational issues and lowered production guidance for the year.
In a nutshell, inflation and operating challenges (mining lower grade and more hard-to-reach ore) is hitting the miners. Gold SHOULD and MUST be played from now on via GLD or DGP — no questions asked.
But, again, NOW (ie., next few weeks) is not the time to be delving into resource stocks. Weakness in gold and oil throughout August would also be consistent with what we saw last year — with strength in resources only picking up towards the end of August. In the meantime, weakness in oil should fuel a continued rally in the indices much to the chagrin of the bears.
A continued slide in oil should propel the SP-500 to 1350-ish, the NAZ to the 2400-2450 area, and the DOW to the 11800-1200 range. Those are the levels I’m working with.
I know, it sounds crazy (the fundamentals keep deteriorating), but sometimes, the way of the markets is the least rational way. Mother Market will often hold out just long enough to get everyone faked out before resuming her “initially expected” trajectory.
Once we work off these oversold readings on the weekly chart and start testing those 50-day and 200-day M.A’s on the majors averages, THEN, YES MY FRIENDS… at THAT point, it will be time to short in size.
I might be wrong — maybe we shit the shitter this week and don’t look back. But that seems to be at odds with the technical deterioration in oil. And, in this market game, I’d rather wait, sit back patiently and play the short-side aggressively only when I’m dealt the hand I feel can beat the House by a good margin.
For now, it’s all about healthcare (I know, I’ve said it a million times, but I’m trying to hammer home the point). Yes, XBI and BBH are overbot – which is why you shouldn’t be playing them. The key here is to look for setups in individual stocks.
Top picks for tomorrow (based on fundies AND technicals) include:
China Medical Technologies, Inc. (ADR) [[CMED]] (earnings due out Monday BMO)
Humana Inc. [[HUM]]
HealthSpring, Inc [[HS]]
M/I Homes, Inc. [[MHO]]
Covidien Ltd. [[COV]]
Good trading to all!
-Phil
PS: No avatar as for right now. :o) Thought I would just get the first PG post out there for starters.
Good job Phil, and welcome to the PG.
By the way, you do not get to pick the avatar. That’s just another added little bonus, yet, it costs you nothing!
As for GLD, it has to rally here soon, or it risks breaking through some major support. Of course, I’ve bet on the rally, as I’m the idiot who believes that things will keep happening as they have in the past, until they don’t.
August 4th, 2008 at 1:12 amWood,
How do you get your charts up? I thought of adding some graphs to my stock selections, but print screen yielded distorted charts that were simply too embarassing to post. And I’m a visual guy, so it would be nice to share the technicals with the IBC crew at some point.
As for GLD, I understand your reversion-to-the-mean strategy. Nevertheless, the break in the oil trend puts the gold uptrend very much at risk right now. Your strategy, in a vacuum, might make sense b/c you’re betting on a tried-and-tested repetition of recent history. But, it looks a bit hazy right now — unless you plan on selling for a quick chop. The problem with the quick chop is that if you’re buying a dip using the daily charts (rather than a short-term intraday timeframe), your risk of further downside might not justify a mere “chop” reward.
If you want to pursue reversion-to-the-mean, I would highly suggest executing that strategy on your favorite healthcare stock.
-Phil
August 4th, 2008 at 1:39 amYes! Great to see you here and great post.
That may be some of the best advice I’ve heard on gold– keep it simple with GLD DGP.
Been in New Orleans all weekend, starting my research for the week now.
August 4th, 2008 at 1:43 amLike that HUM call… that’s gonna be one of my “long termers.” Nicely positioned.
Also, checkout RGLD — the royalty guys don’t have much operational risk, although they are dependent on the underlying producers.
Update: Pele! Sweet.
_
August 4th, 2008 at 1:58 amThere are two rats that can bite you this week, that are in plain sight. Tomorrow we get the June personal spending. That number can be worked to host a PPT rally, and if factory orders confirm, we are going up. Both numbers look to be workable. For an index trader, tomorrow is up.
Rat number two will jump at you on Thursaday with the jobless. Claims. Those appear to have been worked down already, so this whole week looks like a screw job on the bears.
Finally, the health scare theme should be safe, and there is nothing more valuable than being safe now. HOwever, I will look at eln at the open to see if the shelling is done. AS well as wye. Barron’s wrote both up nicely and there will be an open bounce on that. Then, we find out if the bounce dies or lives.
btw.. the aud and the cad are confirming gold up now.
August 4th, 2008 at 2:08 amPhil, for the charts, I just right click on them in stockcharts, save as to my picture file, and then upload them from there into the post. It might be different in the PG.
The PG should resize them for you.
If not, let me know, and I’ll email Jeremy, in case he doesn’t see these comments.
The GLD strategy is a quick sell. Typically, I’ll be in the trade about 7 days on average.
August 4th, 2008 at 2:12 amThnx Wood,
I’ll give it a shot tonight.
August 4th, 2008 at 9:15 amOut of my CMED. Didnt like the numbers — and guidance wasnt raised. Great company, but just didnt say the right things.
-Phil
August 4th, 2008 at 9:37 amShippers are in trouble (remember, these stocks are not gonna do well if the commodity boom wanes — they ship the stuff): TBSI, EXM, DRYS (take your pick)
August 4th, 2008 at 10:12 amAnother boom-commodities-are-fucked play: LNN
Phil,
August 4th, 2008 at 11:51 pmNiiiiiiiiice. Thanks.
Good post, Phil. Thanks.
August 5th, 2008 at 12:41 amDont know if anyone is still looking at this page. But just wanted to make a correction (I just noticed today).
In my hitlist, it’s MOH (healthcare stock) and not MHO (homebuilder stock! hehehe I’ll soon through fellow IBCers to the wolves before I recommend a housing stock).
Anyway, just wanted to make that correction.
-Phil
August 5th, 2008 at 7:41 pmHey Phil… do you know Bruno? He’s kinda really old now, like 47 or something. But anyway, he lives in Hawaii, and he used to be a jujitsu champ in Brazil.
August 5th, 2008 at 7:55 pm