Tuesday, September 29, 2009

Tim Knight turns beairsh on R2K (IWM)

This morning Tim Knight posted this beautiful chart over at his blog and announced he has begun accumulating Russell 2000 (IWM) puts. You may recall my note of the completion of that highlighed H&S pattern pecicely one year ago. Its interesting how times change so quickly. Anyways, Tim usually has great timing so be on your toes!

Disclosure: I own IWM puts

Modern Art

I got this image from the BBC via reddit, the caption read "Chinese artist Chen Wenling critiques the global financial crisis in What You See Might Not Be Real, on display at a Beijing gallery. The bull is said to represent Wall Street, while the man pinned to the wall represents jailed financier Bernard Madoff."

Monday, September 28, 2009

"USA Today/IHS Global Insight Economic Outlook Index" calls the economic bottom

Lets look back at this and see how this index does in hindsight. Their spokesman Nariman Behravesh seems to like a pretty level headed guy and he thinks the stock market is ahead of it's self. He's generally more moderate than most of what you see out there, Peter Schiff for example.

CNBC is back to being mean to Peter Schiff

Somehow we never learn, CNBC is back to trashing Peter Schiff and making themselves look like imbeciles. How is it that the headliners got so dumb again so quickly? This video reminds me of 2006.

IWM failed breakout

IWM recently broke out of a perfectly formed rising wedge then reversed after the fed interest rate announcement last week. After re-entering the channel I think its pretty safe to expect a test of the lower end soon near $56. There also seems to be price support just below there near $55 and thats my equivalent "line in the sand" for the small caps. Like SPX 950, IWM holding above $55 looks like a cyclical bull market whearas a break below that level looks to me like a resumption of the bear market ( since we'd have a series of lower lows in place). For now, the benefit of the doubt lies with the bulls and the odds go with long trades. Good luck this week.

Thursday, September 24, 2009

Tuesday, September 22, 2009

Wedges that break the "wrong way"

Today I've got a few quick updated charts for you. They both display a relatively rare phenomena that seems to be happening more often lately or a rising (or falling) wedge that breaks upwards (or downwards), in other words, in the "wrong" direction. Traders expect rising wedges to break down and falling wedges to break up, but clearly that's not always the case.

According to Bulkowski, rising wedges break down 69% of the time and meet the price target ~50% of the time. So in the S&P chart below, we have the statistically unlikely upwards breakout occurring recently which targets roughly 1250 (coinciding with my head and shoulders target). For such an over extended market that target seems a little crazy but that's what the chart says. On the other hand, if this wedge does eventually break down, the target would be about 850 (including the 50% statistic). As you know, I think that if the S&P 500 slips below 950 then we will have a resumption of the bear market. So in my view this is really a crucial pattern here, and currently its breaking upwards suggesting that this is a cyclical bull market. And bull markets... well, they go up, and up and up.

Another wedge that broke the "wrong" way recently is in UNG which broke down then basically crashed a few weeks ago. Bulkowski says that falling wedges like the one in UNG, break upwards 68% of the time and meet their price target 70% for upwards breaks and 30% for downwards. Interestingly, if you include that 30% statistic then UNG actually met the target on that downward break. After the gory capitulation in which natural gas traders "got slaughtered," UNG managed to return into the wedge where it now lies in conolisdation. I call it consolidation because UNG has traded in a narrow range as volume has declined after a huge move up. Now that we are back in the wedge we must expect the wedge to break upwards again, as this happens 68% of the time. Further, the recent reversal of the downwards break gives support to the notion that any attempt to break UNG down will bring in demand. Note that confirmation occurs when the price closes outside of the pattern.

I'll just conclude with one caveat that Bulkowski mentions to these patterns, the dip:

"After a downward breakout (of a falling wedge), price sometimes curls around the front of the wedge and soars upward. The busted pattern presents a profit opportunity from the long side."

Disclosure: I remain long UNG calls

Thursday, September 17, 2009

Bloomberg: "Gas Fund Roll Slaughtered Traders"

"Speculators trying to profit from the U.S. Natural Gas Fund’s roll of futures contracts got “slaughtered” and helped boost volatility as gas prices surged this week, said Adam Felesky, chief executive officer of BetaPro Management Inc.

Gas for October delivery rose 27 percent, through yesterday, on the New York Mercantile Exchange, forcing traders to cover bets that the gas fund’s sale of the contract would reduce the price, Felesky said. Volatility jumped to the highest level since Amaranth Advisors LLC collapsed in September 2006.

Speculators shorted October gas, anticipating that the $4 billion gas fund would push prices down when it began selling its October contracts on Sept. 14, said Felesky, whose C$1 billion ($937.1 million) Horizons BetaPro Nymex Natural Gas Bull Plus ETF rolled around the same time as the larger fund.

“The ‘smart money’ was positioned ahead of the roll,” Felesky said. “Everyone was on the same side of the trade. The roll was a non-event, and everybody got slaughtered. I think it’s the pros that got killed.”"

I love this simple story of how "pros" got raped by their greed while trying to take advantage of retail investors. Find the rest of the article here.

Monday, September 14, 2009

Don't Dread the Natty, It Bottomed! (UNG to soar)

Well, today I was kicking myself over a post I wanted to do this weekend but didn't. I had wanted to post about the presumably bearish SEC filing from the managers of UNG on Friday afternoon. The news that came out was that UNG is going to start issuing shares again, in other words go back to being an open ended fund (note that a "closed end" fund is not a shut down fund). This was supposedly the news that the bears had been praying for because it meant that UNG's "huge" premium would go away and the UNG stock price would crash. Actually, that's not completely true, the news the bears had really hoped for was that UNG would be shut down like DXO last week. But seriously, no one expected UNG to be shut down, that was just the ramblings of idiots and thieves on message boards which had been mixed in with the usual crap articles coming out of Jim Cramer's junk website thestreet.com. No, this wasn't ever a real possibility but the street wanted you and I and anyone holding UNG or anyone dumb enough to short it to think so. No, UNG was not closed down, rather they will start issuing shares again to expand the fund in response to investor demand.

While the fund was closed, pending CFTC and SEC comforts, investor demand for natural gas did not go away, it in fact increased causing the ETF to outperform the NAV (net asset value (natural gas futures and swaps)). This led to a massive premium, unheard of in ETFs, of nearly 20%. Oh the bears jumped all over this, they screamed that longs would loose their ass when UNG started issuing shares again. The message boards were, of course, a zoo. Bears were screaming in all caps that "idiot bagholder longs" had low IQs and what not for buying UNG with a premium. Then on Friday UNG announced that they would start issuing shares again and UNG cratered 6% in the after hours. What a joke the headlines were recently like this weekend one: "Dion: Investor Alert -- UNG Shares to Slide" where the author says foolishly (in hindsight) that "in a filing Friday, managers of the United States Natural Gas ETF(UNG Quote) announced that the fund would resume the creation of new shares, a move that could send the fund tumbling more than 16%." Oh really, the market is that stoopid? No, the UNG NAV increased 14.8%, while the shares increased 2.5%, actually. Here is a six month continuous natural gas chart:

Today the front month natural gas contracts that you own when you buy UNG surged 14%. Why? Well, there was a bullish report about natural gas by Goldman Sachs (and we know they run the show), but it doesn't take a genius to say, oh, hey, natural gas is cheap, it might go up. I mean, I've been saying that for weeks! And I ain't no genius. No, I think natural gas went up so much because of the UNG announcement. UNG is clearly one of the biggest natural gas players in the market now and they told the market, hey, we are going to increase our positions going forward to meet huge and increasing investor demand. If that isn't bullish for natural gas, I don't know what is. Currently there are about 400M shares outstanding but UNG has approval from the SEC to expand that by up to 1 billion shares. They could expand their natural gas futures holdings massively if demand for UNG so merited it assuming the CFTC was cool with it. Clearly the CFTC must have given UNG the green light based on Friday's announcement.

So what happened to that big premium that the bears have been screaming about? It pretty much disappeared in a single day. Here is the UNG NAV (net asset value) compared to the UNG share price over the past week. Premium is gone (pretty much). I'd note that the premium can not go negative because redemptions would happen first(fund would completely evaporate before UNG fell below NAV)). Now it certainly looks like we are back to the good old open ended natural gas ETF that we want, one that is targeted to move with front month natty. So UNG can't under perform natural gas (by more than a few % annually), but of course, its now unlikely to outperform natural gas also.

So at this point we can expect that UNG will closely track natural gas and looking at natural gas (see top chart) I now see an obvious and solid long term bottom. I'll repeat that, natural gas has bottomed. Personally, I don't think natural gas will ever be cheaper in history than it was a week ago when the $2.40 low was made. I'm tempted to not even show the UNG chart because I'm so bullish on their holdings, but here it is:

The UNG chart doesn't look as great but that's because of the creation of and then dissolution of the premium (UNG was up only 2.5% today despite the surge in their holdings). This UNG chart does show capitulation, it shows bullish signals on the stochastics and almost on the CCI. It also shows a wedge that is about to confirm a failed breakdown reversal. I don't really see any other scenario possible besides a massive short squeeze to begin the next bull market in natural gas. Its too early, of course, to call this a bull market. But I bet that by the end of Fall I'll be posting about the new natural gas bull market that began here right now. There are issues, and always will be with investing in ETF's like UNG that roll through commodity futures, but the fact is its the simplest and most accessible method for profiting on the insane gains coming for this commodity. I think another great way to profit from the coming bull market in natural gas will be solar energy, but that's for another day, and another post. For now, this is a day for natural gas bulls. Hold them GAZ or UNGs!

Disclosure: I still own UNG calls.
More infon about UNG here.

Friday, September 11, 2009

Gold is up, but still has 30% to go

Gold has been getting a lot of press lately for breaking the famed $1,000 mark. The gold ETF GLD (above) has performed slightly less well, but is also breakout out to the upside on long term and short term time scales. The pattern above looks like an inverted head and shoulders but I won't call it that because H&S patterns are reversal patterns. In this case the "H&S" is acting like a continuation pattern, since gold is in in a decade long bull market that recently had a very substantial correction. I guess it looks like a H&S bottom but we can prob expect it to act more like a cup n handle. Whatever you call it, we can be sure of a few things. Gold is bullish and it just had a major major breakout after a lengthy base formation. Using a simple measured rule I get a target of $130 for GLD or about $1,300/oz for the precious physical stuff.

By the way, for those of you who are worried that you aren't really buying gold when you buy the ETF GLD which holds gold futures and apparently some actual gold. Chicagostock and I recently explored the basement of the CME (Chicago Mercantile Exchange) and we were shocked by what we found in the vault: nothing. So beware, comex may be out of gold! Goldman Sachs must have taken delivery recently!! If anyone asks, you heard this rumor elsewhere. The second picture below is one I took of the S&P futures pit on a slow summer afternoon.

Another reason why NO ONE has ANY respect for bank executives like the idiots at Wells Fargo

Headline: "Wells Fargo exec. moved into beach home surrendered to bank"

"MALIBU, Calif. (AP) -- A Wells Fargo & Co. executive who oversees foreclosed properties hosted parties and spent long summer weekends in a $12 million Malibu beach house, moving into the home just after it had been surrendered to Wells Fargo to satisfy debts, neighbors said.

The previous owners of the beachfront home in Malibu Colony -- a densely built stretch of luxury homes that has been a favorite of celebrities over the years -- were financially devastated in Bernard Madoff's massive fraud scheme, real estate agent Irene Dazzan-Palmer said.

The couple signed the property over to Wells Fargo last spring, and the bank subsequently denied requests to show the house to prospective buyers, Dazzan-Palmer said.

Residents in the gated community told the Los Angeles Times that a woman they believe was Cheronda Guyton took up occupancy at the home in May. Residents said they obtained Guyton's name from the community's guards, who had issued her a homeowner's parking pass.

Residents also wrote down the license plate number of a 2007 Volvo sport-utility vehicle they say was parked in the home's garage. A check of state motor vehicle license plates by the Times found the vehicle was registered to Guyton.

Guyton is a Wells Fargo senior vice president responsible for foreclosed commercial properties, resident Phillip Roman said.

"It's outrageous to take over a property like that, not make it available and then put someone from the bank in it," said Roman, who lives a few homes away from the property.

Residents said Guyton, along with her husband and two children, often hosted guests at the home, including a large party the last weekend of August. Malibu Colony is about 25 miles from downtown Los Angeles.

Wells Fargo said in a written statement that it would conduct a thorough investigation of the allegations by neighbors, but said it wouldn't "discuss specific team member situations/issues for privacy reasons."

Guyton's home number is unlisted, and attempts to reach her at her Los Angeles office after work hours were unsuccessful.

The bank's agreement with the prior owner required it to keep the home -- a 3,800-square-foot, two-story structure built in the early 1990s -- off the market for a period of time, Wells Fargo said in the statement. The bank said it planned to list the property for sale soon."

These people make me want to throw up. Can we not form a lynch mob and wipe these worthless piles of crap off the planet? Original article here.

Saturday, September 05, 2009

Wednesday, September 02, 2009

Natural Gas (UNG): Trainwreck

I know readers are probably getting tired of me posting UNG charts, especially since I've been so wrong about it over the last two weeks, but I am just amazed by the price action there. This isn't some crap company like FNM or AIG or BAC or CROX, this is energy! Natural gas has completely collapsed despite the stock market bubble, collapsing US dollar and the continued reports of the recession ending. I look at the chart above and my jaw just drops. Yeah, I've lost money on UNG, but thats not why my jaw drops. I just never in my wildest dreams would have expected natural gas to drop so much and I bet I'm not alone in that belief. Fortunately, even thought I was initially bullish on UNG months ago, I turned bearish after seeing weakness. With the most recent plunge on increasing volume I suggest that this is the final capitulation that natural gas needed to form a bottom. While there is obviously no bottom here yet, we must be very close.

Disclosure: Yep, I still own UNG calls. Like a chump.

Tuesday, September 01, 2009

Play it off Keyboard Cat, play it off.

Another reason to be bullish on UNG: powerful wall street shorts are trying to cover at all time lows

When you see the headlines for UNG filled with wild eyed bearish sentiment you know some big wall street funds are trying to get out of their positions. So they pay some sham journalists to write up articles trashing their shorts to get individual investors to sell to them at the bottom. Not all of these headlines sound bearish, but all of the articles are. In summary:

This morning: "Short this ETF"
Yesterday morning: "UNG opens at 20% premium"
The past few weeks its been "contango will shred this ETF"

Come on folk, UNG is at an all time low, down 80% or so from the peak last year. Since it directly invests in natural gas futures, the futures have done just about the same thing. Is it really such a good idea to be shorting natural gas here at 7 year lows? Wall street scum wants you to think so. Gimme a break, this thing is a screaming buy here at the capitulation bottom.

The overdue pullback in the S&P 500 is here