Thursday Outlook: Crude Awakening

 |  Includes: DBO, OIL, QQQ, SPY, USO
by: David Fry

One way Nigerians spend a romantic evening is watching the after-glow of another terrorist attack on oil production facilities. Well, it’s a cheap date!

This leads me to my ongoing bitch complaint regarding the lack of “any” energy policy in the US since the first oil embargo in 1973. I mean, c’mon--34 years of no action! No drilling off any coast anymore [thank you Nancy, Jeb & Co.], don’t touch Anwar [thank you Dems], no nuke plants in our backyard [thank you Jane], no wind farms near Cape Cod [thank you Ted] and no more fossil fuels at all [thank you Al]. In the meantime, strategic interests owing to our own shortsightedness have us at war for the stuff [thank you George I and II]. So given this litany you’d think we’d have done something in our interest--but no. Our suppliers are laughing all the way to the bank while we jabber about global warming and our men and women in uniform are dying. It’s a national disgrace!

The above image and copy is from the post we made April 24, 2007! Has anything changed other than prices moving higher? Talk all you want about climate change and alternative energy, folks still have to get to work, pay their bills and put food on the table. And, while developing alternative sources of non-polluting energy is a wonderful concept, we need our own oil reserves and nuclear power plants built NOW until that research becomes a reality. I’m pretty steamed about this, can you tell? Aren’t you?!

So the chickens finally have come home to roost. Burying our head in the sand and ignoring the crisis at hand is no solution. And, by the way, what presidential candidate, or candidates for public office in general, are making serious proposals to solve this problem? NONE! All we’ve gotten is “feel good” populist rhetoric and proposals to tax big, bad oil and spend the money on more research. Congress drags oil execs to DC to lambaste them when they should be looking in the mirror for the true culprits. In the meantime, we’re screwed than you very much!

Okay, that’s enough ranting for today. Let’s inspect some of the damage.

First, Yahoo/Finance volume and breadth data is quite off so I’ll put up WSJ data instead. Volume was heavier than we’ve seen and breadth was appropriately negative. I don’t know if we had a 10/90 day or not based on this data.

Let’s do something different today. I’m going to put up two charts for you today that are generally reserved for subscribers to my website (ETF Digest) only. These are “weekly” charts of the NASDAQ 100 Index and another of the futures contract for Crude Oil highlighted with DeMark Indicators. If you’re unfamiliar with these I’m sorry to say I don’t have the time to explain the methodology to you herein. But, essentially DeMark attempts to discover what we’d call “trend exhaustion”. It is a complex system representing a series of price bar counts [he calls them “setups” and so forth]. When these reach the count of '9', an exiting trend 'may' have run its course in either direction.

Please view the first chart below and note the first red '9' on weekly charts appearing in late July 2007. While it didn’t spare you the entire decline, it did some.

The second red '9' appeared in late October 2007 almost coinciding with the top.

Next we see a series of green numbers below the weekly price bars culminating with a '9' at the end of February 2008. This would have caused an adherent to 'exit' an open short position if maintained and give potential buyers a heads-up that long opportunities may ensue.

Lastly you’ll note another series of numbers above the price bars ending with a red '9' that would cause an exit of long positions on the opening Tuesday. Would that have pleased you? With hindsight, sure.

The obvious question is, are these reversal signals? No. DeMark only attempts to reveal trend exhaustion and does not constitute a signal to initiate fresh positions. And this chart doesn’t yet contain Wednesday’s data. So, you need other methods to get long or short.

Finally, many professional traders use these expensive indicators on intraday as well as daily charts. How you use them is up to you.

click to enlarge

So, this seems pretty slick right? Well, wait a minute. It doesn’t always work. When it doesn’t, it means the existing trend is 'very strong' and you must, if you wish, try to find other means to re-enter.

Let’s look at everyone’s favorite and the market on the front burner, crude oil.

In this chart, more numerology is occurring than in the previous example. I still value the '9s' more than the more emphatic signals generated by the annotated 'buy/sell' signals. The point being, the '9s' worked reasonably well until now as crude oil [yesterday’s prices not included yet] has kept running higher forcing you find your way back in. If you were able to do so there still is no sign from DeMark that the trend is exhausted. That’s pretty powerful.

These charts are hard to reproduce in this manner and then post so if you’re having trouble following them, my apologies, but this is the best I can do.

Do I want to post anything else today? No, because I’m mad as hell about the mess we’ve created for ourselves over the past 35 years. One shouldn’t write thoughtful commentary from anger.

I’m sure all the political candidates and their handlers will come up with more politically charged rhetoric absent any meaningful solutions for what is becoming a national energy emergency. Over this long period of time they’ve all proven to be a gutless and pandering bunch.

That’s all I have to say today and will post more in depth tomorrow. Aside from my sour mood, I do have some other work to do.

Have a great day.

Disclaimer: Among other issues the ETF Digest maintains positions in SPY.