Thursday Outlook: Crude Awakening

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.

Comments

[jjc7477:]

Your "ranting" sounds an awful lot like the rest of us David. The most frustrating issue of all is the fact no matter how loud we complain, the idiots in Washington JUST DON'T GET IT. It won't matter who we elect this fall; every one of them (I'm including presidential and congressional candidates here) is truly clueless and would rather pander to the special interest groups then look at some of the viable options you noted above.

Maybe you could run for President!! Fry in 2012!

2008 May 22 06:37 AM

[Scared Stiff:]

It's not that they don't get it. It's that they just don't care. When we're given a choice between party A and party B, where both parties represent the same broken system, what reason is there for them to change the way they do things? It will be a long time before the group of people who are paying attention to what's really going on is large enough to do anything about it. By that time it will be way past too late.

2008 May 22 07:38 AM

[Gerry Sullivan:]

Politicians don't take big bold steps until a problem is critical. Would we put up with all the airport screening if we hadn't experienced 9/11?

Even now there is political talk about reducing or eliminating the gas
tax for the summer. Is that the way to encourage conservation?

Only necessity forces politicians into action.

2008 May 22 07:55 AM

[jackh:]

Record oil prices and no plan to solve the problem, normal retirement aged raised to age 67, upside down mortgages to be resolved, Social Security and Medicaid running out of money.

I don't understand why the people haven't made these things issues for November..... is the press ignoring these issues or are the working voting people not complaining enough??

Time to find any Congressman or Senator you can lay hands on and make it an issue.

2008 May 22 08:07 AM

[maxbid:]

Quit blaming our elected politicians, get behind good ole American capitalism and support Boone Pickens efforts for wind farms and CNG for vehicles like the Honda Civic GX.

We've got all the natural gas right here in the USA to power our vehicles, buses, and trucks.....Just need the infrastructure for re-fueling to be put in place. Most large cities are already converting many of their transit buses to CNG.

In addition to wind farms, add in a healthy dose of large solar arrays in the Southwest and other choice locations and pretty soon we can export our vast coal reserves and turn around our trade surplus.

Nothing wrong with dreaming is there?

2008 May 22 08:43 AM

[Sidj:]

Well I can remember in 1973 Nixon immediately implemented the 55 mph speed limit, year-round daylight savings time, tv ads urging people to conserve by shutting off lights and turning the heat down to 68. Then people starting buying smaller Japanese cars. What have our leaders today done to urge conservation?

2008 May 22 08:53 AM

[dukeb:]

That's not a rant as much as an acknowledgment of a reality we'd rather not believe day-to-day. Politicians are elected lobbyists serving corporate interests, and the corporations have become virtual nations unto themselves, serving themselves. Their insiders profit under any circumstance by exploiting, plundering and pitting against each other those economic/demographic zones once regarded as autonomous countries. (There's no such thing as an "American corporation" anymore...what happened to Haliburton?) We are entering a period of global capitalism without any real competition to the system itself, and capitalism without competition (or enlightened regulation) is just like a capitalist without competition--never a good thing. But who would even regulate it if it's globalized?

And that's why I used to be for globalization until I was against it.

2008 May 22 08:54 AM

[flyoverman:]

It's not that politicians don't get it and don't care, although the truth is we all know they "most" care about staying in power.
The issue is we citizens are smart enough and long term focused enough to stick together on demanding an appropriate (not just demanding, but demanding an appropriate) solution. We are too busy fighting over the economic pie between are self-interested special groups (everything from minorities of every type to environmentalists to pillage and r---- bus execs) to keep the focus on the need for nuclear energy, refineries, etc. and what is needed to make the economic pie bigger for all. As far as the press... yes they are among the most dumb of us.

2008 May 22 09:05 AM

[flyoverman:]

correction: "we citizens are NOT smart enough.."

2008 May 22 09:06 AM

[flyoverman:]

This thread is just more evidence of what I'm talking about... we, the divided and unintelligent (or at least short-term only focused) citizens. We all demand a solution... but part of us are with J.Fonda/M.Douglas and the no nukes (the clean energy that the French have found) crowd... part of us are dead set against drilling anywhere, even in someone else's backyard (like Alaska) where the people there want it anyway.... part of us blame the evil oil and energy interests and regulate the heck out of big projects like refinery building.... part of think conversation is the only answer but it holds no hope of significantly solving the problem without putting us back in the stone ages (which some of us seem to want, btw, but guess what, you don't know what poverty, poor health care, etc. are unless you go back to being an underdeveloped nation.)... anyway, we all demand a solution but we all demand too much in the way of limiting the alternatives. Politicians can only get elected by lying to please us.

2008 May 22 09:14 AM

[docroc:]

I'm with sidj: What about conservation? It could make a huge difference with regard to our energy woes. And it is the only thing that could work in the short term. Developing our energy reserves here in the U.S. will take years before it goes online and will just exacerbate global warming problems. Tax incentives to encourage conservation would be very helpful.

2008 May 22 09:45 AM

[jackh:]

", we all demand a solution but we all demand too much in the way of limiting the alternatives. Politicians can only get elected by lying to please us."

Amen....... sad, isn't it??

2008 May 22 09:50 AM

[cynic69:]

Larry
Drilling in the ANWAR will solve nothing. It will produce one million barrels a day which will be sold on the world market. One million barrels is less than two percent of the 86 million barrels the world uses every day. J. H. Kunstler ("The Long Emergency") predicts that once we have passed peak oil countries like Russia and Saudi Arabia are going to begin hording their carbon products. Hording is going to cause the energy market to explode. If hording occurs sometime in the future wouldn't it be nice to have the oil in the ANWAR (and offshore) to fall back on? Think about how stupid it is for people to be driving SUVs and complaining about the price of gasoline. Think about how stupid it is for Americans to be depending on long haul trucks and airplanes when we could be using high speed trains. Why don't we have decent public transportaing (like Europe)? The big oil companies have fought tooth and nail to make sure that we burn up all the oil instead of conserving what we have. As citizens we have stood idely by while these jerks have been willy nilly pumping our oil out of the ground and ruining our future.

2008 May 22 11:29 AM

[David Fry:]

yeah....Fry's the Guy!!! Cool theme I used for my class presidency campaign. Send money to.....um....well.

You all make good points but the bottom line is there is no political leadership and no guts. Conservation is great and so is alternative energy schemes. But, this generation of American's needs to put food on the table and pay bills NOW. That means while we engage in all manner of research for alternatives these solutions are a long way off and don't solve today's problems.

Fighting with big oil and alleging some vast conspiracy is a major distraction and doesn't solve any problems. Their role is to make a profit and find more oil. That's what corporations and they are supposed to do.

We've transfered our wealth and security to idiots and dangerous people like Chavez and Ahmadinajad. How stupid is that?

2008 May 22 01:52 PM

[sivere:]

We need to develop our domestic sources asap. In addition we need to start developing alternative sources- coal, nuclear, solar, etc.

The $100+ dollar/barrel oil prices are a blessing in disguise, because they make alternatives economically possible. But they will kill us (potentially literally) if there is no organization around developing the alternatives.

This is coupled with a collapse of our financial system. That is the 1, 2 double punch and you are out.

We need, in addition to the above energy scenarios, to TakeBackTheFed.com

If we do not get off our duffs, we will truly be in trouble. NOW IS THE TIME TO ACT.

2008 May 22 03:04 PM

[jjc7477:]

Is it my imagination or have we lost America? We seem to drift aimlessly searching for solutions to our issues and yet we are supposedly the society of the entrepreneur. In order to "put food on the table and pay bills" as David so eloquently states it, we have to do the hard thing and start making changes ourselves. It begins by applying pressure upon our governmental representatives and subsequently standing up and DEMANDING change. If we work as a cohesive group to force those we hire to represent us to actively work together to reach a solution we will succeed. Otherwise, we will continue to have this conversation forever.

2008 May 22 04:12 PM

[Muggle Liaison:]

All these posts make good points, but I think conservation is the single most important element in short-term and long-term solutions to North America's energy problems. But of course politicians lack the courage to tell us what the great majority of us don't want to hear and wouldn't want to admit...that we want, use, have, and waste too much of just about everything.
One scary side effect of our chronic over-consumption is that China (our trusty supplier of manufactured goods) is developing an even greater appetite for energy, food and water.
Hmmm...in an analogy with Wells' novel "The Time Machine", if we're going to continue behaving like the Eloi, I sure hope the Chinese don't turn out to be like the Morlocks.

2008 May 22 05:43 PM

[dukeb:]

Conservation is a lie. Anybody remember all those summers in the 70s when we couldn't water our lawns, wash our cars, etc.? We had to conserve water! But what's happened in those same areas since? Development. Massive development. Any savings of resources via conservation gets exploited by increased development. If you want to really help humanity and planet earth -- counter-intuitive though it may be -- waste as much food, water, electricity, etc., as possible. It will all get used anyway, but if you use it yourself, it will help prevent additional development due to "excess capacity".

2008 May 23 09:42 AM

[User 54645:]

Exactly right. It is a national disgrace.

Congress is primarily to blame for all of this. And since it's the Democrats who've had their way on energy, it seems like the most blame should go to them. They've put all our eggs in one basket--conservation. Unfortunately, they forgot to mention to the masses that "conservation" is just another way of saying "Do without."

And what is truly aggravating is that the guys who caused all this pain are now being rewarded for their incompetence (or maliciousness, depending on your view) by getting re-elected for another 6 years.

2008 May 23 03:32 PM

[datalink1995:]

Our country is sending $600 billion for imported oil to countries that, for the most part, hate us. I read somewhere that if we were able to tap in to all the off shore and Alaska oil that it would only reduce our imports by 20%, and would mean very little to our trade imbalance. If you take 20% of $600 billion, that is $120 billion. That is a sizable sum! We need to ignore the tree huggers and tap this source.

If I were a presidential candidate I would be making the following campaign promise.

1. Since oil is a natural resource like our forests and national parks, I would establish a Federal Trust under the Dept. of Energy to develop and manage the oil which would be sold at market prices. In effect, nationalizing these oil wells. No I’m not a Socialist.
2. The money would go to the states bordering the wells and to Social Security, Medicaid, and other entitlements that are running out of money.
3. Lift the ban on construction of new refineries.

Of course this will never happen because none of the candidates have the guts to go up against all of the special interests who would be adversely affected by a plan like this.

Hey…but what the heck do I know!

2008 May 23 08:20 PM

[aAr:]

David, you forgot to thank Reagan for removing the solar panels that Carter had installed on the roof of the Whitehouse. Additionally, he eliminated solar panel tax credits. Solar panel manufacturers went out of business. Granted, solar technology back in 1980 hadn't achieved the efficiency it has today, but think of where we might be had Reagan maintained a solar policy. Of course, solar power is a threat to the way we think about energy as a commodity. Enter hydrogen... Oil will run out, maybe not any time soon, but it is a finite resource. When we talk about the lack of a "policy" maybe we can be a little more creative.

2008 May 24 12:14 AM

[cjp:]

David,
i enjoy reading your comments each week. Keep up the good work!
How do you get the volume to show up on the S&P 15minute charts? i subscribe to stockcharts also and cant get volume on the indexes intraday.
THanks, cjp

2008 May 25 06:37 PM

[David Fry:]

That's SPY vs SPX, hence the difference.

2008 May 26 09:53 AM

[Thrift Maven:]

A relative who works for Conoco Philips said he thinks he understands why oil prices have gone so high. The Chinese have been closing many coal mines . They now have to import so much more coal from the U.S., Canada and elsewhere. Shipping more coal requires huge amounts of oil.

The Republican Political Machine threw out President Carter's Energy Sufficiency Program, which program would have been the start
in the right direction, at the very least, of a sane and intelligent
energy policy.

This country cannot afford intellectual lightweights in the White House ever again. It will take fifty years to recover from the fools that people voting Republican have given us for almost all of THE PAST THIRTY YEARS. The Clinton Presidency was mired with a Republican Congress hellbent on putting private interests before national interest. Here we are, funding Middle Eastern regimes which are killing our sons and daughters. The transfer of wealth
due to the policies of the Republicans is sickening.

2008 May 28 07:15 PM