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Interesting Parallels Between The 2009 And 2015 Oil Bear Markets
- March, 2009 - North American rig counts fell (- 50%) below their Autumn highs. Oil prices recovered. March 20, 2015 (est) - the same rig count has fallen (-50%).
- In July, 2008 the US dollar began a 24% parabolic rise, peaking in March, 2009; in July, 2014, the dollar began a 26% rise. It peaked on March 16, 2015.
- These two 9 month parabolic rises in the dollar are 2nd and 3rd in line behind the 31% rise of 1984-85 -the massive Fed tightening cycle of the early 1980s.
- On March 15th of each year, the refinery cycle begins a 6 months upswing which adds 1.35BL bbl/day of crude to its inventory for "summer gas" conversion.
- In 2008-09, crude closed below $40/bbl, three times - a month apart - and after each brief drop into the mid $30s, crude rallied 46%, 37%, and 36% respectively.
It Ain't Over 'Til It's Over - The Oil Bear Market At The Bottom Of The 8th
- The bear market in crude oil is now in its 9th month.
- U.S. oil inventories have risen to 444ML barrels, the highest level in 80 years. 69ML barrels (18.4%) were added to inventory in just the last 10 weeks.
- The Oil Volatility Index (OVX) has begun dropping from multi-year highs, indicating this bear market may soon be over.
- In 2008-2009, it took 3 attempts before the crude oil bottom was finally "in". And prices afterwards continued to be Mr. Toad's Wild Ride. Past as prelude in 2015?
- The Gold to Oil Ratio may have called the bottom of this Oil bear market - to the day - as it did in 2009.
Don't Rely On Your Emotions To Trade The Oil Patch
- An inflection point has been reached in oil's valuation per barrel.
- The Oil/Gold ratio at this level has historically confirmed a trend change.
- The supply/demand news cycle is beginning to turn.
OVX Volatility And The Oil Panic Of 2014
- The ratio of crude oil's price (WTIC) to its volatility (OVX) has peaked and/or bottomed at turning-points in the oil cycle.
- In 4 of the last 6 years, this turning point has been around the first of the year: 2009, 2010, 2011, and 2014. We are again near peak (Jan, 2015).
- After an initial surge above 57 upon news of recent oil-inventory builds, oil's volatility (OVX) may have broken support: first at 53, then at 50 (12/31/2014).
- Linn Energy (LINE) - or its companion trading stock (LNCO) - are well-positioned to advantage of an eventual turnaround in oil prices.
- More conservative investors could choose XLE, and for more aggressive investors - the 3x leveraged Gas/Oil index (GASL).
Has The Market Called A Bottom For Crude At $54 BBL?
- The market is a forward discounting mechanism.
- Stocks across the Oil Patch did not follow Crude Oil lower when it fell to $54/bbl on December 16, 2014. Instead, they vaulted to the upside.
- The Saudis' recent move is seen as "wildly dangerous" to price stability. It encourages demand and reduces supply now; but fosters an explosive upside to prices in the future.
- The upcoming reduction in US rig count and capex will severely curtail domestic shale-oil production growth in 2015.
- March, 2015 will likely be the inflection point for crude prices.
It's Time To Buy The Oil Panic Of 2014
- Oil is at a point of extreme undervaluation. There have been only 4 instances in the last 70 years when oil has been this undervalued relative to Gold.
- World over-supply has come from the Americas. Recent Capex and rig-count cuts announced by the major North American drillers will reduce crude oversupply by 1H2015. Legacy wells also will deplete.
- The oil service sector is in the process of creating a bottom. A bottom is a "process", not a single event.
- It does not matter where the final crude price falls to. By buying incrementally at this level, investors will bulk their entries near the lower 20% of crude oil prices.
- Reduced energy costs will stimulate the economy, especially individual families' free cash flow, and will increase oil consumption relative to supply.
Emerging Markets At 5-Year Lows Are A Blue-Light Special
- Emerging Markets have hit multi-year lows because of the oil crisis, political fallout, and volatility in their markets. They have also fallen victim to end-of-year tax-loss selling in the US.
- However, the long-term effects of lower crude costs should increase these countries' domestic industrialization, car sales, and reduce overseas shipping and transportation costs.
- Each time emerging markets have sold down to this level since the financial crisis, they have rallied hard in the coming months.
Crude Oil Is Trapped In A Bear Raid; Not Its Fundamentals
- The prices of crude oil and gasoline have dropped 47% since summer.
- The catastrophic sell-off in crude oil and the oil-services sector is now an opportunity to be traded. It is based on panic-selling; not industry fundamentals.
- The 2014 oil-sector sell-off rivals the Nasdaq bear market of 2003, the 2008 Financial Crisis, and the 2008-2011 Housing Crisis which followed it.
- The drop in the price of crude oil will prove unambiguously positive for the consumer economy, and for all industries that use crude oil to make their products.
- The yield curve - the precursor of all US recessions - remains steep and positive for the US economy.
Is October's Storm Nearly Over?
- The VIX volatility index has risen eight times above 20 in the last 34 months. It is currently at 21.24.
- Past spikes in the VIX above 20 have presented superb entry-points to go long the ProShares Short VIX Short-Term Futures ETF.
- The SVXY (Inverse of the near-month future contracts on the VIX volatility index) has formed a 4-year channel with clearly-demarcated highs and lows, and has now touched its extreme lows.
- Severe selling days are often clustered at the end of a large down move and mark the moment when prices have fallen low enough to attract new buyers.
- To follow this trade in time, see Updates at end of article.
In The Wake Of Iraq, Parsing Putin's Next Move
- The sudden turmoil in Iraq places a strategic premium on the safety and stability of Russian Oil & Gas exports to Europe, South Asia, and the Far East.
- Russia has much to gain ($) by softening its Ukraine policy and actively promoting peace along its western borders with Europe.
- Domestic and foreign capital flight from Russia has diminished, but a lack of trust is now prevalent among potential investors and former political allies.
- Current valuations of the energy-laden Russian Stock Market do not reflect the recent 8% rise in Brent Crude (Spring, 2014).
Counting Russian Cards
- The Ukrainian conflict has created a significant, measurable sentiment cost for the Russian stock market.
- A sociological barometer of sorts is in play with which to view (and trade) the economic impact of the conflict.
- Peace will prove uber-bullish for Russian equities.
Calm Before The Storm
- The VIX Volatility Index is currently at a 7 year low.
- There have been 10 volatility events (spikes up or down) in the last 18 months; each one presenting a superb opportunity to go long or short the SVXY.
- The SVXY (Inverse of the near-month futures contracts on the VIX Volatility index) is approaching the extreme upper edge of its trading range.
New 13D Filing Reveals More Dilution Ahead For Plug Power
- Schedule 13-D: filed on March 19, 2014 for event of March 8, 2014. Details to follow.
- On May 16, 2013, Air Liquide (ALIAD) acquired 10,431 shares of the Issuer’s (PLUG) convertible Series C Preferred Stock for $2,595,400.
- On May 8, 2014, Air Liquide can convert this $2,595,400 investment into 10.97189ML shares of common stock (PLUG) - currently valued at $68,135,436 (March 19, 2014).
- March 11, 2014: Plug Power reported 106,340,501 shares outstanding. If/when Air Liquide's shares are converted, the total count would likely rise to 117.3ML outstanding shares.
- Similar dilutions lie ahead because of the warrants included in Plug Power's many equity raises of the last 16 months.
Playing PLUG Power
- Trading in Plug Power has become synonymous with online gaming. It is not "Investing".
- How the game of PLUG is played.
- Conference calls and cheerleader news releases provide infomercials for PLUG.
- Shareholder dilution and exponential losses keep the game afloat.
A Requiem For Plug-Mania
- On Monday, March 10, 2014, PLUG Power's volume/price soared - trading 205 ML shares or 2.5x its float; up 25%.
- On Tuesday, March 11, 2014, PLUG Power dropped to $6.03; trading almost 3x its float - 243ML shares; down -41%.
- On Wednesday, March 12, 2014, PLUG Power traded as high as $7.30 (up 22%) on 1.5x its float - 141ML shares.
- Before its epic fall on March 11th, trading in PLUG had approached outright gambling as investors threw all caution to the wind. Ascent was clearly parabolic.
- Shares responded violently to analyst's characterization of PLUG as a "casino stock."
The Trading Characteristics Of Market Manias
- A simple exposition of manias and what they have in common.
- Analysis of the Nasdaq, tech, silver, and fuel cell manias.
- A comment on Plug Power's new Wal-Mart Contract.
- A true story from the 1998 tech mania.
Pulling The PLUG On The Fuel-Cell Mania
- Comparison of solar stocks from 2006-2013 with the current fuel-cell rally.
- The pro-rated (overall) cost of a technology is what finally drives its adoption.
- Why was Plug Power not acquired when its price was compelling?
- Current peer-reviewed research: "Economic comparison of fuel cell powered forklifts to battery powered forklifts".
- Discussion of charts & price surges in Plug Power and Ballard Power Systems.
- Brookfield Looks Ready For Another Leg Higher
- Homebuilder ETF Surges To New 52-Week High
- Trading The Ranges In M.D.C. Holdings And Tri-Pointe Homes
- New Home Construction Ramping In The Chicago Metro Area - 2014
- Is It Safe To Return To REITs?
- Tapering Could Be The Investment Event Of The Year
- Is A Welcome Surprise Coming For Mortgage Rates?
- Homebuilders Continue To Confound The Bears
- A Picture History Of The Housing Recovery
- Builders Prepare For A Blowout Spring Selling Season
- Are Bonds On A Collision Course With Housing, History And The Fed?
- Home Builders Immunize 2014-15 Growth Prospects Through Select Metro Markets
- What A Banana Republic And Monetary Policy Can Teach Us About The Future Of U.S. Housing
- Toll Brothers Overpays For Shapell, But Reports Blowout Preliminary Earnings
- A Simple And Timeless Way To Trade The S&P 500 Successfully