User 273178

Watch for Yourself: 60 Minutes Oil Story Was Spot On

Explaining it.


On Jan 14 07:29 AM romerjt wrote:

> romerjt - Are you explaining this or defending it - the market that
> produces these wild swings?

Watch for Yourself: 60 Minutes Oil Story Was Spot On

Sorry, but there is a lot wrong with this article, and the 60 minutes article. In the interest of time, I'll mention 2 things that anyone who's ever spent 20 seconds following an energy market should know, but have been ignored.

1. THE DOLLAR! When the dollar was collapsing, it made dollar-denominated assets (oil, gas) go up. The dollar stopped falling early in 2008, built a base, and started rising very sharply, and that coincided with oil's collapse. For the record, back in mid-July I called for the crash in oil, to 90 as an initial target, then lower potential. I also was bullish on the dollar shortly thereafter.
When the dollar started to rise, the opposite effect obviously occurred, so it helped oil to collapse.

2. The $25 dollar rise in oil on Sept. 22nd was horrendous journalism, and it is obvious they have no clue what caused it. I was watching the spot and 2 forward month contracts when that happened. Within 30 seconds, the reason for that rise was quite obvious. The current contract was due to expire that afternoon. Shorts were forced to cover. There was little volume because the real trading was occurring in the next forward month. So a short squeeze occurred. The next day, the oil contract switched months, and the price was back where it was.

How was it so obvious there was something contract-specific going on?
Besides the low volume and wide spreads in the trading, when that contract was up $25, the next 2 forward contracts were only up $4. Those 2 were trading as they should, and did NOT accelerate with the other contract. And gasoline didn't rise to match the oil rise either. They should have known this, or not even brought it up, because that one day spike had ZERO impact at the pump, or anywhere else.
I'm sorry, if one can't see this, as it is so basic, everything else said should be suspect.

Another fact. Bubbles occur, we've seen a number of them. That was a bubble that burst. For every buyer there is a seller. If the volume issues brought up were a reason for the rise, it wouldn't have fallen $112 from its high now would it?

Oh, and the author suggests the $25 move asserts that doesn't happen in the middle of moves, but more at a top or bottom. Wrong. It most certainly did happen in the middle of a move-a down move. Oil had fallen from 147 to 90, and that incident was during the bounce from 90 before the next wave down. News isn't required to move a security. Technical factors matter. The problem is, that the media always has to find a reason for the tiniest move, so people think the only reason something moves is because of news. Rather, news is written to fit the move. That is Elliott Wave territory, which could explain this a lot better than CBS certainly could.

50% Returns, No Risk?

A huge point being missed here is the benefit of dollar cost averaging, one of the reasons why 401 (k) investing is a good idea. During a bear market, the same amount of money per month buys more shares, so when the market rebounds, you've bought more shares low, fewer high. If one had invested a lump sum at the top in 1929, it would have taken many years (I think 17?) to break even, even with dividends. But if one had invested the same time every month, they would have broken even in 7 years. Someone at age 55 still has a life expectancy over 80, which is still a very long time. While I understand the point, this is not the best advice IMHO, that one could get, and I would have gone with the DCA angle.

Here are some DCA numbers:

If one invests 100/mo at 10 per share, they buy 10 shares. If it drops to 5 per share, they buy 20 shares. Let's suppose it drops $1 per month to reach 5, then rises $1 per month back to $10 per share.
month 1. 10 shares
month 2. 11.111 shares
month 3. 12.125 shares
month 4. 14.286 shares
month 5 16.667 shares
month 6. 20 shares.

After 6 months, one would have 84.189 shares, with $600 invested. Average cost is $7.13. So, if it rebounded at the same rate it fell (and even stopped contributing), anything past month 8 (approx) would see that old money AVERAGE a profit. If one just stopped investing at month 6, it is easy to see that by month 12, one would have $841.89, or a gain of 241.89 (a gain of 40%) over their original investment. Now that is in a market that went nowhere according to my example, from month 1 to month 12.

Reading the S&P 500's Crashing Waves

The wave count here is the most bearish possible. Other wave counts are possible. For example, it is possible this is an ABC from the top in Oct. (WXY from the prior top, we would be in wave Y, or another variation), and that we are mostly through it. In the ABC scenario, we would be in 3 of 3 of C of Y. Wave 4 would be a strong bounce, and in this case, Wave 5 might be considered a failure. A failure is when wave 5 does not go below the wave 3 lows. This occurs when the prior wave goes too far, too fast, and that certainly seems to be the case here.
In 1987 for example, that is considered by most to be a 3-3-5 correction. In other words, the new high was part of a B wave correction (3 subwaves), and then the C wave was 5 waves down. However, the wave 3 low that was the crash, was never broken by wave 5. After that crash low, a triangle pattern is traced out, which is common for wave 4's. The wave 5 after that held well above the wave 3 lows, and you can see that wave 5 subdivided further into 5 waves.

So, from an Elliott Wave perspective, the bear market probably isn't over even if we put in a good bottom here. But, from a price standpoint, that doesn't necessarily have to agree.

5 Reasons Why the $700B Bailout Could Translate to $250 Oil

There is a glaring error in this article. The day the Oct. contract soared to 130, but closed at 120, it was the only contract to do so. There was massive short covering, the likely result of hedge funds having to buy to cover, as that was the last trading day of that contract. In fact, it was rumored AND reported that a few hedge funds took big losses. Gasoline never followed the Oct. contract, and the Nov. and Dec. contracts both closed around 109, never rallying when the Oct. contract did.

As one who follows commodities, it was very easy to see what was going on. Volume was light in Oct contracts, but much heavier in Nov. and Dec. The very next day, people probably thought oil fell $14 when it closed at 106 or so, but that was because the quoted front month changed.

I have seen far too many use that anomalous trading day in one contract to draw conclusions about so many things. It had nothing to do with the economy, the dollar was down, but not nearly enough to account for that, nor did it have anything to do with any bailout, etc.

Unfortunately, common practice is to assign a cause for every single market issue, but the problem is, most of the time the causes claimed, are not the real reasons. There is an unwinding of many things going on right now causing more volatility, but there is no denying that commodities entered a bear market in July, and this is bear market behavior.