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Thursday, February 5, 2015

Daily update 2/5 Historical oil price declines

That was a very odd day.  For some unknown reason the futures started ramping up around 2 AM.  Neither Asia nor Europe was particularly strong which is normally what causes such a move.  I could find no reason for the move whatsoever.  Yesterday I said the bulls needed to show up in force today to save the market.  My guess is that a few hedge fund buddies that are heavy long got together to run the futures up overnight.  It takes a lot less volume to move them up that way.  That caused everybody that went home short because of the late day collapse to have to cover this morning.  Here is the SPX chart.

SPX got within 1 point of the two prior peaks at 2064.  That is the horizontal red line which should be all that stands between us and the high.  Volume dropped considerably.  That is noticeable in both the SPY daily and 60 minute charts.  The breadth was strong again at 72% positive.  There were 146 new highs and 15 new lows.  I don't really understand why the new highs dropped so much the last few days.  I know biotechs have not been as strong as they were but the numbers have dropped around 100 which seems like more then just biotechs.  That just seems odd to me if we were getting ready to break out and go higher.  Lets have a look at the futures.

We have a confirmed break of the 100 and 200 SMAs tonight.  The futures are now up to the area of resistance at the prior two peaks.  ADX remains very low.  We don't have any trend strength yet.  Will we get through resistance or turn back again?

The mid cap ETF MDY made a new high today.  Is that more money moving down in market cap to avoid the rising dollar problem?  SPX is back to resistance.  The daily chart is essentially a trading range since Nov.  Lately we have changed direction with the wind.  While the breadth has been good for nearly three weeks we haven't made any real progress.  The volume is noticeably light on this rally attempt and the drop in new highs is a bit puzzling.  What is driving the price action changes every day.  In the case of today I have no idea what was driving the price.  The bulls saved the day by defending SPX 2000 once again.  The question now is will they chase price higher.  You have to be smarter then me to be able to predict that.  What bothers me the most I guess is that while price has gone sideways this year we have gotten more overbought.  Normally a consolidation in time sees sentiment get less bullish and the market normally works into an oversold condition.  We don't have that whatsoever.  I can't tell you if we go to new highs or turn back down from a lower high.  I can tell you that if we turn down it is likely to be violent. 

Today turned the short term trends up again in all indexes.  Lately changing the trend to up or down has been the kiss of death for that move.  If my action tonight ends up killing this bounce I apologize in advance.

This is an interesting look at prior major oil price declines and bottoms.  What To Look For When The Price Of Oil Has Bottomed  Here is a good historical look at the price going back to 1983.  The yellow markers indicate the magnitude of the current move down and time.  There were 3 similar declines in the last 30 years.

It was the decline in 1986 that caused the big trouble for Texas.  That one ended up with the President Bush S&L bail out.  Notice how that came after a long period of stable prices.  That stability is what caused the over investment that eventually caused the problems when price collapsed.  We have a very similar pattern over the last few years.  We also have data that says there has been a huge amount (over $500 billion) of risky investments in energy.  There are charts of the bottoms in that article that are worth a look at.  I heard somebody on TV saying that energy companies were busy reducing their costs to pump.  That will allow them to keep pumping at lower prices.  Which will invariably keep supply high and price down.  That is good for all of us that use energy.  However, that cannot be good for all those producing.it.  Besides cap ex reductions there are now dividend reductions happening.  While many people think this bounce is the start of the bottoming process I just don't believe that will turn out to be the case.  It is clear that production will keep right on going.  This is what drove the price of natural gas down so low.  Even though price dropped below the cost to pump many people just kept pumping.  The price did not stop dropping until people stopped pumping.  I don't see any way it is different unless we get a big pickup in demand.  With the global economy slowing so much that central banks are making surprise loosening moves that seems unlikely.  I think it is way too early to know how this will all shake out.


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