Energy


This past week continued the volatility that we have been warning about and following. While Friday ended the week on a postive note, we are not sure how long that can last. As you can see on our webcast, the market remains under pressure despite some up days which are mixed in.

Energy remains a big story. We are seeing the early stages of some reversals in the stocks that have made the Fundamental Leaders and Emerging Leaders lists, however, there clearly could be one more shock down. If there is a blow-off bottom in coming weeks or months, it will be back up the truck time. As it stands, the weekly numbers have showed slight improvement and we may simply retest the December price bottoms. If you missed buying some of the companies on my lists in December, you will want to initiate positions on the retests. 

Oil itself might have a bit more to go on the downside, however, it is clear the big move down already occurred and what goes on in coming weeks is merely late to the party folks trying to get a last drink in or calling a cab. Oil is almost a buy for speculators. I have sold some puts on the U.S. Oil ETF (USO) because I believe I’ll either get to keep the fat premium or buy oil just about at its ulimate bottom in the second quarter. This is a hard trade. Take a look at this article why oil ETFs are difficult to use: The Cruel Oil-Market Math Conspiring Against ETF Bulls http://t.co/Bp8pGo4xjQ

Remember something when listening to folks talk about oil. If they didn’t suggest it was going to fall in the first place, why listen to them now when they talk about a bottom. I told folks in June and July of 2014 that oil was going to fall to the bottom of its range and might break through. I have a pretty good grasp of what is going on. If you want to read somebody who gets it, read anything you can from Andrew Hall.

The Swiss National Bank decided to end its peg to the Euro. This put enormous pressure on the Euro. The swing trade I began in October to bet against the Euro vs the Dollar when I bought puts on the CurrencyShares Euro Trust FXE is up about 160% as of this writing. I have taken some profits as the Euro entered the top of the price range I expected it to get to. I will take more profits when it gets to the bottom of the expected price range. I will hold some of the position until it stops the move as there is a possibility the Euro goes all the way to and slightly through parity with the dollar this year.

Going into this short week we are looking for confirmation one way or the other of what the market is doing. I suspect we see a mixed week as options positions will have to be cleaned up from the expiration on Friday.

It would not be surprising to see a few good weeks as money continues to flow into the U.S. markets from abroad. However, the trend of big investors selling to small investors seems to remain in place when looking at inflows to ETFs and equity mutual funds. When international dries up, I would expect a substantial correction. That could be quite far away. 

Jeffery Saut of Raymond James is saying his proprietary indicators are suggesting a small correction in a month or two. That sounds about right, however, who knows. Rick’s algorithms continue to show a clear topping process underway. The question as always is how long does that take and once we top, does that necessariy mean the next big move is down. It is not impossible for a market to plateau, experience only a small correction and then resume upwards with a pause that refreshes. 

Saut believes we are in a new secular bull market. I think he’s trying to help Raymond James reps sell product. I believe we are a secular bear market but having a cyclical bull rally. Visit Crestmont Research’s site for some good explanation and charts of that view.

Secular Bear Market So Far

 

Secular Bear Market So Far