A Word From Bob

As Seen & Heard

Contact Us

rss

Invest Yourself

The FREE Investment Newsletter That Really Works!

2.4.2015 Financial Intelligence Report Bookmark

Oil and the Big Save

Please don’t take this the wrong way folks, but it has to be said. On Sunday I laid out the numbers that we had to hold, or we very well could have been facing a serious market decline. I titled the letter “Crash alert – High”  I  was NOT predicting a crash in that letter. I was saying that we had very important technical levels that had to hold or we could then see a much deeper correction.  A lot of folks evidently didn’t pay attention to that part. All they saw was “crash” not the levels that needed to break to create one.

On Monday the market fell right down to those levels. Then it chopped around for hours as the “fight was on” between shorts and longs. We had fallen 120, then bounced for 100 then went red again by 40.  The day was very “up in the air” as to where it was going to go. But very late in the session, the FT put out a headline that the Greeks had changed their tune and weren’t lobbying for total debt relief, and willing to work out a repayment schedule. That was the “hot button” the market needed to blast higher off those numbers.
Oil and the Big Save

Please don’t take this the wrong way folks, but it has to be said. On Sunday I laid out the numbers that we had to hold, or we very well could have been facing a serious market decline. I titled the letter “Crash alert – High”  I  was NOT predicting a crash in that letter. I was saying that we had very important technical levels that had to hold or we could then see a much deeper correction.  A lot of folks evidently didn’t pay attention to that part. All they saw was “crash” not the levels that needed to break to create one.

On Monday the market fell right down to those levels. Then it chopped around for hours as the “fight was on” between shorts and longs. We had fallen 120, then bounced for 100 then went red again by 40.  The day was very “up in the air” as to where it was going to go. But very late in the session, the FT put out a headline that the Greeks had changed their tune and weren’t lobbying for total debt relief, and willing to work out a repayment schedule. That was the “hot button” the market needed to blast higher off those numbers.

How important are technical levels? Consider this… We said that the December S&P  lows of 1972 HAD to hold or it could spark a new round of selling, taking us down big. Well Monday in the early selling we fell to 1980. On the DOW they needed to keep the market over 17067. The DOW fell to 17037 before turning higher.  From those two levels, which were a “test” of that support, the market soared for almost 600 points in the next two days.

So they manufactured a “save” on some rather dubious news, but they had done it. Then to make sure they really put some safety space under them, on Tuesday they used “oil” as another reason for the market to scream higher. As oil was rising, we started hearing the cheering from the talking heads. But it was funny in a way, considering that last week when oil was still plunging they said that low oil was great for the consumer and ultimately great for the economy. But as oil was screaming higher for 4 dollars a barrel on the day, they said that high oil is great for the economy, helps employment and is good for the consumer. So, which one is it??  According to CNBC falling oil is good for us and rising oil is good for us.

Now speaking of oil, the twists and turns concerning what’s happening there reads like a spy novel.  While price discovery via supply and demand is what is SUPPOSED to be what happens, when it comes to modern day markets, that’s just a detail. Just like the metals market, things can be suppressed, manipulated, and artificially supported. So what’s going on in the oil market anyway?

We have shown you charts that display the falling global demand for oil. With advances in car MPG, and with the advent of Natural gas fired power plants and wind and solar factories, demand for oil on a global basis just isn’t what it used to be. Then of course add in the fact that via fracking and drilling, we’ve got more of the stuff coming on line than we can use. In fact just today (Wednesday) the EIA announced a 6 million barrel glut of oil, versus estimates of a 3 million barrel excess. We’re swimming in the stuff.

Now what is supposed to happen is that when supply exceeds demand, the Saudi’s and other OPEC nations cut back their production. But this hasn’t happened, begging the question “why?”  The first answer you’ll hear is that the Saudi’s want to shut down the US production of oil that has gotten so big lately and yes there’s a bit of truth in that. They don’t like competition, and feel cheated in a way. Well they should feel cheated. Think about this…

When Nixon closed the gold window, they had to come up with some reason for people to still want US dollars. They made a deal with the Saudi kings that in return for protecting them in a very hostile region, ALL oil would be paid for globally only in dollars. That instantly caused demand around the world for dollars because Saudi wouldn’t sell for any other currency. BUT and here’s the kicker… the US was NOT producing and selling much oil in the open market at the time. The Government kept a lid on domestic production via the establishment of the EPA, an outfit much more designed to stop exploration and drilling and refining, than giving you clean air.  

So yes you can read that again and again. The EPA was established “they say” to clean up the environment, and stop pollution. But the back door reason for their existence was to keep a lid on expanding oil exploration and drilling. To “sequester” our resources and keep them off the market. Not to mention keeping a lid on refining. Not many  understand the connection, but just consider this… the EPA was established in December of 1970. Nixon took us off the Gold standard in 1971. This was not by accident, nor a mere coincidence.  Think about this closely folks.  The EPA was proposed by President Richard Nixon Himself, and began operation on December 2, 1970, after Nixon signed an executive order to get it done.  Not 8 months later we were off the gold standard, and then onto the Saudi arrangement and the “petro-dollar”. It’s all connected.

That was our wink and nod to the Saudi’s in exchange for then pricing oil ONLY in dollars. The Saudi’s had to know we wouldn’t become major producers and compete with them. If we did, why would they honor the “dollar only” exchange? They wouldn’t. So yes, seeing all the fracking production caused them a bit of ire, and they felt a bit backstabbed by it. So they aren’t loosing any sleep over shutting down hundreds of US drilling operations.

But the story is much deeper than that. The Saudi’s HATE with a passion their neighbors the Syrians. They would love nothing more than to behead Mr. Assad of Syria. Now why the hatred of Mr. Assad;, an ally of Russia? Ahh, the plot thickens. See Syria and Russia are business buddies. Russia produces oil, lots of it. They do a lot of military trade with Syria. They also produce and supply Europe with the bulk of their natural gas.  So Saudi Arabia doesn’t like Russia too much because of the Natural resource competition. Well Qatar; whom is basically part and parcel a division of Saudi Arabia produces natural gas too. And they want to ship that gas to Europe in the worst way, but Syria stands smack dab in the way.

So, by letting the price of oil crater, the Saudi’s get to smack our domestic oil industry in the face by pricing them out of business. But they also think that if they can price Russia out of the oil business, knowing that they’re only doing it to try and bust the Russia/Syria alliance, they might kill two birds with one stone.  

As you can see, there’s a whole lot more than meets the eye when it comes to oil prices. They might bounce from the lows, but I don’t think we’re going to see any really massive gains. Not until Russia is so crippled by energy prices that they back away from Syria and let “regime change” take place. If they do that, then you’ll see an almost magical rise in oil and it will be over 100 in weeks. But until then, the Saudi’s can play hardball.

In any event, I’m doing this letter as a follow up to the “Crash Alert” letter. The market is dangerous folks. I am still believing that IF ( notice the word IF there) we fail those December lows on a closing basis ( Meaning the market puts in a close under those levels) then I think we’re on a rocket ride lower.  Until then however, the bulls are relatively safe.

The Market…

Well, the madness continues. After Monday and Tuesday’s big blast higher, which started late Monday on a headline that suggested the new Greek Government was willing to work with the Euro banks to pay their debts, today turned into a wild ride. Why? Greece again.

We had a two day rally, and as we were coming into the last hour of today, we were warming up once again. While the market hugged the flat line… digesting the gains for the bulk of the day, they decided to continue the rally in the last hour. The 3 pm push started and by 3:35 we were up 110 more DOW points. They were giddy with excitement.

But at 3:40 the wheels came off. I watched with wide eyes as we started falling and falling. From up 110, we were down 30 by 3:45. What was that all about?  Evidently the ECB is trying to play liars poker with Greece. They said they were not going to accept Greek bonds as collateral for loans any more. Wow, what’s that all about.  Well it’s like this….

Nations take their sovereign bonds and use them with central banks as collateral for loans. Well with the Greeks saying they’re not going to pay their debts the way it’s structured, the ECB is saying, okay then your bonds aren’t credit worthy. We “ain’t” taking them.

That freaked the market out. Now granted this is tit-for-tat back and forth maneuvering between the Greeks and the ECB, but it does cause more uncertainty. And the uncertainty is adding to the insane volatility. Once again we’ve seen a day with triple digit moves both up and down. Most market veterans will tell you they’ve never seen such volatility. I agree.

Tomorrow the ECB could come out and say they’ll  accept gum wrappers from Greece and we soar for 200. Or the Greeks could say “oh yeah, you won’t take our bonds? Then forget you, we’re out of the Euro and going independent”.  That could send us hurtling toward the Dec lows again. Like usual lately, it’s a very volatile time where anything could happen.

So where are we in the bigger picture? We’re in NO mans land. We’re trapped between the recent highs and the recent lows. In between we can bounce, wiggle, shimmy and shake with no real direction. And just what are those numbers? Well on the upside, we need to see the S&P bust over that 2064 high it set on the 22nd and 23rd. On the downside, the December lows of 1972 is a level they just cannot fail.

Are we long anything? Yes we’re long WEN and HD. WEN has been nice for us, HD is a recent buy and nicely profitable. But days like this test your courage as the DOW whips around for hundreds of points. If we bust through those upper highs, we’ll add more. If we lose those Dec lows, we’ll go short. In between we have to be patient and take smaller positions and take profits quicker. It’s the only way to play right now folks.

Don’t forget this Friday we have the non  farm payroll report. That’s going to add even more fun to the mix. Will they like a weak number because they feel it keeps the Fed on hold? Will they cheer a good number instead? We’ll see.

Hang onto your hats the wild ride isn’t finished yet. I’ll see you all Sunday.











Showing 0 Comment

Social Media

Bob Recommends