Oil Front Month Contract Goes Haywire

Monday, September 22nd, 2008

Today’s trading in the oil saw the front month October contract, which rolled over today, close at $123, opening up a 12% spread between itself and the 2nd month November contract. During the course of the day it traded up as high as $130. When traders smells a short squeeze, they tend to pile in.

Word is that a large investor got caught on the wrong side of the trade and moved to cover a large short position.

The CFTC is said to be investigating the cause of today’s anomalous trading.

AP reported, “Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.

“When people sense that someone is short, it’s like blood on the streets. It just accelerates the rally,” Mr. Flynn said.

The November contract closed at $109.37 also up sharply by about $6.62. If the price of oil manages to maintain above the $108-109 level, it may break the current downward trendline established since oil began its correction from the July $147/bbl peak .

It remains to be seen if energy prices will be impacted by a recession-led fall in demand. At last glance this evening, the November contract was trading just below 109.

Charts: Bespoke Investment Group

Tags: Chart, energy, Miscellaneous, oil, Rally, Recession, risk, Short squeeze, Trading
Posted in Markets, Oil and Gas | No Comments »

Highs and Lows of the Week

Friday, September 19th, 2008

The following chart shows how the ten sectors of the S&P 500 performed this week in the context of the government’s credit market intervention. Only energy (on oil’s price recovery) and financials (on bailout) made progress while eveything else was down.

It was a crazy week in stocks too. Merrill Lynch (MER) was the best performer on news that it was being acquired by Bank of America (BAC) and AIG was the worst performing stock on news that it would receive a two-year $85-billon loan from taxpayers.

Charts: Bespoke Investment Group

Tags: Bailout, Chart, Credit, Credit Market, energy, Financials, Miscellaneous, oil, S&P 500
Posted in Credit Markets, Markets, Oil and Gas | No Comments »

Global Market Performance From 52-Week Highs

Monday, September 8th, 2008

This past year’s declines in local and international markets have had their beginnings at different points in time. This chart below, produced by the fine folks at Bespoke, pays no attention to their timing. Its not a pretty picture, but the perspective sure is useful. Often, we are subjected to guided reporting, where issuers or promoters use numbers and moving averages that “soften” the real numbers.

Canada comes out on top!

Here below is what most investors really want to know; How did they perform from peak until now, irrespective of timing?

After declining 4.25% on Wednesday, 3.94% yesterday, and 3.75% today, Russia’s RTS index is now 41.19% below its 52-week high.  These declines put it second to last behind China when looking at recent equity market returns for 22 major countries.  As shown, China has fallen 64% from its 52-week high last October!  The declines recently in global equity markets have really been astounding.  Japan, Spain, Brazil, India, Italy, South Korea, Singapore, Sweden, Taiwan, and Hong Kong all join China and Russia with equity markets off at least 30% from their 52-week highs.  North American countries rank 1,2,3 as far as countries holding up the best.  International exposure has never hurt so bad.

Courtesy: Bespoke Investment Group

Tags: Brazil, Canada, Chart, China, Hong Kong, India, International, Italy, Japan, Markets, Miscellaneous, risk, Russia, Singapore, South Korea, Spain, Sweden, Taiwan
Posted in Canadian Stocks, Markets | No Comments »

Global Markets Snapshot

Monday, August 11th, 2008

Here are Bespoke’s unbeatable trading range charts for 22 key equity markets around the world.  The light blue shading represents one standard deviation above and below each index’s 50-day moving average.  The green shading represents between one and two standard deviations below the 50-day, and vice versa for the red shading.  Most countries continue to trade into oversold territory, but some have been getting hit extra hard while others have rallied off of their lows.  Some countries that failed to bounce off the July lows include Brazil, China, Hong Kong, Malaysia, Mexico, Russia and South Africa.  On the other hand, India, most of Europe, and the US have come off their lows and are testing their 50-day moving averages.

Tags: Brazil, Chart, China, Euro, Hong Kong, India, Malaysia, Markets, Mexico, Miscellaneous, risk, Russia, South Africa, Trading
Posted in Markets | No Comments »

Most Overbought Most Oversold ETFs

Thursday, August 7th, 2008

Courtesy: Bespoke Investment Group - August 4, 2008 - Below we highlight the 25 most overbought and oversold US ETFs based on their 50-day moving averages from our list of nearly 800 names.  Currently, the biotech ETF (BBH) is the furthest above its 50-day at nearly 18%, followed by Turkey (TUR), the Ultrashort Oil&Gas ETF (DUG) and XBI.  On the oversold side, natural gas (UNG) is trading the furthest below its 50-day at -24%, followed by more energy related ETFs.

Tags: DUG, energy, ETF, Miscellaneous, Natural Gas, oil, Trading, ultrashort
Posted in Markets, Oil and Gas | No Comments »

Commodity Snapshot

Thursday, July 10th, 2008

July 10, 2008 - (Courtesy: Bespoke Investment Group) Even after oil’s $8 pullback in two days, the long-term uptrend line for the commodity hasn’t been tested. For oil to test the bottom of its uptrend, it needs to get down to the $132-$133 range. Until then, talk of a “bubble” bursting is pointless.

Along with oil, most other commodities have seen pretty big declines in the last two days. Based on their trading range charts shown below, the declines in copper, coffee and corn seem to be the most extreme. However, none of the ten commodities shown below are even trading in oversold territory after this week’s selloff.

Tags: Chart, coffee, Commodities, Commodity, energy, Gold, Miscellaneous, oil, Trading
Posted in Commodities, Gold, Markets, Oil and Gas | No Comments »

More volatility coming and more ETF options

Friday, January 25th, 2008

Jan. 25, 2008 - Watch out below. There is sure to be more volatility to the downside in the coming weeks, as the carry trade and proprietary traders continue to unwind profitable trades.

Finding themselves unable to collect on credit default swaps vis-a-vis AMBAC, MBIA, ACA, large institutions (banks) and hedge funds are finding themselves under pressure from a substantial cash call.

An example of this danger came to light when a little-known firm called ACA Financial Guaranty caused some of Wall Street’s biggest banks to write down billions of dollars in holdings, restating their value on corporate balance sheets. ACA revealed last month that it had promised to cover $60 billion worth of mortgage and corporate debt, but had enough cash to cover only a fraction of that. Merrill Lynch, Citigroup and financial institutions in Canada and France, which had all sold swaps to ACA, set aside billions in case the firm collapsed.

Most of the strength that the market is witnessing is due to short covering and this will manifest itself over and over during the next two to four weeks.

Institutions are still unwinding their profitable trades to raise cash. The market goes down. Then short covering occurs, and you get what appears to be a bounce or recovery in stock prices. The problem is that as long as the cash call remains larger than the outstanding short positions the market will continue to trend lower.

Don Coxe, in January’s Basic Points, puts it in these terms:

Sadly, the central bankers have been forced into injections of all-time record amounts of liquidity. Jim Cramer and some other prominent apologists for Wall Street glitterati screamed, “The Fed doesn’t get it,” and demanded bailouts for their buddies who faced demotion from Croesus status to morally cretinous status. The biggest benefi ciaries from these bailouts were not overstressed homeowners, but the biggest, baddest, borrowers who had made the biggest, baddest, bets through use of complex derivatives.

Despite strong openings today, both the Dow and TSX look unable to hang on to gains. You also have to look at trading volume for clues about the weakness of the recovery. Volumes are down 20% at the NYSE and 15% at NASDAQ.

Assuming you agree with the idea that there is more downside in the market, there are some relatively new and interesting ways that you can take positions on the short side to reduce downside that do not involve derivatives or short positions. In particular there are a new breed of ETFs that provide short exposure to various sectors and country bets. These are aptly referred to as ’short’ and ’double-short’ ETFs.

ProShares has created ETF’s that trade inversely with the markets. These allow investors and traders to hedge against market downturns or that want to bet against the market. These ETFs are very liquid and actively traded and are designed to go up when indexes go down. As a reminder, the SHORT funds use no leverage, but the UltraShort funds employ leverage. Here is partial list by Fund (Ticker):

• UltraShort QQQ (AMEX: QID)
• UltraShort Dow30 (AMEX: DXD)
• UltraShort S&P500 (AMEX: SDS)
• UltraShort MidCap400 (AMEX: MZZ)
• UltraShort SmallCap600 (AMEX: SDD)
• UltraShort Russell2000 (AMEX: TWM)
• UltraShort MSCI EAFE (AMEX: EFU)
• UltraShort FTSE/Xinhua China 25 (AMEX: FXP)… short selling FTSE Xinhua 25 index (FXI).
• UltraShort Basic Materials (AMEX: SMN)
• UltraShort Consumer Goods (AMEX: SZK)
• UltraShort Consumer Services (AMEX: SCC)
• UltraShort Financials (AMEX: SKF)
• UltraShort Health Care (AMEX: RXD)
• UltraShort Industrials (AMEX: SIJ)
• UltraShort Oil & Gas (AMEX: DUG)
• UltraShort Real Estate (AMEX: SRS)
• UltraShort Semiconductors (AMEX: SSG)
• UltraShort Technology (AMEX: REW)
• UltraShort Utilities (AMEX: SDP)
• Short MSCI Emerging Markets (AMEX:EUM)
• Short MSCI EAFE (AMEX: EFZ)
• Short QQQ (AMEX: PSQ)
• Short Dow30 (AMEX: DOG)
• Short S&P500 (AMEX: SH)
• Short MidCap400 (AMEX: MYY)
• Short SmallCap600 (AMEX: SBB)
• Short Russell2000 (AMEX: RWM)

On the TSX in Canada, Horizons BetaPro Funds have launched ‘double-short’ ETFs that trade inversely with the market (they also have corresponding ‘double-bull’ versions of these). Canadian investors and traders can use these to protect against downturns or simply bet against the market.

• Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF (TSX: HBD)
• Horizons BetaPro S&P/TSX Global Mining® Bear Plus ETF (TSX: HMD)
• Horizons BetaPro DJ-AIGSM Agricultural Grains Bear Plus (TSX: ETF HAD)
• Horizons BetaPro S&P/TSX 60® Bear Plus ETF (TSX: HXD)
• Horizons BetaPro S&P/TSX Capped Financials® Bear Plus ETF (TSX: HFD)
• Horizons BetaPro S&P/TSX Capped Energy® Bear Plus ETF (TSX: HED)
• Horizons BetaPro S&P/TSX Global Gold® Bear Plus ETF (TSX: HGD)
• Horizons BetaPro NYMEX® Natural Gas Bear Plus ETF (TSX: HND)
• Horizons BetaPro NYMEX® Crude Oil Bear Plus ETF (TSX: HOD)
• Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF (TSX: HBD)
• Horizons BetaPro S&P/TSX Global Mining® Bear Plus ETF (TSX: HMD)

Look at it this way; if you already have long positions that have appreciated, but you’ve got a longer term holding period in mind that is not determined by market conditions, this may a viable option to capture some of the potential downside.

Tags: Agricultural Grains, Apologists, Bailout, Banks, Basic Points, Bear Plus, Benefi, Biggest Banks, Bullion, Canada, Carry Trade, China, Citigroup, Collapse, Corporate Balance Sheets, Corporate Debt, Credit, Credit Default Swap, Credit Default Swaps, Crude Oil, Derivatives, DOG, Dollar, Don Coxe, DUG, DXD, EFZ, Emerging Market, Emerging Markets, energy, ETF, EUM, Fed, Fed Doesn, Financial Guaranty, Financial Institutions In Canada, Financials, France, FTSE, FXP, Glitterati, Gold, Gold Bullion, Grain, Hedge Fund, Hedge Funds, Horizons BetaPro, Investment, Jim Cramer, liquidity, Markets, Mbia, Merrill Lynch, Mining, Miscellaneous, Mortgage, MYY, MZZ, Natural Gas, Nymex, oil, Profitable Trades, Proprietary Traders, Proshares, PSQ, QID, Rally, Real Estate, REW, risk, RWM, RXD, SBB, SCC, SDD, SDP, SDS, Short Covering, Short Selling, SIJ, SKF, SMN, SRS, SSG, Stock Prices, Substantial Cash, SZK, Trading, TSX 60, TWM, ultrashort, Value, Wall Street
Posted in Canadian Stocks, Commodities, Credit Markets, ETFs, Emerging Markets, Gold, Markets, Oil and Gas, Outlook, US Stocks | No Comments »

Breakingviews: Sovereign Wealth Funds Risk Index

Friday, January 25th, 2008

Jan. 25, 2008 - Today, we received this piece about Breakingviews.com’s new SWF Risk Index:

Breakingviews sovereign wealth fund risk index

By Una Galani AND Simon Nixon

To see the full index with detailed rankings, click on the link below

Sovereign Wealth Fund Index: Sovereign wealth funds were hardly talked about twelve months ago. Now they are one of the hottest topics in global financial markets. Over the last year, these state-owned entities have spent over $75bn snapping up stakes in some of the world’s biggest banks, taken big positions in stock exchanges on both sides of the Atlantic and even attempted a takeover of one of Britain’s leading supermarkets.

Such funds have existed for decades, but the shift in global economic power and the current weakness in western markets has given SWFs – forecast to grow assets fivefold to $13.4tr by 2017 – new influence and raised new fears about their motives. Critics such as President Sarkozy of France and some US politicians worry that SWFs tend to be secretive, target political as well as financial returns, and operate at the whim of governments not always sympathetic to western economic and political interests…

Tags: Banks, Biggest Banks, Brazil, Breakingviews, BRICs, China, Economic Power, Emerging Markets, France, Fund Index, Fund Risk, Galani, Global Financial Markets, Markets, Miscellaneous, Motives, Nixon, Political Interests, risk, Risk Index, Russia, Sarkozy, Stock Exchanges, Supermarkets, Swf, SWFs, Takeover, Target, Twelve Months, Western Markets, Whim
Posted in Markets | No Comments »

More Carry-Trade commentary

Tuesday, January 22nd, 2008

Jan. 22, 2008 - Here are some more clippings about the ‘carry-trade’ at the heart of global market volatility:

Jan. 21 (Bloomberg) — The Australian and New Zealand dollars fell against the yen as concern over a slowing U.S. and global economy spurred a reduction in holdings of higher- yielding assets bought with funds from Japan.

The New Zealand currency traded near the lowest in almost two months versus the yen as a slump in Asian stocks deterred investors from so-called carry trades. Australia’s dollar also declined against the U.S. currency after a government report showed producer prices rose by less than economists estimated, prompting traders to pare bets the central bank will raise interest rates from an 11-year high next month.

Inserted from http://www.bloomberg.com/apps/news?pid=20601081&sid=ah9E711dlJh4&refer=australia

Australia’s 11-year high benchmark rate of 6.75 percent and New Zealand’s record 8.25 percent rate drew investors in the past as part of the carry trade strategy. Those rates compare to 0.5 percent in Japan. The risk in the carry trade is that swings in exchange rates erode profits from interest-rate differentials.

The carry trade strategy involves borrowing in countries where interest rates are low, and investing where returns are higher.

Commodities, which make up about 60 percent of Australian exports and 70 percent of New Zealand’s, tumbled since the beginning of last week. Falling global economic growth may reduce demand for commodities these countries export, such as metals.

Inserted from http://www.bloomberg.com/apps/news?pid=20601081&sid=a3dRGK0srjXo&refer=australia

Another nervous week as the ‘carry trade’ unwinds. Many equity indices and Yen crosses are poised at key support levels: ‘necklines’ of ‘head-and-shoulders’ patterns or the lower edge of the big trading band of the last year or so. Leading the pack South are GBP/JPY and Sweden’s OMX Index, closely followed by the Dow Jones Industrial Average and FTSE 100. These have already seen weekly closes below these key levels and should, one by one, topple all the other ones over too. An unseemly scramble is likely if not next week then in February; at-the-money implied volatility could soar.

Energy products and most metals eased, many thinking if not talking recession, and Baltic Dry and Capesize Freight Indices have halved since their peak at the end of last year. Even the more pessimistic are saying contraction will be shallow and short and that by Q3 2008 things will be mended and economic growth will pick up. We feel this is way too simplistic and that the unravelling of all the mess in the financial system will probably take the whole of this year (and then some more).

A ‘flight to quality’ has resulted in Treasury yields moving lower, US ones leading the way to multi-month lows with yield curve steepening seeing two-year TNotes at a mere 2.39% (lowest yield since September 2004). Credit spreads against junk bunds are at July’s record highs. The US dollar has been contained in relatively small ranges around last week’s levels although the Swiss franc did dip very briefly to a new record low (1.0838) as did the Czech koruna (17.318). Sterling has regained some of its composure, EUR/GBP down from a record £0.7614, and the Yen had the best all round performance, dipping to 105.92 to the greenback.

Stock indices are all lower, the New Zealand bourse for a staggering twelve consecutive days while Jakarta and Mumbai are down nearly 8% this week alone. US and European indices lost roughly 5%, many now lower than they were at any point in 2007.

Inserted from <http://www.fxstreet.com/technical/market-view/weekly-market-commentary/2008-01-21.html

The Japanese currency climbed against higher yielding currencies as investors looked for safe havens amid the turbulence in equity markets. The yen carry trade, where the low-yielding currency is sold to purchase riskier, high-yielding assets, proved a popular investment strategy in the first half of 2007 as stable equity market conditions ensured a healthy appetite for risk.

But the deepening financial market gloom since August has seen carry trades scaled back since the beginning of this year.

The real test of carry trade activity is the relationship between the yen and the New Zealand dollar. The yen fell 15 per cent against the Kiwi between January and August last year as the latter’s interest rate hit 8.25 per cent against Japan’s 0.5 per cent. But the Kiwi has since lost nearly all these gains, and was down 4 per cent this week to Y82.05 as the yen continued its rally.

Inserted from <http://www.ft.com/cms/s/0/0600819a-c634-11dc-8378-0000779fd2ac.html

Tags: Asia, Asian Stocks, Australia, Australia Australia, Australian Exports, Benchmark Rate, Bloomberg, Carry Trade, Clippings, Commodities, Credit, Currency, Dollar, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Economists, Economy, Emerging Markets, energy, Euro, FT.com, FTSE, Ftse 100, Gbp Jpy, Global Economic Growth, Global Economy, Government Report, Head And Shoulders, Interest Rate Differentials, interest rates, Investment, Investment Strategy, Japan, Market Volatility, Markets, Metals, Miscellaneous, New Zealand Currency, New Zealand Dollars, OMX, Other Ones, Producer Prices, Rally, Recession, REW, risk, spreads, Sweden, Technical Analysis, Trade Strategy, Trading, US Dollar, Yield Curve
Posted in Commodities, Credit Markets, Markets, US Stocks | No Comments »

Five Simple Steps to Becoming a Billionaire: The Greenspan Method

Sunday, January 20th, 2008

Five Simple Steps to Becoming a Billionaire: The Greenspan Method

Courtesy by Johnny Debacle, LongorShortCapital.com

This is very funny:

1. Become Fed Chairman
2. Lower interest rates until you create an asset bubble. Hold them low until stagflation is in the air and a real estate bubble is floating
3. Stop being Fed Chairman and release a book on how you didn’t do anything wrong and have no regrets. If possible, time it perfectly with the worst real estate market in generations
4. Join the hedge fund which has profited more in % and dollar terms than anyone else has from your mess (which you didn’t create)
5. Build a platinum statue of your muse, Ayn Rand, and sleep with it every night

It also helps if you are mostly unethical.

Tags: Ayn Rand, Billionaire, Debacle, Dollar, Dollar Terms, Fed, Five Simple Steps, Funny, Generations, Greenspan, Hedge Fund, humour, Information, interest rates, Miscellaneous, Muse, No Regrets, Platinum, Real Estate, Real Estate Bubble, Real Estate Market, Sleep, stagflation
Posted in Markets, Oil and Gas | No Comments »

Watch out for “Black Swans”

Sunday, January 20th, 2008

Jan. 20, 2008 - Black Swan’ author Nassim Taleb warns traders to look out for the improbable:

Market meltdowns that scorch investors, 100-year floods that occur every 10 years and terrorist attacks such as 9/11. Nassim Taleb, an author, lecturer and big thinker, calls such unforeseen events “black swans,” borrowing from a tale about 17th Century European seafarers who landed on Australia and, much to their surprise, learned that not all swans were white.

Such shocks occur, Taleb says, because even experts fail to consider the likelihood of extreme scenarios. That’s why his theory, outlined in his book, “The Black Swan: The Impact of the Highly Improbable,” is so intriguing to Chicago’s trading community, which seeks to lessen risk by exchanging futures and options. His ideas have earned him cachet with investment bankers as well as rock ‘n’ rollers. (Copyright 2008 - Chicago Tribune)

Tags: Australia, Black Swan, Black Swans, Cachet, Chicago Tribune, Euro, Floods, Futures And Options, Investment, Investment Bankers, Investment Strategy, Investment Wisdom, Lecturer, Likelihood, Miscellaneous, Nassim Taleb, Rollers, S Trading, Scenarios, Scorch, Seafarers, Shocks, Swans, Terrorist Attacks, Thinker, Trading, Unforeseen Events
Posted in Markets | No Comments »

Recent ETF Performance

Wednesday, January 16th, 2008

Tags: ETF, Investment, Miscellaneous
Posted in ETFs | No Comments »