Closing some "Other Picks"

UNP - recommended buy on 11-26-08 for $50.74, recommended sell today @ $61.51 for a $10.77 profit or 21.2% (still own it in one my accounts, though)
EP - recommended buy on 1-3-09 for $8.31, recommended sell today @ $9.97 for a $1.66 profit or 19.9% (no ownership now)
DXO - recommended buy on 1-3-09 for $3.13, recommended sell today @ $4.88 for a $1.75 profit or 55.9% (no ownership now)
DE - recommended buy on 1-3-09 at $41.61, recommended sell today @ $45.63 for a $4.02 gain or 9.6% profit (no ownership now)

NYMEX Crude Reversing Contango

On the news of dwindling stockpiles of crude (hardly) but a real dwindling of gasoline futures (really), the NYMEX crude futures curve has flattened out dramatically. NYMEX July Crude for delivery is up $1.25, but NYMEX crude for delivery in July 2010 is only up 10 cents. The one year variance for crude is only marginally over $7, or about 10%.

I'm not saying we're going to backwardation overnight, but it will be interesting to see what happens. This could portend higher prices on the spot, but lower relative prices on the back months which means DXO (2X crude - 6 month) might not go anywhere but USO (1x crude - front month) may ramp.

Long (live) commodities

The dollar has broken. As I indicated before, that means commodities are off to the races.
Backup the trucks boys. Gold, Silver, Oil. All the good stuff. Why limit yourself to the physical commodities? The stocks are going bananas too.

Chart of the "week"

Speaking of "hanging mans", this chart of crude is full of them. Beware of this commodity! It looks ready to head back to 40, despite all my prior bullish calls on it earlier this year.

I will be getting out of the rest of my energy longs monday.

In 3000 DXO @ $2.56

Let's daytrade the DOE report. 2.45 S, 2.9 target. At the channel bottom.

Exiting DXO

DXO is trading favorite of mine (2X Crude Oil). Today we made a dogi (usually a sign of a trend change) and hit up against this 3.2 area which has been a resistance area. Volume continues to decrease, and RSI is decreasing -- which is very bearish.

Bottom line -- I took some OIH out, I'm out of DXO in most accounts, and intend to liquidate in my others. I will buy DXO when it gets to ~ 2.6, as I think we will break this uptrend trend line but find support at the 50 day.

Oil Markets

The Oil markets are always perplexing. I've long been an oil bull, and remain so even after the bubble burst. Price action again, like last year, defies supply/demand logic. As RVASpeculator would point out, this is indicative more of currency devaluation than fundamental production or demand issues.

Today, more builds in oil and gas stocks. And DXO was down to 2.83, and now it is positive and at 2.99. A simple trade that has worked for the past few weeks is to buy pre-EIA stocks release at 10:20 on Wed and sell on Fri of that week. I'm sure it won't continue forever, but something I am taking note of.

Unloaded DXO premarket

at 3.05. I'll buy it back at the 2.7 level again, once we get back there.

Still long term bullish on oil, but getting out of the "trade" that is DXO in my major account (still have a small position on my IRA). Still long OIH, XLE, SU, LINE and many other energy names.

Sold DXO, TAN... added SRS, FAZ

Sold DXO @ 3.18 (cost was 2.39) (This position had gotten HUGE)
Sold TAN @ 7.45 (cost was 5.90)
Sold PAAS @ 17.14 (cost was 12.10) (I got rid of the covered calls I sold for $0.85 for $0.15)

Metals look to be breaking down HARD so all I have left is SLW and AA and both are 100% covered right now so declines do not hurt me.

I also added SRS at $40.25 and FAZ at $16.30.

I am not positioned back to the dark side where I belong.... FINALLY!

Dow 8000 seems a good a time as any to be pointed that way.

Added more DXO at $2.63

I talked about the trendline on DXO in my last post.. We got another test of it today and I couldn't pass it up.

I raised my average from $2.31 up to $2.39 with the purchase but added 40% to my position.

If the trendline breaks I am out of the whole position.

Thoughts on DXO and the market...

Here is the chart for DXO.... This trendline has been intact since the middle of February when I bought my large chunk… there have been at least 5-6 tests of it along the way. Currently we are sitting right on the trendline. I thought about selling it in the $3’s but because all those calls I sold against other positions and the FAZ I bought were offsetting my DXO losses I decided to give it the benefit of the doubt and see what it did when/if it got to the trendline. I grown attached to DXO. :)

We are at the trendline now and it is “do or die” time for Oil and the DXO. I think it continues higher but if the market shows me otherwise I will book my profits. I did not add more as I am not 100% sure which way this one will go.

As far as the overall market goes as you can see from my trades I have been getting smaller and smaller as time has gone on. I went from almost being 100% margined when I was mega-long the gold and silver miners AND a bunch of market longs (20+ positions) to having no margin and a big pile of cash currently (5 positions and 3 are covered). I was very bullish on the stock market but sold my 401K at 832 as posted here. I was bullish on the financials but they rallied from $5.8 to $9.5 in just a few weeks.

So keeping in mind that I am not invested heavily in this forecast, what I see is:

A pullback in the short run (day to few days) followed by a bit more of rally into the intermediate term. Today was the end of the quarter which is always positive because of window dressing and tape painting. The first of the month has been a negative market day for countless straight months so April 1st should be red, but calling what happens tomorrow is a fools game. Anyway this rally in the intermediate term could take us only to 850 but it is possible that it runs all the way to 900 and beyond.

Either way I do not see a new bull market at this point and I think the rally runs out of steam as soon as we get overbought and the confidence indicators are showing LOTS of bulls and we finish off the last of the stubborn bears out there. How high we go depends on a combination of how stubborn the bears are and how dumb the bulls are! I’m not riding the upside but I am not shorting here either….
When you don’t have a big opinion on the overall market direction it is a traders market and you need to stay small, try to pick short-term winners and take profits quickly. This is exactly what I am doing along with not being a very active trader in this whipsaw consolidation days.

Half of DXO

Following the script I laid out earlier in the week, I sold 1000 DXO at 3.04. I have set a stop for the remaining lot just below where I bought it, at 2.69. The dollar seems to be rallying rather strongly here and it may be troublesome for DXO and other commodities.

How high can oil go?

As an owner in a large position of DXO, the double long crude ETN, I've been trying to figure out how high crude can go, and carry me to fat profits.

The basing pattern we've seen November - March has been impressive. I expect this to be the base of the next bull market in oil. Unlike the equity market, oil made its low in December, and has been climbing higher ever since.

40 is the absolute nominal floor for oil now. But again, how high can oil go, now how low.

We will bump up against nominal long term resistance at ~ $58. I think we get there tomorrow on a bullish inventory report, and I will take some profits on DXO (3.35-3.40 area), perhaps taking 50% off the table, just to buy it back on a pullback ($3).

Above $58, there's really good, solid resistance levels around each major round number -- $70, $80, $90, and $100. Interestingly, above $100, there's really nothing until the all time high from July. We won't be there again for a little while.

I guess my summer target for crude would be $70-75, which would put DXO around $7. It will be a choppy ride.

Near perfect retracement to the breakout point

Back to 806 on the $SPX. I thought we would retrace to the 805 support level, and 806 is close enough. I expect to rally tomorrow. Energy is the wildcard -- what will the oil inventories report bring? If we get a surprise bullish number, I think the whole market rallies again, strongly. If we get a bearish number, oil could pullback to $50 and the market could levitate in between today's close and Monday's highs.

What kind of 'flation?

Deflationists says that inflation can't occur with 8%+ unemployment. Deflationists say that the debt deflation occurring now is wiping trillions off the private sector's balance sheet, and the fed hasn't thrown enough money at it yet.

Inflationists say that deflation can't occur with monetary stimulus the likes of which we have never seen. Inflationists say that the doubling of the Fed's balance sheet in the last year and the quadrupling of it by the end of this year can't help but lead to inflation. They are both wrong, and they are both right.


The US government has succeeded in preventing a deflationary depression. They have not succeeded yet in preventing a hyperinflationary depression.

A deflationary depression occurs when the money supply is contracting and growth is contracting simultaneously. A hyperinflationary depression occurs when the money supply is expanding and growth is contracting simultaneously.

We witnessed a mini "deflationary depression" for the past six months. I believe on Wednesday we witnessed the beginning of a mini "hyperinflationary depression".

Take a look at the chart above. The dollar began its rapid ascent with the deflationary episode beginning with the crack in crude prices in July 2008, which is expected in a deflationary episode (fiat currencies become more valuable). Now, last week, the dollar began its descent, which is expected in inflationary episodes. The dollar is currently resting near its ascending trendline, depending on which trendline you use. Should the dollar break this trendline, it will confirm the beginning of the inflationary episode, which may eventually become a "hyperinflationary depression".

While $4 trillion may not be enough to really get hyperinflation going, the fed has signaled that it will continue to inflate the money supply to counteract the forces of deflation. They will not be able to pull the plug once they release the hyperinflationary genie in earnest. This too is also a feedback loop -- as more defaults occur, more money inflation will be required to makeup the difference. This is where the "hyperinflationary spiral" may occur.

I realize that the dollar is the "reserve currency", and that will not be changing. That doesn't mean that the US can't experience 15% nominal inflation rates coupled with 8% unemployment. Just look at what happened in the late 70s and early 80s.

I am long lots of crude, and I want to be long Gold on a pullback.

DXO breaking out

If by 3:30 we are still here, I am buying 2000 DXO at market., Target 4.

Buying DXO above 50 day MA

We still have yet to break out from under the scourge of the the 50 day for the past 3 months.

DXO needs to close above the 50day (2.53) decisively and then I will be megalong DXO.