Get a 'Dog' !

The last two week's candlestick pattern is a Bearish Engulfing Pattern (subject to confirmation). This is a bearish reversal pattern that marks a potential change in trend.

Candlestick weekly chart for DJII posted SELL-IF signal. The BUY recommendation made on 03.20.2009, when the index value was 7,225.3 . Since then DJIND has gained 17.26%

Buy DOG-NYSE @ $66.80

DOG, ProShares Short Dow30 seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Dow Jones Industrial AverageSM Index.

natural gas in storage

Injection of 94 BCF; Below the expectation for a 100 BCF Injection

For the week ending Friday, June 19, 2009, total natural gas in storage increased 94 BCF to 2,651 BCF from 2,443 BCF a week ago. The storage level is now 631 BCF (31.2%) higher than this time last year and 482 BCF (22.2%) above the five year average. The east region had a net injection of 70 BCF. Total gas in storage in that region is at 1,234 BCF, which is 10.3% higher than the five year average. The west region reported a net injection of 12 BCF, increasing gas in storage to 420 BCF (32.1% higher than the five year average). The producing region reported a net injection of 12 BCF, with gas in storage at 997 BCF (36.2% above the five year average).

-M

The Chinese are coming .....

Sinopec agrees to buy Addax for $8-billion

China's biggest oil products company, Sinopec, has agreed to buy Toronto-listed Addax Petroleum Corp. [AXC-T] for $52.50 a share, valuing the company at more than $8-billion.

The price was somewhat higher than expected. Earlier this week, the shares were trading at about $45 a share as investors took the view that the company was fully valued. The offer represents a 47 per cent premium to the closing price on June 5, the day before Addax announced it was in discussions with potential buyers.

relationship between coal and nat gas prices

The relationship between coal and nat gas prices is more important than that between oil and gas prices in north America, as both are important fuels in the generation of electricity. Nat gas is particularly important as a peaking fuel, kicking on when demand is high for cooling in the summer. The low price of natural gas has caused quite a bit of coal-to-gas base load switching in recent months – more than expected. This should be helpful for nat gas storage. That said, if natural gas prices rise too much coal will take back market share, affectively capping natural gas prices. Moreover, in the current weak economic environment coal is quite plentiful. The electric power sector has historically high stocks of coal.

Electric Power Sector Coal Stocks



Coal production is coming off in response to high inventories and soft demand but prices are likely to remain weak in the near-term .

U.S. Monthly Coal Production





-M

Larger than expected decrease in crude oil inventories offset by larger than expected increase in gasoline and distillate inventories. Impact looks

The U.S. Department of Energy reported a 3.9 MMB decrease in crude stocks over the prior week, greater than analyst expectations for a 1.0 MMB decrease. Crude oil inventories decreased by 2.2 MMB at PADD 5 (West Coast) week-over-week. Crude oil stocks are now 1% above the five-year high on an absolute basis and are 4% above the five-year high on a days of supply basis. Gasoline stocks increased by 3.9 MMB over the prior week, greater than analyst expectations for a 1.0 MMB increase. Gasoline stocks are now 3% below the five-year high on an absolute basis and are at the five-year high on a days of supply basis. Refinery utilization increased by 1.2% week-over-week, greater than analyst expectations for 0.1% increase. Refinery utilization is now 2% below the five-year low. Distillate stocks increased by 2.1 MMB over the prior week, greater than analyst expectations for a 0.9 MMB increase week-over-week. Distillate stocks are now 20% above the five-year high on an absolute basis and are 29% above the five-year high on a days of supply basis. -M

The Federal Reserve is now the “printing press”. The end of independence at the Federal Reserve.

For most of that chart, the Federal Reserve monetized very little U.S. government debt. Then, in January of 2009 it began to monetize debt at an explosive rate. Did something change at that time?

Since then, the Federal Reserve has monetized on the order of $700 billion. Now while percentages are more important than absolute numbers, that value is more than the combined GDP of Poland and Ireland. It is about 2/3 the size of the Canadian economy. The change that arrived in January was that the Federal Reserve was to create more money in a shorter period of time than has ever been done in history.

That blue line has some important meaning for Gold investors. With the Obama Regime likely to run deficits of $2-3 trillion for the next few years, that blue line will continue to rise. The Federal Reserve is now the “printing press” for an out of control government. That blue path of debt monetization puts a long term floor under the price of $Gold. If ever an argument existed for long term ownership of $Gold, it now certainly exists with the end of independence at the Federal Reserve.

Another opinion on Inflation

While the Fed has more than doubled its balance sheet to about $2 trillion, a surge in inflation is unlikely given unemployment is the highest since 1983, McCulley said. One policy likely to be used by the Fed involves paying more interest on the reserves banks hold at the central bank rather than taking them back. Some strategists have suggested the Fed will need to soak up the reserves before embarking on a higher interest rate policy as the economy shows signs of expanding.

“I think the monetarists are coming back out of the woodwork, as if the monetary base per se had a direct connection to inflation,” McCulley said. “It doesn’t. It’s certainly hard to argue we’re going to have an overheated economy any time soon, from a starting point of nine, perhaps up to 10 percent unemployment.”

It is downright scary that so many mainstream economists have absolutely no fear of the nearly trillion dollars worth of "high powered money" now sitting there as reserves on banks' balance sheets - they've been so wrong about so many things in recent years, why should this particular issue be any different.
-Paul McCulley of Pimco

Having broken secondary support today, oil looks to have downside to the $59.50 area but is a good buy at that level.

Historically, the oil to gas ratio has been in the 8 to 1 area. In terms of heat content, the oil to gas ratio is around 6 to 1. But oil is used primarily for transportation in North America, limiting direct competition between the two fuels. Currently, gas storage is at a record high. Moreover, industrial demand is very weak due to the recession. Therefore, I expect near dated natural gas contracts to continue weak into the fall, with weather creating volatility. That said, we should see supply start to come off later this year as a result of dramatically lower drilling activity. The long term fundamentals for North American gas are not as positive as for oil. Technology is unlocking lots of gas in shale plays. I view gas as a trade. By weakness this year for a price recovery sometime next. Once price recovers to something north of $7 or $8 MMbtu activity will ramp and growing supply could become issues within 18 to 24 months depending on weather. And gas is much more volatile than oil, with weather being the primary driver of demand.
-M

Maybe I was wrong and too early ? Is oil breaking support going to drag my Nat Gas position ?

The last trade for the front month crude contract is today, and strange price fluctuations have often been cited as the contract nears closing. Today oil is down over $2. In the past this kind of change might have been explained by traders going long and being forced out of their trade so as to avoid taking delivery of the oil. If this was the case, we would expect to see the July futures as an outlier among the more forward contracts. Today this is not the case, oil is down across the board.


Is oil breaking back to the $60-ish range. It broke secondary support today. I have an advisor friend at a well known oil & gas shop thinking so.

Will my Nat Gas position suffer because of the correlation of the oil/gas ratio ?

When I entered the trade I said to enter a stop loss of 20% and hold the position into Q3.

Buy some GLD on a pull back ?

Gold 50 day Moving Average is $925
Gold 200 day Moving Average is $870

GLD (SPDR Gold Shares on NYSE)is trading at $90.54 at the close, down 1.5%.

the 50 day MA is $90.90, the 200 day MA is $85.62.

Today's pull back is almost a 2/3 retracement from the April low to recent high.

Buy some here (50 d MA) and maybe some more at the $85 (200 d MA) range.

I believe Jim Roger's comments and think that printing all those Greenbacks can't be good for US inflation.

Gold Chart

Snippets from Jim Rogers

Rogers thinks the United States and the U.K. are in bad shape and will be for some time. He likens the current situation to that of the 1930s. He says,

In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end. They are making many of the same mistakes now. What's different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.

Commenting on the government's actions, Rogers says

It's a mistake what they are doing. It's giving short-term pleasure, but there's long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.

Clearly, Rogers likens the current scenario to placing a bandaid on a gunshot wound victim and calling everything 'good.' Short-term solutions do not solve long-term issues. He cites this with evidence of the bond market already beginning to taper off and he thinks this will continue as the government sells a ridiculously large amount of bonds. This can be boiled down to one simplistic notion: when governments print a lot of money, you get serious inflation.

Rogers likes gold and has no plans to sell his. In fact, he could be adding to his position should the right circumstances pop up.
The fact is that the IMF is trying to get permission from everybody to sell gold. I don't know if it will succeed or not. But if and when the IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to $700. The IMF has a lot of gold to sell. If it does, I hope I'm brave enough and smart enough to buy more.

S & P 500 is back into negative territory for 2009, worst day in 2 months

TSX plunges 4.4% on World Bank warning.

North American markets fell Monday as commodities prices collapsed on warnings from the World Bank that the global economy would decline more than it had forecast in March.

"We see a very difficult 2009, with negative growth in the OECD area. Unemployment problems are going to continue to linger," Angel Gurria, the head of the OECD, told Reuters in on the sidelines of a conference in Paris.

Another opinion on Nat Gas

June 17th, 2009 at 5:26 pm
Hi Sunil. Nice pop in natural gas during the past week. Lots of technical analysts have commented favourably during the past week. Ironically, short term momentum indicators (e.g. Stochastics) already have reached a shor term overbought level. Seasonal influences turn postive in August. Fundamentals remain dreadful due to large and growing inventories. Storage capacity already is approaching the full level. Not surprising, several companies including Encana and Chesapeake have announced production cut backs. Cooler than average weather this spring and projected until fall means lower demand. There are several interesting seasonal plays lining up this summer based on technical and fundamental prospects. Natural gas currently is not on the list.
-Don Vialoux, DVTechTalk

More Nat Gas info

Canadians can trade HNU on TSX (Horizons Beta Pro Natural Gas Bull). This investment has 2 times leverage, so not for the faint of heart ! Leverage is a double edge sword. It is nice when working but hurts when position is against you. Remember 2 times up or 2 times down when you are wrong.

Here is the bullish info:

Natural Gas so cheap (3.87 per mmBTU as of Friday) while Oil is moving ever higher? This is a significant disconnect that does not make long term sense. Historically, the average ratio between West Texas crude and Henry Hub natural gas has been 8.5 to 1. Currently, it is at a historic ratio of 19:1.
With oil at $72 per barrel, natural gas should be around $8.47. That represents a 125% potential pop in the price of natural gas if the price of oil stays constant. Many experts believe that oil is fairly priced right now, given the costs of exploration and extraction.
Natural gas is a value play with great upside potential in the intermediate term (12 months). But it is an even better play in the longer term (1-5 years).
President Obama and the Democrat controlled Congress will definitely pass some type of environmental legislation this year or early next. That legislation is aimed directly against carbon and its role in global warming (or the theory thereof, since it is not conclusively proven). In the next several months, either a "Cap and Trade" or a straight up carbon tax will be passed. The moderates in Congress and most of the heavy industrial world, faced with the reality of some type of legislation, are rallying behind a carbon tax for its simplicity and for the fact that the cost can be passed along to the consumer much more efficiently and without the distortion and potential fraud of cap and trade.
For natural gas, either scenario is very attractive. Natural gas per BTU of energy, is much cleaner than oil or coal, the two primary fossil fuel alternatives. So, if a carbon tax is passed by legislation this year, natural gas will immediately become more competitive. Its historical relationship to oil should decline even below 8.5. If it moves to 7.0, then the relative cost today should be $10 per mmBTU for natural gas.
Longer term, with or without a tax advantage over oil, natural gas promises to be used as a transitional fuel to alternative energies like solar, wind and geothermal. T Boone Pickens has proposed, and spent a considerable portion of his wealth, promoting the idea of natural gas powered vehicles. Once fuel cell powered vehicles become practical, within 10 years with government encouragement / subsidy, natural gas is likely to be the first fuel used by such vehicles. This reality will be encouraged if Pickens is successful in getting existing fuel stations in North America to add natural gas to their product offering at the pump.
Pure hydrogen vehicles are a better environmental option, since the byproduct of the chemical reaction is pure water. But the manufacture, storage and distribution of highly combustible hydrogen has many science, engineering and production problems yet to be solved. -Brian McMorris

US Real Estate prices still falling !!

The history of US real estate shows that the house prices do not bottom until about 6 or 9 months after maximum mortgage defaults at the banks. Banks will ride the repossessed home for a few quarters and then realize that the asset is a dead asset on their books and then dump the asset from the balance sheet at 'fire sale prices' (accountants call it the 'big washout' or write off of bad and non performing loans).

The mortgage market is coming up to a 'crunch' period soon. 40% of the good credit-worthy people are now at risk because of recent unemployment. These were the "normal" people (not the subprime mortgages) that have lost their jobs and can't make payments. This group is a larger percentage of the population and they had bigger mortgages than the subprime.

My other indication is the contrarian view. A year and half ago the "new" rich but not savvy buyer was buying US homes. Recently, the "rich professionals" with cash flow (but also not savvy buyer) were buying. The market will bottom when the "old money" savvy business people will invest which might be later this year.

Why ??? Check this quote from a recent Lazard Asset Management report:

"Our research indicates that home prices could decline over 40% from the levels
observed at the end of 2008. This outlook is meaningfully more negative than most
current expectations. Significant declines in mortgage borrowing rates near the end
of 2008 may have decreased the downside in home prices somewhat, but our
analysis lends support to current efforts by government officials to intervene even
more forcefully in the mortgage markets."
-Ronald Temple, Managing Director, Lazard Asset Management
Emma Rasiel, PhD, Assistant Professor of the Practice of Economics, Duke University

more reasons:

1. Mortgage rates have increased during the last few weeks by almost one percent for 30 year fixed mortgages.
2. Nonfarm payroll employment fell by 345,000 in May.
3. The number of unemployed persons increased by 787,000 to 14.5 million in May.
4. The unemployment rate continues to rise, increasing from 8.9 to 9.4 percent.
5. Real gross domestic product decreased at an annual rate of 5.7 percent in the first quarter of 2009.
6. Many amateur / first time real estate investors are jumping in to the market. Last time I saw that was at the top of the market in 2005.
7. In California and Nevada, I've seen a significant number of houses receiving many multiple bids over the asking price. Last time I saw that, again, was at the top of the market in 2005. Maybe things are different this time, and it now means that real estate is bottoming, but I doubt it. - Stockerblog.com

Monday 2pm EST, SKF and UNG both up !!

SKF $41.68, up 2.17 or 5.5% (high today was $41.79)

UNG $15.40, up 0.73 or 4.9% ( high today was $15.77)

Is this the nut the the blind squirrel will find ???

Accumulate position over the next while with a 20% stop loss for risk control.

Thinking that the 2 positions will be positive trending until Q3 and then may trade out.

Go long Nat gas !!!

"United States Natural Gas (UNG). Bespoke recently reported that United States Natural Gas (UNG) has seen a 77% increase in trading activity over the last 50 trading days. Marc Courtenay identified that the price of oil is trading at 19x that of natural gas at $3.7 a British Thermal Unit whereas history pegs the ratio at 10x. In other words, oil could pull back to $60 per barrel, and natural gas would need to jump 60% to reach the historical average." - Gary Gordon

"There are striking similarities between the stock charts of the US ETF for natural gas (UNG) now and where the stock chart for the US ETF for oil (USO) was in December-February.
The two charts tell us that despite all the bearish fundamentals for natural gas in North America (and there are lots!), the time to buy UNG is very near. The chart for the Canadian natural gas ETFs (GAS-TSX, HNU-TSX) tells the same story. " -Keith Schaefer

If natural gas gets any cheaper, there will be supply problems because gas wells will be shut in. There is also the wildcard of weather related shut downs in the late summer (hurricanes) or increased demand if there is hot weather.

"natural gas typically has its best quarterly performance during the third quarter. While natural gas' best quarter happened to occur in the third quarter of 2005 (99%), Q3 is also positive more often than any other quarter (63% of the time). Finally, the median return of natural gas since 1990 is higher than any other quarter (10.4%), and is also over twice the return of the next nearest quarter (4.5% in Q2).- Bespoke Investment Group

Sell banks or buy SKF (Ultrashort Financial ETF) ???

Market is overbought !!! S&P 500 has rallied 40% from its March lows. Eighty-four percent of the stocks in the S&P 500 are trading above their 50-day moving averages (Financials are at 89%). Prior spikes in this reading going back to last June quickly pulled back.

The IMF states that economies of the developed world will experience a deeper protracted recession due to further deterioration in residential and commercial real estate markets, tight lending conditions and rising defaults in corporate and consumer loans.

"Signs are emerging that optimism in the financial services sector may be misplaced, or at least, premature.
It’s no secret that banks have been eschewing government aid. But, in the tradition of these giant money machines, they seem to be doing so again at the expense of their long-term security — all for the sake of quarterly earnings results.
Take for example, the approval by the Treasury Department for 10 banks to repay their TARP loans more or less ahead of schedule. Rortybomb points out that the big banks may need as much as $390 billion in the worst case scenario, according to a model using rising unemployment statistics. " Daniel M. Harrison, publisher, editor and writer of The Global Perspective