Friday, August 26, 2005
Issue Contents:
| 09:01 | The Day Ahead Economic releases and news |
| 09:25 | Swing Trade Setups Featured charts for Friday August 26 |
| 14:52 | Market Direction First targets hit |
| 16:15 | TrendVue Trader Talk Today's transcript. |
Good morning, today is Friday August 26th, the 238th day of 2005.
Another quiet day on the economic calendar, which remains quiet until Tuesday next week. History buffs might appreciate today’s speech by Federal Reserve Chairman Alan Greenspan, where he reflects on what has transpired over the last eighteen years at the Fed.
Today’s Consumer Sentiment Index may be watched a little more closely than usual: with retail gasoline and the price of oil on everyone’s minds these days, surprise shifts in consumer sentiment, and ultimately consumer spending patterns, have real potential to move the market.
The forecast path for Hurricane Katrina through the Gulf of Mexico has been shifted farther westward by the National Hurricane Center, and is expected to gain strength to become a major hurricane over the weekend. Ahead of the market open, Natural Gas futures have moved from being down marginally to rising to a solid gain over yesterday’s close; crude oil is trading more or less unchanged at $67.44 / bbl.
Indonesia reduced its crude output forecast by 5.4% blaming weather. Reading more carefully we can see that the issue is replacement of declining production, a problem which has put Indonesia, an OPEC member, recently into the position of a net oil importer.
JAKARTA, Thurs: Indonesia, South-East Asia’s biggest crude oil producer, cut its oil production forecast 5.7 per cent to 1.06 million barrels a day this year, after rains disrupted drilling at main fields in Sumatera.
The country has missed its initial target of 1.13 million barrels a day because of a production decline at fields operated by Chevron Corp’s unit PT Caltex Pacific Indonesia, PT Medco Energi Internasional, and state oil company PT Pertamina, Energy and Mineral Resources Minister Purnomo Yusgiantoro said yesterday.
That’s significant, and future developments will be watched closely. OPEC we’ll recall is the Organization of Petroleum Exporters, not importers… another country falls into import dependency but this time its a cartel member!
With UK North Sea oil in decline, US oil in decline, Venezeula currently in decline (and a major producer too), Indonesia in decline – the list goes on – where is new supply going to come from?
There are only three major oil producers, aside from Iraq, that are seen as being able to increase production over the next decade in significant numbers: Canada (via oil sands), Russia, and Saudi Arabia.
Saudi Arabia has historically been the only big swing producer, one which the world depends on absolutely for major increases in production, and one which virtually nothing is known about their ability to meet these expectations.
Russia’s industry, post Yukos break up, and through the lens of what appears to be a defacto re-nationalization by President Putin, is not seen as a friendly destination for the capital required.
That leaves Canada, and the world is watching closely, and investing billions. China has made some investments and a pipeline to service asian markets via the Canadian west coast is under consideration. Not to be left out, earlier this summer US Treasury Secretary John Snow visited the Alberta oil sands and came away impressed with the vast scale of the opportunity. US Vice President Cheney, an oilman himself, will tour oils sands projects in northern Alberta in September.
North American energy security alone will make the tar sands a destination for investment for years to come, and as the scope of these investments runs into hundreds of billions of dollars, we should be paying attention. If unfamiliar with oil sands and lacking time to join the VP on his tour, you might find this report from broker Raymond James informative on base level (3MB, PDF) as it contains a good overview of the approaches being used to extract the resource.
US Market Calendar
- 9:45 am: University of Michigan Consumer Sentiment Index
- 10:00 am: Federal Reserve Chairman Alan Greenspan speaks to the annual Kansas City Fed Economic Symposium
Canadian Market Calendar
- 7:00 am: Consumer Price Index – July
Earnings and the Federal Reserve
For earnings highlights, please see today's WSJ Earnings Calendar.
For a list of upcoming speeches, congressional testimony, Federal Open Market Committee material, and statistical releases, please visit the What's Next page of The Federal Reserve Board website. Recently released Federal Reserve Board material, including market moving FOMC decisions and speeches by members, will be found on their What's New page.
1 U.S. Michigan Sentiment Index Fell to 89.1 in August
2 Reflections on central banking – Alan Greenspan
Featured setups from Thursday August 25, 2005 closing data symbol scan
Jump to: Long Setups | Short Setups
Notes for the Day
- Oils well that ends well? Sorry! Stalk oils that paused yesterday or put in minor down bars near recent highs, hold only on a strong close. Chances are you are already long some in the group from prior days – ECA has outperformed most of its peer group over the past two days. MRO, APC may be candidates for today. Sounding like a broken record I know but please be extra cautious on the long side in energy, until at least speed picks up to the upside, if indeed it can.
- Any broader market bounce here will initially start to form bear flags up into resistance, so if the ex/rc/ex pattern does not play out today, we’ll still need to be on high alert for broader market long trades failing into next week.
ETFS
DIA – short – EX/RC/EX pattern
IWM – short – Russell 2000 offers a bear flag on daily chart
Long Setups
General common strategy: Unless noted otherwise, buy stop just above the “high” value, with an initial protective stop at the low value of the bar, not below the bar.
Retracement or Pause in Up Swing / Up Trend
SU – energy, oil sands
KGC – gold
ABX – gold – demand price close over 2 day high or at least move over 2 day high and offer solid profit before holding.
IPIX – be careful of minor moves up that reverse – but healthier looking chart than much in nasdaq-land
AXP – credit, an area that may be under real stress if energy prices remain as is; nevertheless this is a piercing line setup at support. Hold only if close solidly in favour of trade. Needs to hold well over 56 to keep me in; I may end up scalping intraday otherwise.
STLD – another piercing line setup
SSTI – reminder to look at last two days of setups for still-valid setups including SSTI here.
Short Setups
General common strategy: Unless noted otherwise, place a sell alert at or just below the low of the setup bar, and look for the first failed intraday bounce after the low has been broken. What we are looking for is price to push down, bounce a little, and fail again – this is where we want to get short.
Retracement or Pause in Down Swing / Down Trend
NUE – China lowering prices on Steel
ADCT – support turns into resistance; small triangle here, requires careful management early on into the short
First targets identified have been hit:
YM – Dow 30 Futures
What tends to happen if price fails to quickly rebound above the 50% retracement (say by Tuesday next week), the odds of a 100% retracement of the measured rally (to July lows) go up rather dramatically. Time will tell.
Crude, October Futures
A topping pattern has set up, but its still officially in an upswing near a test of top. At this point I would not put too much stock in the late afternoon sell off in crude and natural gas, which is almost certainly a result of profit stops being run in a light volume market:
CL, NG
Next week we’ll have real time front row seats to evaluate whether Hurricane Katrina causes any lasting impact to Gulf of Mexico energy assets. The storm does not have to hit offshore rigs directly to cause damage – mere proximity can cause mass evacutations and production shut-ins of considerable scale, as we’ve seen already this year.
Today's transcript.
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