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Which Way Wednesday – Waiting on the Fed

Posted on the 30 January 2013 by Phil's Stock World @philstockworld

Not much else matters until then and then we have Non-Farm Payrolls on Friday and nothing matters until then either so it makes sense that we are flat-lining, more or less this week, as we gather more data to see if we can justify these amazing gains for the month

We had a rough day shorting oil yesterday as it was a nickel and dime game as we crossed each .50 line but, while we won a few battles, oil won the day and is at $98 this morning in the Futures (/CL) where we're shorting it again into the inventory report.  The run-up in oil gave us the opportunity to take some March USO shorts in Member Chat for our $25,000 Portfolio as well as a new SCO, with an aggressive new play on the Feb $36/37 bull call spread for .40, which has a .60 upside (150%) in 16 days if oil drops back to about $96.

That's a speculative play but we put it in both of our $25,000 Portfolios and risked a virtual $800 on 20 contracts and, since the $36 calls are $1.15 (covered with the $37 calls sold short at .75), we can also roll out of the position before the $36s go below .60 – but more on that if it has to happen (hopefully not, as that would likely mean $100 oil).  Like a lot of things, yesterday's rally in oil has been propelled by a big dip in the Dollar, which bottomed out (we think) at 79.40 this morning.  

Which Way Wednesday – Waiting on the Fed
Unfortunately, a bouncing Dollar is a danger to all stocks and commodities and, while the Dollar chart looks bearish – with a falling 50 dma acting at a tough top of the recent range – the fundamental reality of the situation is that we simply are NOT printing money faster than Japan and probably not even faster than Europe and, in fact, the demand for Dollars is increasing as housing activity goes up along with employment.  So, 79, maybe 78.50 but lower than that is very unlikely and, once we pop back over 80 – shorts will begin to cover and we'll have a nice little pop, which should lead to a market pullback – hopefully not too severe.  

Rising oil prices – if true – also create a demand for Dollars as the same 96 Million barrels of oil per day consumed globally at $95 last week are now $98 – so $8.6Bn removed from consumers' pockets in just one month.  Then there's those payroll taxes also being sucked out of the economy and it's simply a wonder that oil isn't plunging.  Perhaps it's the persistent, blatant manipulation, like the "Large Fake Order Strategy" outlined by EconMatters yesterday.  

Which Way Wednesday – Waiting on the Fed
Will the CTFC ever do anything about this?  Of course not!  That's why George Bush rewrote the rules for Enron and BCS was just found guilty by the FERC for manipulating the California power market from 2006 to 2008, purposely losing $4.1M jacking up energy prices with cash trading so they could reap gains of $34.9M on their positions.  

One would think the simple solution is not to let banks physically manipulate the commodities they are trading since the banks clearly have no use for the oil/gas, etc and have no intention of honoring their contracts and taking delivery – but tell that to JPM, MS, C and others who have fleets of super-tankers holding oil offshore in order to drive up prices when they are selling and then dumping oil on the markets and driving prices back down when they feel like buying again.

8:30 Update:  Oops, forget all that, GDP was a huge miss at -0.1% vs. +1% expected and, even more telling, +3.1% in Q3.  Even more amazing than the 110% miss by Economorons is the fact that the markets are quickly shaking it off, without even a major dip but oil, thankfully, is down a quick .50 – and the Egg McMuffins are once again paid for with very quick $500 per contract gains!  

Gold skyrocketed back to $1,680 and the Dollar fell back to 79.40 as low GDP means LESS demand for Dollars (because no one is using them) and, of course, it puts the Fed back on the table.  Now we may get a more significant statement from the Fed, who have an incentive to do MORE than the current $85,000,000,000 per month in QE and, even better, no quick end to QInfinity is in sight now.  All we need is disappointing jobs number and we have the EZ Money Trifecta this week

Which Way Wednesday – Waiting on the Fed

IN PROGRESS


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