Crude At Important Pivot, Equities Grinding To Exhaustion

Tyler Durden's picture

Submitted by Nic Lenoir of ICAP

The key observation today is crude oil which is attempting to break out to new highs. A close above 82 would be resolutely bullish. Given recent price action and the lack of any resistance is seems the market is bound to break out to the upside. However it is worth noting that, until the spike that occurred around inventory releases, we had a possible evening star formation which would be validated if crude closes below 80.63. We therefore have a very tradable reversal/break-out market in place. A retracement should take us back to at least $75, while on the upside I see 96 as the next extension of the rally with intermediary resistance at $87.20 marked by the topside of the channel.

In rates, we focus on 10Y Treasury futures again. On the 180-minute chart we left the initial 3/ wave target we had indicated over 2 weeks ago to show how well the fractal nature of this wave is respected. If this remains the case we should expect that 117 at the most will not be bypassed on the upside and the next major support remains 113-20/25. The daily chart shows how key this support shall prove. This was our initial 2010 target for 10Y rates of approximately 4.10%. After this is tested we think the market will range for a while. Indeed break would probably lead to some heavy liquidation and the resulting spike in yields would probably hurt carry trades provoking risk aversion and demand for Treasuries that would stop the slide in bonds.

Equities remain at relatively exhausted levels. The Nasdaq is running close to its daily RSI resistance, the Nikkei is struggling to fill its gap, and S&P futures are struggling to advance against the channel resistance. We continue to believe that the market should have a hard time breaking out convincingly in these conditions and a retest of channel support seems needed before a proper bullish formation can happen. We remain fundamentally bearish but if as long as we lack a catalyst for the sell-off and liquidity remains ample we will have to make due with a test of channel support.

Finally the EURUSD remains very clear as it held the 200-dma support. The current consolidation should not bypass the 50-dma on a daily close, and 1.4570 is intermediary resistance. A break of the 200-dma as support will confirm our medium/long term bearish conviction.

Good luck trading,


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A Nanny Moose's picture

LOL. in Bean Curde?

john_connor's picture

Crude going to $96?  What say you, O team? 

Anonymous's picture

Yes - O Team/Team O will soon be Team Uh-O

DaveyJones's picture

Oil and Gold. Never ending demand, ever dwindling supply 

ChickenTeriyakiBoy's picture

it's too bad your charts don't factor in friday's employment numbers and juiced-up earnings starting next week. personally i'll wait a bit longer before i get short

besodemuerte's picture

Ya pretty much.  We'll see how Alcoa does Monday, and how the market reacts to it.  I agree with you though, juiced up earnings will once again make companies look like Jesus while the normal population struggles to make their mortgages.

I loved how yesterday they tried to spin auto sales numbers in a somehow positive light.  2009 was the worst year for auto sales since 1982, but both GM and Ford beat expectations in December.  Expectations were that they'd lose somewhere around 10% of sales YoY, but they only lost like 8% or whatever, so the CNBC analyst focused his 15 seconds of fame on how fantastic that was to beat failing expectations in the first place and that we'll focus on that 'strength' going into 2010.  Nothing new, just the media/government trying to spin shit into chocolate as usual.

fiasco's picture

i was talking to my butcher and he said while cutting the prosciutto in the thin slice the way i like-a

that oil go back to 75

i think the writer shop at the same butcher shop.  and we know that warm weather is coming to the north east,

so that no way oil stays above 80 

per favore, remove the charts and show some mortadella instead


Bam_Man's picture

Io preferisco la puttanesca. Lei capiche?

fiasco's picture

if you ask you girlfriend to make you puttanesca and she don't get mad, she a good one

i bring her flowers to that supper

Bam_Man's picture

Who said anything about puttanesca pasta sauce?

fiasco's picture

you no want to replace mortadella with puttanesca instead of the charts?

anyway, the price of oil stay inside the meat pipe but this the butcher say

you puttana say so too, i consider this confirmation

WaterWings's picture

Eh, voui siete maleducato!

WaterWings's picture

Dov'è la libertà e il suo fratello, desafio?

That's a pretty funny joke. Is that originally Italian?

Bam_Man's picture

The answer to your Italian question is-

"They went out for a pizza. And no one's seen them since."

Anonymous's picture

Ah ya. Just like 2008. Run away oil and stock markets at the same time.

Now that Wall St has established the idea "investors using oil as a hedge against the dollar" :we can expect many bubbles to come and numerous relationships between these two markets.

I expect the war to really start this time, unlike the media hype of 2008.

This time(in the next 2 years) when the stock market crashes I expect the oil market to go to new highs.

Patrick the Painter

Anonymous's picture

Oil up = 'recovery' over. One feeds/starves the other. Can't have both.

Anonymous's picture

There's only one way to go no matter what happen...up.

Anonymous's picture

There's only one way to go no matter what happens...up, up, and up to Dow 25k and beyond.

SteveNYC's picture

Fabulous Nic, again. Just a question, can you post an update on the AUDUSD at some point? Thanks.

Pat Hand's picture

Is it just me or does his writing remind anyone else of Madame Fleury's Psychic Readings?

bugs_'s picture

Transports unhappy.

Anonymous's picture

Dwindling food supply and with this history breaking cold.

Anonymous's picture

My explanation:

Beginings of false flag operations to go into Yemen which sits on Bab el-Mandab, one of the world's oil choke points.

By securing Bab el-Mandab you protect the massive flow of oil from Yambu. At Yambu, you have the port for 2 of the largest Saudi (U.S friendly) piplines: Petroline, Iraqi Line Phase 2. These two pipelines have a capacity of 6 million barrels a day.

You need to hold Bab el-Mandab because the northern route via the Suez Canal can be shut down like it was in 1967.

By controlling Bab el-Mandab and Yemen you would also be in a position to threaten China’s oil transport from Port Sudan on the Red Sea just north of Bab el-Mandab, a major lifeline in China’s national energy needs.

You need to do this before you fight a war with Iran because when it starts, the Straight of Hormuz shuts down.

Yemen sits on the alternate route and Yemen looks in play.

The reason oil is rising is because we have another indicator and higher probability for going into Iraq and Hormuz shutting down for a while.

Anonymous's picture

Food supply is running out. I just saw a huge line at WalMart. Sell your stocks, buy canned goods!

The basic logic here - "a close above $82 is resolutely bullish" - is about as moronic as it gets. IF that was werent, arent stock supposed to be much higher? People have been saying that every 50 pts along the way... but the opposite is the truth. Its 50 pts up, 30 pts down, 50 pts up, 30 pts down.

THEREFORE, oil is probably a good short in the $80s and a good long in the $60s. Add some local technicals and wa-la. It also makes sense bc its the opposite of price action 06 through late 09. Trending markets have become mean-reverting.

Anonymous's picture

Smell the coffee, people. And I say coffee for a reason.


Brazil dominates coffee. And oranges, and soon soybeans. Brazil can get 3 crop harvests from their tropical land per year if they push it. The US, 1, in October.

There is no food shortage. There is an oil shortage and it is forever and will kill many people. That food can't get where the mouths are.

jmc8888's picture

Everything is speculative.  We all know this.  But long in the 60's or short in the 80's, may sound good, may even make money, but in no way is either a safe bet.


I would submit to you that even oil 20 and oil 200 is neither a buying, nor selling opportunity.


The key is knowing when it will hit 20, and when it will hit 200.  Because both are almost 100 percent possible.  It's just timing.


We know not of what the future brings.  We have an idea, 1.4 quadrillion in gross notional derivatives, and a Helicopter Ben adding zero's to numbers in computers. (no printing presses needed!)


You could have 20 dollar a barrel oil 1 month from now, or 200 dollars a barrel a month from now.  Or maybe 2 months. Maybe a year. Just need to realize that you are in THAT kind of environment.  You know not when something breaks, when something is 'allegedly fixed', nor do you know when and how fast the government will come to the rescue, and possibly even IF it will.


Of course knowing helicopter ben it's easier to error on the side of print too much.  But either way, anyone that tries to say any X dollar amount for ANYTHING is a good short or long IS WHOLEFULLY banking everything on the information he is trading off of, is the most important data to that anything.

In other words, the imbalances are so much around us, both above and below, that we are both living in inflation, and deflation.  Our prices could go Zimbabwe, or return to 1970 or so levels.  The bubble can expand by THAT much, or contract by THAT much.  Thus everything is a crapshoot.  Same for gold.  500 an ounce, 5000 an ounce.


Generally people still don't realize what EXACTLY 40 years of this crap has done.  We could roll back 25 years of leverage and prices and STILL need to come down. 


Or we could be paying for stuff that in a couple of years will make us all sound like we're our great grandparents talking about a nickel to see the Yankees or something to that effect.


In the end, or the semi-end, it's probably hyperinflation, but not before alot of people that should become 'rich' from that viewpoint, will be crushed by the wild swings the other way.  Not just in oil, but any commodity, any stock, etc, etc.


Someone could say to me I'll sell you 100 shares of GS at 35 dollars, but you can't sell them for five years.  I'd say not worth the risk of losing probably 3000 of that 3500.


You either play for the end game, irregardless of the swings, and not overexpose yourself to the virulent swings the other way sure to come, or things will end for you pretty badly probably.


You need to recognize that if you buy ANYTHING to hold, you might be getting a steal, or you might be overpaying 80-90 percent for that 'anything'.  At this point, no one knows.


Be smart.  Buy actual gold/silver.  Don't sell if the price goes to 200 oz/5oz.  Buy all the way, but not overdo it.  That extra 10-20 percent put in gold or silver might screw you over when you need cash.  Also, in case of the 'computer printing press' going apeschmidt and relegating the U.S. economy to function with ACTUAL phsyical dollars, rather than most simply being 1's and 0's in bankrupt banks is also a great hedge.


Remember if the banks go bust because of derivatives, and the FDIC is broke, and the contagion spreads because of not being able to make good on it's intrabank loans, most importantly intrabank derivative payments, you could see 1000 banks close in a week or two, and all the 'digital money' on it's books are wiped away. Meaning, you better have physical dollars as well.


I'd still think weighing heavily in gold/silver like 80/20 or 90/10 is a good idea.  If your gold goes down, you can still sell it dollars.  If gold goes up, good luck finding any to buy with dollars.

If the banks close, you won't be able to sell anything, because no one will have dollars to purchase things. 

It could get really ugly.  But that's the reality of where we are.  We are living in a time where this has never been so much uncertainty of the value of anything.  With a market built off of 40 years of imbalance, leverage, outsourcing, debt, derivatives, and the gov't - not even Jesus could get this market right.


Of course we all know this, just remember it when you long or short anything.  The fed or gov't can blow you out of your position at any time.  The imbalances could collapse at any time.  The fed could be audited, it doesn't matter.  We are living in an era where outliers rule the markets.  The market IS the outlier. 


But of course, in short term, with the schmidt not hitting the fan, long 60's and short 80's makes a lot of sense.  So I'm not saying you're wrong.  I'm just saying the market that is telling you that such a 60-80 long/short decision could be the furthest thing from the reality that unfolds courtesy of more imbalances than anyone cares to fully realize.  Hundreds? Thousands of imbalances built up over the years.  Any of which can turn on you at any second.  So be careful.  


jmc8888's picture

Oh what I mean by don't sell.  Well if you have an inkling it's going to trend downwards to say 500, then maybe sell it.  But don't think it won't be both higher and lower than where you sold it.  Thus you better time it right, because the end result is probably higher. 


But overall does it matter really if the bulk of your gold purchase was at 200, 500, or even 1500 an oz? Not really if it goes to 5k, 50k, or beyond. 


So you can play the, I want to sell gold now and pick up the same $$$ amount worth when it hits 1000 or 750 or 500, but it might not be worth it.  Lots of people leveraged in many bad ways have gold, and they'll need to sell it at some point.  Plus there are a lot of people who if say saw gold drop from where it is, to sub 1000, would head for the gold exit door.  Even if it's temporary, even if we know in the long term helicopter ben will print to infinity and beyond, such a drop, will most likely be a reality for the markets, even for only a day. 


The way I like to think of it, is if I overpay for gold/silver, so be it.  Because long term it won't matter if any of us got in at what appeared to be a high point.  Of course china is buying dips, but that's not ruling the markets, helicopter ben is.


Maybe it's better if I use examples. Each person buys 100 oz of gold at 1200/oz

Person A- Sees gold go down to 900, sells, watches it go down to 500, smiles, a year later, something chnages and gold is 3000 within a few days, weeks, months and he's frowning

Person B-Sees gold go down to 900, and keeps buying all the way down to 500, lowering his average to 800 an ounce over (instead of 1200) and when it goes to 3k, he's smiling

Person C- Thinks gold is about to go down to 900, sells at 1200, watches it go to 500, buy's back the same 120k dollars worth of gold except now he has well over 200 oz instead of 100.  When gold goes to 3k, he is estatic.

Person D- Thinks gold is going up, buys at 1200, sees it go down to 1000, sells all.  Thinks the market bottoms at 750, buys more, goes down to 500, sells all and swears off gold.  When it reaches 3k/oz he is severely pissed off.


Any of this can happen.  Any one of us could decide to go down any of these roads.  Of course will it hit 3k? Does the derivatives explode? Will the fed end QE? Change in congress? So many things can happen to blow the price of gold or anything else sky high, or severely lower.  Whatever the fed does or doesn't do, the end result is more and more wild swings.


The fed ends QE, CMBS blows, derivatives blows, soverign defaults.  Any of these things can change markets big time.  You could see QE ending, and soverign default occur pushing gold down to 500, yet when everything tanks, and the default events are over, you could be right back to the gold 1200, gold 3k, and higher.  QE can end, then be restarted.  I'm sure that will be a great bit of stability for currency/commodity traders.  None of us know.  We just know that if they stop printing money, everything collapses.  If they don't, we're destined for hyper-inflation.  There's no middle ground. 


In such an environment, everything sold ON the market, is not priced correctly.  It can't, ever, even if that is what the current market price is.  Nothing in this market is correctly priced, just by it's nature, since by it's nature the market price of things change.  But in today's environment, the range the populace thinks is a fair price is growing wider and wider.  We had 150 oil, then 30ish, now 80's.  That's a lot of variability for a commodity that hasn't changed anything since it was 150.  Everything is basically the same, yet the price range is how wide?  170 dollars in swings (peak, trough, peak) from the start of this mess until now, with very little changing in actual anything regarding actual oil.


This is where we're at.  Except you have to think this way about every price increase since we left the gold standard.  That's your low price point with infinity being the upper bound.  Of course some things are inherently baked in, and some point the psychology of buying something that is ridicuously cheap will occur, keeping prices higher.  If you're a 35 year old, and you've never seen 50 cents gallon gas, it's hard for anyone in the generation to 'wait for a lower price'. 


But overall with as much imbalance baked in, we really could see such a drop, either preceeding or following a hyperinflation event.  Or both. 


So when you buy anything, just realize the market that set the price, has been acting irrationally for over 40 years.  So at this point, again, you don't know if you're buying something for 99 percent off, or are buying into something that could drop 90 percent.  You just don't. We know trends, we know history.  Thus at some point, we'll reach hyperinflation, because ben has to keep printing for this economic system monstrosity ends.  But he could surprise us. Or he could think he solved it, remove QE, and whammo reality strikes.


If we don't end in hyperinflation, your digital dollars aren't going to matter. Only physcial dollars.  Which means gold overbought by 99 percent will still have more value than digital dollars that reside in a powered off computer hard drive on liquidation from its banks going under.


So in a sense, whether it's inflation or deflation you worry about, gold/silver/physical dollars is what you want to hold.  Will you maximize your gain? No. (timing of which to hold and when is key, but you should have all thee at all times to some degree) 

But when things pop you will realize you never NEEDED TO maximize it.  You just needed to own a couple of oz's of gold to be 100x richer than the joneses.  Who cares if you bought at 500 or 1500?  Who cares if you lost 10k in physical dollars now being worth pennies after hyperinflation.  That's a small price to pay for about as much wealth security as you can get.


Except of course you decide to jump off the debt based monetary system, or maybe more precisely the derivative debt based monetary system.  American Credit System, HBPA of 2007, LaRouche 4 powers plan, New Bretton Woods - but Credit based not monetary based bretton woods.  Do these things, and it matters not where gold goes, you'll be able survive whether it goes up or down.  A functioning system will exist.  Personally speaking, if the world crumbles yet I hold gold/silver in my hand, that doesn't make me safe or guarantee happiness.  A rich man with no electricity or running water, is still a rich man without electicity and running water. 


Anonymous's picture

$20 oil...not a chance.

The Saudi Royal Family has prommised to cut production well before that. Anything approaching $40 brings production cuts. A year ago the world was coming apart and prices had dropped. What was their response...they cut production. Is there a better demonstraion of their resolve?

From December 17th 2008
"Since September, members of the Organization of the Petroleum Exporting Countries have pledged cuts totaling 4.2 million barrels a day, or nearly 12 percent of their capacity, a record in such a short time."

"Mr. Khelil said the group wanted to “eliminate” an overhang of commercial oil inventories, which now stand at 57 days of supplies, down to 52 days, and aimed to push prices up to $70 to $80 a barrel."

Looks like they got exactly what they wanted.

$200 is far more likely. All it would take is a missle attributed to Yemen and a burning super tanker plugging the Straight of Hormuz

Anonymous's picture

Long lines at Wal Ching are customary on the first few days of any month. Government checks go out around the end of the month and come in around the first. The shoppers didn't sell stocks to buy canned goods, although that is not a bad idea. Dry goods may be better storage of energy for food. Why you shopping at Wal Death anyway? Shop local, yokel. Barter better.