19
May

Wrap – Week Ended 05/18/12

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Comments will be included in the Monday post. 

46 Responses to “Wrap – Week Ended 05/18/12”

  1. 1
    Zorgnak Says:

    Thinking out loud again…
    Volume Crescendos….On Friday, "choices" made the observation that we haven't seen a volume selling crescendo in energy stocks yet.
    That got me thinking.Have they occurred anywhere? I really hadn't looked.
    To my eye, the Euro and $USD both reached volume/price extremes starting late last week.
    In the Euro we had a selling crescendo that reached it's peak on Wednesday, 5/16. Lower lows were recorded the next day on relatively high
    but less total volume. On Friday the Euro reversed on the lowest volume in the previous 4 sessions. The reversal took place $.0012
    from the reversal off the previous Euro/Greek lows this January, which also reversed after a volume crescendo.(Marked on chart).
    http://www.charthub.com/images/2012/05/19/Euro_Weekly.png
    The $USD had a volume spike or buying crescendo on Thursday 5/17 strong enough to make 81.530 the highest volume price
    for the $USD in the last 1400 days.The previous higher high reached during the January Greek/Euro drama was on far less volume.
    With the ongoing nature of the Euro crisis I'd expect more balancing awaiting resolution rather than immediate counter trend moves
    back to previous major acceptance areas.
     http://www.charthub.com/images/2012/05/19/Stock_Weekly_2.png
    E&P Stocks had their most recent volume spikes on liquidation after two rally attempts. Since then E&P stocks have fallen with indifference from larger
    buyers. In most previous cases a volume selling climax is noted at the lows. But not always the case. This time around it appears that larger players got
    a lot of their selling done up front? Will continue to monitor aggregate demand volume in E&P stocks especially after bounce attempts.
    http://i1223.photobucket.com/albums/dd503/zorgnak/EP_Demand_Vol_Breadth.png
     

  2. 2
    Zorgnak Says:

    On the other hand  there's XOP  which looks to be  in the midst of a volume selling crescendo above significant support at the top of a volume base (45.50) that dates back to the end of the
    2009. Since 2009 there have been 7 volume selling crescendos with a median of 8 million shares traded on the peak day prior to the swing low.
    Friday was just short of 7 million. I'd look for selling to dry up as we approach major support at 45.50-46. I'm expecting more balancing with
    oversold bounces to the bottom of previous range lows over the next couple weeks. I'd expect support above 45.50-46 to hold on the first touch. 
    Chief risk to me would be a 2nd test of his area after a bounce that slices through during a general market sell off on a poor reaction
    to the ongoing crisis.
    http://www.charthub.com/images/2012/05/19/Stock_Weekly_2_2.png

  3. 3
    Zorgnak Says:

    There were two other charts that had distinct volume crescendos  following the low growth and deflation theme shift.

    Junior Miners GDXJ and Brazil EWZ or BRF. Brazil looked the most intriguing to me.
     

  4. 4
    brodway Says:

    Zorg.
    would you please clarify balancing? i think you were mulling over the XOP coming down to this 45.5-46 range and its pretty much there.
    one thing i did notice on Friday is that most of the energy names were pretty stable up until the close when they were dragged down by the general sell off.

  5. 5
    brodway Says:

     
    Treasuries In Longest Winning Streak Since ’98 On Europe
    This was the headline on Bloomberg.com today. I have been hearing now for months that treasuries is the worst investment you could make when stocks are this cheap. Not making much sense right now, but going with the flow.

  6. 6
    nrgyman Says:

    RE 5:  Long term US treasury bonds moved to new generational low yields (high prices) this week.  High yield bonds and other risk assets are being heavily sold.  European panic over bad debts and deleveraging.  Similar to 2008-9, though not yet to the same degree.  How did our Fed handle it?  By massively printing dollars, guaranteeing deposits (in dollars) and forcing (with the Treasury's help) banks to recapitalize and merge.  The ECB will need to do the same, but in Euros.  Problem is they don't have a Treasury because they don't have a fiscal union, so they will need to create a fiscal union to deal with these problems if they want to survive as a monetary union.  See this great article in today's Barrons (front cover):
    http://online.barrons.com/article/SB50001424053111904370004577390023566415282.html?mod=BOL_hps_highlight_top#articleTabs_article%3D1
     
    Meanwhile the panic can go either way at this time.  If Germany moves toward a more pro-growth policy (what everyone at the G-8 is telling them today to do) and the ECB decides to stimulate like they need to, the markets will scream higher for awhile until we realize the can has just been kicked down the road again.  No lasting solution until the political issues are resolved around a true fiscal union.  Such a union will not come easily or without sacrifices.  And the deleveraging process will continue on for years, which means slow growth in Europe for a long time.  But that is a much better outcome than the depression Europe is heading into without such changes.  

  7. 7
    Zorgnak Says:

    Good question. The idea of "balance" originally comes from  market auction theory that underlies the "Market Profile" method
                   of framing and trading markets. It is similar to what Z calls "Yoyo" trading or others might call a range.
                   I call it balance because the range or yoyo action is the market's attempt to find a balance between buyers and sellers
                   and establish price consensus or value. Knowing the balance/value point is helpful in a number of ways.
                   Markets spend the majority of their time in balancing action. Trends are the market trying
                   to discover what value is after being knocked out of balance,usually by new information coming into the market.
                   Trends end in balancing action attempting to find an acceptable value once again by both buyers and sellers.
                   XOP and much of the market has been knocked out of balance into a trend to find to find what current value
                   is in light of what is known and what goes bump in the night. Before value can be established the market most often
                   goes into balancing or yoyo mode until a  consensus value is establish. I call that point of value "balance" or "acceptance".
                   I use volume at each price to establish that value. In the chart of crude oil below you'll see three distinct balance
                   areas/volume histograms that show the distribution of volume as well as the balance points themselves.
                   Markets can be in and out of balance on multiple time frames. Crude for example is way out of balance on the intermediate
                   time frame but just at the lower edge of balance in the longer term.
                   In both cases the balance point is higher than current price with long term at about $100. Previous major balance areas act like magnets. 
                   I expect that price will revert to the major accepted value area unless very powerful information changes long term perceptions of value.
                   Crude may form another lower balance area for a while, as you can see it did earlier this year at prices that were well above long term value.
                   Strong probability is that  price is most likely to migrate back to long term value as accepted by the most buyers
                   and sellers over the past several years.
                   The question for me is always, are we in balance and if so where are the limits of that balance area? If not…where are we most likely to find it again? For XOP I suspect we'll attempt to find balance at support above 45.5-46 but we'll                      "yoyo" around a bit to establish where new value is accepted. Only after that balancing act has done it's thing will a new trend emerge or the old one continues.
    http://www.charthub.com/images/2012/05/19/CL_Weekly_2.png
                   ..

  8. 8
    Zorgnak Says:

    #6 agreed

  9. 9
    zman Says:

    TS Alberto formed off the Carolinas – no threat to anything but an early start to the season

    http://tropics.hamweather.com/

  10. 10
    nrgyman Says:

    Combined cycle natgas power plants:  the new standard for power generation new-builds.  TVA is moving forward with it.  No doubt many other utilities are looking closely at this on-time and under budget performance:
     
    http://therogersvillereview.com/story/12599

  11. 11
    zman Says:

    Someone asked last week at what natural gas price do we switching back to coal and though the area is going to vary a lot from utility to utility I dug up some of my old research on the heat rates for the installed base of gas fired generation vs coal fired generation. Given current gas prices of $2.70 and current eastern coal prices of $55 per ton its not even close. Switching back is likely to occur once natural gas noses back over $4 to 4.45.   I'll post the equations in the Monday post. 

  12. 12
    nrgyman Says:

    RE 11:  Interesting.  Is there any consideration for the pollution costs the EPA may add on to those coal plants?  Also, there are continuous materials handling and ash disposal costs associated with coal and not with natgas plants.  Utilities are saving money on that as well when they move to natgas generation.  TVA is retiring coal plants and building combined cycle natgas plants for new power.  They won't be switching back.  Look for more permanent retirements of older coal plants, to be replaced by natgas generation.  

  13. 13
    elduque Says:

     
    From the Duke Power First Quarter Transcript:

    Finally, let me discuss the issue of coal-to-gas switching, which is resulting from the low natural gas price environment. The charts on Slide 8 show our generation fuel mix over the last 2 years and our current projection for 2012, both in the regulated businesses and in our nonregulated Midwest generation business. As demonstrated by these charts, the commodity price environment has significantly changed the mix of generation, resulting in less coal and more natural gas. For example, in the Carolinas, our Buck combined cycle gas plant, which became operational this past November, has been dispatching like a baseload generating unit. In fact, it is currently dispatching just after our nuclear units in the Carolinas, ahead of even our most efficient coal units.
    Additionally, as I mentioned earlier, our nonregulated Midwest gas-fired generation continues to run at high levels. In fact, 2011 was the third straight year this fleet achieved record generation levels. And if low gas prices persist, 2012 is looking like another record year.
    As a result of reduced coal burns expected in 2012 from mild weather and low natural gas prices, our coal inventory levels have increased. Inventory levels are currently above our target of about 40 days in the Carolinas and about 45 days in Indiana. In 2009, the impacts of the economic recession put us in a similar situation, but we were able to work with our coal suppliers to effectively manage inventory levels. We are doing the same this year.

  14. 14
    choices Says:

    #10-Impressive!

  15. 15
    nrgyman Says:

    RE 13:  Good find.
    "In 2009, the impacts of the economic recession put us in a similar situation, but we were able to work with our coal suppliers to effectively manage inventory levels. We are doing the same this year."  
    Look how that is working out for the coal suppliers.  See the charts of ACI, BTU, JRCC, PCX, ANR, CNX, etc.  An unmitigated disaster for them.
    Horizontal drilling and fracking technology has almost single-handedly demolished the US thermal coal and alternative power markets.  It could have a big impact on the US chemical, transportation and heating oil markets as well.  We are in the early stages of a big bull market in US natgas demand.  I would actually like to see NO exports of natgas, but rather massive US use of natgas for transportation, electricity, heating and industrial purposes.  Export coal and refined oil products instead.  Such a strategy would generate a dramatic boost to our economy and prosperity.

  16. 16
    zman Says:

    re 12 – No, it is a straight heads up heat rate based calculation resulting in costs of a kilowatthour produced. 

  17. 17
    nrgyman Says:

    RE 16:  Thanks, Z.

  18. 18
    nrgyman Says:

    From the G-8:  Sounds like massive growth stimulation is on the way.  At least that is the rhetoric.  But I'm reminded of the sage words of a wise Wendy's patron:  "Where's the beef?"
     
    http://www.reuters.com/article/2012/05/20/us-g8-summit-idUSBRE84H06F20120520
     
    If they follow through, that would likely end the stock market purge and produce a significant rally.  See #6 above.

  19. 19
    nrgyman Says:

    Seaway begins flow of oil from Cushing to Texas:
     
    http://finance.yahoo.com/news/seaway-pipeline-sends-oil-texas-201304542.html

  20. 20
    brodway Says:

    re:7
    Zorg.
    Thanks for the explanation. Really useful info. In other words, balance is the range that the markets believe buyers and sellers agree to trade in until other factors influence the markets to change their opinion of this trading range. 
    Would you also elaborate on acceptance as to the context you use this phrase in. Thanks in advance.

  21. 21
    Zorgnak Says:

    #20…brod
      In a balancing market price goes back and forth as buyers and sellers opinion of value has reached a rough
                   equilibrium. Within that range of opinion the area where buyers and sellers are most in agreement on price
                   is the acceptance area. This area can be seen by the amount trade volume facilitated at each level within the range.
                   To refine it a even further, there is one price at which the most volume is traded in the range. That is called the
                   "Volume Point Of Control". This is where buyers and sellers were most in acceptance of each others opinion of value.
                   Trading Volume for me is the key to forming a scenario on the probabilities of price movement. Don Cassidy a technician
                   I like said, "Volume is the cause. Price is the effect".
                   Markets exist to find acceptance where both buyers and sellers are most comfortable trading. Volume tells me where
                   that  acceptance is and just as important, where it isn't.
                  

  22. 22
    elduque Says:

    As always Zorg. Thanks for all your wisdom.

  23. 23
    brodway Says:

    re: 21
    makes sense. thanks for the explanation.

  24. 24
    brodway Says:

    Zorg.
    i also like to watch individual names in comparison to the overall market. 
    on some non energy names, and in tech land specifically, i'm seeing several issues starting to approach very "acceptable" ranges.
    just as an example, i'm seeing SLAB reach levels of last fall and i can't imagine things are bad now to get down below the levels reached last year.
    another example, PLCM has now reached support levels of 2010. i can't mentally get past the fact that the market is telling a story that things now are as bad as they were coming out of one of the worst recessions/depressions in the history of the US. i just don't buy that.
    another one is SYNA. i've been in and out of the stock several times over the years and regretted selling it in the low 30's early late last year. i just noticed it has come down to some major area of support, where  it held up even in times considerably more volatile and bearish than now.

  25. 25
    elduque Says:

    I have NFX presenting at  a UBS conference on the 22nd at 9.25am central. Do you know who else will be presenting?

  26. 26
    brodway Says:

    just saw 2 other tech names down to levels of major support over multiple years.
    NTAP and JDSU.  unless someone can explain to me that we are worst off today than in 2010 i'm just not buying this huge drop. 

  27. 27
    elduque Says:

    brodway- I can't remember when there was this much negativism. Seems all the commentators want to talk about is how bad CHK, JPM and Greece is. They give the impression that the world is going to come to an end.
     

  28. 28
    brodway Says:

    Elduque.
    i was looking at NFX last week, still own it, and think the stock is beyond cheap, but looking at the chart it getting concerned that i can't find any area of support until we get to 20. 

  29. 29
    nrgyman Says:

    CLR:  Appears to be stabilizing at strong chart support.  Noticed that CEO Hamm just bought 100,000 shares around 72 for a sizable $7.2 million purchase.  

  30. 30
    brodway Says:

    re: 27
    Elduque, but why isn't anyone stressing that Icahn could be accumulating a big chunk of CHK and would be a big catalyst as far as getting the company on the selling block which i'm sure won't be for anything less than $30. 
    Also, why are the tv networks care that Greece is going back to the Drachma, and no one is talking about China easing lending capacity constraints which was all the hype last year which brought us down to some nasty levels in the fall. If the Chinese banks are now reversing the apparent slow down from 10 to 7%, wouldn't this be positive economic development for the entire world?
    There was a guy on Bloomberg radio recently, who had said the biggest problem in financial reporting today is that we have so many modes of financial information today, most folks don't yet know how to react to news coming from all these sources which lead to drastic moves down. I can now agree with his view. Will attempt to find the interview on Bloomberg's website.

  31. 31
    brodway Says:

    re: 29
    Nrgyman. 
    Zman was right on the button on CLR. He called support at 70, which i believe it hit last week and bounced. It's so important to see these insider buys as it speaks volumes about the officers putting their chips down and saying i'm all in.

  32. 32
    Zorgnak Says:

    S&P 500 Futures Key Weekly Volume Profile Levels/Thoughts
    Market closed within major long term acceptance on Friday. Levels to watch for support are 1275-77 and 1263.50.
    Also in the mix is the 200 MA. Expect TA and System trades to kick in with a failure to bounce above the 200 MA after 
    tests of support. My expectation  for the week  is a return to acceptance  at 1304 with bounce attempts having to grind
    to resistance through long and short term congestion. I see bounce attempts getting sold back to major acceptance (1304)
    unless a shift in macro news/sentiment occurs. All recent market attempts to settle have been sold. A change of character would be
    a positive closing swing and or resistance being broken to the upside on volume and holding O/N. 
    Near resistance at 1325.25, far resistance at 1347. As of the close on Friday the market is
    oversold on any number of metrics and though the probabilities are for a bounce, demand volume shows
    no turn in any time frame yet. Will have to adjust after the Sunday's O/N session
     
    Key currency Levels
    $USD . Friday broke a 5 day balance above 81.369 now resistance. Current support at 81.133
    with a very low volume area to long term acceptance much lower.
    http://www.charthub.com/images/2012/05/20/Stock_Weekly.png
    Euro rejected previous acceptance at 1.264 on Friday as unfair, as it did during  January's Euro crisis. Expecting
    balancing to occur  between January lows (1.2640) and resistance CLVN (1.2872) until Euro
    sentiment shifts. A break of either level would be significant for equities. Key support at 1.254
    http://www.charthub.com/images/2012/05/20/Euro_Weekly.png
     
    CLVN= Low Volume Rejection Area – CHVN = High Volume Acceptance/Congestion

    1353.50  Congestion, CHVN
    1347.50  Resistance, Major CLVN
    1342       Minor Resistance, CLVN
    1335       Congestion, CHVN
    1325       Resistance, CLVN
    1304       Major Acceptance..From 1290-1304
    1275-77 Support, CLVN, 200 Ma below
    1261-63 Major Support, CLVN

    http://www.charthub.com/images/2012/05/20/ES_Weekly.png

  33. 33
    zman Says:

    re 25

    http://www.static-ubs.com/global/en/investment-bank/conferences/upcomingconferences/_jcr_content/par/table_3043.458154194.file/dGFibGVUZXh0PS9jb250ZW50L2RhbS9JbnZlc3RtZW50QmFuay9kb2N1bWVudHMvR09HQWdlbmRhLSAwNTE2MTIucGRm/GOGAgenda-%20051612.pdf

  34. 34
    brodway Says:

    Zorg.
    when you say you see bounce attempts getting sold off to acceptance at 1304 on the S&P, do you mean we get over that number and then get back down to that number as it serves short term support?

  35. 35
    elduque Says:

    Re NFX support: minor support see July 2009 at 27.90. Not sure that it means anything. 
     
    I do believe that CHK has been a contributor to the poor performance of a number of our stocks. I would be more concerned if I had one stock that was underperforming, but they all are and have all reached ridiculously cheap levels. Someday, maybe I will learn to keep a surplus for opportunities like this. However, as Z has pointed out several times, one has to wait until it turns. There will be ample opportunities then, with less risk. 
     
    Question:
    Have the gold miners turned? Has CHK turned?
     

  36. 36
    nrgyman Says:

    RE 31:  Agreed Brodway.  Insider buying has been picking up in the energy sector recently.  Noticed that the CEO of EVEP bought shares this week and is still optimistic he will get a good sale of their Utica acreage.  That one now has a yield of 6%.  Hard to buy into a free fall though and when other production based MLPs are attractively priced as well.  EVEP has entered a good value zone, though, and the CEO purchase confirms it.

  37. 37
    Zorgnak Says:

    #22…you are welcome..I try to steal from only the very best..  🙂  Most of this stuff is available for anyone that wants to dig deeper.

  38. 38
    nrgyman Says:

    Insider buying:  I'm sure there are more examples, but I have seen reports of recent insider buying in these energy names:  CLR, EVEP, HES, BCEI, REXX, WFT.  Please post other names if you know of recent insider buying in them.

  39. 39
    Zorgnak Says:

    #24…I've found that the market doesn't care what I think and in trading (rather than investing) getting anchored or too deeply attached to my opinion of  what  should or ought to be value is a good way to get my feelings hurt and end up with an account full of psychological dilemmas. If 2000 taught me anything is that a"good company" selling below previously accepted value can do so for much longer and go much lower than we ever thought. But..that's just me. That's one reason I'm drawn to oil stocks and Z's ability to tease out some intrinsic value to lean against.

  40. 40
    milepost_43 Says:

    27….agree lot of negativity out there but this Greek situation is not good when the June 17 election could have this Party come in 1st but still along way from a majority….Opinion polls conducted since the last election suggest that Syriza would come in first in a rerun, though short of an outright majority. Syriza would have 20.5 percent of the vote if elections were held now,

    Syriza, which advocates canceling the bailout and nationalizing banks, came second, and resisted pressure to join a coalition government.
    Syriza leader Alexis Tsipras said he demanded the caretaker prime minister freeze the implementation of wage and pension cuts and other austerity measures until elections are held and a new government is formed. He also called for all state asset sales to be immediately frozen.

  41. 41
    zman Says:

    Emailbag RE GDP

    What I found interesting is the flow rates on their Buda Lime wells. Were you aware of this?

    Yes. GPD has Buda Lime wells with nice rates, that's not a shale play but a naturally fractured lime play, the initial rates are at times high and the wells don't cost half of an EFS well since you don't frac them however the play is less homogeneous than the EFS and they don't have a lot in the budget for it this year. Chances are you see less Buda this year than EFS, probably 3 or 4 EFS for each Buda (as per Catalyst List notes).

    Movie Quote Sunday Watch:

    "I did not say this, I was never here"

  42. 42
    Zorgnak Says:

    #34..i see 1304 as the magnet from above and below…
    "My expectation  for the week  is a return to acceptance  at 1304 with bounce attempts having to grind
    to resistance through long and short term congestion. I see bounce attempts getting sold back to major acceptance (1304)"
    .
    I see 1304.50-1305  as an important level because that's where most traders are comfortable doing business both in the long and short term. Over the past 1400 bars 1304.50 is the most accepted price. On Friday the most accepted price was 1305. That's not a coincidence in my view. I see it all the time. The market will migrate to find acceptance and previous major acceptance is a powerful magnet in times when the market is seeking balance and there is no large shift in the macro/sentiment scene.
    So, if the market trades up and encounters resistance/selling, say at 1325,  the 1304-05 area is where buyers and sellers have been comfortable doing business and is a logical place for the market to rotate to  .  If we trade lower to support areas around the 200 Ma and the test is successful then I'd expect rotation back toward acceptance at 1304, once again assuming no major shift in the macro/sentiment scene.
    This is not rocket science o ra formula for the exact trajectory of the market. Each of the levels I put out are really just  an area of interest that may or may not get touched and then may or may not react according to how I expect. I have to read  the overall context of the market and the market's reaction near the level of interest , all of which is unknown now, before I commit and then it's a coin toss as to whether my thesis is right or wrong. Anything can happen at any time. Even if you know what every player at the table is going to do in advance, at the exact level they're going to act , there's always unknown players and vast amounts of money that can come into the the game at any moment without warning and make the old areas of interest irrelevant.

  43. 43
    brodway Says:

    zorg.
    if we were rocket scientists, this stuff would be a whole lot easier. unfortunately nothing that goes on in the market is calculated as is science. i think you do a damn good job of coming up with some reasonable explanation for S&P and XOP levels….support and resistance alike…. and as far as i'm concerned its as good a model as any.
    the other thing i like about talking about these things is that you realize your are not alone.  there are others out there that share your concerns and opinions. it really emphasizes that investing is not a sprint, its a marathon.

  44. 44
    elduque Says:

    The value of this site is I believe I really know the companies that I have in my portfolio. I don't know whether or not the market is going to go up or down in the short run. I do feel quite confident over the next 5 years that crude is going to be trading higher than here and given that, it is unlikely that NFX, GDP and PVA are going to be trading anywhere close to these levels. In the short term, who knows.
     
    So, even though I have taken pounding in my portfolio, it is not I believe going to be a permanent thing and it does allow me to keep some perspective on the whole situation.  

  45. 45
    Zorgnak Says:

    #44 I agree…..

  46. 46
    zman Says:

    S&P fut up 6.8, crude reverse earlier losses, up slightly now
    Tomorrow look for the The Week That Was and the Bakken Players Update Part I for May. 

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