Citi on fire

 

The government and major bond holders are willing to buy Citi shares for $3.25 a share, yet the market is selling to down to $1.40.

What gives?

 

I think Citi shares are incredibly cheap right now.

 

 

http://trendmester.blogspot.com

 

 

Oil Matters

Since last December, there’s been a tremendous increase of retail investors trying to speculate on the oil market.

 

Oil is a physical commodity that is traded on the commodities market with monthly delivery dates. Speculators who do not wish to take physical delivery have to rely on future contracts, and have to roll those contracts forward to future months before they expire on the third Friday of each month.

 

This roll-over activity created two interesting phenomenon:

 

(1)     The farther out month contracts are more in-demand than near month contracts. This (among other reasons) have created a phenomenon called ‘Contango’, which basically says current and near month contracts are cheaper than further out month contracts.

(2)     On the near months contracts – current and next month mostly – the contracts are in-demand for about a week after the expiration day of the previous month’s contract. After that the selling takes over until the next expiration day. Part of the reason for this is that funds like USO want to be out of the current month contract by the end of the second week.

 

If you buy USO or other instruments that rely on near term contracts, the Contango will kill you – you’ll lose 10 – 15% each month as the fund rolls over to the next month contract. Compare USO to another fund USL which uses a more Contango-tolerant strategy.

 

For short term trading, buying USO around the third Friday and selling near the end of the month seems like a good strategy.

 

Longer term, we’ll need to see a reduction in Contango before bullishness can take off.

 

 

 

 

Where are we?

Where are we, at this point, in the market?

 

What is clear, is that the market is not falling off a cliff like it did last October. The Dow has been relatively stable in the vicinity of 8000 since then.

 

Prior to October, the market was doing 3-month cycles of going up a little bit then falling off a lot. The market is not doing that either.

 

When we go back to the charts of 2000/Nasdaq, 1990/Nikkei, or 1929/Dow, we see that they all took more than 2 years to reach bottom.

 

The current crash, the crash of 2008, started off a height point at October 2007, and so far has gone on only 1 year and 3 months. So it appears we are not done yet.

 

So, the current period may be more like the Spring of 2008, when the market was consolidating after a fall off.  After consolidation the market picks up some courage and begins to head north, only to fall off later.

 

So the market may head north, if it does, for a couple of months. The upper bound for the Dow should be around 10000 – this number has triple significance: (1) it is the 38% Fibonacci retracement for Dow’s fall from 14000 to 7550; (2) it is the support of the market during 2004-2005 which turns into resistance; (3) it is a natural number boundary – big fat round number reminding people to get out. 

 

What goes up usually comes down. The market should head lower later this year, and may come to its final resting place in the bottom of the valley some time in 2010.  For the Dow, that final resting place should be below 5000, maybe 4000, or lower.

 

After reaching bottom, the market may enter a new 5-year cycle, going up for 2-3 years, in time for Obama to get re-elected, but then heads back to the bottom area toward the middle of the decade.

                                                                                                                                   

A caveat though: Nasdaq, Nikkei, and Dow/1930 were all “round number year” crashes, they all happen at the beginning of a new decade. This time, things were so bad that the market couldn’t wait for a change in the decade. So, things appear to be worse than those 3 times, but will it still follow the same play book?

 

Another caveat for the finance reversal:  the 5-day island was very short, and it was promptly violated a few days later. So finance’s reversal was rather weak and short-term, and we are not ready to attach a long term ‘bullish’ label to this sector.

 

 

 

http://trendmester.blogspot.com

 

 

Oil hitting bottom

 

Crude oil / USO looking to reverse.

 

Basic materials bullish.

 

 

 

http://trendmester.blogspot.com