Our view is that we’re in an ending diagonal and in the very last stages of this 5 wave move that started on March 6th.

Since we had a turn date on March 26th, there is a likelihood that this wave could truncate and we may have seen the highs on Thursday. Alternatively this last leg could extend upwards to as high as the 832 to 840 area and then begin a move down. Either ways, be alert to the possibility that this market is toppy and could be headed down.

With Germany the U.K and U.S seemingly on opposite ends of the spectrum there is a likelihood that the market will be disappointed by what is viewed as the last chance for coordinated policy to take effect. This could be the catalyst that takes the market lower immediately.

On the other hand, we have a proposal on Mark to Market accounting for April 2nd and the market could rally into that meeting.

Investment Strategy:

We shorted into the close on Thursday and took profits Friday morning so that we were flat over the weekend. Allocate 1 unit for every ten point move higher on the S&P.

Short term target: 770.

Bullishness is pervasive. For the first time in months, longer term sentiment is not extremely negative, thanks to the most powerful rally in at least 6 decades. Shorter term sentiment is downright giddy and the bulls are coming out of the woodworks.

Mark to Market and Uptick Rule give the bulls further fuel for enthusiasm. Bulls are counting on a further rocket launch if mark to market gets approved April 2nd and mark to fantasy becomes the order of the day.

Here’s why we think the rally could be history.

Technicals have created a huge amount of resistance at higher levels above 828. This explains why the market’s had trouble piercing the 830 barrier despite three failed attempts. Further significant support exists in the 842 to 858 region and every step beyond. Further upside is going to be a fight for the bulls.

Earnings season is upon us. Granted the market is more than willing to look past terrible earnings. However, this rally has been driven by the following:

- an internal citibank memo that stated the bank was profitable on an operating basis.
- an uptick in housing & durable goods
- Obama’s stimulus package
- Geithner’s bank plan

Valuation. S&P EPS using the operating earnings metric were a negative 11c in the first quarter. Run rate earnings are at $52 but the consensus is now floating around $45. Either way, a 10x multiple on generous operating earnings estimates yields a long term target of $450 – 520.

Economy
The real news this week was the Fed’s open announcement that the era of quantitative easing had begun and the Fed essentially announced that they would openly print money.

We learnt a long time ago that you cannot invest based on the headlines that are submitted by CNBC and the media outlets. Savvy economists will support our view that the uptick in housing was a seasonality uptick. The actual number was terrible, down over 40% year over year.

Ditto with Citibank’s vaporware annoucement that had us reminiscing of the halcyon Internet bubble days of earnings vaporware.

7 states are now above 10% unemployment, based on the official employment numbers, which include fluff and fantasy such as the birth and death assumption. Unemployment is accelerating, and while it’s certainly a lagging indicator, we believe that the economy does not currently reflect the knock on effects of accelerating layoffs. Furthermore, the spread between U6 and U3 has widened significantly over the past year, again indicating that the true employment figures are actually much worse than what’s being reported.

Given the games on prior month revisions and the manipulation, we rely more on the numbers coming out of the Asian economies. Japan recently reported a 50% decline in exports. Similar terrible numbers are coming out of other tiger economies.

What concerns us however is the approach that this and the prior administration have taken to fix this crisis. We have yet to see any significant stimulus make it’s way to the heart of global economic problem, the consumer. The obsessive view of the Treasury and Fed that “fixing the financial system” will create economic recovery is woefully off the mark, just as the Fed’s statement last year that “subprime is contained” was shockingly wrong.

Oh a heads up… we’re hearing rumblings that Q1 GDP could be another doozy, in the vicinity of down 6-7%.

Price & Pattern
The spring equinox yet again brought about a significant turn in the markets, as it has for at least 8 of the last 9 years.

The markets had a five wave impulsive run-up from the bottom in early March. We believe we are in Primary 2 and expect a strong market for at least 3 to 4 months before reality sets in and we begin a new leg lower. That would put us in the July – August time-frame for when a new leg down begins.

We expect Primary 2 to be an ABC or complex up move. Either way, we’re reaching the apex of the initial A move and expect a topping out in the 830 to 850 area. The B move down will be a short lived affair lasting about a couple weeks before we begin an extended and complex move higher.

Forecast
We initiated a short position in the S&P 500 830 area on Thursday and will be aggressively adding to our position at market at levels of 830 and higher. We’re focused particularly on the Commercial Real Estate and Financials. Secondly, we’re looking to take the other side of investors that still believe in inflation and are invested in oil related investments.

We’ll look to close out these positions fairly conservatively and start building long positions for the final ramp up.

The markets were up today with the Nasdaq leading the way. Going into Memorial Day weekend, I expect a bounce or upward bias in the market with selling continuing once things are back in swing next week.

FSLR – Sold FSLR yesterday, will look for possible re-entry if it moves higher, nice 7% move over the past few days. The P/E is in the high 40s and the stock will get creamed if oil corrects.

SRS – The SRS for those of you that don’t follow is the ultra short Real Estate index. Anecdotal information is finally beginning to emerge that the commercial sector in real estate will not survive and thrive as the market has them priced. The SRS has had a nice bounce off the double bottom around $80. My expectation is that this will be a lot higher than the Mar top it put in before all this is over. 9 of 10 top holdings in the index were in the red today. The move on this is going to be long and sweet, now is the time to consider getting in.

Oil – IF there is speculation, expect to see further selling in the USO tomorrow as traders will not want to hold this over the Memorial Day weekend. If you believe this is a demand driven story, well… good luck I guess.

Initiated Position in DUG at the close today. Stock is hated, reviled by most “oil has topped” investors. Certainly a risk to hold ahead of inventories but it is an initial position and one I can sleep with.

Stocks with huge volume spikes today and will be on my watch list tomorrow:

GRH, HKN, QTWW, LEI, OMNI

Another one to watch: Adolor ADLR received approval from FDA on a long awaited drug they have been co developing, conference call in the AM, stock could show strong activity in the morning.

Wednesday, May 14, 2008

DUBAI (Dow Jones)–Iran is storing about 25 million barrels of heavy crude oil in tankers in the Persian Gulf as no buyers are stepping up to the plate, the country’s departing OPECOPECLoading… governor, Hossein Kazempour Ardebili, said Tuesday.

“We are using about 10-12 vessels to store the crude,” Ardebili told Dow Jones Newswires in an exclusive interview by phone from Tehran.

The stored crude is “the main proof that the market is oversupplied” and that prices are disconnected from fundamentals, he said.

“I know other countries are building up stocks as well, there are simply no buyers because the market has more than enough oil,” Ardebili, who resigned as the country’s governor to the Organization of Petroleum Exporting CountriesOrganization of Petroleum Exporting Countries
Organization of the Petroleum Exporting Countries
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» Research
earlier this week after over 23 years in the position, said.

However, decreasing production is not an option, he added.

“We believe that this build up should serve at assuring the market that the oil is there if needed,” Ardebili said.

He added that Iran’s current production level is 4.1 million barrels a day, while production capacity is at about 4.3 million barrels a day.

Nymex June crude was trading down 15 cents at $125.65 a barrel on Wednesday, while ICE June Brent was trading down 19 cents at $123.91 a barrel.

-By Majdoline Hatoum, Dow Jones Newswires; +9714-3644964; majdoline.hatoum@dowjones.com

Copyright (c) 2008 Dow Jones & Company, Inc.

(END) Dow Jones Newswires

14-05-08 0824GMT

get slaughtered.

I find that whenever I get greedy and look to double my returns or make a killing in a trade is when I invariably take a hit.

Slow and steady returns can build a huge portfolio. For instance for a $20,000 portfolio,
$250/day * 22 = $5500 per month, $66,000 per year.

$250/20,000 = 1.25% return per trade putting the entire amount to work daily before commissions

Monday was the lowest volume trading day this year. That bodes ill for bulls.

Today’s trading volume was far closer to normal in what turned out to be a consolidation day.

Complacency reigns amongst the bulls. Fear reigns among the bears. Something has to give.

For all intents and purposes, this has been a weak rally. Bull market rallies are usually on rising volume off troughs. That being said, the market has shown a capacity to absorb bad news exceedingly well.

Watch for increased volatility heading into option expiration. Probably starting tomorrow with the CPI number.

Our money is there will be a bias to the downside the next few days.

Comment: The mosaic is being put together by investors that this oil story has nothing to do with peak oil. Rather, it is yet another bubble created by Alan Greenspan and his boom bust economy, and now being perpetuated by Bernanke with his weak dollar and low interest rates:

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Read the entire story on Financial Sense

The Energy Non Crisis – By Lindsey Williams

Is $120 oil even real? Not if you ask the Saudis, or even Lehman Bros.

The investment bank’s oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.

Recession or not, a U.S. slowdown will slacken demand sharply, right as new oil hits the market. “Supply is outpacing demand growth,” said Michael Waldron, Lehman’s oil strategist.

“Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

http://moneynews.newsmax.com/money/archives/st/2008/4/25/175710.cfm?s=al&promo_code=6231-1

Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010.

Although some years off, Brazil too has found as much as 8 billion barrels of light oil and gas offshore. The South American giant’s president says his country might well join OPEC when the Tupi field begins to pump, in 2011.

In addition, Middle Eastern sovereign wealth funds have pushed up the oil price by investing billions of their oil gains, ironically, in commodities index funds.

Now they could be looking to get out, warns Waldron. He figures the money effect has driven anywhere from $20 to $30 into the barrel price.

In addition, a weak dollar is holding oil prices high, according to a series of statements from OPEC leaders over the past week.

If you buy the views of OPEC’s various leaders, that’s at least another $20 of oil price that is not supported by the actual supply and demand situation.

In addition, Europe’s central bank seems bent on containing inflation there. A rate increase in Europe is sure to contain the euro’s rise against the dollar — if serious steps are taken soon.

Couple that with a lower-than-expected rate cut in the U.S. next week, or perhaps no cut, and the oil price drops as the dollar gains ground.

All this is having little immediate impact now, of course. U.S. gas prices at the pump hit $3.58 a gallon just as the summer driving season kicks off.

If nothing changes, analysts now expect gas to rise to as high as $4 a gallon in as little as a month.