Monday, August 31, 2009

Natural Gas Production Still Increasing

The EIA publishes monthly data on natural gas production in the US. Contrary to what you have been hearing in the press, natural gas production has not been shut in or decreased, on the contrary, it is still growing.

Please take a look at the monthy dry natural gas production data:

(please click on images to enlarge)

The average production in 2009 so far has been 1,752Bcf/mo, which is 10.8% higher than the average since 1995!

The chart below shows this graphically:

Note how the curve has been steeply increasing after 2005/2006. Extraction efficiency has been increasing, particularly on shale wells.

This will come in very handy the next time an expert tels you that the number of rigs is going down.

It will be soon time to revisit our natural gas straddles, please see our advisory warning, nat gas prices to fall below $1.

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US Open, a Money-Making Machine: $450M for New York

As an avid tennis fan, here is a article that touches two of the things that I love: tennis and financial markets. The main rounds of the US Open start today (qualifying started last week).
Bloomberg states today that the US Open brings about $450M to New York City:
"The worst recession since the Great Depression hasn’t diminished interest. The USTA said it sold all 84 of its luxury suites and forecast ticket sales to exceed 700,000, probably falling short of last year’s 720,227 record.
The $450 million annually the tournament generates for the city’s economy is more than the four major professional sports teams based in New York combined." "Last year, the Open earned more than $100 million on revenue of more than $200 million, according to the SportsBusiness Journal.
“The USTA has done wonders for us, and they’re a money- making machine for themselves,” Podziba said. “I wish we could have two or three more U.S. Opens each year for our economy, and we especially now could use it.” "

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S&P500: The Top 20 Stocks to Sell

Here is the S&P500 Report. The average RSI7 is 59.67. There are 109 overbought companies and only 6 oversold.

Top 20 overbought companies (109 are overbought):

94.979 AIG
91.456 BCR
89.395 AMD
89.300 TIF
88.380 HIG
86.939 JDSU
85.789 AEE
85.715 QLGC
84.013 C
83.721 MHP
83.487 DELL
82.513 INTC
82.501 GCI
82.484 DFS
82.118 GNW
81.760 AVY
80.847 WAG
80.461 HAS
80.047 LEN
79.860 EMC


29.585 MFE
29.420 ERTS
29.098 DNB
28.143 HCBK
24.279 INTU

RSI7 of ETFs I follow:

22.057 UNG
72.236 SPY
60.691 IWM
70.589 XLF
69.465 DIA
53.825 USO
43.042 ^VIX

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Friday, August 28, 2009

Timothy Geithner Digged

The WSJ has a video where Timothy Geithner answers the top questions submitted by Digg users. It is very interesting to wtch the way in which he answers some of the questions.

"Why has the Federal Reserve Bank never been audited?
Is Goldman Sachs corrupt? Did you work for GS?"

Press the Play Arrow to view.

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The Latest Top Bank Failures in The U.S.

The Wall Street Journal today reports on the top recent U.S. bank failures.

The top failures by assets are:

(please click to enlarge).

They also show a nice graphical representation, where the circles represent the size of the failures:

Many thanks to Seamus for pointing to the source.

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Natural Gas Report: Storage Overflow Likely in October

Here is the natural gas report for the week. Stockpiles continue to increase, this week by 51Bcf, bringing the total to 3,258Bcf. This is 18.8% higher than at the same time last year.

Chart comparing the 5-year average with this year's storage:

The situation can only be described as... critical. Because we are again entering the fall shoulder season, stockpiles will likely have small increases in the remaining 2 or 3 weeks of the summer as some air conditioners are still on, then we expect bigger increases as there neither heating nor cooling occurs. That my fellow readers, is when the fun will start. We are still trending to overflow of all storage capacity in the US, most likely around October timeframe. We also continue to keep an eye on hurricanes and on the sister which is already in overflow in Canada.

Today dropped another 2.55%, while UNG only dropped 0.55%:

Look at this incredible comparison between UNG and over the last 30 days: is already in overflow and may predict what UNG will do.

Hurricane watch:

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Thursday, August 27, 2009

Iron Ore: Tata Steel Says Global Slowdown Continues

Tata Steel, the Indian steelmaker and world's 8th largest iron ore producer, posted an unexpected first-quarter loss "as the slowdown in Europe and the US continued to weigh on the business" and gave a cautious outlook saying it expected global recovery in the sector to be slow.

Iron ore production fell 20% in the first 7 months of the year.

Tata Steel trades as TATASTEEL on the NYE:

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The GDP Q2 1% Drop: Fact, Fiction, or Spin?

US stock market futures just turned higher after being in negative territory earlier today. The reason is that (Bloomberg) "the U.S. economy contracted less than anticipated in the second quarter as a jump in government spending and smaller cutbacks by consumers helped mitigate a record plunge in inventories. Gross domestic product shrank at a 1 percent annual rate from April to June, the same as calculated last month, [...] Analysts in a Bloomberg survey forecast a 1.5 percent drop".

It is important to note that oil prices went up about about 25% in May and June:

West texas Crude:

So consumers were spending a lot more in oil during this period. The GDP still dropped 1% with this spending and with the massive reflation program being put into place by the government. In the meantime, unemployment remains very high. Bloombetrg also says:

"Fewer Americans filed claims for jobless benefits last week, another sign the economy is pulling out of the worst recession since the 1930s. Applications fell by 10,000 to 570,000, a higher level than forecast, in the week ended Aug. 22 from a revised 580,000 the week before, Labor Department data showed today in Washington. "

A higher level than forecast becomes "fewer Americans filed for claims".

Imagine what will happen when the stimulus money effects end, or when the unemployed stop spending money, or if oil drops. This in an very precarious and dangerous situation for the next quarters.

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Quantitative Easing Coming Near You: the Devaluation of Everything

Currencies is one of the favourite subjects here as it influences all prices. Gold and commodities depend on the dollar and its various exchange rates versus other currencies. Printing money and dropping rates makes the dollar go lower, commodities higher, and make people go hungry. In fact, people die because of the dollar, a fact that seems ignored by central bankers.

Soaring currencies also threaten to derail fragile economic recoveries around the globe. That is exactly what Timothy Lane, one of Canada's central bank most senior advisers, meant when he sent a very strong signal that the rhetoric about the currency's rise in the last couple of months is real:

"persistent strength in the loonie risks derailing Canada's fragile rebound from recession by hurting exporters who stand to gain from nascent signs of life in the U.S. economy."

The Globe and Mail reports that "Mr. Lane then upped the ante by signalling that the loonie's current trajectory could force the Bank of Canada to join the U.S. Federal Reserve, the Bank of England and other central banks in the business of creating money to buy government debt, an extreme tool of monetary policy called quantitative easing."

In simple terms, quantitave easing means printing money by buying the government's own debt, in essence causing a drop in interest rates, and thus weakening of the currency.

"Other things being equal, a persistently strong Canadian dollar would reduce real growth and delay a return to the inflation target,” Mr. Lane said." Ther uqestion is whetehr the "other things" will remain equal.

Here is the performance of the Canadian dollar this year:

Other countries may follow and use similar tactics. In particular I would like to pay attention to Brazil whose currency has performed spectacularly. The Brazilian situation is fairly unique as the country is rich in resources (inluding oil).

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Wednesday, August 26, 2009

Berinyi vs Roubini: Damned if They Do, Damned if They Don't

Laszlo Birinyi, founder of CT's Birinyi Associates Inc, sais this week that he is very optimistic about the economy. He maintains the U.S. economy's rebound will be stronger than most people expect. His forecast is based on the recent rally of the S&P500 index (the same one which we discuss here as being near overbought and with stratospheric P/Es).

He says:

"The markets are suggesting that the economy has turned the corner and is going to do a lot better than most people anticipate". In May, he said that the S&p 500 will reach 1,700 in the next two to three years.

Nouriel Roubini, the now famous New Your University professor, however, says that the odds have increased that the economy will worsen.

"There are risks associated with the exit strategies from the massive monetary and fiscal easing". "Policy makers are damned if they do and damned if they don't". Roubini also says the recession will not be formally over before the end of the year.

There are many economists and many talking heads out there with different opinions. Some will be right and get the bragging rights.

(Quotes from Bloomberg)

Stumble Upon Toolbar Straddles for October and November

Below are Strangles for October and December. They are still relatively illiquid, but liquidity has greatly increased since our last post.

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Advisory Warning: Natural Gas to Fall Below $1


Natural gas inventory levels in Western Canada are at 492.46Bcf as of
August 23 and now exceed the existing storage capacity of 489Bcf.

As readers here know, storage of natural gas in the US will reach capacity in the next couple of months. What happens then to the prices is unknown as we are in uncharted territory. However, we may have a good preview occurring right now in Canada. This is very much what we stated on August 20.

Natural gas in Canada is performing even worse than in the US (see vs UNG). Current prices are already below $2, prices not seen since 2002.

FirstEnergy Capital, an energy advisory based in Calgary has issued a warning that prices could fall below $1 in coming weeks, according to Canwest news service.

The firm says that Canadian supplies "continue to drift lower" but there is no evidence of large scale shut-ins occurring. Inventory levels in western Canada are at 492.46Bcf as of August 23 and now exceeed the existing storage capacity of 489Bcf.

Also with regards to, the natural gas ETF in Canada that is underperforming UNG in the US, Claymore has responded to me on the reasons, which were as we had previously stated:

"GAS follows the AECO price for Natural Gas whereas UNG follows the NYMEX. Although the commodity is the same, they are different hubs and currencies. Both would have an effect as to how closely the two track one another.

The fund rolls forward contracts over a five day period, seven days before month end. This is done on a monthly basis. The fund rolls the contracts 20% per day over five days. "

What Claymore does not mention is the other reason , UNG is overpriced dues to its shares issuance problems and is comanding a premium over NAV.

Keep your eyes on for a possible preview of UNG future prices.

Straddles (strangles):

With so much volatility expeted on natural gas, and particularly UNG due to its broken status, and hurricanes arriving at any minute, straddles and strangles may present a great opportunity for profit. Here are updated strangles for UNG, with expiry of September 2009, October 2009, and January 2010, computed with our StraddlesCalc tool:

(please click to enlarge)
Storage Chart:

US Storage Chart comparing 2008 with 2009 (from our previous articles) :

Dreadful is one way to describe it.

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Bernanke Says He Saved the World, But Millions Go Hungry, DBA to Flounder

A hungry man is an angry man. J.S Kim has a great article today on Seeking Alpha. It is worth the read in its entirety. For the time-challenged, I'd just like to quote a few parts.

"... why commodity ETFs that focus on these particular commodities (PowerShares DBA, for example) will temporarily flounder. Today, according to the United Nations, more than 1 out of every 7 people in the world go to bed hungry due to rising food prices. The largest contributor to rising food prices is Central Banks’ monetary policy of devaluation of currencies worldwide. In turn, this has spurred food riots in 30 different countries.

Last week, I thought of the travesty of the headline “We Saved the World,” a claim made by US Federal Reserve Chairman Ben Bernanke at the Jackson Hole, Wyoming banking symposium of global Central Bankers. Bernanke and his cartel of international bankers definitely did not save the world. All they did was take money from citizens and give it to big banks to help them reinflate their balance sheets. In turn, as the financial sector normally leads a general stock market index higher, they succeeded in inflating stock markets in the face of horrendous economic fundamentals.

However, let’s make it clear that this action was more comparable to “fooling the world” rather than “saving it.” When this inflated stock market bubble bursts as it surely will at some point in the future, whether China bursts first and drags down the world or the US markets burst first, then people will understand Bernanke’s and all Central Bankers’ duplicity. "

Did Bernanke and Paulson consider this?

DBA chart:

HAU chart (2X, CAD):

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Tuesday, August 25, 2009

S&P500 vs SPY: Beware, Two Different Measures

It is interesting to note that the SPY ETF is not the same as the average of the S&P500 companies.

Currently, the average RSI7 of the S&P500 companies is 62.12, while the RSI7 os the SPY is 70.11. While SPY is slightly overbought, the average S&P500 is not. So, beware of using SPY (or SPX) as oversold/overbought indicators.

RSI7 of ETFs I track:

UNG 33.17498356
SPY 70.11653517
IWM 66.83132418
XLF 64.49219074
DIA 70.00764774
USO 61.59017271
^VIX 46.53031024

Most overbought companies in the S&P500 August 24 EOD (top companies to short):

average 62.12425041
DPS 91.418641
CNP 89.57874075
VAR 88.67036221
C 88.45163573
MHS 86.87299299
LO 86.30462197
MO 85.796347
RAI 84.93612035
AIG 84.38874105
CCE 84.15130046
RRC 84.07498634
FE 83.76547564
AVY 83.74926154
PDCO 82.94770473
BMY 82.4668091
AOC 82.09383764
FRX 82.02167951
NU 81.85634246
AEE 80.86982402
DFS 80.41739103
ESRX 80.26497732

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The Fed Loses Case and Must Disclose Who It Loaned $2T To.

A small victory for tax payers in the case of Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).

Bloomberg resports that Manhattan Chief U.S. District Judge Loretta Preska said the central bank “improperly withheld agency records” by “conducting an inadequate search” after Bloomberg News reporters filed a request under the information act. The Fed was given five days to turn over documents, including 231 pages of reports, and must look for more at the Federal Reserve Bank of New York, which runs most of the loan programs.

The Fed had said that disclosing the recipients of the #2T may hurt them. It may still appeal the decision. As many of the readers here know, but most people in the world don't, the Federal Reserve is a separate entity from the Government and amazingly does not have to answer to Congress, nor to the President.

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Monday, August 24, 2009

S&P500 Report: 132 Overbought, Only 1 Oversold

The average RSI7 of all the S&P500 companies now is 64.47, approaching overbought, but not quite there. However, there are 132 overbought companies and only 1 oversold (measured by using the arbitrary 70-30 RSI7 thresholds).

Overbought companies:

DPS 89.747
CNP 89.361
C 86.935
VAR 86.850
AVY 86.213
RRD 85.788
GPC 85.577
MHS 84.209
SGP 84.075
CCE 84.015
AIG 82.996
BMY 82.290
FE 82.245
RRC 82.024
JAVA 81.860
WEC 81.799
PDCO 81.640
MRK 81.298
RAI 81.156
FRX 80.702
NU 80.659
PNW 80.644
MMC 79.994
CRM 79.722
CMS 79.401
MO 79.317
SJM 78.802
AEE 78.755
CAH 78.722
LEG 78.076
DFS 77.936
DTE 77.902
AOC 77.720
MCK 77.407
JDSU 77.312
IR 77.171
CAG 77.072
GPS 77.040
EIX 76.939
BDK 76.877
PFE 76.859
AIZ 76.533
RF 76.475
TGT 76.047
GIS 75.869
LEN 75.666
CHRW 75.238
MOT 75.158
MYL 74.972
ABC 74.935
ESRX 74.813
CEG 74.761
AET 74.707
HNZ 74.692
SYK 74.549
MDT 74.506
UNM 74.496
SII 74.486
WHR 74.453
CVS 74.425
HAL 74.425
HRB 74.178
ZMH 74.094
JEC 74.088
LO 74.053
NOC 73.966
ZION 73.885
RX 73.787
HIG 73.781
SCG 73.777
WYE 73.758
APC 73.671
K 73.669
OXY 73.503
CTAS 73.502
HUM 73.428
TE 73.381
COF 73.328
TEG 73.322
BCR 73.241
PCP 73.192
POM 73.176
HAR 72.872
JBL 72.831
TSS 72.799
CAM 72.574
LTD 72.517
STI 72.459
CA 72.452
PGR 72.452
GD 72.371
NI 72.260
SYY 72.233
CIEN 72.209
EQT 72.189
PBG 72.171
A 71.920
TWC 71.898
WYN 71.878
GENZ 71.795
EMN 71.780
WFMI 71.756
ITT 71.538
ETR 71.507
BBT 71.491
UNH 71.446
BIIB 71.433
PFG 71.351
GR 71.345
KMB 71.332
HOT 71.304
HRS 71.292
UTX 71.154
STZ 71.116
ADI 71.094
IP 71.087
BNI 71.076
GAS 71.015
LH 70.951
L 70.948
LNC 70.709
PRU 70.673
AES 70.607
FIS 70.566
R 70.424
OMC 70.354
AEP 70.241
SBUX 70.212
MA 70.171
HCN 70.136
COG 70.098
AIV 70.039
PAYX 70.015


INTU 28.180

RSI7 of other ETFs and indices I follow:

UNG 17.870
SPY 70.220
IWM 67.090
XLF 68.925
DIA 69.427
USO 61.011
^VIX 45.204

Note how UNG is oversold.

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Friday, August 21, 2009

Quest Uranium, Ring of Fire

Those investors interested in Uranium may want to take a look at Quest Uranium, QUC.V (or CVE:QUC on Google). I received these shares as a spin-off of one of the companies in the Ring of Fire, I can't remember which one (!). The shares are up 793%.

Incidentally, Noront and Fancamp have done quite well recently:



It is likely time to reduce positions before the next crash and people start realizing there is no real recovery.

Ring of Fire:

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The Illusion of Market Gains in the U.S.

Some investors in the U.S. are happy that their portfolios have gone up a bit this year. What they may not realize is that markets have gone up because the USD has sunk.

In the last 12 months or so, the stock markets in the U.S. have only gone up when the US dollar has gone down, that is the politics of reflation being employed to revive the markets.

This chart show the updated performance of a number of currencies versus the USD on a YTD basis and for the last 90 days.

(please click to enlarge)

This is very sad.

On the other hand, the real stars are the markets in those countries whose currencies have appreciated. This, for example, is clearly seen in the EWZ (Brazil) vs SPX comparison chart:

The SPX gain of 11% is not really a gain given the drop in the USD.

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Thursday, August 20, 2009

Natural Gas: UNG vs

In the last 30 days the USD has devalued around 2% vs the CAD dollar, and in the last 90 days it was about 5%. Something is very off here.

5 days:

30 days:

90 days:

One of these two is overvalued. UNG is broken due to its lack of new shares issue, so it is currently overvalued vs. NAV. Claymore's doesn't follow NYMEX natural gas contracts, it follows AECO (Alberta) natural gas contracts. It seems that nobody wants anything to with natural gas there. Will precede UNG prices?

Prices will be wild, they could conceivably go to zero as storage overflows. Throw in a hurricane or two and you have a trader's paradise. Not for the long term (unless you are talking a decade out). Straddles here will likely also be highly profitable.

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Natural Gas Weekly Report Aug. 20: Situation Remains Dire, 2 Handle is Here

Natural gas inventories were released a few minutes ago, showing an increase of 52Bcf. There is no change here, the situation remains dire for the natural gas commodity. The following chart compares the storage last year and this year:

Current storage is 21.3% higher than last year, and 19.1% higher than the 5-year average.

The reason to avoid being short is only because of hurricanes.

As a result, natural gas futures now trade with a 2 handle, as referenced here months ago:

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Wednesday, August 19, 2009

SEC Warns Against Leveraged ETFs: Where Have They Been? Madoff Was Peanuts Compared With This

"The Financial Industry Regulatory Authority and the Securities and Exchange Commission decided to issue an investor Alert yesterday called “Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors”…. This warning was meant to warn retail investors of the added risks in leveraged ETF investments that exist above and beyond the traditional world of investment products." (USA Today)

Where were the SEC and the Finra last year when these leveraged ETFs were losing investors hundreds of billions of dollars? We reported ad-nauseum about these ETFs here.

Mr. Madoff was peanuts compared to the losses mom & pop investors suffered with leveraged ETFs, instruments of mass financial destruction.

Reminder that we have a live loss-o-meter for FAS/FAZ, on a 20-min delay.

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Index ETF, Oil, and Natural Gas Options and Straddles in Play

Here are straddles and strangles for September 2009, December 2009, and January 2010 for IWM (my favourite), SPY, UNG, and UCO.

Maximum moves required for each are shown in the yellow-shaded line. If the underlying moves this much, the position will be profitable at expiration. Note that depending on the length of the time to expiry, the position can be profitable with much smaller moves.

For September 2009:

(please click to enlarge)

For December 2009 and January 2010:

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Tuesday, August 18, 2009

Why Canadian Banks Did Better in the 2008 Financial Crisis

The IMF released a paper that analyzed why certain countries and banks fared much better than others during the financial crisis of 2007 and 2008, with particular attention paid to Canadian banks.

Then usual explanation is that better banks were more conservative (like the Canadian Banks) and better capitalized. However, this is not so according to the IMF. The banks that did better are those that had a diversified depositor base, those who were not concentrated on a few larger investors. A clear example of the latter was Bear Sterns.

The IMF study looked at big banks, those whose assets were 0ver $200B Euros at the end of 2006. The reason banks survided and did well is related to capital reserves and liquidity ratios, i.e., how much money the bank actually can count on when the money is needed (and that can be sold quickly).

Canadian banks in general take less risks (particulary with mortgages, only 3% is subprime), but were not well capitalized at all. They only scored in the third quartile of all banks considered, below average! Their differentiator was their depositor structure, how diversified was its base of depositors. Canadian banks take money from the general public, who did not cause any run on the banks (their deposits are insured), thus, nothing happened. Other banks however, concentrated on the wholesale market and took large investments from other big banks or investment institutions. When these big banks panicked, they caused the trouble. This turned out to be their recipe for disaster.

Relevant quotes from the paper:

"The Canadian banking sector is dominated by six large banks with an integrated nation-wide branch network. The national franchise is highly profitable and valuable, and banks are keen to preserve it, thereby avoiding excess risks that could compromise the franchise. Customers value the capabilities of a nation-wide bank branch network, and the demand for it serves as a barrier to the contestability of Canadian banking services especially in deposit and debt card products. Limited external competition reduces pressures to defend or expand market share, again reducing incentives to take risks. Retail funding supply and retail loan demand appear well-matched in Canada, reducing banks’ need to engage in wholesale borrowing or lending activities. Larger corporations typically borrow directly from capital markets, or from syndicates that include and are often led by foreign banks, possibly because a higher capital requirement increases local banks’ cost of capital and reduces their competitiveness in the syndicated loans market. Finally, the Canadian mortgage market is relatively conservative, with a number of factors contributing to the prudence of mortgage lending (see Kiff, 2009). Less than 3 percent of mortgages are subprime and less than 30 percent of mortgages are securitized (compared with about 15 percent and 60 percent respectively in the United States prior to the crisis). Mortgages with a loan-to-value ratio of more than 80 percent need to be insured for the whole amount (rather than the portion above 80 percent as in the United States). Mortgages with a loan-to-value ratio of more than 95 percent cannot be underwritten by federally-regulated depository institutions. To qualify for mortgage insurance, mortgage debt service-to-income ratio should usually not exceed 32 percent and total debt service 40 percent of gross household income. Few fixed-rate mortgages have a contract term longer than five years.


The paper analyzed pre-crisis balance sheet structural fundamentals of Canadian banksand compared them with banks in other OECD countries. We found that ample retail depository finding was the key factor behind the relative resilience of Canadian banks during the turmoil. Sufficient capital and liquidity were also important but played a less distinctive role. In addition, a number of regulatory and structural factors have reduced Canadian banks’ incentives to take risks. Results allow a conjecture that strong structural fundamentals of Canadian banks will remain a source of their resilience as the financial turmoil and economic recession persist."

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Monday, August 17, 2009

StraddlesCalc Tool is Online, UCO and UNG Straddles for September

I am happy to report that our StraddlesCalc V2 tool is online. You can use it here.

The tool is a great way to see what are the maximum moves required for straddles and strangles, as well as to determine optimal position sizing for a given amount of invested dollars.

Examples from late today:

For UCO, September:

The above shows that the maximum move required is 19.77%, and that you should buy 13 calls and 11 puts for the $2k investment. This is the maximum move required for profitability. In general, the move will be smaller if the straddle is sold early.

For UNG, September:

For, December:, September:

This confirms that requires much lower premiums (liquidity is very low however), as posted earlier.

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Naural Gas: October and December Options are Very Attractive

The ETF tracks the price of natural gas futures on the Alberta market. It now offers options, both calls and puts which trades on the Montreal Stock Exchange (or through the TSE). Some of the options are very attractive today.

Current price: $5.26
October 5 calls: $0.60, move required is 6.4%, current OI is 0, 32 days to expiry
December 5 calls: $0.80, move required is 10.26%, OI of 40, 123 days to expiry

In particular, 123 days to expiry is a long time for a 10% move required. Hurricane season will be over by then and winter prices will be in effect.

Open interest is extremely low, but this will most likely change by October and December. trades in CAD dollars, which is great for currency hedging. description (from the Claymore site):

"The Claymore Natural Gas Commodity ETF has been designed to track the performance of the benchmark NGX Canadian Natural Gas Index, less fees and expenses. The ETF will provide non-leveraged exposure to the Alberta natural gas market, by investing in physical natural gas forward contracts. The ETF will not use leverage and targets a 1:1 relationship between assets and natural gas exposure. In addition, the ETF will provide this exposure without being directly involved in the exploration, operation, reserves, engineering and management risks associated with an investment in entities that explore for, produce and sell natural gas. "

"Benefits of using the Claymore Natural Gas ETF:
.The ETF is an easy way to gain natural gas commodity exposure.
.ETF can be used as a hedge against rising energy costs.
.Backed by physical natural gas. The ETF intends to be backed dollar-for-dollar by physical natural gas contracts.
.Access to a market with high barriers to entry.
.Non Leveraged Exposure.
.Experienced investment Advisor.
.Low Management Fee "

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Natural Gas on the Radar Screen

With today's drop, natural gas is definitely on the radar screen for short trades.

Natural gas futures are again reaching a 2 handle. Here's the 1-year chart:

UNG chart:

HNU.TO chart:

HND.TO chart:

Potential UNG September straddles:

UNG current price: $12.27

September 12 call: $1.00

September 13 call: $0.60

September 12 put: $0.75

I have made about 7 consecutive profitable trades on natural gas, all of them going short on spikes during the summer (mainly using UNG puts and Fundamentally, there is no reason for prices to go up. However, now it's hurricane season and high volatility is expected. Spikes are great for trading.

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Sunday, August 16, 2009

Natural Gas and Hurricanes

While there is no fundamental reason to go long on natural gas for the long term, here is the reason why you should not go short now:

Claudette appeared completely out of the blue. While it is just a tropical storm it is in a critical area for oil and gas production. The real danger here is hurricanes forming and heading for this region. Time to go short-term long and trade in and out as hurricanes appear and natural gas inventories are released on Thursdays. A traders paradise, opportunity abounds.

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Saturday, August 15, 2009

S&P500 Report: 59 Overbought, 15 Oversold

As of EOD Friday there are 59 overbought and 15 oversold companies in the S&P500. Remember that one week ago there were zero oversold companies. Clearly, this was an unsustainable condition and stocks had to drop.

The average RSI7 of the S&P500 is now 55.1, neither overbought, neither oversold.

Overbought companies:

87.346 BBT
86.107 ED
84.876 GPC
83.543 MMC
83.439 RRD
83.152 RF
82.802 WMT
82.607 RAI
82.343 HCP
81.859 ADSK
81.621 FE
81.215 ANF
80.913 WEC
80.488 CA
80.058 DPS
79.184 STZ
78.993 CNP
78.861 EMN
77.802 COF
77.531 THC
77.329 BAC
77.050 TSS
76.924 SJM
75.991 CCE
75.261 GPS
75.036 BEN
74.852 GME
74.673 MI
74.635 CIEN
74.284 C
74.154 HIG
74.035 UNM
73.785 TLAB
73.525 PNW
73.411 CMS
73.131 AIZ
72.983 VTR
72.981 LNC
72.557 MCK
72.434 NU
72.099 CSX
71.879 MHS
71.844 R
71.754 LXK
71.286 FITB
71.193 FRX
71.174 AET
71.165 CTSH
71.134 GCI
70.878 CNX
70.791 AOC
70.783 LUV
70.697 BDK
70.576 AEE
70.574 CMA
70.530 AFL
70.518 MRK
70.491 MDT
70.174 WAG

Oversold companies:

29.684 APOL
29.604 AZO
29.268 ADM
29.018 MIL
28.939 HES
28.864 FDO
27.683 ORLY
26.755 CAG
26.198 GILD
25.868 PPL
25.617 LLY
24.083 NVLS
23.374 MHP
16.119 DF
15.427 SLE

RSI7 of other ETFs and indices we follow:

35.653 UNG
60.413 SPY
52.664 IWM
67.705 XLF
60.485 DIA
40.202 USO
38.677 ^VIX

Financials are near overbought. Natural gas is near oversold...

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Monday, August 10, 2009

Top 20 Stocks to Short in the S&P500 by RS7 and RSI14

Note: In this S&P500 report we see for the first time that there are zero oversold companies based on RSI14.

The top 20 stocks to short based on the combined RSI7 and RSI14 are:

RSI7 Report:

The average RSI7 of the S&P500 companies is 65.20. There are now 250 overbought companies and only 14 oversold companies. 250 companies is of course half the companies in the S&P500.

List of overbought companies (sorted by RSI7):

(please click to enlarge)

Top oversold:

RSI14 Report:

The average RSI14 is 63.26. There are now 144 overbought companies and zero oversold companies. This is the first time I have seen this condition.

Top Overbought:

Top overbought:


The closest is S at 30.007.

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Friday, August 7, 2009

Natural Gas Report: 10 Weeks to Overflow

Natural gas inventories were reported today. Here is a comparison between 2009 and where we were in 2008:

The storage curve still looks awful. At the latest rate (66Bcf/week), the storage will be the same as the maximum of 2009 in 6 weeks, sometime in September. Last year this peak was around November.

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Thursday, August 6, 2009

EWZ Vastly Outperforming SPX: +72% vs +10%

Proof of concept re. the crash of the USD vs Brazilian real, the chart below shows the comparison between EWZ (Brazil fund) and the SPX year-to-date:

EWZ takes advantage of the rise of the Real.

EWZ: +71.87%
SPX: +10.39%

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Currencies: The Crash of the USD, USD Down 35% YTD vs Real

Following on the theme of world currencies, we have stated here many times that we believe the US (and other countries debt of trillions of dollars been created recently will never be repaid unless theirs currencies are devalued. This may happen gradually, but perhaps also suddenly, catching all the poor investors dead with their money in money markets. We commented several times on shifting to the Brazilian Real and countries that produce real goods.

Here are the performances of several world currencies vs. the USD in the last 3 months and year-to-date, measured by their corresponding ETFs:

(please click to enlarge).

BZF is the Brazilian Real, up 35% year-to-date. The current exchange rate is now 1.80! It was 2.30 not long ago. Is 35% a "crash"? That may be subjective, but for sure, you would not want to have been invested in USD during this time. The US stock market having gone up during this time is another illusion, interestingly, very similar to what happened during 2007 when the markets were going crazy (and things were actually disintegrating behind the scenes). We know how this ended.

The Brazilian market having gone up an additional 40% YTD, now that is real gain, no pun intended.

Next up was the Australian dollar, up almost 20%, and also the New Zealand dollar.

The other currencies listed are:

FXA: Australian dollar

FXB: British Pound

FXC: Canadian dollar

FXE: Euro

FXY: Japanese Yen

FXM: Mexican peso

FXS: Swedish Krona

BZF: Brazilian Real

CYB: Chinese Yuan

ICN: Indian Rupee

BNZ: New Zealand dollar

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Wednesday, August 5, 2009

S&P500 P/E is Now 47.50

The average P/E ratio of the S&P500 companies is now around 48. This only for the companies with positive earnings. If we consider the companies with negative earnings, the P/E would be stratospheric.

Take a look at the historical evolution of the average P/E ratio showing the huge jumps since the great reflation of 2009:

August 4: 47.50
July 25: 49.02
July 7: 42.00
June 25: 43.23
May 23: 40.99
April 21: 16.44
April 15: 16.21

Current earnings do not justify the current prices. It is amazing that this market still goes up. Buyer beware!

I am tracking these prices at P/Es are those reported by Google.

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Sunday, August 2, 2009

S&P500 RSI Report: 192 Overbought Companies, Only 12 Oversold

The average RSI7 of the S&P500 companies is 64.92. The average RSI14 is 61.75. Although the number of overbought versus oversold companies is very unbalanced, the average RSIs indicate that we are no longer in deeply overbought territory. The current rally may yet continue.


Overbought: 192

93.729 MCK
93.478 HPQ
92.958 CA
91.207 IR
91.002 PDCO
90.465 ROK
89.901 WPO
89.794 ISRG
89.662 BEN
89.594 CLX
89.479 AAPL
89.122 PHM
89.049 AVP
88.331 MAS
87.979 TGT
87.869 CTX
87.782 GT
87.762 NWL
87.612 CVH
87.480 ITT
87.115 EMN
87.093 GCI
86.981 AGN
86.755 HOG
86.406 RL
86.271 F
86.179 R
85.554 PPG
85.332 CB
85.108 COF
84.720 NYT
84.555 SNA
84.433 CVG
84.418 AN
84.394 TXT
84.391 WIN
84.141 CTAS
83.985 DPS
83.979 MWV
83.813 EXPE
83.785 AMAT
83.785 MA
83.743 IP
83.690 TSS
83.606 FIS
83.443 BDK
83.365 TMO
83.326 DOW
83.079 LEG
82.945 FITB
82.860 ECL
82.828 TE
82.752 PSA
82.550 SVU
82.479 RAI
82.478 MEE
82.460 LNC
82.426 LLL
82.318 BAC
82.311 BAX
82.138 MCHP
82.136 NKE
82.043 NSM
82.016 EL
81.718 HD
81.625 WYN
81.611 HCN
81.586 SBUX
81.249 CAT
81.228 MMM
81.010 LEN
80.838 OI
80.543 LO
80.238 TYC
80.015 LUV
79.947 SNI
79.802 FDX
79.720 EQT
79.629 BMY
79.493 CSCO
79.223 KBH
79.115 XRX
78.976 FLS
78.899 CAH
78.891 IFF
78.877 DHI
78.876 M
78.781 IBM
78.734 APA
78.533 LOW
78.435 UNM
78.280 KMB
78.257 VTR
78.189 EQR
78.040 DD
77.941 USB
77.710 STI
77.701 GE
77.500 PLL
77.455 MHS
77.439 KLAC
77.267 PRU
77.161 CMI
77.081 CSC
77.057 CELG
76.972 SWK
76.951 INTU
76.910 XL
76.873 ADI
76.777 HON
76.692 LLTC
76.612 FAST
76.585 APD
76.503 AFL
76.483 FO
76.373 CCE
76.177 MI
76.107 TROW
76.097 LUK
76.045 PFG
75.908 IGT
75.896 A
75.863 JPM
75.851 JWN
75.834 JNS
75.778 JBL
75.673 T
75.624 GWW
75.471 JCI
75.363 WFMI
75.157 ETN
75.009 L
74.983 LTD
74.915 RRD
74.859 ZMH
74.819 AA
74.809 CBG
74.752 ASH
74.632 WMT
74.567 SRE
74.560 COST
74.303 SYY
74.187 ADBE
74.168 CNP
74.125 CBS
74.035 HCP
73.897 YUM
73.758 ED
73.657 SE
73.518 MOT
73.417 MU
73.273 COH
73.206 AMP
73.039 JCP
72.984 IVZ
72.956 LIFE
72.827 VNO
72.818 XEL
72.777 HIG
72.587 TAP
72.522 CPB
72.473 STZ
72.414 AOC
72.333 DUK
72.282 TXN
72.218 VRSN
72.150 DE
72.141 XLNX
72.118 WAG
71.797 NVDA
71.587 VZ
71.479 RF
71.431 GPC
71.353 ALL
71.314 TIF
71.308 RSG
71.306 BIG
71.290 CVX
71.266 DTV
71.126 AMGN
70.799 ANF
70.787 INTC
70.667 SHW
70.553 MON
70.490 HOT
70.328 ZION
70.282 STT
70.253 TEG
70.194 BBT
70.142 CI
70.135 EXPD
70.060 TJX
70.012 HNZ

Oversold: 12

28.416 ATI
28.127 MCO
26.530 MCD
25.911 BDX
24.824 SYMC
24.458 YHOO
23.132 S
22.718 LXK
22.441 SEE
21.854 PBI
19.071 AKAM
16.448 DNB


Overbought: 98

83.473 MCK
83.219 WPO
83.209 CA
83.050 ISRG
82.624 IR
81.670 GCI
81.351 ROK
81.325 PDCO
80.984 HPQ
80.834 MAS
80.817 GT
80.715 BEN
80.116 AVP
79.614 AAPL
79.242 PPG
79.127 CLX
78.659 EMN
78.481 F
77.931 HOG
77.671 CVH
77.599 FIS
77.353 MMM
77.348 MCHP
77.305 DOW
76.693 PHM
76.603 AMAT
76.442 BDK
76.193 NYT
76.114 NWL
75.951 SNA
75.938 AGN
75.841 COF
75.833 R
75.752 EXPE
75.660 CTX
75.565 RL
75.213 RAI
75.156 MWV
75.059 MA
75.019 ITT
74.943 SNI
74.907 TXT
74.871 CELG
74.793 IP
74.735 CAT
74.711 CSCO
74.684 AN
74.605 CVG
74.506 TE
74.435 CB
74.343 XRX
74.198 SBUX
73.769 TMO
73.597 KLAC
73.569 DPS
73.563 HCN
73.388 FITB
73.360 MHS
73.310 KMB
73.131 TYC
73.013 LEN
72.980 OI
72.780 LLTC
72.627 LEG
72.528 FDX
72.506 IBM
72.412 MEE
72.410 BAX
72.372 A
72.304 INTC
72.248 CSC
72.151 TGT
71.992 ECL
71.699 CTAS
71.685 JWN
71.674 AMGN
71.617 NSM
71.610 DHI
71.503 LOW
71.495 ADI
71.467 WFMI
71.426 DD
71.421 TSS
71.359 LNC
71.200 LIFE
71.095 CMI
70.951 VTR
70.851 JCI
70.754 IFF
70.736 APD
70.661 SWK
70.650 LUV
70.532 PLL
70.500 TXN
70.414 EBAY
70.346 LO
70.336 IGT
70.208 TJX
70.198 EL

Oversold: 1

25.499 DNB

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