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Bad News Outside The Beltway. Oil:Falling Apart When It Should Be Rallying. Stocks: Technical Damage Again.
by Dr. Joe Duarte,
Dallas, TX, October 6, 2005, 08:00EST * excerpts from daily reports
The selling was serious on Wednesday. All major indexes closed below key support, with theNasdaq faring slightly better and the small caps taking the biggest hit. Oil prices fell,and could get weaker. The Fed looks ready to get even more aggressive on interest rates.
Today’s Analysis: Bad News Piles On Beyond The Beltway
Bin Laden is waiting for an attack on the U.S. before resurfacing. According to AFP:[“Osama bin laden is expected to remain in hiding until he stages another attack onthe United States, an ex-CIA expert who had tracked the terror mastermind for two decadeswarned in an interview. "As soon as he hits us in the United States again we'll seehow important he is in the Islamic world," Michael Scheuer, the former head of the"bin Laden unit" at the CIA, told AFP in an interview. Despite his low profile,bin Laden remains powerful, Scheuer said, shrugging off reports that the Al-Qaeda chiefwas isolated and his communication network shattered due to a relentless hunt forhim.”]
Oklahoma Suicide Bomber May Have Had More In Mind
The major media barely covered the death of “Joel Hinrichs III, 21. AP described himas someone “who died Saturday (10-1-05) when a device attached to his body explodedas he sat on a bench outside George Lynn Cross Hall.” The location of the bench wasnearby the sold out Oklahoma Memorial Stadium in Norman, Oklahoma, with 84,000 footballfans inside.
AP, on 10-5, added several interesting facts to the story. For example “Norman feedstore operator Dustin Ellison said Hinrichs attempted to purchase ammonium nitrate a fewdays before the explosion.”
Stratfor.com noted: “a search of Hinrichs' off-campus apartment uncovered jihadistpublications. Although it is unknown whether Hinrichs was a convert to Islam or a memberof any jihadist group, he is widely believed to have had close associations with studentsof Middle Eastern origin and connections to the local Muslim community. He reportedlyspent time at an Islamic Center near his apartment, and his roommate reportedly is ofPakistani origin. Furthermore, we have been informed that authorities have identified atleast one person of Middle Eastern or South Asian origin as a person of interest in thecase.”
According to AP, Hinrich’s roommate, aman of Pakistani origin, was arrested, questioned and released, along with other men ofMiddle Eastern origin. “The FBI said in a statement Tuesday that there is no currentthreat posed by additional explosive materials, that there is no known threat from anyoneelse related to the incident and that there is no known link between Hinrichs and anyterrorist or extremist organization or activities.”
Syria Under Attack
Meanwhile, according to Stratfor.com: “sources close to deliberations within the Bushadministration said the National Security Council is discussing the idea of bombingcertain Syrian villages, along the infiltration routes used by jihadists staging attacksin Iraq. And second, sources within Syria said U.S. Special Forces are conductingcross-border operations on Syrian territory.”
Stratfor thinks that the Syrian government may be working with the U.S., and allowing theincursions with no intervention, in order to keep the White House from doing somethingmore dramatic, like trying to overthrow the Assad government.
According to the intelligence service: “These reports follow a day after Israelidaily Haaretz, citing unnamed sources, said senior U.S. officials wanted Israel'sassessments of possible successors for Syrian President Bashar al Assad. According toHaaretz, officials were asking who might be able to replace him, assuming he were ousted,while still maintaining the stability of the country. The report went on to say that theSharon government is interested in weakening the Alawite-Baathist regime, but beyond that,it prefers the status quo in Damascus.”
EnergySector
Oil Market Summary And Outlook: Cracks In The Armor Continue: $60 Is Next Key Test.
Slowing demand at the U.S. pump could be the straw that breaks the oil bull market’sback. At the very least, it could lead to a lower trading range over the next few weeksuntil winter demand for heating oil is more quantifiable.
Crude oil futures broke below $64 in the December contract, a major line in the sand. Oil,oil service, and natural gas stocks all sold off aggressively as well, setting up thepotential for lower prices. The next key support area is $60, which could be tested overthe next few days. Natural gas prices remained above $14.
According to AP: “The U.S. Energy Department said Wednesday that fuel consumption inthe past month fell by nearly 3 percent compared with last year. Experts said demand wasfalling due to high pump prices and an economic slowdown in parts of the United Statesaffected by hurricanes Katrina and Rita, such as the Gulf Coast states.”
The fall in demand could be temporary. Also important is the fact that the U.S. iscurrently relying heavily on imported supply of petroleum products, as the refinery andproduction situation in the Gulf of Mexico is still largely unresolved.
The fall in oil came despite a major fall in distillate supplies, as reported by the U.S.Government. According to AP: “The selloff came as traders largely ignored weekly datafrom the U.S. that showed widely expected declines in petroleum inventories. U.S. crudeinventories fell, but by just 300,000 barrels to 305.4 million barrels -- still acomfortable 11.5 percent higher than a year ago. U.S. commercial distillate stocks, whichinclude heating oil and diesel fuel, plunged 5.6 million barrels to 128 million barrelslast week. The decline in gasoline stocks of 4.3 million barrels to 195.5 million barrelscould also have been greater, if not for an on-week jump in imports of nearly 18percent.”
It’s always difficult to know whether a market has made a major, bull marketreversing top. But the action in crude oil and the energy markets, over the last few days,has been quite dramatic, and may be the start of at least an intermediate term down trend.
We’ve been cautious about oil for some time, and on 9-26, on the Financial SenseNewshour radio program, discussed the topic in detail with host Jim Puplava, andchronicled the conversation in an article published on Rigzone.com. The article can befound at http://www.rigzone.com/news/article.asp?a_id=25540. The show can be heard athttp://www.netcastdaily.com/fsnewshour.htm, under the September 17, 2005 archive.
Our very long term opinion on oil has not changed. We are still in a very long term bullmarket in oil, until proven otherwise. The long term line in the sand, for us, remains $40per barrel. That means that prices can correct to $40 and we could still be in a longterm, secular bull market. If prices were to fall below $40, then the very long term trendwill have likely reversed.
Chart Courtesy of StockCharts.com
TechnicalSummary
Chart Courtesy of StockCharts.com
Technical Damage To Major Indexes
Important: Fallen Angels section has been expanded to include short sales. Click onFallen Angels link for full details.
The major indexes all closed below their 50 day moving averages, with small stocks takingthe brunt of the selling. Oil and biotech stocks got hit hard, taking out the recentrally’s leadership.
The break follows a break in the Dow Industrials, which fell below its 200 day movingaverage on 10-5, something we don’t like to see, even if the Dow is only 30 blue chipstocks that nobody pays attention to anymore, according to some.
As we’ve noted, this rally has been suspect for several days. We still believe thatif it this market is to rally further, some things have to happen before a nice longlasting intermediate term rally can be expected. Volume will have to continue to rise onup days. And it would be nice to get one of those 9 to 1 up volume to down volume days onthe NYSE in the next couple of days.
Watch The Dollar Carefully Here
The dollar is a key ingredient of the current overall financial market situation, as theU.S. Dollar Index tests the 90 area.
News of a potential deal between German Chancellor Schroeder and his challenger AngelaMerkel knocked the dollar down overnight, but although it remained slightly weaker, thegreenback was off of its earlier levels.
Traditional stock investors, while keeping an eye on the stock market should be lookingfor alternatives now, such as the currency and bond market. Check our energy section forbond and currency recommendations.
What To Do Now
This is a good time to inventory your stock portfolio, take profits, tighten stops, andget a good dose of patience, as you also look for stocks that are showing some strength.
Active traders should now be looking to short the market on weakness, but also should belooking for short term opportunities on the long side. Longer term investors should beputting some money to work in strong stocks at this point. See our technology area and ourETF trading models for directions.
Chart Courtesy of StockCharts.com
