Dr. Joe Duarte's Market I.Q.
The Internet's Intelligence Digest
Under Siege: Bush‘s Margin Call.
Oil: Data, Storms, And Iraq.
Stocks: Doubt Creeps In.
by Dr. Joe Duarte,
Dallas, TX, August 24, 2005, 08:00 EST * excerpts from dailyreports
Markets are increasingly jittery as the geopolitical situation looks ready to deteriorate.Look to oil supply data to shake things up mid morning.
Today’s Analysis: Under Siege: Bush‘s Margin Call
President Bush is getting a margin call. Of course, we’re speaking figuratively, butthe premise is similar. When traders hold on to a position that is going against them fortoo long, eventually, their losses mount and they have to either exit the position, or putup more money to keep it going.
Now, we’re sure that our conservative readers will say that we’re turningagainst the president, which we’re not. We’re merely assessing the currentsituation and attempting to gauge its possible effect on the markets.
As we see it, there are three major, even urgent problems facing the White House, and thusthe United States, and by default the markets.
First, there is the Iraq war. The lack of apparent progress, either because thereisn’t any, or because the White House can’t convince anyone that there issomething positive going on in Iraq, continues to erode at the president’spopularity, and to create a general malaise that is difficult to quantify, but that ispalpable over the population nevertheless.
Second, and highly related to the above, is the continuing rise in the price of oil. Atsome point, the economy will start to drag significantly, and the repercussions will befelt far and wide. Already the housing market seems to be stumbling. Housing stocks lookto have topped out, and bond yields have stopped rising, suggesting that the bond marketis starting to price in some kind of slowing.
Third, and in our opinion the most intangible of the three is the rising problem withSouth America. The recent comments from evangelist Pat Robertson about the U.S.assassinating Venezuela’s president Hugo Chavez, could not have come at a worst timefor Bush, and for the oil markets. When you add the illegal immigration problem into theequation, and the rising threat to the internal security of the U.S. from Latin Americanand now other international gangs, it’s not hard to see the tightening noose aroundthe policy arm on Pennsylvania Avenue.
The situation in Iraq is increasingly tense, as the potential for a major conflict betweenSunnis, Kurds, and Shiites is rising. There is no mystery to this. Those three factionshave been at each others’ throats since they all converged on the territory known asIraq, and the only thing that kept them from fighting in the recent past was SaddamHussein. We’re not justifying what Hussein did, we’re just noting thatwhat’s happening over there right now is not surprising.
The price of oil is rising because the markets are fearing that supply is going to becompromised, either from an Al-Qaeda attack, or because the situation in Iraq is about tospiral out of control, or because traders have been long for such an extended period oftime, that they don’t know what else to do.
Energy Sector
Oil Market Summary And Outlook: Data, Iraq, And Storm Time
Oil prices are shaking off the effects of last week’s sell off, as fear of a civilwar in Iraq are rising, as traders fret about the imminent release of supply data, due outat 10:30 Eastern time. There is also a new tropical storm brewing, which could damage gulfoil installations.
All the peripheral stuff, makes the supply data more important today, as any surprisecould send prices through wild gyrations. Expectations are for steady crude oil supplieswith decreases in gasoline storage. We don’t predict the data, we just try to tradebased on it, so we have nothing to do until the numbers come out.
Our paid subscriber energy section has plenty of ideas that could get triggered once thedata comes out.
Oil prices are near the $67 area, with the $70 area now being bandied about as the nexttarget.
Nothing has changed over the last few days. The market is clearly in a different zone now,being driven by momentum more than fundamentals. The peak oil crowd continues to pound thetable about the world’s oil supply now being slowly depleted, and being well past itsprime. The markets are focuses on event risk, and the fact that any small disruption inproduction, due to the thinness of refinery capacity, could lead to a short term hiccup.
As we’ve noted here multiple times, the key is what happens at the $67 area. If crudecan deliver a close above the $67-$70 area, we could be heading for a major momentum runtoward significantly higher prices. If oil fails at $67 on this bounce, we could see $50in a relatively short period of time.
From a trading standpoint, this market remains purely a technical affair, with exchangetraded funds, such as the Oil Service HOLDRS trust offering a good way to participate inthe overall trend, but still offering liquidity and allowing for the consolidation of thetrade into one position that can be liquidated and sold short when the market turns.
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
Technical Summary
Chart Courtesy of StockCharts.com
More Of The Same
Low volume and bad breadth are not the recipe for excitement. Instead the lead traders toworry and stay out of the market, which is what we’re seeing, a steady dripping, kindof drift in stocks, with a rising feeling that things can only get worse.
There are some stocks that are doing reasonably well, but most are just going sideways ordrifting lower. This is not a market in which to be very bold, and those who can remainpatient and be cautious are likely to do better.
Too many of our short sale recommendations of late have been working to make uscomfortable in this market. To be sure, there have been no knockout punches, at least notyet. But several of our picks continue to drift lower. Also interesting is the fact thatour ETF trading systems are not moving in either direction and remain mostly out of themarket.
Since 8-17, we’ve noted that stocks look ready to tumble. As we said then, we knowthat things could easily change. But as things closed on 8-16 and 8-17, with the DowIndustrials testing their 20, 50, and 200 day moving averages, things don’t lookparticularly encouraging.
What To Do Now
Remain patient. Hold on to some cash. Buy only exceptional strength, and be ready to sellquickly. Take this market one day at a time.
Consider some short sales, if you’re aggressive. See our health, technology, andbiotech areas for short selling ideas.
Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems for thelatest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, andtechnology have also been updated.
Chart Courtesy of StockCharts.com
About Dr. Joe Duarte
