Last week was epic. I personally have not witnessed mass corrections to the magnitude we saw in Silver, Gold, and Oil acknowledging though that all three were very crowded trades and over extended. However, we also traded down throughout the week on the S&P until after Thursday’s close, a test of the initial breakout at the 1335 level. Friday showed plenty of promise over night with tons of oversold setups across the market. However, fear took hold of the market midday when rumors emerged of Greece considering dumping the Euro and issuing its own currency. The rumors saw the USD move quickly to the upside, but still found resistance at the upper limit its downward channel of death by print.
This week’s action makes me very uneasy moving forward into the market. It is commonly stated by a lot of traders that you “buy the rumor, sell the news”. Of course I am referring to what many believe to be inevitable: QE3. Certainly I will concede that Bernanke and the US Government have essentially printed themselves into a corner, where without printing more money and continuing the Weimar rally of inflation, the economy and government is a ticking timebomb. When the only buyer of US Bonds and Debt is the US Government the circle of USD death continues and interest rates would be costly to the government – thus definitely not on the horizon for the USA. But, the other side of the story is the impact of the weak USD. As commodities (priced by the USD) continue to fly higher and the USD lower, the cost of input materials puts a stranglehold industry, the basis of the American economy and employment begins its double dip (ignore the banks for a second and their fountain of wealth). However, we’re seeing the EU, who some expected interest rate hikes from, bailout Portugal. Following the announcement, Greece news hit the wire and Spain is also publically upset with the structure of Portugal’s handout. The inflation trade is clearly still on, but the uncertainty surrounding the end of May should be on everyone’s shit list.
My immediate strategy is unchanged as a result. I’m still (disclosure) long $WNR for the castrate the shorts 2nd Quarter refiner rally – even with the drop in Crude there is no worry as crack spreads are once again approaching $30. We should rocket out of a dip on a Star-spangled powder rally – providing entry to a ton of oversold/dip setups in inflationary play companies. It will continue to be a stock pickers market – so not all setups will work you have to confirm with volume and price action.
Starting with the two fracking/oil companies (hydraulic cracking method for improving the recovery of crude oil): $HAL – Haliburton and an up and coming Canadian company that I love $PD.to ($PDS on the NYSE) Precision Drilling. Both are at the bottom of their trends and should continue to see further strength. News out of Iraq is that they’re cutting forecasts of future crude production and SURPRISE the cartel that is OPEC has decided to cut supply to keep prices high.
Moving on to a large Fert company that is back at its 200sma: $AGU Agrium. However, following a solid first quarter, they lowered their guidance for Q2 and subsequently the two-day sell off could possibly have jump started a downtrend making lower lows after. Conversely, forecasters believe inflation hasn’t hit potash prices yet with some even calling for $750. We’re seeing Corn fill its gap following the jump after horrendous crop guidance at the end of March by the USDA. Further food/crop inflation will benefit the Ferts. The hold at the 200sma is not convincing with strong selling on both of the days holding the average, watch for a strong move upwards, or simply try to swing within a confirmed downtrend.
Finally two charts of companies that I like to follow, but will definitely not be initiating positions in are: $TCK Teck Resources and $F Ford. Teck recovers massive amounts of coal and base metals and acknowledged weakness by lost milling and steel production in the wake of the Japan disasters. Their guidance was below expectations for Q2, but I am still bullish on steel in the long run. As for Ford, I’m not overly confident in any American made cars. However, Ford has that look again and given numbers from Chrysler, there could be some immediate upside. The majority of investors don’t believe in the GM inventory manipulation model, but Ford has legitimately posted strong sales in a global marketplace (Chrysler too).
Other interesting news on the wire: US Economy growth downgrade by Goldman, Silver showing some strength, USD creeping down, but once again we have a high propensity for bad news. Companies fun to watch in earnings this week: $GMXR (May 9th) $ATPG [massive short position that beats this company down] and $MCP (May 10th) plus will $CSCO (May 11th) go exponential into earnings and massively disappoint again.