Junction

There are so many crosscurrents in progress right now, it is hard to pick one. But I will try. For some time my view is SPY 165 up to 178 is our top.  We are here, and the upper range is still in play.  It will all come down to when the free money flow will start to decline, which will cause a sharp break, like last month, without the fool you twice stick save from the I'm just kidding Fed game we saw in July.

Personally my view is we have topped, and volatility selling into low volume is keeping the averages propped.  The Fed owns too many bonds, and we are not creating enough new debt for the Fed to keep the same pace.  We will now see at the beginning of each month when the POMO schedule is released, how much new market fuel the Fed intends to create.  Any reduction from the expected level will be met by selling.

In the meantime metals and miners are already in motion, reversing to the mean from the QE induced selloff from November on. This is a clue for me, as that means big money is selling the indices already and closing their short positions. We are not out of the woods yet, but for those stocks in these market segments that are over the 20 and/or their 50, a buy weakness/sell strength approach will get you a strong hand to ride a true breakout.

On the energy front, it appears consolidation and short term weakness has set in. Watching USO, UNG, and OIH says short term sell, but long term buy, as of this week.  I wonder what the Egyptian news will mean on Monday.

For me, I am long miners, SAND, SLW, and short with SH.  I am watching energy very carefully.  Any breakout will mean a pretty big move higher.

Below are some charts and commentary.

Houston-Energy Giving Ben a Problem

I took last week off as I went camping, and enjoyed it until a forest fire shortened our trip.  So now back in the world, I see my blog post from two weeks ago proved correct.  energy is breaking out.  Oil, gasoline, Servicers, and Natural Gas are rocking.  Personally, I think the smartest people in the room have lost control.

There is simply no way prices should be anywhere near the levels there are at, yet here they are.  People are scrambling into something they perceive as tangible, and that others do, as well.  I know that I am right when on a Friday night Ben Bernanke released a statement saying they are reviewing whether the "banks"  should be holding these commodities as assets, or even trading them.  They are worried, and do not want to be blamed.

One of two things are happening, there is tremendous political pressure being placed on the bankers to get these prices down, before the people  and the economy break, or, and maybe a little and, there is some significant new liquidity coming and like gold and silver before them, they need to use the paper markets or other scare tactics to tampen the speculative players.

I think it will ultimately succeed, but not before we see some prices blowing higher.  Unlike gold, there are entities today that are quite determined to keep prices elevated, powerful, and at odds with the western banking interests.  At some point though, there is no more blood in the rock, and demand will collapse.

So enjoy it while you can.  The two best for next week look like TAN, and OIH.  I played two small solar players, and closed them for nice profit, and am watching HAL again.

Otherwise, I completed my purchases of SH, and NUGT, and have one more purchase of SAND to make.  These are my 90 day holds, as I expect a market reversal and some reversion to the mean.  I am also long Natural Gas futures and looking for $4 plus.  $3.60 is my stop for now.

Here are some charts.

Gusher!!

Since the market bottom of the 24th of June, oil (USO), oil servicers(OIH ) and solar (TAN) made durable bottoms, and are breaking out.  If SPY continues higher, it looks like the great rotation out of bonds is going into energy.

I have and hold a nice position in YGE, HAL, and SWN, and I see all of these are going to challenge the recent highs.

SPY is an enigma here, and Friday is a tough day to draw many conclusions.  SPY filled the gap and broke through the 50 on a holiday trading day.  I want to see what follow through there will be next week.  On the 10th, to add some uncertainty Ben speaks, so it will be interesting to see if he tries to jawbone the bond market back into place.  Higher energy and higher interest rates does not a bull market make.  My other concern is with such a strong dollar, how many companies will disappoint and guide lower. The market is expecting a hockey stick in terms of earnings growth in the second half, and it is inconceivable to me that the market is going to outperform a slowing China, higher energy, and interest rates.  Something is going to give somewhere.

I placed a ES short position on Friday, and recommended buying SH over the next three down days in that ETF.  I also suggested taking a 25/30 August call spread on SPXU.

Here are some charts.