Oil that has been said to have "disappeared" waiting in the wings

This video tells the disturbing story. While Matt Simmon's may have been an alarmist or attempting to push an agenda...I do believe that the heavy use of dispersants is similar to the heavy use of HFT or manipulations that are occurring in the financial world. The problems looks like they are dissipating but they are really still there...most of the oil in the gulf has NOT been eaten by oil eating bacteria or evaporated...it has been dispersed and has sunk to the sea floor.

40 Years of oil exploration in the gulf...

The most consistent attribute has been cronyist governmental regulation and support. The government is the partner and facilitating investor making the whole charade possible. Corporatist regulation has legalized what was not legal or too risky. Now a company can drill say - "we did nothing wrong"...ironically, the reason the government is posturing with hollow efforts and promises is that they want the exact same thing. "We, your government did nothing wrong. BP's ass is the one we want to nail..." That is what everyone wants - a finger to point while protecting their conflicted adgenda.

This well should have been blown up when it mattered and would not have caused secondary methane and gas explosions of mammoth proportions. Obama and the government knew that. So, why are we here?...feels like familiar territory.


Here's a good summary of the governments statements/view.

Oil Spill Update

Below is the oil slick as of the 19th:

Below is what the oil spill looked like 10 days ago...

Oil from the Deepwater Horizon rig lingered near the Mississippi Delta on June 10, 2010. The MODIS on NASA’s Aqua satellite captured this image the same day. The oil slick is pale gray, and the most conspicuous portion of the oil slick in this image appears near the Deepwater Horizon rig. A smaller, though still sizable, extension of the slick appears northeast of the rig. Clouds somewhat obscure the Mississippi Delta, northwest of the rig.

In photo-like satellite images, sunlight reflecting off the ocean surface and into the satellite sensor makes the oil slick easier to see. Oil smoothes the surface of the water, making it a better mirror of sunlight than the surrounding water. As a result, the oil appears lighter than oil-free surface waters.

My question is who we should be believing? Clearly, the government does not have control over the situation and all we need is a storm to turn this thing into a total disaster. Also, clearly the estimates by so called "experts" were required to be increased because how else could you explain these images. Clearly, those new estimates are optimistic (to be generous) as have been all the official statements regarding this issue.

Remember this type of betrayal by the government and corporate interests next time they try to smooth over some financial calamity. The lies in our system are just so preposterous, mammoth and conflicted that its almost beyond my capacity to understand.

How can a fed chief, many bank CEO's, several Oil company CEO's (among many others) and a president all lie their asses off, be totally off base or surreptitiously motivated and still have their jobs? It does not work that way for the rest of us.

Oil Spill from high up and down low...

Totally misshandled practices, misjudgments and corrupt politics

That's the basis for this oil spill. Five weeks ago Obama was Mr. "We need drilling in the Gulf" guy now he's Mr. TarBall. How many more lies does our bought and paid for president want to spew?

More lies everywhere...things are really whacked

Click for video regarding the oil spill in the gulf if you do not see it below its not 5,000 barrels a day leaking from the spill in the Gulf its 95,000. That's quite a big difference...I have not seen anything of that sort being discussed in the press.

Market Observations - Dollar Poised

The dollar is poised and ready...just below key resistance. Ironically, most are looking for a bounce...if the dollar does breakout...then we will need to be looking for a cascade lower. So far, the dollar has guided me very well through this current pattern. Right now, I favor a small bounce followed by a dollar breakout and an equities cascade lower. What this means is that immediate resistance may provide a convenient point for some dollar selling or consolidation...and we can not underestimate how minimal that may be. Once this resistance is broken the effect will be a strong rally for the dollar and heavy selling of inflation assets. SP 500 targets for me on this move will be 970 area with a hesitation at the 1016-1020 area.

EURO divergence has been and will likely continue to be a great trigger for trading and has revealed the dollar and market patterns prior to them occurring - sometimes by as much as 30 minutes. It is currnetly my primary trade setup vehicle. If there is no divergence between the EURO and the SP500 I do NOT do a trade.

The fractional reserve system is dead...and the impact of that will be an exploding dollar. Which is why we have to worry about the impending breakout on the dollar chart. To understand more about this subject please read the feature articles posted on the upper right on this blog.

Below is an unchanged old chart of the SP500 that I posted over the last few weeks.

Below is a very good chart from Matt Fraily for the UUP.

Below is an unchanged old chart of IWM that I posted on the 21st of September.

Below is a chart of Oil that I have been monitoring over the long-term. 

First resistance held...we have not yet made it to the upper resistance which is around 87 to 90...which is rather disappointing for the pattern. Depending on next week's action in the dollar, we will see if there is any upside potential remaining.

The Gold Equities GDX chart below this is from Matt at breakpointtrades.com and demonstrates that gold stocks are leading physical gold, as they usually do. If that is the case, any bounce for commodities will be muted.

Below is another chart from breakpointtrades.com of the SPX.

I do not love the count of the wave 4 as it is labelled. But I do think that we are putting in some sort of triangle or flat here for wave 4. This is appropriate alternation and may reflect what the dollar chart seems to indicate - which is that an upside breakout on the dollar will make equities want new lows before we get a sizable bounce.

above chartcourtesy of matt fraily, breakpointtrades.com

From the Press: As the Dollar Sinks, Oil Skyrockets

Interesting that they notice the Oil Skyrockets after its already up 15 bucks! Be careful, oil rally is getting mature.

As the Dollar Sinks, Oil Skyrockets

By CLIFFORD KRAUSS

HOUSTON — Crude oil soared to close above $80 a barrel on Wednesday, breaking that psychological barrier for the first time this year, despite weak global economic conditions.

Prices have been up in 9 of the last 10 trading days, owing at least in part to the slide of the dollar. Many oil analysts predicted that prices would continue to rise in coming weeks and could reach $100 a barrel by early next year.

“Oil is just flying,” said Phil Flynn, senior market analyst at PFGBest Research, a futures trading firm. “It’s off to the races.”

Analysts said rising oil prices reflected confidence that the economy was beginning to rebound from a deep recession, as well as higher demand from refineries for superior grades of oil that were cheaper to refine.

Oil Analysis

Interesting chart on Oil...78 to 79 was my target. We are here...maybe we get some selling or a pullback here - it certainly seems like a good place for it. But since everything revolves around the dollar and the dollar needs some emotional selling the upside targets shown on chart could come into play. If that were to occur then we could also see Gold and Silver targets met...as an aside, a pop in these commodities does not need to be confirmed by the equity or bond markets.

below is a larger chart...click on it for a sharper view.

Market Observations

Ok, I have been remiss...I did not feel that well today and did not get around to posting until now.

First lets look at the markets. I have my concerns. It is easy to paint a bearish brush on the market in the form of market structures or counts that are bearish until they are not.

This is what I see:

1. Gold looking bullish. 
2. Dollar under resistance and not impulsing
3. Oil looking like it may want a push up
4. Gaps remaining to be filled

Ok those are not buy signals, but they are warning signs that the market may want to probe up for a better retest. The charts are not making me comfortable.

What am I looking for? 
What would make me comfortable, would ideally be a gap up tomorrow followed by an energetic sell down reversal. This would apply to equities, Oil and Gold. However, I am concerned that we can get a fake out here and end up with a rally back to test some gaps and resistance in the 1050 to1060's. There is a benefit to this occurring if it were to do so. Bear's who have finally gotten a taste of a small win after being beaten up may misinterpret a move up to retest as something more bullish than it would likely be. Additionally, it would serve to convince weak handed bulls, that the waters really are safe and they can buy dips even if they are scary ones.

One of the negatives to any move up in gold is that silver has reverted of its old warning signal of non-confirmation. We should see Silver remain in a non-confirmation of Gold if we do get a pop.

VIX has triggered a standard dev short-term buy signal and there are still a lot of constructive looking charts out there. So, all of this should not surprise to work together to create a push up into the Wednesday to Friday area. Gold, Oil, and Equities...are what I am keeping an eye on. I am just laying out a case. Its not a bullish case, but certainly a push up here will feel bullish to a lot of market participants...and that may be the objective.

CCI array is showing supports here and a potential bounce. But we are getting high quality divergences (plotted over prices) that usually only occur at tops and bottoms for the daily SP500 emini futures.

While I am not in love with the count below for Oil, it is not totally out of the question...its on the table.

Dollar - Oil - Market

The dollar strangely has sold off with he market...additionally, the market has sold off hard and bounced...

Oil has had the largest rally I have seen in a long time and it is looking more and more like we need to consider a capitulation may be coming in the form of a dollar exodus (which was very mild so far, overall dollar pattern looks consolidative sofar) and some sort of emotional equity market reaction if that were to occur...the problem is that at this time the dollar should not be pulling back hard and transports should hold below the breakdown attempt...currently they have bounced nicely off the 50 day MA...all very interesting and disorienting...just what you would expect at a change in direction.

This market is unbelievable to swing trade...day trading is the only option with the market like this.

Market observations - Back Test Time

I would like to reiterate that there are gaps on the ES that need to fill in the 1074 area...In my opinion we have to test that area or exceed it. It is entirely possible that the market fails to make a new high and instead confirms wave 2 for our impulse wave down. This could be fulfilled with a move to the 1077 area on the SPX cash.

As you can see the VIX has made another attempt to break its down trendline. This is accompanied by a MACD cross and RSI over 50...something to keep a close eye on...VIX is currently only backtesting this trendline...it could drop below it again...or preferably consolidate and rally straight from here.

Transports had their huge sell day last week...the largest volume selling day in the $TRAN history. If the markets do continue up...into the Oct 2 to 7th area...any new high will not likely be confirmed by the $TRAN. This is a very good cue that these highs will be a top of consequence.

Oil is at an important support...and with the dollar showing strength today...it could easily break the down-trend line and take a quick trip to 57. The alternate view is that the dollar needs a consolidation and will allow for some upside for Oil - though that should not amount to much.

Agriculture commodities are struggling and remain below the emerging 2-4 line of the pattern...a break of that huge support line below will likely coincide with a strong move down. Upside looks like it would be quite limited...and this chart does not look healthy at all.

The dow could get its legs, in fact it has to tomorrow...otherwise this whole pattern, VIX, Trans and DJ look like simple backtests of resistance. Personally, I think there is some remaining upside...though nothing substantial.

Market Observations - SP500 Updates, Oil and Financials

This is an updated chart of the SP500 gap resistance. Notice the confluence of trendline resistance from the wedge that cluster in the area of the open of the gap (indicated by the black line) from Oct 07. Down volume distribution days are now more than 4 in 6 weeks...that is the allowable limit. In addition all the distribution days except one are larger than the accumulation day volume. Please keep in mind that the Dow and SP do not show gaps on stockcharts...thats why I drew the gap in with the green box.

Oil's head and shoulders continue to play out...we are holding support at the 50 SMA...but things don't look good for oil. This reinforces the relative strength that the dollar showed today.

XLF was saved (by whom, I wonder) by the hair of its chin...its the lowest up volume candle of the entire rally and still below the range day from early sept. Things do no smell great in financial land.

All we need now is a big hit to theoretical money - derivatives anyone?

Apparently, not for the chinese. 
Now, think about this for a second. China has engaged in hedging and speculation that has not resulted in benefits to its economy. Quite the contrary actually. Their perception is that we have played games and manipulated financial markets. [surprise, surprise since they thought they were free markets ;-) ] In any event, China owns tons of treasuries. Say we were to get an implosion of theoretical dollars within the financial system via some sort of large defaults...that would trigger real dollars to rise in value immeadiately, likely over the longer-term interest rates would also go up, and bonds down. In the big picture, that would further stress the chinese overall, stress their derivatives exposure and their most popular investment - treasuries plus the derivatives on those treasuries. The implications are not a funny thought. 


Now there is an interesting possible scenario here for the shorter term, one I am quite partial to...the chinese know that we need to keep interest rates low to even attempt to keep deflation at bay and that there is a shortage of real money dollars. If they were to force the collapse of large financial institutions, the buying power of their US treasuries paper could increase dramatically. If this were to happen their influence over the US Government would likely also increase dramatically. Also, their ability to influence our economy would also increase dramatically - at least temporarily. This condition would only be possible if interest rates were to remain low for some time after china's defaults forced major banks into receivership. So, if indeed this scenario were to play out, there could be a lot in it for china, since its reasonable to assume they could generate potentially dramatic positive returns by owning cash dollars while collapsing our debt money based financial system and then hijacking it. (see: Derivatives...what the heck were they for?)


Keep in mind that though the article posted below does not specifically discuss oil...oil is one of the markets that china has been playing in the biggest way...and the impacts of their gamesmanship would likely effect oil even more than soybeans, gold and cotton. This is why oil likely was down so substantially on Friday even though the dollar was weaker than the prior day.


In any case, back to the theoretical world of the fed and out financial system, derivatives are only agreements and agreements are susceptible to be broken and altered. Remember, that JP Morgan has 89 trillion of  purportedly "perfectly hedged derivatives".


"Perfectly Hedged"? We know this to be a lie. Why? It is impossible in the first place and secondly the very nature of a derivative agreement makes it highly improbable. So let's keep it simple and examine just the spread risk on those derivatives, despite what they or the fed may try to say, its in the trillions of dollars. 


Imagine if you will, owning one trillion dollars of some index leaps. Just look at the spread in the market now, do the math and then try to get filled at that spread. That risk alone will be 5 to 10% of capital easily - so, you place your order and immediately lose 100 million when you turn around and try to sell it. Now take the instrument make it 100 times more obscure and transacted in a private market that has limited liquidity...and the spread risk on the equity leaps look tame. Now for each component of a derivative position and its hedges there is spread risk. Unlike a simple directional leap position, which itself has 10% risk in taking into account both buy and sell sides...creating a complex position with hedges adds significantly more spread risk relative to capital required to maintain the position. To see this in real life simply model up a butterfly or any limited risk option strategy and then try to execute it. You will see large losses immediately relative to capital employed and the size of the trade. JP Morgan's spread risk (which is much more substantial than a simple options combination trade) alone makes the bank insolvent. Funky accounting and supportive manipulations of accounting rules, off balance sheet entities and SIV's make it possible to hide these inefficiencies by reflecting theoretical or derived values on the balance sheet - where everything can look - well, "perfectly hedged". 


All of these techniques are tacitly endorsed, lobbied or promoted by the Fed...and follow the pattern of regulation created to legalize criminal or inappropriate activity. In fact, the Fed itself uses these conventions themselves in a lot of cases. The fed's reported balance sheet is supposedly up to around 2 trillion dollars...up some 500% or so...their off balance sheet "balance sheet" makes that sum look like peanuts. So, not only does the spread risk alone accomplish that task of bankrupting JPM but that spread risk likely will add trillions  to our national debt when the JP Morgan's obligations are transferred to the tax payer (to be nice, lets assume 5% of 89 trillion is 4.5 trillion). Notice however, that I did not even mention the china situation yet - that's called counter party risk and that risk is much bigger than china alone. Add that to the equation, and the banking system in the US takes a 20 trillion or greater hit from JPM alone (and quite likely much more)....and guess who gets the bill? 


That's a lot of liquidity to take out of a theoretical and fiat system... the shortage of dollars will be tremendous. (see: Derivatives...what the heck were they for?, More dollar what-if discussion, crash warning and recommendations, The Future of the Dollar - the biggest short squeeze ever,  The EURO - starting a trip to oblivion and Warren Buffett - the ultimate bull-market manifestation) 


Now you know why the fed has tried like hell to bail out JP Morgan at every turn (starting with Bear Stearns) and especially tried to protect their reputation and image of solvency. But JP Morgan is broke and when they are proven to be broke the whole system will be broke since most banks will be impacted directly and some indirectly.


Observe the chart below. Each large move in the SP500 was preceded by  period of correlated behavior between treasuries and stocks. We are presently in a significantly correlated pattern.

 

see the original reuters article here or read it below:
US commodities rattled by China derivatives stance

* China lets state firms default on derivative contracts- report

* US soy, gold and cotton pressured by report

* Lawyers doubt legal standing of the move

* Market suspects more potential losses prompt the move

* Foreign banks dismayed (Updates with US gold, soy and cotton markets weighed down by reported move; adds analyst quotes, adds CHICAGO to dateline)

By Eadie Chen and Chen Aizhu

BEIJING/CHICAGO, Aug 31 (Reuters) - U.S. gold and soybean markets fell on Monday following a weekend report that China's state companies may default on commodity derivative contracts with banks providing over-the-counter hedging services.

Traders in other commodities markets in the United States were cautious, underscoring China's predominance as a buyer in global markets from metals to grain to oil after it played a key role in rallying prices to record highs last year.

In a measure of the country's influence over the global economy, U.S. stocks fell after the Shanghai Composite index .SSEC fell nearly 7 percent to a three-month low on fears Beijing is trying to moderate growth and choke off speculation in its stock market by tightening bank lending.

Commodities markets were chilled by a report in Caijing magazine quoting an unnamed industry source as saying Chinese state-owned companies will be allowed to default on commodity derivative contracts. The report provoked anger and dismay among investment banks that feared a damaging precedent.

China's regulator of state owned enterprises, the Assets Supervision and Administration Commission (SASAC), has told six foreign banks that SOEs reserved the right to default on contracts, the magazine said in an article published on Saturday.

A government official said that the Bureau of Financial Supervision and Evaluation under SASAC was handling the issue. The official declined to be named and did not elaborate.

"A Chinese agency said they reserve the right to walk away from bad derivatives contracts and that stirred up a lot of worry not only about the stock market but soybeans as well," said Paul Haugens, vice president at Newedge USA.

China, the world's top importer of soybeans, has been an aggressive buyer of U.S. supplies, helping drive prices higher as stockpiles fell to the lowest level in over three decades.

US SOY, GOLD MARKETS FALL, COTTON RECOVERS

Chicago Board of Trade soybean futures for November delivery SX9 fell 31-1/2 cents, or 3 percent, to $9.79-1/2.

December gold GCZ9 fell $5.30 to $953.50 an ounce at the New York Mercantile Exchange's COMEX division. U.S. cotton futures fell in early trading due to the news, but closed higher on month-end position squaring.

"Historically, it is not so unusual for China to either renegotiate or abandon some deals that have been made. Some traders who have been around for a while are certainly aware of that possibility," said Bill O'Neill, managing partner at New Jersey-based LOGIC Advisors.

Spokespersons at Goldman Sachs (GS.N), UBS (UBSN.VX), JPMorgan (JPM.N) and Morgan Stanley declined to comment, along with the Securities Industry and Financial Markets Association and International Swaps and Derivatives Association Inc.

The reported letter to the six banks follows an order from SASAC in July that required all state companies trading in derivatives to make quarterly reports about their investments, including details of holdings and performance.

"I won't be surprised if more state firms emerged with big derivatives trading losses. Or else SASAC won't come out with such a radical move," a Hong Kong-based derivatives analyst said.

"As far as I know, there are another number of state firms bogged down in such losses besides those surfaced ones," said the analyst, who declined to be named due to the sensitivity of the issue.

'ABNORMAL PRACTICE'

A SASAC media official said he was waiting for the "relevant department's" official comment before clarifying the situation with the media.

The report deals another blow to investment banks hoping to sell more derivatives hedges in China, the world's fastest-expanding major economy and top commodities consumer.

"It's a handful of companies who are being encouraged by regulators to renegotiate. It's outrageous, but it's China so everyone is treading very carefully," said a banking source.

Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing -- SASAC as a shareholder of SOEs has no business relationship with international banks.

"This can also lead to market chaos. For example, a foreign bank can tell its Chinese clients that it can reserve the right to default on contracts that will bring losses to the bank," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association.

No bank names were reported in the Caijing report. The SASAC media officer also declined to specify any.

Chinese state firms, especially those that have suffered big losses in derivatives trading, have been complaining that their foreign banks sometimes did not disclose full information of potential risks when selling them complicated products. 

Market Observations - Oil and Gold

I would like to point out a few things...though I was unsure that it would occur  and though I thought that it would be optimal...the inflation/fear trade has occurred - setting up a very nice trap. I hope Peter Schiff appreciates the short voctory...(see: So, its all getting very interesting...) The best part of the trade has been that Gold advanced strongly while the dollar sold off strongly. However, gold has not reflected price movements commensurate to the dollars price movement. Additionally, the commercial net short for gold is 287,000 the highest of any recent time...at the same time as 90% of peopl eare now bullish inflation assets such as stocks - this is not the kind of condition that supports a strong continued rally in gold or the stock market. Also the 72 day cycle occurred this week for gold...so, its definitely setup for reversal. If that happens, we need to watch the dollar and for a potentially strong sell of in the markets. 


A pullback and another rise would and should not be an unexpected occurrence...the pullback we get next week out of our ABC move I presented earlier could be quite interesting and get the bears all excited only to setup one more move to new highs...The problem is that the patterns for BKX, XLF, UTY, OIL etc are not saying that that's what is in store for us. (see: Interesting charts - non confirmations...)


Below is the chart of Oil, the dollar did not move much today intraday though it was down fairly substantially overnight - but Oil was up max 36 cents and tanked the rest of the day. Rather than potentially confirming an ascending triangle...a head and shoulders pattern looks much more probable.

Daneric has some very good charts of the 2-4 channels from the depression to now...guess what we have retested? See: Grand Supercycle Backtest Update


All in all, this makes it very likely that we do not get the luxury of a predictable ending pattern...a perfect ending diagonal may not be in the cards. 

SP500 Symmetry

Most common ABC patterns are where C = A. Well, that's clearly what we have here. Additionally, the timing window for Sept 11 market high I pointed out earlier. Things are looking rather complete to me. Breadth continued to  contract even though we hit new highs. Banks, Financials, Utilities, Agriculture and other metrics are not anywhere making new highs. Sentiment towards the dollar dropped to 4% bulls. Oil collapsed with no commensurate rise in the dollar...and is setting up a head and shoulders pattern.

This market is an exercise in frustration...but there we have it things coming together nicely.