Senior Fly has allowed me to grace these hallowed halls once again, and for that I’m grateful.  Last time I was posting on iBankCoin I had one of my most profitable runs ever.  This time around I’d like to do the same, but it’d be a mistake to not have learned a few blogging lessons from the last go ’round.  Therefore I’m going to try to develop a “less talk & more action” approach in an attempt to post more.  The goal is to deliver more actionable trading ideas to the readers without all of them having to fit into some well developed macro puzzle.  Sometimes the big picture is unknown and you simply have to trade what’s in front of you… if you keep your discipline (using stops, money management, etc.) you will eventually catch the big move.  And once that happens you’ll find the big picture becomes clearer and you’re already positioned perfectly.

That being said, there is a sweet short setup developing on $XLE (the SPDRs Select Sector Energy ETF).  Crude Oil has been crushing shorts lately, and that’s all well and good.  The thing is, crude and energy stocks cannot stay correlated forever.  Why?  Because crude is NOT going back to 2014 levels and these energy companies are still in loads of trouble.  It’s simple really, the earnings are terrible and the resulting price/earnings are absurd.

Take Schlumberger ($SLB) for example: only the most dimwitted oil bull would buy this stock today trading at a 45 P/E (ttm)!!  Look at the rig count, these service company workers are all at home twiddling their thumbs (or working on their resumes).  The earnings will only get worse from here…  Fracking – psssh – if E&P’s had that kind of capital they’d probably pay down debt with it.

The bottom line is I believe the divergence is starting to play out.  For example, today Crude Oil futures were up 3.29% whereas the $XLE was up only 0.29% .  It’s time for the energy equities to underperform the commodity.  I think a reversal on the $XLE is forthcoming, and if I’m wrong so be it, but the risk/reward is setting up in the short sellers favor.

So Here’s the Trade:

The $XLE is trying to make a run at it’s recent highs in the 68.80 range; I don’t think it will get there.  Once it’s clear that the rally attempt will fail, enter it short (or buy puts).  Use the 68.80 level or the failed rally high as a stop loss.  Take a look at the chart below:

I think the failure high will occur somewhere within the orange box.  The target is anywhere in the 57’s (green box) by the end of July.  This represents about a +12% setup; properly placed option bets could easily reward +100%.

Good luck and be sure to follow me on Twitter @dyer440.

 

Comments »

In early December 2015 I warned not to touch commodities until specific currency levels were breached on the USD/YPY and EUR/USD crosses.  For reference: Calling All Degenerate Oil Gamblers!!.

I was specifically referring to crude oil and energy related exposure.  That was back when everyone was calling for a bottom in crude every other day.  I remained short energy exposure and it generally worked out.  Now it’s time to revisit those currency levels because the Yen Carry Trade is unwinding.  This has led many to question what the hell is going on – including myself.

From my article:

Stay away from Long Oil exposure (and commodities in general) until:

1) The USD/JPY cross falls below 115.50, AND

2) The EUR/USD cross trades above  1.148

The USD/JPY level has been breached due to the unwind, the EUR/USD has not (yet):

 

The interesting thing to note regarding oil and energy is the decoupling from US Dollar correlation.  I believe this is a testament to the weakness in crude oil and energy related names.

On the other hand, it may be time to look at non-energy related commodities.  Is this the turn?  Is inflation (or US Dollar devaluation) on our doorstep?  If you’re listening to the story Gold is telling, you may be inclined to think so.  Instead of chasing gold higher, I’ve got a better idea.

Here’s the Trade:

Continue shorting oil & gas related companies and derivatives, I like these two:

• $USO
• $UNG

I would also stay short energy related equities.  I would recommend one or two but I no longer have an edge in any of them specifically now that $COP cut their dividend (as I warned multiple times here).

So here’s what is happening: the  oil & gas companies in the US are pumping whatever they can simply to bring in cash flow.  The cash is not returning a positive return on their initial investment, but at least it’s returning cash – which these companies desperately need to pay their bills (and notes).  Bottom line is they are NOT cutting production, they cant.

They’re in a financially engineered negative feedback loop.

The Saudi’s will not come to the rescue.  I’ve given you their script already, here.

Good luck out there, and follow me on Twitter @dyer440

Comments »

I’ve been handing out free money to iBankCoin readers for the past few weeks and I’d like to summarize my take on the markets and my recommendations up to this point.  This is done in an effort to be transparent with my ideas, calling out my own mistakes and tooting my own horn when I’ve made money.

First of all, if you’re short the Fed Trade School Basket you’re doing very well for yourself, I’ve updated my recommendations below:

Stay short the country basket, Brazil (EWZ), China (FXI), Mexico (EWW), Russia (RSX or ERUS), and Australia (EWA), you should be up on all of these except EWZ, be patient these will continue to work well, especially if you are long some of your favorite US equities as well.

Take some profits on Freeport-McMoran (FCX), you should’ve made some nice gains on this one, personally my options were up around 85% when I took profits on Thursday (too early).  If you’re still short I recommend taking profits and perhaps leaving a piece on, depending on your trading style.

Currencies are still a good play,  although my recommendation was to use Friday’s highs (11/6/15) as a stop loss, you would’ve been stopped out however, I believe these will still work; “Short the Aussie Dollar (FXA), and Short the Canadian Dollar (FXC)”.

Stay short Oil (USO), you’re making a killing here!  No reason to to cover, especially after we had war escalating events over the weekend (Paris attacks) and crude oil was still down today – very bearish.  Perhaps move your stops down depending on your trading style.

From last week’s post, Commodity Not-So Super Cycle you should be short ConocoPhillips (COP).  Depending on your entry you should be doing okay in this one.

Stay short COP, use Wednesday’s (11/11/15) high around $54.75 as a stop.

Finally, my call on coal (perhaps) bottoming in King Coal’s Big Bounce? is still a wait and see event driven idea.

Keep an Eye on ACI, for the signal to buy BTU, when it’s apparent that Arch Coal (ACI) is in fact going bankrupt, depending on the reaction in Peabody Energy’s (BTU) shares, go long BTU for a potential bottom in coal.

I think overall the markets should bounce early in the week and most likely give up those gains by the close on Friday.  The easy trade is to stay short commodity exposure (as described above) and stay long US equities until they break down again.  I personally doubt we’ll see any fireworks until the end of the year.

I’m working on a few ideas for this week, they’ll be associated with transportation (rail) stocks and perhaps THE momentum trade of 2016.

Feel free to comment below, let me know if I’m adding any value here or if you’d rather me go back into my own little trading cave.

Comments »