[MrBill]

$this->bbcode_second_pass_quote('TheGiantWave', '')$this->bbcode_second_pass_quote('', 'B')N 10:31 Amaranth Says Funds May Have Lost 35% on Natural Gas

Sept. 18 (Bloomberg) -- Amaranth Advisors LLC, a hedge-fund
manager with $9.5 billion in assets, said last week's plunge in
natural-gas prices left its two main funds with year-to-date
losses that may exceed 35 percent.
``We are in discussions with our prime brokers and other
counterparties and are working to protect our investors while
meeting the obligations of our creditors,'' Nick Maounis, founder
of the Greenwich, Connecticut-based firm, said in a letter to
investors obtained by Bloomberg.
The decline came after the Amaranth funds had gained almost
30 percent through August. Gas prices fell 12.2 percent last week
as the U.S. Energy Department reported its first triple-digit
inventory increase in more than a year. Demand for the power-
plant fuel usually declines after summer air conditioner use
slows and before heating needs pick up.
Amaranth was ``near the end of our disposition of natural-
gas exposure,'' the letter said, adding that Amaranth had met
every margin call. Steve Bruce, a spokesman for Amaranth,
declined to comment.
The firm has an energy trading desk of more than 20 people.
Brian Hunter, who works in Calgary, Canada, is Amaranth's head
energy trader.
Maounis spun his firm off from Greenwich-based Paloma
Partners in 2000. A convertible-bond specialist who worked at
Paloma for 10 years, Maounis started Amaranth with 27 investment
professionals and about $450 million in assets. The firm's
initial strategies included trading convertible bonds and the
stocks of merging companies.

[MrBill]

Slowly, painfully building a bottom in the crude.

If we are in a 1.2.3.4.5 movement starting at $77.52 in the WTI on the continuation chart then we should have completed the 3 leg at $62.04 on Friday.

1 = $77.52 - 69.62
2 = $69.62 - 73.77
3 = $73.77 - 62.04

Therefore, I have a pullback as far as the bottom of the 1st leg at $69.62, but more likely short of that. The fibonacci numbers are

382R = $66.54
500R = $67.97
618R = $69.31

with the 618R being just shy of the $69.62 area that would ideally hold if we are in such a move.

4 = $62.04 - (66.54-69.31) upwards correction
5 = $(66.54-69.31) - <62.04 taking out previous low

However, if we were in an A.B.C correction downwards from the high at $77.52 then we should have also seen the C low on Friday at $62.04, and should also expect a pullback towards a minimum of $66.54. From here it does not make much difference. The next leg should be up. I had my doubts yesterday when NY smacked it again, but the lows held and we finished higher. However, a breach at this point negates the count and we go back to square one.

At this point I took advantage of the weakness to load up on some more stocks like Sunoco and Schlumberger to add to my refiners and oil service companies. Again with the rationale that we may not see new highs anymore, but prices are high enough to generate industry profits, and aging infrastructure still has to be serviced to ensure production. I look at them as real options on the price of oil.

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'T')he fibonacci numbers are...

[Concerned]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'T')he fibonacci numbers are...

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'T')he fibonacci numbers are...

[drew]

Hey Mr Bill, very very tricky. I had to go get the wife and ask her what the hell you were doing. She has an enormous math brain. We ended up going to investpedia.com and it became all clear, sort of. Arcs, fans, trend lines....

I have some reading to do...

Fibonacci is also the name of a shadey turncoat on 'prison break' who the mob is trying to liquidate!

Drew

[MrBill]

$this->bbcode_second_pass_quote('drew', 'H')ey Mr Bill, very very tricky. I had to go get the wife and ask her what the hell you were doing. She has an enormous math brain. We ended up going to investpedia.com and it became all clear, sort of. Arcs, fans, trend lines....

I have some reading to do...

Fibonacci is also the name of a shadey turncoat on 'prison break' who the mob is trying to liquidate!

Drew

[TheGiantWave]

Was pretty one way yesterday on crude and I was also a little surprised by the action. Could be have been fallout from the Amaranth situation... plus we're running into the expiry on WTi and with it the and of the quarter.

Still feel we shoudl be near a base here.

[MrBill]

$this->bbcode_second_pass_quote('TheGiantWave', 'W')as pretty one way yesterday on crude and I was also a little surprised by the action. Could be have been fallout from the Amaranth situation... plus we're running into the expiry on WTi and with it the and of the quarter.

Still feel we shoudl be near a base here.

[cube]

It looks like this bottom trend has ended. How do I know? Is this another one of cube's cracked crystal ball predictions? Nope...it's actually in the news:

Oil price very low, action needed: OPEC chief

no need to read the entire article, I think the first paragraph says enough
$this->bbcode_second_pass_quote('', ' ')ABUJA (Reuters) - Oil prices are very low, harming investment in the industry and something needs to be done to steady the market, OPEC President Edmund Daukoru said on Tuesday.

[truecougarblue]

Am I dreaming, or did we just go 6 days without a post on "Trader's Corner"?

Methinks we financially inclined types have bigger concerns at the moment than peak oil. Credit bubble anyone?

BTW, I'm down but not out on my home builder shorts and about even on my miner longs. Stops are in.

[MrBill]

I cannot post and it really pisses me off. Sorry. Something keeps kicking me out and I just do not have the time to keep trying each time. Is it a bug in the webpage? Does anyone else have this problem?

Does it have something to do with dashes, commas, apostrophes or something? When I remove them all sometimes it works?

[MrBill]

I do not disagree. ML and Deutsche Bank analysts also see this market rebounding to $65 between now and year end, which when you think of it is not much of a prediction. But in any case, I still think there are a lot of bulls in the commodity sphere that still need to have some sense smacked into them, so we will be still vulnerable going forward.

Based on my technical analysis that I double checked with a friend of mine in Germany last week he sees also a retracement direction $65, but short of $70, in the WTI and then perhaps a resumption of the move lower to $55 to 60 ahead of year end. Never the less, from a purely Elliot Wave pattern, he also shows WTI up to $85 a barrel, but no particular time frame.

Such an event would have to be presumably Iran linked. I doubt a hurricane could push us that high now given adequate inventories? A few news headlines that Asia is more than well supplied, and there is no pressing need to import more to America now that the economy looks like it is still slowing down heading into Q406, possible recession in 2007.

My prediction is choppy, range trading, with exaggerated moves in NY to try to catch the stops out. Will be very ugly so either carry a smal core position and try to range trade or stay on the sidelines. This is not the time left in the game to throw Hail Mary's and hope for the best. Another reason I prefer the oil service companies and refiners at these levels. They can still make money maintaining the infrastructure and at $60 a barrel the oil companies can well afford to pay them.

I do not like the noises out of Russia. It may not be another Yukos re nationalization brewing, but unsettling none the less with the states naked grab for stakes in Sakhalin against Shell, Total and Japanese oil companies on the back of flimsy environmental violations which in Russia is like handing out speeding tickets at the Indy 500. They may or may not be legitimate, but bringing Gazprom in as a partner is surely not the answer either, unless your goal is to re-write the PSAs and take a bigger cut for the state. Ditto for elections in Equador a la resource nationalization like in Argentina, Bolivia and Venezuela.

At the end of the fur trade the Indians working for the Hudson's Bay Company were so desperate for cash that they tore open the tops off beaver colonies in the winter while the beaver slept to get more pelts without bothering to trap the animals. The result was a rapid decline in reproduction and a collapse of the market. As oil and other commodity prices begin to peak I would expect some very short-sighted behavior from governments that have grown accustomed to resource revenue to pay for their social programs, and had been budgeting with more not less money coming in over the next few years. However, their short-term actions can have very long-term implications if it affects exploration, speculative drilling, infrastructure projects and the like. After all that is one of the reasons we ended up short capacity in the first place. It's deja vu all over again.

[Doly]

$this->bbcode_second_pass_quote('MrBill', 'N')ever the less, from a purely Elliot Wave pattern, he also shows WTI up to $85 a barrel, but no particular time frame.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', 'N')ever the less, from a purely Elliot Wave pattern, he also shows WTI up to $85 a barrel, but no particular time frame.

[MrBill]

Two important points about today's EIA/DOE inventory numbers

1 - supply UP
2 - demand UP

So the breakdown is

crude stocks -100K to 324.8 mio bbls
gasoline stocks +6.3 mio to 213.9 mio bbls
distillate stocks +2.6 mio to 151.3 mio bbls
heating oil stocks +2.1 mio to 63.4 mio bbls
refining runs -1.0% to 92.4%

crude imports +491K to 11.08 mbpd (3rd highest wkly ave)
product imports +367K to 3.7 mbpd

gasoline demand +3.8% to 9.38 mbpd
distillate demand +1.1% to 4.12 mbpd
total demand +2.4% to 20.90 mbpd

With Asia also well supplied, I doubt there is much fundamental news that can drag us higher, so maybe the OPEC PUT or perhaps the IRAN CALL, but all else looks like too little, too late? Oh sure, we could talk about the constructive technical picture, but then Doly would just ridicule us for indulging in numerology! ; - )

[cube]

$this->bbcode_second_pass_quote('MrBill', '.').. Oh sure, we could talk about the constructive technical picture, but then Doly would just ridicule us for indulging in numerology! ; - )

[MrBill]

The problem with technical analysis is that the academics want you to lay-out your rules ahead of time, and then they want to backtest it against the data. However, technical analysis does not work that way. A support line or retracement point is only valid until it breaks. It is like a judo match where each opponent must outline all their moves ahead of the match and then the judges determine who would have won? It just does not work like that. It is a give and take based on new information - fundamental, technical and headline driven.

Yesterday we touched a very strong support line in the WTI on the daily, weekly, monthly chart that goes all the way back to the start of this bull rally. A very important channel that has held so many times it is not even funny. But eventually it will break. It always does. Does that invalid the technical signal it has provided all this time? Not in my opinion. Once it does break and we close below it then it will also convey valuable information as well. It could validate the end of the bull rally or a deeper correction to $58.00 (0.382R). I find that useful.

I am not sure why we rallied off yesterday's lows after those bearish inventory numbers? I have not seen any headlines, yet. Could have been technical buying or someone defending an options position at the $60 level in the WTI? We are above the 13-day moving average at the moment at $62.35. The next objective would then be the $64.55 21-day moving average that provided resistance on the way down. I think too early to call for a reversal, but given my exposure in the equities I would not mind a significant rally back towards $64.50-65? In any case take care and good luck. Cheers.

[MrBill]

Heading into the weekend we are balancing well-supplied markets, some headlines talk about gluts, versus a commitment from some OPEC members to manage supply downwards by 5% starting with Nigeria. Who in any case were having trouble fulfilling their commitments due to problems in the Niger Delta.

But interesting enough for me are the open positions of the commercial versus large and small speculative traders. Given even money, I would sooner follow the commercial traders who have access to pipes and storage and can play in the physical as well as the paper market.

According to the COTS commitment of traders the open futures positions are

Crude - the commercials coming back to square from short during the steep 20% move lower that killed many a speculative trader and long only hedge fund.

Heating Oil - not only covered their shorts, but now actively going long ahead of the winter heating season. Despite healthy builds in the distillate and heating oil stocks.

Unleaded - the commercials have covered their shorts and are now square. I do not read much into this given the change over in standards this year and the phase out of HU by year-end. Never the less, $1.50 looks a lot cheaper than $2.00 because it is, and also because demand is still a rip roaring +3.8% higher than last year despite those higher prices that we have seen.

Natural Gas - the commercials are still short and we all know what has happened to the long hedge funds. Smacked upside the head to the tune of $5 billion plus in one month. Obviously, the mild weather and quiet Gulf hurricane season do not have the commercials worried enough, yet, to cover those short positions.

The USD basket of currencies is pretty much flat indicating a reduced anxiety of a weaker dollar and higher inflation. Although the Swiss franc is well supported by the commercials (whoever they may be? dunno?). Supporting this benign view are the commercials who are short gold and silver as well.

However, their view on the real economy is not so bleak as one might expect given they are long copper (a proxy for Asian growth?), and in the softs they are long corn, soybeans and wheat. I would not read too much into that one. I think the 'commodities as an asset class' will turn out to be a dud with hedge fund redemptions starting at the beginning of Q406 and Q1 2007, so of course less money coming into the asset class on whole.

But the agriculturals do at least point to stable, upward demand and therefore higher prices for growers. That is not only good for US farmers and exporters like Brazil, but also a very good sign for India, who's economy may be synonymous with offshoring white collar jobs, but at its very roots is still agriculturally based, and therefore very reliant on good weather and high prices for domestic demand and growth.

Here is the link for the COTS charts if you do not already have it.

COTS Charts


According to VectorVest Stock Analysis, and they seem to be very bullish on many stocks, so take it with a grain of salt, the refiners and oil service companies are undervalued at current levels. You can check out some investor research by visiting their webpage and picking up some free reports. Just type in some tickers like COP, HAL, SLB, SUN, etc. and you will see they are still predicting some higher valuations. But as I said, they are bullish quite a few stocks, so perhaps an extra degree of caution is needed to make sure that they are not just sellside cheerleaders looking to peddle feel good research.

VectorVest

On the back of the OPEC news, I am tempted to play it from the longside heading into the weekend. I have a positive signal on the daily chart, but well below yesterday's highs on the hourly. And on the weekly chart we are still in a downward correction that may have bottomed on Wednesday, but it is too early to say for sure? Net/net that behooves me to be a cautious long without much conviction, and therefore subject to the vagaries of the NY market that could just as soon rat me out of my position and close higher afterwards? A tough decision without any confirmation or converging trends.

In any case, have a nice weekend and speak to you next week. Cheers.

[MrBill]

As somewhat predicted, if not clearly enough articulated on my part, the start of Q406 did indeed start with some light fund selling, which in my opinion indicates a slight outflow from the asset class going into year-end. Not a stampede, but if upwards momentum is not recaptured or at least a strong close to the year, those investors who were too slow to react in time or are behind the curve may use the start of 2007 to close oil related fund positions.

Goldie Sachs reports strong demand from Europe, but their story is not wholly convincing. More like trying to keep the rally alive? Deutsche Bank's oil ETF closed lower in Q306 which has to be disappointing to investors and poor timing for DB as well.

Therefore, this is not a positive harbinger in the short-term and with adequately supplied domestic and Asian markets the case for a gradual decline sub-$60 is more than likely in the absense of headline events directly related to either further concerted OPEC cuts and/or fresh Iran sanctions that are not in my opinion widely supported or likely.
But don't take my opinion. Here it is from the horse's mouth...
$this->bbcode_second_pass_quote('', ' ') THREE MARKET CHOICES IN CRUDE OIL

Sunday, October 01, 2006 - FreeMarketNews.com

There are three choices for the market in crude oil after its recent steep falls. It can stay roughly around where it is now, $62. It can fall back down through the technical and software barriers that support it to new year lows or it can go higher once more. Perhaps very high. It all depends who, or what, you believe.

-Resource Investor STAY INFORMED – FREE DAILY eWIRE NEWSBRIEFS