[mkwin]

$this->bbcode_second_pass_quote('', 'I')f you are long energy, metals, commodities, emerging markets and euros, and short the US dollar, that is likely the sweet spot where you want to be at the moment. However, to open fresh longs up at these levels is a high risk endeavor.

[mkwin]

$this->bbcode_second_pass_quote('Starvid', '')$this->bbcode_second_pass_quote('mkwin', '[')u]Requesting Advice from MrBill and Others

I want to get exposure to nuclear and was wondering do you have any stock/fund ideas? I am looking for uranium miners, reactor builders, other nuclear equipment suppliers, power companies etc.

[MrBill]

I am assuming that we saw a short-term top in the market yesterday. At least looking at EUR, WTI and XAU as well as selling in the S&P 500 and the S&P Energy Index (GSPE). Where would that leave us in terms of retracement levels assuming Mr. Fed does not spring another surprise rate cut on us?

First of all. Looking at trading envelopes (TE) and RSI at any point other than at the extremes does not yield much new information. They are measures of over-bought (TER or an RSI > 70) or over-sold (TES or an RSI < 30), so in between they are free to follow the underlying trend without risk of a sudden pull-back or change in sentiment.

However, at their extremes they can foreshadow a reversal simply as all the good news (or bad news) is already in the price, so the move is subject to a change in sentiment that catches the majority of players off guard. That is the theory. In practice they are just another tool that should confirm the fundamental view and give hints as to entry and exit points. Or as Confusious might say, "Trees do not grow to Heaven."

Secondly, I cannot give you the RSIs from yesterday, so they are slightly lower today reflecting the start of the reversal. For example, the RSI for gold today is 76.78 (still over-bought) versus an RSI of 78.96 yesterday (more over-bought still). The rest I do not have simply because I did not write them down yesterday is all.

So starting with gold....

.... the latest bull rally started at roughly $641 when the Fed started easing in mid-August. That rally took us up to yesterday's $845.70 (or so depending on which spot reference price you use).

TER (resistance) = $833.30 *
TES (support) = $728.30
RSI = 76.78

*based on 2-standard deviations from the 21-day moving average

The Fibinochi retracements are...

0.236R = $797.35
0.382R = $767.45
0.500R = $743.25
0.618R = $719.10

...versus the breakout from the previous high of $687.10 area. As I mentioned yesterday I would expect a pullback to $770 (or $767.45 actually) at least by year-end if indeed yesterday was an intermediate high as traders take profit on longs and flatten out their exposures. But that depends on the euro...

... the EUR on the long-term charts started this rally from $1.1650 and topped out yesterday above $1.4700 near $1.4730 or so. Based on that the bigger corrections would be...

0.236R = $1.4000
0.382R = $1.3560
0.500R = $1.3200
0.618R = $1.2830

TER = $1.4670
TES = $1.4040
RSI = 74.80 (remember it would have been higher yesterday when it was clearly over-bought as it was above its TER)...

Now that might sound like a strange call, but don't forget that European politicians, especially the Sarkozy crowd, are crying out for some relief from a stronger euro and Mr. Trichet is in a difficult position.

On one hand we have a very weak yuan and on the other we have a weak US dollar as well. The eurozone is being asked to re-balance those trading partners differences in a not very democratic way.

Also given the credit crunch from which European banks are far from immune it would appear that not only has the plucky little ECB given up its plans for two rate hikes to combat eurozone inflation, but it may be contemplating a rate cut. Of course, it could also just stand pat.

So given there are those that think that the Fed will refrain from giving the stock market another dose easing in the nearest future, and given that the ECB may actually ease itself, one might be forgiven for contemplating a retracement to the $1.4000 area before making another assault on $1.5000 perhaps in the New Year. Which brings us to oil....

.... as mentioned before WTI is a strange, local contract that is often used as a global benchmark. Its importance as a future's benchmark disguises its irrelevance in the big scheme of things in the physical market. Never the less, all eyes are on WTI and its recent attempt to smash through $100.

Actually, if it were, it would make sense in the next two weeks before the December maturity in the third week in November. We are so close now that it almost seems a shame not to take another stab at this psychological barrier.

However, if $98.62 was the high then the retracements starting at the low point of $49.80 or so in 2007 would be....

0.236R = $87.15
0.382R = $80
0.500R = $74.25
0.618R = $68.52

TER = $98.95
TES = $82
RSI = 66.92 (after yesterday's significant drop).

Goldman Sachs sees a fundamental retracement to $80 by year-end. However, last summer we saw crude drop nearly 36% after its seasonal highs. If there are no real political events, like Iran, or actual physical shortages ahead of year-end then a similar sized move would take us from $98.62 to $63.15 or so. Based on this a dip to $68.50 does not look out of the question, but if you want to argue we can meet in the middle between $74.25 and $80 also.

That somewhat depends on the health of the stock market and there I am afraid the support for a rally in the absence of further rate cuts is waning. Before the Fed started cutting in August we had fallen from 1558 to 1371 in the S&P500 and I was calling for follow through selling as low as 1250. Alas the Bernanke Put laid waste to those predictions. However, in my opinion his magic is wearing thin and here we are today....

.... the move from 1371 to 1576 is now unravelling. The retracements are....

0.236R = 1528.10 (been there...)
0.382R = 1498.25 (...done that)
0.500R = 1474.15 (...here we are)
0.618R = 1450 (where we are likely going...)

.... while conveniently for me

1.618R = 1246 (... or roughly my 1250 target in the first place!)

TER = 1572
TES = 1483
RSI = 38.06 (which is not over-sold per se, but not a compelling selling argument either)....

.... And where crude and the S&P 500 go the S&P Energy Index (GSPE) must surely follow...

Remembering back to those halcyon days of August when the GSPE was threatening to test 480 after its dog days in July high of 575 we were rudely jolted out of vacation mode by the Fed's hastey decision to ride to the rescue of credit markets with a quick cut to its discount rate. The rate at which banks can borrow from the Fed window.

That was more than enough to spark a rally in anything that you can touch like oil, metals and agriculture commodities as the inflationary implications of such a rash move penetrated investors' collective consciousness. As it turns out it was also an excellent time to buy oilfield service company shares as well. And we did. But some of you had more patience than I did and held them for longer, so you made more money than me. Good for you. Being a rotten market timer I am anyway!

Sadly, that rally - or as I like to fondly refer to it as a Bull Trap - seems to have run its course as well. Assuming we have seen the highs in crude and the S&P 500 plus with seasonal refining margins less than half of what they were earlier in the year ($8-9 versus $20+) the lustre has come off these companies quicker than you can say ''third quarter earnings and reserve replacement!''

The retracements from the move from 585 to 604.35 now loook like....

0.236R = 576.25
0.382R = 558.80 (previous low)
0.500R = 544.75 (which is our next target)
0.618R = 530.65 (which should be just about time to buy again)

TER = 605.75
TES = 562.40
RSI = 48.64 (no-where-ville)...

....which means really that I would have probably been better off just to hold my core position that I sold in September because now the new entry point is almost exactly where I got out in the first place? C'est la vie! ; - )

And what about my favorite barometer of risk appetite? EURJPY? That too looks toppish and seems ready for a gradual or not so gradual sell-off.

We have seen a double top recently at 167.75-80, which is well below the absolute highs seen during the summer near 169 and now we appear to be skidding back towards the previous low of 149.25 after the last bout of short covering by yen sellers turned buyers. Those were fun days, eh?

The action does not look so nearly as interesting now. Mainly I suppose because the credit market jitters scared the bejeezus out the Min Fin and BOJ as well as a whole cadre of spineless politicians in Tokyo, so they are not likely to raise yen interest rates anytime soon. Good ol' Japan. You can always count on them to duck a hard decision whenever there is one to be made.

But just to be thorough (hey, if I cannot give you insights at least I can give you data) the retracements in EURJPY are...

0.236R = 163.40
0.382R = 160.70 (previous low)
0.500R = 158.50
0.618R = 156.30

TER = 168.25
TES = 162.20
RSI = 55.10

Now I could care less about Japan per se, but what I am interested in about EURJPY is what it says about global risk taking. Given that liquidity is tight in currencies such as USD, EUR and GBP it would seem logical too me that many are still using the JPY as a funding currency. That as much as anything may be why the yen carry trade has not completely unwound already.

But while we're on the subject let us spare a thought for the beleaguered Nikkei 225. I am old enough to remember that shortly after the Asian Crisis, when we used to loving refer to these economies as submerging markets, that the Nikkei was roughly worth two times the value of the Hang Seng. Now the HS is worth almost twice the Nikkei. Yes, despite Japan Inc's reputation for trashing GM and Ford with one arm tied behind their back and those massive foreign exchange reserves that pale only in comparison to China Inc's own incredible war chest.

So what's up? Despite a yen that is massively undervalued against the US dollar and euro - 40% by some measures - and rising exports to mainland China the Nikkei is down 8.44% YTD. That is in yen. Despite a weak US dollar the Nikkei is down 3.50% as measured in dollars and down 13.25% when measured in euros. Pray tell, what exactly is supposed to happen to the Nikkei should the yen ever reflate Mr. Rogers?

Not to get off topic. Not like I have not been off topic all along though. But when you're having your bedtime bath tonight, and you're contemplating the relationship between money supply creation and inflation - like Good Mogambo Junior Rangers (GMJR) - give a thought to the conventional wisdom about the supposed link and then remember Japan's ongoing experiment with deflation over the past 15-years. I do not want to spoil it for you by telling you the answer already, but I would like to hear your thoughts on this little riddle though.

And finally to end on a note of levity with The Asinine Policy Of The Week Award. Normally I might wait until Friday, but as my memory is pretty short I should get it down on screen before I forget. This is always a tough call because there are usually so many bone headed statements made each week, but I think this week's prize has to go to India's PM Mr. Singh.

He would like to keep up India's 8-9 percent annual growth pace, while reducing inflation, although this is apparently hard because India subsidizes food, energy and fertilizer imports?

Well, Mr. Singh it will be a nice party trick if you can pull it off! But what would you do for an encore? Balance the budget and close your trade and current account deficits? Make nice with your neighbors? Solve that ethnic strife thingy? HA! Sorry, now I am just being silly! ; - )

UPDATE: mining markets are getting a nice little lift here on rumors of a merger between Rio Tinto and BHP Biliton. Wow, that would be more than a bite sized mouthfull to digest.

[Starvid]

$this->bbcode_second_pass_quote('MrBill', 'G')ermany seems to be immune at the moment from a strong euro as their imports of capital goods continue unabated

[MrBill]

$this->bbcode_second_pass_quote('Starvid', '')$this->bbcode_second_pass_quote('MrBill', 'G')ermany seems to be immune at the moment from a strong euro as their imports of capital goods continue unabated

[pup55]

Mr. Bill:

We have a hypothetical for you. Maybe it is not hypothetical.

I think one of the fellow posters (Mechler) is toying with the idea of going long on the refiners (WNR) right about now, because most of them have come out with bad earnings this quarter due to the terrible refining margins, and the stocks are beaten down.

I believe that the refining margins will pick up within the next few weeks, as the Holiday season gets closer, like they did last year.

The stocks are beaten down right now because of the overall terrible US market conditions, and recent bad earnings reports. We feel that in the spring we will have another round of gas price increases due to tight refining capacity like we have had the last three years.

How do you suggest that a hypothetical person time the current situation? One alternative is go long right now, and take your lumps if the market continues to melt down. Another alternative is wait for awhile, until refining margins pick up, avoiding any continued market correction, but maybe being late for the party if the refinery margins pick up during Thanksgiving.

Maybe easing in, or dollar cost averaging is appropriate in this situation. I do not know how deep this hypothetical person's pockets are.

I am curious as to your opinion on how long the downdraft in the market will continue, and the prospects for the refiners going forward.

[Starvid]

$this->bbcode_second_pass_quote('MrBill', '')$this->bbcode_second_pass_quote('Starvid', '')$this->bbcode_second_pass_quote('MrBill', 'G')ermany seems to be immune at the moment from a strong euro as their imports of capital goods continue unabated

[MrBill]

pup55 you are really expressing a long bias towards refiners because you believe they have been knocked down to attractive levels, but you are unsure of the timing of an upswing.

So your beta risk is that the general market (S&P 500 or S&P Energy Index) gets beaten down and that hurts refining shares as well. And you're betting your alpha - refiners - will outperform the general market if and when refining margins recover (beta ave 1.5 vs. SPX). These are perfectly reasonable assumptions as far as I am concerned.

What I would do in this case is to create a basket of refiners that you like - say Sunoco, Valero, Tesoro, Frontier, Holly, Western Refining, etc. - but at least 5 stocks for rebalancing purposes. They look attractive with P/E ratios of 8-10 and they have been knocked down by poor Q3'07 earnings for the S&P Energy Index (GSPE) and refining margins that are roughly less than half what they were last spring.

Then using Bollinger Bands (or Trading Envelopes) and RSI I would look to add them to your portfolio as they get over-sold. Sunoco at $70 for example looks like it is at the bottom of its range using these over-sold measurements. If you are cautious you might add only 50% of your long allocation at first and then wait for the moving averages (M/A) to move in your prefered direction before adding to the long (a classic momentum investment strategy).

The theory is that you buy on dips, but you do not fully commit yourself until the market starts to rebound. Then at the top end of your range when the said stocks start to look over-bought you have two choices. One is to sell 50% of your individual long and wait until that stock comes back down into fair value or over-sold territory again. Or because it is a basket you can also take 50% profit on the outperforming stock and then re-inivest that money into another stock in your portfolio that is under-performing.

For example, this strategy had you used it for oilfield service companies would have had you selling, say, SLB, and re-investing that money in either BHI or HAL. But as you have a long bias you do not sell out 100% or go short, but only take profit on 50% of the long. That forces you to take money off the table on the way up. What you want is a periodic re-balancing of your portfolio.

As the beta is roughly 1.5 against the SPX you can also buy portfolio insurance in the form of selling S&P futures to protect your downside. Again I would not sell more than 50% futures against your portfolio long as you have a long bias and you do not want to sell all your upside. This still leaves you exposed on the downside, but that is based on your assumptions, so it is consistant.

The effect of $100 oil on a slowing US economy... namely the risk of stagflation.
$this->bbcode_second_pass_quote('', ' ') Rising fuel prices that businesses
and consumers took in stride earlier this year may now be near
the point of pushing the weakened U.S. economy into recession.

``We are in a danger zone,'' says Nariman Behravesh, chief
economist at Global Insight Inc. and a former Federal Reserve
economist. ``It would take two shocks to bring the economy to
its knees. We got one shock in the form of the credit crunch.
Oil could be that second shock.''

Crude-oil prices are poised to cross the $100-a-barrel mark
while the U.S. economy is still reeling from a surge in
corporate borrowing costs. Europe and Japan are vulnerable as
well, after the U.S. subprime-mortgage collapse contaminated
their credit markets.

Even before the latest jump in energy costs, economists
expected U.S. growth to slow to less than 2 percent in the
fourth quarter -- half the third quarter's pace. Andrew Cates,
an economist at UBS AG in London, said his models suggest a 45
percent chance of a U.S. recession next year, up from 33 percent
last month, as oil prices prove a ``growing concern.''

Japan risks its fourth recession since the early 1990s,
with its index of leading economic indicators falling to zero
for the first time in a decade. The European Commission last
week cut its 2008 growth forecast for the 13 nations that share
the euro to 2.2 percent from 2.5 percent, partly because of
costlier crude. The economy grew 2.8 percent last year.

Energy Efficiency


The world economy may still dodge recession as emerging
markets continue to expand. A report last week by Deutsche Bank
AG said gains in energy efficiency mean the effect of more
expensive oil will ``remain muted.''

Even so, gloom is spreading at a speed that suggests
``we're walking a really fine line,'' says John Silvia, chief
economist at Wachovia Corp. in Charlotte, North Carolina. ``Even
a month ago, you probably wouldn't have thought we'd be seeing a
sustained credit problem and oil holding up above $85 a
barrel.''

Crude oil traded at a record $98.62 last week on the New
York Mercantile Exchange and ended the week at $96.32, bringing
its increase this year to 58 percent. Prices adjusted for
inflation exceed the previous record, set in 1981 when Iran cut
exports.

The dilemma for central banks is how to balance oil's drag
on their economies against the risk of higher inflation. Fed
Chairman Ben S. Bernanke told Congress Nov. 8 that oil prices
threaten both ``renewed upward pressure'' on inflation and
``further restraint on growth.''

Accelerating Inflation


Such concerns prompted the European Central Bank to keep
interest rates on hold last week, and President Jean-Claude
Trichet said he still sees a danger that inflation will
accelerate.

Clayton Jones, chief executive officer at Rockwell Collins
Inc., says central bankers should err on the side of supporting
growth. Jones, whose Cedar Rapids, Iowa-based company makes
aircraft-cockpit instruments, said in an interview that he's
``much more worried about recessionary impacts rather than
inflationary impacts.''

Manufacturers are among the first to feel the pinch: Rising
energy prices are increasing their costs while drooping
consumer and business confidence erodes demand.

In the U.S., the Institute for Supply Management's
manufacturing index fell to a seven-month low in October as
gauges of orders and production declined.

Lower Profits


Peoria, Illinois-based Caterpillar Inc., the world's
biggest maker of bulldozers and excavators, cut its profit
forecast on Oct. 19 and said the economy would be ``near to, or
even in, recession'' in 2008.

The pain doesn't stop there. Rising jet-fuel prices are
forcing airlines to curtail expansion plans. Chicago-based UAL
Corp.'s United Airlines said it may cut capacity in 2008 to make
up for higher fuel costs. Cologne-based Deutsche Lufthansa AG is
raising fuel surcharges on long-haul flights.

Dallas-based Southwest Airlines Co. is ``reconsidering our
growth rate for next year,'' because of ``very significant''
cost increases, Chief Executive Officer Gary Kelly said Nov. 7.

Meanwhile, U.S. shoppers, who helped propel most of the
current expansion, may cut back as gasoline and home-heating
costs rise. Retail-sales growth from November through January
may be the slowest since 2002, consultant Ernst & Young
estimates. Consumer spending accounts for more than two-thirds
of the U.S. economy.

`A Huge, Real Shock'


Fuel costs are ``a huge, real shock'' to consumers, says
Nouriel Roubini, chairman of Roubini Global Economics LLC and a
professor at New York University. ``High oil prices are going to
remain with us until we go into a recession.''

Europe's manufacturers are contending not only with
increased energy costs but also the euro's rise to a record
against the dollar, which is hobbling exports.

An index of manufacturing growth in Europe dropped to the
lowest level in more than two years in October, and confidence
among executives in Germany fell to a 20-month low.

Morgan Stanley's model of activity in the euro zone is now
flashing the ``risk of manufacturing recession,'' according to
Chief European Economist Eric Chaney, a former official at the
French ministry of finance. He says the area's economy may run
close to its ``stall speed'' of about 1 percent in the first
quarter, and ``oil is not making things easier.''

Biggest Decline


Heidelberger Druckmaschinen AG, the world's largest maker
of printing machines, last week reported its quarterly profit
dropped by almost half, triggering the biggest decline in its
shares since 2004. ``Energy and raw-material costs have made
life difficult,'' says Dirk Kaliebe, chief financial officer of
the Heidelberg, Germany-based company.

The pain extends to China and India as governments pare
energy subsidies, putting more of the burden on companies and
consumers. China increased fuel prices by as much as 10 percent
Nov. 1, and India may follow as soon as this week.

``The stage is set for a significant slowdown in global
manufacturing,'' says Joseph Lupton, a former Fed economist now
at JPMorgan Chase & Co., which predicts industrial-production
growth worldwide will decelerate by more than half before the
end of this year, to about 3 percent.

The speed of the latest jump in oil prices tests the
resilience of economies that weathered previous increases, says
David Hale, president of Chicago-based Hale Advisors LLC.

``We've had stages in which the price has gone up over a
period of two or three years,'' he told a Nov. 7
teleconference. ``The recent price spike from $85 to $96 has
happened in just a few weeks, so this will pose more of a
risk.''

The longer prices remain high, the greater the threat, says
Neal Soss, chief economist at Credit Suisse Holdings Inc. in New
York.

While Soss doesn't expect a recession, he compares the
danger to ``driving on an icy road: You may get away with it for
a while, but the risk of having an accident has gone up.''

[Starvid]

Stagflation huh? That's just great...

But they don't even dare spelling it out...

Well, as long as we don't get any hippies I guess we'll be all right.

By the way.
Q: As a central banker, how do you beat stagflation?
A: Get Saudi Arabia to increase production.

[sparky]

.
Last I remember Volker got stagflation beat by using high cost of money to crush any frothy speculation , then Reaganomics spend the U.S. back to growth .

Stagflation is the natural way of burning the excess monetary value of non earners ( speculators , holders of gov securities , pensioners etc.. )

There is something fishy going on , the pentagon is sending strong signals of " no war in Iran "

http://www.ft.com/cms/s/0/38dd00ca-90a6 ... ck_check=1

at such a level , it's pretty obvious its coming from the administration , just as the December crude options are dues , either they are cooling the march to three digits or someone at the top of the three is manipulating the market ...... again !!!

My bet is for the next six months is crude oscillating between 90 / 110 a barrel in random fashion , unless the dollar go south big time or the Iran thing goes banana

.


.

[sparky]

.
double
.

[MrBill]

$this->bbcode_second_pass_quote('Starvid', 'S')tagflation huh? That's just great...

But they don't even dare spelling it out...

Well, as long as we don't get any hippies I guess we'll be all right.

By the way.
Q: As a central banker, how do you beat stagflation?
A: Get Saudi Arabia to increase production.

[Starvid]

$this->bbcode_second_pass_quote('', 'T')hey are hoping to use a weak US dollar and higher exports to balance their current account deficit, but under Bretton Woods II that is simply not possible.

[MrBill]

$this->bbcode_second_pass_quote('Starvid', '')$this->bbcode_second_pass_quote('', 'T')hey are hoping to use a weak US dollar and higher exports to balance their current account deficit, but under Bretton Woods II that is simply not possible.

[MrBill]

I have precious little to add at this point as I still believe the market is cascading lower - only punctuated with short-term and misplaced buying on dips that is not justified by the fundamentals - at this point. So I will just post a comment I made a few days ago on Market Watch.

It is still my opinion with regards to the S&P 500, and as I mentioned in an earlier post, where the S&P 500 goes with crude retracing lower - it is a mixed technical picture, but my bias is lower still - I am sure the S&P Energy Index will follow.

Please refer to last Thursday's retracement levels. They have not changed this week.

$this->bbcode_second_pass_quote('', 'S')upport for the S&P 500 is at 1420 and then previous low of 1371 before the Fed started cutting rates to support the market. Otherwise we would already have been at 1250, which is where I see it by year-end.

Aside from another surprise rate cut from the Fed this market is closed for the year. Traders and investors are already starting to lock-in profits, cut losses or close positions ahead of year-end. Those that held out are now being encouraged to cut their losses since we are heading lower in the absense of further rate cuts. That likely would not help the credit crunch in any case.

Yes, the banks - public companies that made tons of dosh during the expansion - have taken massive write downs with more likely to come. They had the reserves. But what about insurance companies, mutual funds and their more secretive hedge funds brethern that either are not accurately marking to market or as non-tradable positions in their portfolios, like passive investors, do not have to mark to market in the first place? They are likely sitting on the same exposures as the banks - because afterall that is who the banks sold their credit derivatives too in the first place - but those investors have yet to disclose their positions or indeed losses.

Meanwhile the housing market is still falling and the credit crisis is still amoung us despite an estimated $250-300 billion in credit related losses already announced. Any further rate cuts by the Fed in December will simply be monetized into (short-term) stock market gains, further US dollar losses and commodity lead inflation. Hello stagflation!

1250 by year-end. I would give you my next lower estimate, but I don't want to seem to pessimistic! ; - )

[Starvid]

$this->bbcode_second_pass_quote('', 'A')s the economy switches wholesale from production of goods to delivery of services, and becomes richer, it is a lot more difficult to close the trade gap, as it has less (proportionally) to export, and more disposable income with which to purchase imports.

[MrBill]

$this->bbcode_second_pass_quote('Starvid', '')$this->bbcode_second_pass_quote('', 'A')s the economy switches wholesale from production of goods to delivery of services, and becomes richer, it is a lot more difficult to close the trade gap, as it has less (proportionally) to export, and more disposable income with which to purchase imports.

[Starvid]

I really like the way you write, and I agree with most of it.But there's one thing I didn't get.

Are you saying foreign markets have been opened for investment for ordinary Chinese? Already?

And if so, why are Chinese stocks still so ridiculusly overvalued?

[MrBill]

$this->bbcode_second_pass_quote('Starvid', 'I') really like the way you write, and I agree with most of it.But there's one thing I didn't get.

Are you saying foreign markets have been opened for investment for ordinary Chinese? Already?

And if so, why are Chinese stocks still so ridiculusly overvalued?

[MrBill]

Fresh lows for the US dollar against the euro. We touched $1.4800 earlier today from an opening somewhere around $1.4750.

$1.5000 is looking tantalizingly close. However, the euro looks over-bought at resistance (TER) at $1.4810, which is 2-standard deviations away from its 21-day moving average (M/A). And an RSI of 69.

At least compared to its mate gold that is near fair value with an RSI of 55 and a TER near $838 that is slightly lower now than its last rally to $845. I would expect some support for gold near $770-767 if the US dollar remains under pressure. The 38.2 retracement of the move from $641.

I am seeing good correlations between gold, Sterling, the S&P500 and S&P Energy Index (GSPE) that is no doubt linked to moves in EUR/JPY as the enthusiasm for risk taking, and therefore the yen carry trade, waxes and wanes. I will try to post those technical support levels later today.

Crude seems the odd man out as it follows moves in the EUR more closely than those others as of late. The WTI DEC contract should mature this Friday, if I am not mistaken? I can imagine a few that would like to probe the $100 threshold before it matures just to see what is up there? Be there dragons or will we fall off the edge of the world? $1.5000 euro equates to $100 crude, but then why is gold flagging? It might therefore be worth a punt at $770-767?

And despite this weak US dollar, and the expectation that financial matters are sufficiently worrisome to prompt yet another rate cut from the Fed on December 11th, the S&P 500 and GSPE are both down and struggling on the mat.

The S&P 500 is up a measely 1% year to date (YTD). That means it is down almost 10% YTD in euro terms. Not very impressive I am afraid. Worst case scenario the Fed blows his wad in December; the US dollar drops more against its basket; external inflationary pressures start to take ready root; and the S&P 500 continues to fall as a US recession looms. Super, but will the Fed do for an encore?

In any case, sans a miracle rate cut that sparks a late year-end rally I would see support at the previous low of 1371 (and 1362 below that), but my real target is 1250. That is another 12.5% below where we're at presently. I just like round numbers because I am just that kind of a guy!

That will make tough sledding for the GSPE unless crude prices top $100 and refining margins improve? 3.2.1 crack margins are in the $8-10 range, but look better in Q1'08 when they climb to $14. Still that is roughly half their peaks early last spring, and as a percent of crude's price quite a bit lower still.

Never the less, support is at 510 if the 540 level gives. It is like a bunch of kids jumping on a bed. The box spring has not broken, yet, but add a few more kids and it is just a matter of time? Some of the oil majors and service companies that have really outperformed this year are currently seeing market selling into strength.

I would take that to mean that some traders and fund managers did not use the upward price momentum after Q2'07 earning results to get out of winning positions, so now they are selling into rallies ahead of year-end to lock-in profits. Not a good omen. With an RSI of just 54 it has room to move lower either on the back of a weaker S&P 500, a sell-off in crude prices, or both. Below 510 is the previous low of 485.

UPDATE: Freddie Mac and Fannie May down 11-12% in pre-trading today as investors puke on their [s]reported earnings[/s] actual losses!

UPDATE II: Oops, Freddie Mac now down 26% and Fannie May minus 18% in sympathy. Crude is $2.00 higher and gold up with the weaker USD due to the expectation that the Fed will indeed cut rates 3-weeks. I don't know? It smells stagflationary for the real economy to me as GS forecasts further pain in the housing sector as well as in the financials due to falling prices, tighter credit and more defaults. The disconnect is that the stock market is rallying quite strongly? What am I missing? ; - )