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Comments on oil and the US markets

April 7, 2016

With the US markets rolling over today we are seeing a third lower high we ask Doc what he thinks of the potential of a big drop is. As for oil the rally from yesterday fading today. The feelings from Doc and Cory continue to have oil staying in the $30s and may even test the lows down the road.

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Discussion
41 Comments
    Apr 07, 2016 07:43 AM

    Given the strength of the yen and the weakness of the stock market the metals still have to paw and dig for everything they got, I just don’t get it.

      Apr 07, 2016 07:08 PM

      Lewis,

      Read up on Stewart Thompson’s study of the dollar/yen and gold. If you can find it, go back about 6 months on his postings. He gets it. He’s been very good on projecting gold’s performance based on fundamentals, not so much technicals. Read especially his posting on Tuesday.

        Apr 07, 2016 07:09 PM

        Will do thanks

          Apr 07, 2016 07:21 PM

          And I’m not so sure today’s performance in the market should be viewed as weakness. Market internals have really improved on this last run. And there’s plenty of money laying around that could be put to work. Plus, I still hear a lot people so bearish and still calling for a crash. Last I saw, we’ve been moving sideways for close to a year.

    cmc
    Apr 07, 2016 07:01 PM

    That VIX play is continuing to give. Thanks for that insight, Doc. When I heard you say that volatility rarely gets below 12, I figured I could hardly go wrong. I’ll be watching for that 2005.33 level.

    Apr 07, 2016 07:11 PM

    Yup, as the day has progressed it is looking more and more like the market is going to break down although we really can’t call it based on just today knowing how abrupt reversals can be at times.

    Copper really got body slammed though. A quick check on one of my bell weathers TCK and sure enough it has a confirmed H&S in play. So down she goes meaning that today’s action is likely not over for awhile yet.

    I will be looking to pick that one up again back near the 4 dollar and change mark.

      Apr 07, 2016 07:10 PM

      I got greedy last time – was expecting it to go lower and missed it. (I blame Doc as he said 2 bucks – only kidding Doc 🙂 ).

      Of course, as Doc also has commented, when it gets back down to that area things might be so bad that you might not want to hold the likes of TCK and FCX.

        Apr 07, 2016 07:55 PM

        I don’t know Bob, maybe Doc will be right about TCK at 1.00 in the end although I never saw it falling that far down. Maybe one day he will explain how he arrived at that low number and what technical reason he sees for it to happen.

        For now I am watching as I believe we get another test of the lows forming a very large double bottom spanning at least half of 2015. There is going to be time to buy this one again.

        The big caveat though is how you feel about Tecks debt levels versus the outlook for coal, copper and base metals in a world where it looks like China is about to finally experience a hard landing.

        I just don’t know that anyone can predict exactly what will happen next but there are noticeable strains appearing in junk debt and some corporate issues are looking risky. I like TCK but there are reasons its stock is this low and going lower again so maybe its a good idea to restrict your exposure to safe levels.

      Apr 07, 2016 07:31 PM

      The vix play is very risky ppl.There is still the chance that it will go sideways to down.Cmc volatilty has gone down as low as 8.89 in december of 1993.Like I said in my previous I wont touch this with a 10 foot pole.Risk reward is very high.

        Apr 07, 2016 07:47 PM

        Interesting Don. am not playing it either. Too many guys in that sandbox already and my Spidey senses just tell me to look elsewhere for a trade. Basically I don’t trust the set up.

        Apr 07, 2016 07:32 PM

        My TVIX position is up very nicely today, so no complaints here. It isn’t something I buy and hold for very long anyway, and there is way more upside opportunity than downside risk at this point in my opinion. Personally, there are a number of trades on this board in tiny explorers that seem far riskier to me, but to each their own.

        Volatility is an odd kind of trade and the leveraged ETFs can turn directions rather quickly, so you need to keep a close eye on those trades, and be ready to sell fast if the trade turns against you and wait to get back in at a better entry point.

        VelocityShares Daily 2x VIX ST ETN (TVIX)
        4.96 Up 0.70(16.43%) 4:00PM EDT

          Apr 07, 2016 07:33 PM

          One other thing I like about the volatility trade is that is has nothing to do with management making bad decisions, or debt loads, or environmental problems, or first nations issues, or taxation changing, or metals prices, etc…etc…etc….

          You’re basically just waiting for fear to come back into the market….and it always does.

            Apr 07, 2016 07:43 PM

            What Does Record VIX Deflation Mean For Stocks?
            (Thu, Apr 7, 2016)- from Dana Lyons, JLFMI

            The S&P Volatility Index recently dropped at a record pace off of its February highs; is this good news or bad news for stocks?

            “….in the 25 days subsequent to the February low in stocks/high in volatility (ending on March 18), the S&P 500 Volatility Index (VIX) saw its largest ever decline over that time frame, dropping precisely 50% ”

            “Honestly, we missed this milestone because it is a complete surprise to us. It really doesn’t seem like we just witnessed the greatest ever collapse in volatility – but the statistics don’t lie. This was the first time (outside of 1987) the VIX had ever fallen by 50% in a 25-day span…”

            http://jlfmi.tumblr.com/post/142393327770/what-does-record-vix-deflation-mean-for-stocks

    Apr 07, 2016 07:11 PM

    Hi Al,Doc;Cory
    Doc,
    do you think that (EFR.TO) is going to to test the lows,or possibly break the resent low.
    And also, if you dont mind, what do you think about the second leg?starting in(K.TO)
    Thank you guys

      Apr 07, 2016 07:50 PM

      Pete, I wouldn’t be surprised if you see pressure on EFR.TO yet for a couple of weeks—that would signal the potential of a double bottom. Then you should get a bounce. Hope this helps. The odds of a second leg for K.TO are pretty good technically for the stock—it wants to badly close over the 200 week MA.

        Apr 07, 2016 07:53 PM

        Thank you Doc,appreciated as Always.

      Apr 07, 2016 07:26 PM

      Pete – I’m thinking of adding some to my Energy Fuels position if it pulls back a bit more. My cost basis is still under where prices are today because of buying the dips and selling the rips, over time. My dilemma is that by purchasing more it will raise my cost basis, so I want to see if it pulls back a bit more before pulling the trigger but it is looking like good value to start accumulating it again near these levels.

        LPG
        Apr 07, 2016 07:52 PM

        Hello Shad,

        FWIW, here’s a thought re: you not willing to raise your cost basis – forget it’s about UUUU, my comment here, fwiw, can be applied to any stock.

        I just told myself the same thing on a stock recently: “I don’t wanna buy here coz I’m up on it and buying higher will increase my cost base”. And I realized that this thought really didn’t make sense from an investment standpoint.

        I think that thought (not willing to buy more to not increase the cost base) is flawed. For 2 main reasons.

        1) assuming a stock is in a bull run, chances are, if you really got in near the low, or your cost base (whichever way you calculate it) is quite low, chances are you will average UP when adding capital.
        If a stock is beginning a bull run, are we simply not gonna average up (coz we don’t wanna increase the cost base) and miss the run ? It doesn’t make sense, right ?
        Sure you get the point.

        2) I think that lower is always better for buying, and one can never nails the lows properly consistently.
        So for any stock, if you think there is good value at a certain level, you should deploy capital. Said it differently, your cost base should not be, IN ITSELF, a reason for you to deploy more capital or not – imho.
        IMHO, it is the SIZE AT THE COST BASE that matters (it’s like technicals: price itself doesn’t mean much if you can’t see volumes).

        Let’s take an example to illustrate:
        You are long 5% at $100/share and the stock goes to $80. Do you think you should deploy an additional 30% assuming you think there is value ?
        –> Definitely, in my book.
        Assume you are long 5% at $100/share and the stock goes to $120, do you think you should deploy that additional 30% ? In my book, yes also.

        NOW assume you are long 70% at $100/share and the stock goes to $80. Do you think you should deploy an additional 30% assuming you think there is value ? Well… maybe it… depends.
        Also take this same situations w. 70% deployment at $100/share and the stock goes to $120. Should you deploy an additional 30% in one shot if you think there is value ? Also to me… it depends.

        So this 2nd point was just to illustrate that to me, the cost base per se is almost meaningless. It’s the combo “%age of position allocated and avge cost that matter”.

        Hope this helps.

        Best as always,

        LPG

          Apr 07, 2016 07:30 PM

          +10 – LPG I completely agree with your comments and we are completely on the same page. It seems you have misinterpreted what I was saying to Pete, or the importance I was placing on just having a lost cost basis. The lower a cost basis you can develop in your overall position, the better, but there is also the size and exposure that one feels comfortable holding in a particular stock inside of a particular sector. I average up all the time to gain more exposure if I believe there is more upside.

          Here’s what I said to Pete:

          “My dilemma is that by purchasing more it will raise my cost basis, so I want to see if it pulls back a bit more before pulling the trigger, but it is looking like good value to start accumulating it again near these levels.”

          I am planning on accumulating a larger position (that’s what pulling the trigger is), and I said “it is looking like good value.” I was simply acknowledging that since it was going to raise my cost basis higher, that I wanted to see if it may pull back a little more before adding in a more meaningful way.

          Just so you know, I did transfer some of the proceeds from my Oil trading in DWTI & UWTI over the last 2 weeks into UUUU at $2.089 to keep those funds allocated to the “energy sector”. This did, in fact, did raise my overall cost basis, but I feel that stock is one of the kingpins for Uranium supply to the huge US nuclear energy fleet.

          Great points and illustrations though to get at the reasons to average up, just like there are reasons to average down. I couldn’t agree more.

          Personally, I typically use a 3 tier system. Where I take an initial position, and may average down 1 or 2 more times, then I either sell if it is a lost cause, or hold waiting for sunnier days. In a bull market, I typically start with a position, and if the charts and momentum tell me we are going higher in the mid term, then I’ll add on weak days in the short term 1 or 2 more times. Then when I want to trim, I’ll typically scale back out 3 moves, fading in and fading out of positions. Sometimes this can limit a gain, but it can also limit losses and smooths out the risk a bit.

            Apr 07, 2016 07:45 PM

            There are also times where I take an initial position and will average up or down in one big motion with the 2/3 remaining.

            For example: I have taken a position in a stock, and then immediately it drops like a lead balloon (maybe I bought it after a 1-2 month period of no news, and then they suddenly announce a capital raise and the stock drops on the news). In that case, I’ll wait for the streak down and carnage to bottom and add the rest of the 2/3 remaining allocation all at once to average down in a big way. Then when the stock is above water again, based on the new overall cost basis, then on the bounce back up, I’ll take the 1/3 out once back in the money,and just let the 2/3 position remaining ride on up.

            Apr 07, 2016 07:00 PM

            LPG – Thanks again for your insights and the examples you used . Much appreciated man.

            This is actually a topic that all investors need to consider from time to time. Is it the right time to average up into this stock or asset if I believe there is significant upside ahead? In many cases the answer should be yes, but depends on one’s risk tolerance and current exposure to that asset.

            Anyway, may we all have the problem of needing to “average up” into our portfolios as our stocks grow exponentially 🙂

          Apr 07, 2016 07:23 PM

          I don’t know, I would rather take my chances on another undervalued company by picking up those shares than reduce cost basis on an existing holding and increase exposure to any one stock unless I just could not live without it. Diversification before thinning out gains to date where position size is already sufficient. There are too many assumptions in your model. The first one being that the desired stock must surely be going much higher….because of course the sector is so beaten down already so it MUST be going to the moon eventually.

          My 2 Cents……FWIW

          Hugs and Smiley faces 🙂

            Apr 08, 2016 08:19 AM

            Hi Farmer IC. I think based on where this post is aligned that you are responding to LPG’s post, but you may be responding to my posts. For clarification, Neither LPG nor myself mentioned that any stock MUST go up, or that stocks would go to the moon because the sector is so beaten down.

            I think you know us both well enough from our time posting on KER, that neither one of is “to da moon” guys, and that we both understand there are no guarantees in anything. His point, and one that I agree with it, is that if you’ve targeted a rising share price in your technical analysis and feel a stock has good value at present, even if you are adding shares at a higher price than your current cost basis, that it may make sense to raise your overall cost basis to gain more size and exposure. It really comes back to how comfortable an investor is in the size of the position they already hold, as there are very speculative stocks that I personally don’t feel comfortable holding large positions in, and may just opt to keep the low cost basis and then put extra funds into diversification (as you brought up Farmer IC). Then there are quality long-term positions one is building where it makes sense to increase the size of one’s position, even on the way up.

            Of course one could “average up” and then the stock could go down foiling your plan, but if you believe it is a winner for the mid to long term, then even if it turns against you in the short term, it will likely be fine on the longer term. I believe that was LPGs point with if you only had a 5% exposure and you feel it is moving up, then should you add another 30%? Or if you have a 70% allocation and a stock has done well, with a low cost basis, then if you truly believe it is going up, should you add another 30%? This may have been what you were responding to that LPG wrote, about assuming it is going to the moon, but I think he meant, if based on your TA that you feel very confident it may be moving higher. Again, there are no guarantees for any of us, but I agreed with his illustrative examples.

            If you’re responding to me, then I never implied either one of those assumptions, but I didn’t get the impression LPG was implying this either. We were discussing the value of averaging up, just like there can be value to averaging down.

            We were both talking in generalities about our approach to investing, and the concept of when you should just keep a low cost basis and put money into Diversification into other stocks (as you mentioned an I agree with that strategy as well on many occasions), versus when it can be advantageous to average up in a stock you already hold over time.

            My general approach is systematic, with a 3 tiered in or out approach, so it isn’t willy-nilly, but it smooths out the risk profile instead of “going all in” at just one time. My experience is that, yes, you can make the biggest return if you go all in at one time near a low, and sell all at once at a high, but I don’t know any traders that don’t make mistakes or miscalculate the direction in a stock. As a result, I don’t just buy a stock or sell a stock all at once in most cases. I find averaging down or averaging up in an equity, and then fading my exits captures the majority of the trend. This minimizes the risk of going all in at one time or selling all at one time and finding out one is dead wrong. I like having a second wave, and third wave to deploy when positioning, and I like leaving a little on the burner, when I’m exiting if I’m unsure if I’m exiting too soon.

            My basic approach is typically to fade into a position over time, trade 15-33% chucks on the rips, and buy 15-33% positions on the pullbacks and over time build a lower cost basis. So over time, even if I averaged up in a stock and it really took off, then I’d still trim some into the strength and overbought conditions. I’m also not opposed to just cashing out completely (all in one sale) from an equity if I feel it has run it course. Generally though, I leave a small position in place, just in case I may be selling to early. Then if there is a second move the really looks like the top due to the Slow Stochastics, MACD, RSI, or it hits a trendline or moving average, then I may sell the rest.

            I hope that helps clarify that I don’t believe there are any absolutes, and there is no “correct” way to trade.

            Whether you post was to him or to me – I send you hugs and smiley faces as well 🙂

            Apr 08, 2016 08:34 AM

            It was a note to LPG.

        Apr 07, 2016 07:41 PM

        Thanks, Excelsior

          Apr 07, 2016 07:50 PM

          You can read my response back to LPG, but to clarify, I think Energy Fuels represents good value here, and I’ll be adding in a big way soon, but I’m watching to see if it may come back right under $2. Having said that, I did add to my position today in a small way @ $2.089 with some Oil trading proceeds generated over the last 2 weeks.

          Good luck to you in your investing!

            Apr 07, 2016 07:06 PM

            Great Points LPG and Excelsior,i like Energy Fuels and will start buying in the coming Days/weeks
            Thank you

            LPG
            Apr 08, 2016 08:20 AM

            Shad/Pete,
            Most welcome.
            Good luck investing/trading and best to you both.
            LPG

    Apr 07, 2016 07:32 PM

    Nice pop in (MAX.TO)

    Apr 07, 2016 07:38 PM

    This might be of interest to those on here who follow copper.
    http://silverseek.com/commentary/big-trouble-ahead-copper-good-silver-15446

      Apr 07, 2016 07:53 PM

      the only copper I am following are INDIAN HEAD PENNYs…….1859-1875

      Apr 07, 2016 07:14 PM

      Thanks irishtony.

      If true then that is bad news for the UK miners – your RIOs, BHPs, Glencores, etc – and bad for UK pension funds.

      Perhaps the Glencore debt crisis will raise its head again?

        Apr 07, 2016 07:06 PM

        BOB…Glad to be of service.

      LPG
      Apr 07, 2016 07:53 PM

      Thanks for the link Irishtony.
      Best as always, and hope all’s good.
      LPG

    Apr 07, 2016 07:20 PM

    surprised no comments made on Gold. Hope you’ll cover it in the Market Wrap at
    days end.
    Thanks, MF

    Apr 07, 2016 07:54 PM

    Banked 11% NUGT.

    Apr 07, 2016 07:47 PM

    What happened to Rick Ackerman? I feel like I havnt seen him in forever?

      Apr 07, 2016 07:33 PM

      Good point. Where is Rick A?

        Apr 07, 2016 07:30 PM

        Getting ready for the China’s bubble to burst, no doubt.

          Apr 08, 2016 08:36 AM

          Yeah, China’s markets have been a mess lately (again).