Monthly Archives: August 2009

Crude Oil Poised to Crash According to BAM Model

Back in the summer of 2008—when crude oil was moving into its 147 dollar high and many analysts were calling for 200 or even 300 dollar per barrel crude oil prices—the BAM Crude Oil model was calling an EPIC TOP and warning clients of “an immediate crash to the 87 dollar level into the Fall of 2008 followed by a continued plunge to the 36 dollar level over the coming 12-18 months.” 

At the time it was a very controversial call and I’ll never forget how hard clients were pounding on us to provide a “fundamental reason” for such a devastating decline.

Unfortunately, since we use a proprietary model, the “reason” we recommend buying or selling a market is strictly based on the model and NOT the apparent identifiable fundamentals, but in the case of crude oil we were willing to put forth a few ideas.   

  • Our view of the real estate market was extremely bearish based on the fact that it was the most highly leveraged market in the world both in terms of individuals’ loans as well as the derivatives tied to those loans. 
  • Our S&P 500 model was predicting an “unmitigated disaster” in which the SPX was forecasted to plunge all the way back down to 1998 price levels and, assuming that forecast was correct, we assumed the economies of the world would be in free-fall and up to their eyeballs in crude oil supply.
  • We were seeing something that appeared to be either outright manipulation or at least speculation on an unprecedented scale.  This assertion was based on the fact that our intraday crude oil model was displaying bizarre characteristics unrelated to the normal human emotion typically displayed in our work as well as the fact that our intraday model was more extended in our “topping count” than at any other point in history.    

Here They Go Again

Today we’re seeing the same type of puzzling action in our intraday crude oil model and, as a result, we’re doing exactly what we did during the summer of 2008—recommending an aggressive position in the DUG as a way to profit from the expected coming crash in crude oil. 

Not surprisingly, clients are again inquiring about a “fundamental reason” why crude oil would decline from current levels so, once again,  we’re going to state a few facts that might support the model’s prediction for a plunge in crude oil prices.

  • Our BAM Crude Oil Model “crash alert” is flashing a sell signal with a series of mini-crash windows the first of which is into September 2/3
  • We think the potential economic repercussions resulting from the spread of swine flu are being severely underestimated by the “don’t worry be happy” crowd
  • We’re seeing an extension in our intraday crude oil topping count that rivals the pre-wipeout extension of 2008
  • Our XOI model triggered a capitulation sell signal on 8-25-2009 and is calling for an immediate mini-crash leg or full-blown crash leg into September  
  • We believe a mechanical unwinding of the short Nat Gas/Long Crude Oil trade is at hand

In conclusion, we would suggest searching for your own compelling “fundamental reasons” that crude oil and crude oil stocks might be poised to tumble.  You know how we’re positioned.

-JGS

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Hey Gordon Gekko…Greed is not ALWAYS Good

The greed and optimism in this tape are setting records in my work and although the fact that we just made a marginal new high is insignificant, the nature of the advance is a BIG deal. 

As you remember, the Nasdaq triggered a capitulation sell signal at the 1979 level on 7-29 and we stalled and started down prior to today’s marginal new high. (No change in that signal and we should drop like a stone based on that signal alone.
What’s remarkable though is the fact that today the SPX and INDU FUTS just triggered a capitulation sell signal.  Granted, most of you will think I’m dead wrong on this call but we’ll only know that answer weeks and months from today if, as i expect, the market is much closer to the march lows than this morning’s highs.

BIG PICTURE

Based on the bearishness of the overnight FUTS model this weekend–as well as what’s been unfolding in China (the bulls are ignoring China’s 2 week 20% crash)–I would think we now have a good chance to see the expected US market crash sparked by China.
The fact that my US dollar model looks like it wants to melt-up into 8-25 next week and the fact that my US 30 YR bond model wants to melt up to that 130.30 level and the fact that my crude oil model wants to crash, seems to be consistent with an “opps” type of unwinding.

The catalyst could come from anywhere, but I’m focusing on China because it’s the most obvious train-wreck according to the BAM model.
Based on the China stock index model, it seems logical to me that we’ll see them breakdown to new lows on high volume and, assuming I have that correct, all of the other forecasts should work coincident with and instantaneous to that event.

The TRANS model sees a sharp decline leg into September 3rd so that matchs well with the Crude Oil model’s call for a crash into September 2nd (ish)
(I’m not  fan of DOW theory but it does look to me like the TRANS will fail to confirm today’s new INDU high on this move off the March low)

As I’ve said before, I really like the energy sector shorts.  (XOI)
I also think a tremendous amount of money can be made being long the DUG (ETF) into Q1 2010.

I also think the swine flu will hit worker productivity/earnings very hard this fall and into next spring.
The gov warned as much yesterday but people simply ignored that.
-JGS

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Sell signals are triggering in the intraday model as I write. 
-weakness into 7:30am on Monday and I’d think they’ll be down 130-200 from current levels.
-JGS

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Talk About Irony

The market was worried about a potentially terrible jobs report number this morning but the better than expected number looks like it wants to provide the catalyst for the model’s forecasted “V” bottom in the USD.
Everything is playing as scripted so far and if I’m correct we’ll see the USD and Bonds get increasingly stronger as the stock indexes roll-over and get annihilated.
Remember, if I have this correct here, this will be all about the Carry Trade unwind and as such this should be a very mechanical decline (forced selling in mkts they’re long and forced buying in mkts. they’re short).
-JGS

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