“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


To continue following Trader Dan, please sign up for Trader Dan's World at the link on the sidebar to receive a 1 month, no obligation, trial membership



Friday, February 24, 2012

Gasoline nearing an important Inflection Point

The following chart is a weekly graph of the price of unleaded gasoline showing some lines that detail areas where both resistance and support can be identified.

As you can clearly see, the price has rallied some 70 cents snce the end of last year without hardly a pause. It is currently closing in on a very important chart inflection point which is just shy of the $3.20 level. Based strictly on technical analysis and nothing fundamental, if this market pushes past that point (notice it is knocking right on the door of the lower line of the pitchfork - which is where it can be expected to encounter selling pressure), then not only will it have bested upsloping resistance but it will also have taken out horizontal resistance coming in near that level as well.




That would give us a technical signal that this market is going to make a run towards the all time high. I wish to emphasize again, that we are no where near the peak driving demand season for gasoline which generally coincides with the advent of the Memorial Day holiday.

Gasoline is obviously pricing in a risk premium in an attempt to pre-emptively ration supply fearing a drop in oil shipments out of the middle East should tensions with Iran further ramp up. However, this rally began prior to such fears initially moving higher in anticipation of a near zero interest rate policy of the Federal Reserve and additional liquidity being supplied by the Central Banks of the West. Even China was not left out of the equation with many traders suspecting that the Chinese would lower interest rates or reduce bank reserve ratio requirements as they indeed did.

What to bring away from all this? Simple - get ready for the very real prospect of all time high prices at the gasoline pump this summer.


By the way, Newt Gingrich has an outstanding presentation at his website for bringing down gasoline prices, permanently, and for sharply reducing American dependence on imported oil. Check it out.

http://www.newt.org/news/newt-2012-announces-first-air-dates-of-30-minute-address-on-american-energy/



Also, if you did not get a chance to see the current President's logic-challenged speech on US energy yesterday, relax; you spared yourself a great deal of mental anquish trying to follow his convoluted thinking. The Wall Street Journal has an excellent take on that speech which is also worth reading. You can find that at the following link: It is entitled, "Stupid and Oil Prices". I especially liked the fact that the writer brought up the pernicious effect of the Fed's near zero interest rate policy on the price of energy, and commodities as a whole. It was and is a very insightful read.

http://online.wsj.com/article/SB10001424052970203918304577241623995642182.html?mod=WSJ_Opinion_LEADTop


Take a look at what has been happening to the Commodity Complex as illustrated by the CCI. The index has been in a downtrending pattern since it peaked late last spring. It is however showing some definite signs of bottoming and what is more, possibly begin a trending move higher (remember that a market can bottom without necessarily embarking on an uptrending move higher - it can merely go sideways).

The first solid chance of seeing such a thing would be an index close above the horizontal blue line noted on the chart. Upside follow through that takes out the lower upsloping red line would be then very bullish activity.


8 comments:

  1. Thank you for your OUTSTANDING Insight, Dan ! !

    DG

    ReplyDelete
  2. Great commentary and analysis as usual Dan.
    Thanks!

    ReplyDelete
  3. It's comical to watch the politicians (republicans and dems) talk about "hard decisions", when all they just executed some massive money printing scheme. Those aren't "hard decisions". Hard decisions are going through budgets with a fine tooth comb and cutting costs. Hard decisions are figuring out which insolvent business are truly worth saving, and which aren't. Hard decisions are realizing that sometimes some short term pain is needed for the longer term benefit.

    We're in this cycle of nobody ever wanting to see another recession again, and reflate at all costs is the word of the day. Higher commodity prices (and inflation in general) are the inevitable outcome of those actions.

    ReplyDelete
  4. So while the Cartel plays games shorting the dollar to goose the stock markets (see latest COT) they now have to deal with the consequences.

    Three things on the horizon:

    1) Politically inspired margin hikes on the way

    2) Dollar rally in the cards as the clowns figure out the damage they are doing hammering down on the DXY day after day.

    3) CCI going to 650 regardless of DXY moves. The damage is done. Equity markets have topped, and traders are heading to underperforming asset classes (i.e. commodities).

    ReplyDelete
  5. I laughed when I heard the President state he was/is? trying to watch out for the American consumer... he was just telling a bedtime story, I think?

    Thanks for bringing up The Wall Street Journal article, spot on!

    ReplyDelete
  6. Thank you Dan for your daily prognostications and the Newt video was outstanding. Been reading you for years now (Jim Sinclair's site)

    ReplyDelete
  7. If you are a dollar bull - perhaps someone is interfering with this market by shorting it right now. Please remember that it is very difficult to move a currency very far from its true value - they are just too big. An important event happened the 6th of September (may have the date wrong). The Swiss National Bank (central bank) decided "Enough!" - they pegged their currency to ther Euro at 1.20 minimum. This "took away" a safe haven destination, one down and not too many good choices left. The big winner has been the US Dollar which rallied nicely, seemingly going as far as it could go - Jim Sinlair called the top on the DXY almost to the day. Gold and Silver from September 6th basically crashed out - the same Jim Sinclair was talking about calming down poor despondent gold longs around Christmas time. To add to this MF Global goes bankrupt October 31st - taking out all their poor retail clients, largely long PM. And here we are, having come full circle, and in such a short time! Is it the seventh inning streach before the game ender? Has anything really changed? Last month "they" tried to get us to swallow that unemployment number. There was an outcry - and thankfully so. "They" backed down rather quickly. You can only fool some of the people all of the time. And who do these guys really think they are? I would think that most students of the economy and markets allow a certain degree of freedom and truth into the interpretations they make.

    ReplyDelete

Note: Only a member of this blog may post a comment.