Failed Moves

There’s nothing more dramatic and profitable than a failed move.

The controlling party, bulls or bears push the market in their direction; only to find out, there’re out of fuel.

The opposing side has been gathering forces to mount an offensive.

Perhaps the most famous ‘gathering of forces’ was the failure of Long Term Capital Management.

If memory serves correctly, it was Goldman Sachs that found out LTCM was over leveraged and overextended.

They used that data for their benefit.

That’s not to say the failed move in the Oil & Gas Exploration (XOP) market is anywhere near the LTCM level.  Just saying, markets are fractal and failed moves occur on all time frames.

The daily chart of XOP shows the failed attempt to break above resistance. 

Price action was swift in the early session; then stalled at mid-day and retreated quickly into the close.

That retreat brought price below resistance … indicating significant weakness.

The short position in biotech (via BIS) was profitable but it did not have the potential for swift action like shorting XOP.

Since the firm follows the tenets of Gerald M. Loeb (late Vice Chairman of E.F. Hutton), we do not diversify.

Trades are focused on specific price action; therefore, tend to be concentrated only in one or two markets at any time.

We know from a fundamental standpoint, there’s no (or very little) demand for oil and the by-products.  Steven Van Metre has contacts in the field that are feeding him information on what’s really going on.

While some of the minions that watch his updates complain about the colors of his moving averages, we’re more interested in the anecdotal data such as ‘oil inventories are piling up’.

Even better was the comment (a few weeks back) that EIA data is not telling the whole story.  There’s even more oil than what’s in the report.

That’s our backdrop for shorting the XOP by using DUG.  Not advice, not a recommendation.

Recall that DUG, with regards to the firm’s broker, has stated “not marginable” indicating especially high volatility.

Open positions are below:

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.
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