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:

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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.

Last Monday’s update on the Oil & Gas sector ETF, showed it at a confluence of trend-line resistance.

Short positions had been established during that week (on 12/8 and 12/9) using inverse fund DUG; not advice, not a recommendation

Now, we see confirmation of the confluence.

XOP reversed right at trend intersection. 

Doing so, validates those resistance areas.

If the XOP reversal continues, next step is maintain short while determining the market’s own time frame for decline.

That means going through charts of XOP, selecting Daily, 2-Day, 3-Day charts and so on, until the best price action correlation to time, is observed.

The last major down-leg in XOP, lasting from January 8^th to March 19^th was best represented using a 7-Day chart.

Setting stops on the way down (DUG up) using the 7-Day, would have allowed the majority of the move to be captured.

Low-to-high on DUG from January 8^th to March 19^th, was 37.48 – 184.95; a gain over 393%.

Stay Tuned

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.

The dollar’s at multi-year lows. 

Oil reaches new recovery highs along with S&P, Nasdaq.

So, what does XOP, do?  Nothing.

Price action ended essentially unchanged.

The positive market bias along with extremes in opposite directions for the dollar and oil should have done something, right?

“Should” is a word never to use in any market analysis.  What ‘should’ happen rarely happens and usually, it’s the opposite.

XOP reached its high last week at the same time huge volume was moving into the inverse fund, DUG.

This week, is lower XOP action that looks about ready to roll over.

The market itself has shown where to go for the short side.  It’s the one sector that appears ready to move lower.

The position in DUG is being maintained (not advice, not a recommendation).  Because of today’s tight action, the stop remains at DUG 24.72.

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.

The first hour is over:  XOP (Oil & Gas) posted a new daily low.

Correspondingly, inverse fund DUG has posted a new daily high.

This is now, potentially a very dangerous juncture in the markets. 

The firm is fully positioned (not advice, not a recommendation) in DUG. 

Wyckoff analysis directives concerning bear markets, were used to identify (at this point) the single position.

More specifically, those directives are to identify the weakest market(s) not the strongest.

It’s the weak markets that will go down farther and faster during mark-downs (or bear phases).

Through a process of iteration (lasting months) as detailed in these updates, the weakest market up to now, has been identified and short positions opened via DUG.

Based on today’s action thus far, we have a hard stop in DUG which is the session low:  DUG @ 24.727.

It’s unlikely price action will return and penetrate that (24.72) low.

The firm uses trading tenets from three market masters as detailed here. 

There are essentially two main tenets from the late Gerald M. Loeb (former Vice Chairman of E. F. Hutton) and those are:

First: 

Significant market opportunities are rare.  When one is identified, use it to its maximum extent.

Second: 

Do not diversify.  Diversification is for those who don’t understand market behavior.  Diversification is for the average … the mediocre.

That last admonition is harsh indeed. However, it’s backed by evidence from the top traders.  Over and over we see their positions (detailed in the press after the fact) were highly concentrated.

Of course, none of the above is a recommendation. 

In the next instant there could be an event which completely turns around the oil sector’s fundamentals … like a major earthquake taking out millions of barrels of supply.

As we have seen with seismic activity increasing dramatically, that scenario is not too far fetched.

At this point, we’re positioned in DUG.  Hard stop, DUG 24.73

Stay Tuned

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.