Monday, July 07, 2008

WHERE is the Rally??

A good hedgie contact with an excellent track just pinged me with the following:

Hey.. wait a minute... I thought that when oil drops the market would rally?? Isn't that what CNBC tells us??.

Today I see

Oil down $5
NG down 60 cents
soft commodities limit down across the board ( I think)
dollar is behaving too.

My guess is that this is the final blow to the bulls... they stayed long hope.. that an oil/commodity drop would spark a rally.... and NOW WHAT?? Perhaps we see the last of them simply throw in the towel in coming days.

Here is another observation.........

We have FNM FRE collapsing and the market down only 100?? Could there be THAT much short interest in the market?? We may very well be pushing on a coiled spring here.... and if so... at some point we could have a massive reflex rally. I see that VIX is spiking at the same time we are approaching 1210 on the SP500.

Perhaps the simultaneous intersection of $30-VIX and 1210-SP500 could be the spark that sets it off.

I wish I knew the answer to these questions. Shorts are fat and happy.... and could be getting a bit careless.


The Operator (Tim) said...

I'm not in your network, not sure how or what you define a "smart hedgie?"

The FNM FRE dropping off a cliff is a matter of dilution or worst case government takes control of the GSE's at the expense of equity holders. no risk to the MBS securities that trade with their names (which would = collapse)

Oil... funny thing is oil may go higher, $200? don't know, don't care, the demand is real, but the dollars are limited, we've exported most of our dollars abroad via trade deficit over the years and others have used them to build infrastructure. they continue to hold our dollars to support their economies. but make no mistake where do those dollars go once the flows stop? but the demand for energy continues? my guess is somewhere between people tearing down buildings in china to sell scrap steel for money all the way to a slower growth rate of the global economy hence reducing energy demand expectations going forward resulting in lower and energy prices and finally... you will see more money put into R&D of energy technology over the next 10 years than anyone can ever imagine resulting in and incredible bull market taking markets up 1000% by 2025

Anonymous said...

Could there be THAT much short interest in the market??

nyse short interest is at a 5 yr high

%bulls at 5yr low

%bears 5yr high

pulled my shorts off last week and been bottom fishing with great success....methinks a well disguised rally is about to commence any day now......

cramermutebutton said...

Heard some rumors today that gov't would step in to save FRE/FNM.. But to think that they would give 2cts for the equity holders is a pipe dream.. they would save the mbs, and debt holders first, and rightfully so allow the equity go to zero.

Oil imo, is best played with coal at this juncture. On a BTU basis coal is 4x cheaper than oil, AND long term contracts are being renewed into new LT contracts at 3x the price. With coal you have end market demand and 3yr earnings visibility.. what c/b better.

VT Castle said...

Looks like all those evil oil speculators went short in the last two days... after T Boone did his thing this morning on CNBC, it was an open invitation to short every energy stock in sight.