Crude Oil Tracks Stocks Upwards to Close Week Above $76 a Barrel - Guest Post

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Crude Oil Tracks Stocks Upwards to Close Week Above $76 a Barrel

Oil Market Summary for 07/05/2010 to 07/09/2010

Crude oil futures finished the week on a positive note, tracking stocks upward after hitting the low for a month earlier in the week.

The benchmark West Texas intermediate contract settled Friday at $76.09 a barrel, up 65 cents on the day. On Tuesday, the contract declined for the sixth session in a row, closing at $71.98, its first dip below $72 in a month.

Watching UUP (US Dollar) On Uptrend Support, 50DMA and Treasuries

Something to watch going forward will be the US Dollar ETF (UUP) or US Dollar Index Future (as well as currency pairs).  I like watching UUP as a proxy for some reason. It's sitting on uptrend support when measured from the December 2009 low, before the Eurozone crisis hit and FXE (Euro ETF) lost 20%. We'll see if the USDX continues to rally or breaks down, and why. The 50 day moving average could act as resistance going forward. It's still above the 200DMA. I'm also watching Treasury bond yields and IEF/TLT. Some believe the deflation whale could send yields even lower from here. However, be careful of the bond vigilantes when Treasury yields break their uptrend line (see what Harvard's Niall Ferguson had to say). Below are links, the UUP chart and Mish Shedlock on Tech Ticker today.

Illinois CDS Default Probability Above Iraq, Unpaid Bills $4.71 Billion

The Illinois Comptroller's Office released the state's fiscal year 2010 results and said "Illinois ended the year in the worst fiscal position in its history". They have a backlog of $4.712 billion in unpaid bills and fund transfers. Taxes took a hit as well, sales tax receipts were down 6.9%, corporate income tax receipts fell 20.5% and individual income tax receipts fell 7.7%. The Governor proposed a "$1.3 billion “revenue failure” short-term borrowing for late July".

On May 17, 2010 I reported that Illinois had $4.5 Billion In Unpaid Bills for FY Q3, so unpaid bills are up $200 million. Today I saw that Illinois CDS (credit default swaps) were trading above Iraq when measured in CPD% (cumulative probably of default). According to CMA's most actives, Illinois 5Y CDS closed at 361.38 basis points with a 27.31% CPD, while Iraq 5Y CDS closed at 440.70 bps and 26.99% CPD (table snapshot below). California CDS is trading right below Iraq on the highest default probability list (343.67 bps, 26.65% CPD). What the hell happens now. Federal bailout? Legalize marijuana (tax revenue)? Higher tax rates? Google buyout? Municipal merger? Or default.

Dan Gilbert Guarantees Cavaliers Win Championship Before Lebron (Letter to City)

After Lebron James decided to leave the Cavs for the Miami Heat, Cleveland Cavaliers owner Dan Gilbert released this must read letter to the city. After his loss, Gilbert is coming back with a vengeance.  Hat tip Benzinga.

"Dear Cleveland, All Of Northeast Ohio and Cleveland Cavaliers Supporters Wherever You May Be Tonight;

As you now know, our former hero, who grew up in the very region that he deserted this evening, is no longer a Cleveland Cavalier.

This was announced with a several day, narcissistic, self-promotional build-up culminating with a national TV special of his "decision" unlike anything ever "witnessed" in the history of sports and probably the history of entertainment.

LeBron James Joining Miami Heat (Decision Video)

LeBron James will join Dwayne Wade and Chris Bosh in Miami (ESPN). Watch the decision video below. Sucks for Cleveland and Madison Square Garden ($MSG).

GLD, SLV, GDX at 2008 Uptrend Line, Put Hedge Up (Gold, Silver, Miners)

7/7/2010: Here's an update from my previous post on 6/29 saying that John Paulson of hedge fund Paulson & Co. should hedge his gold denominated fund or massive $GLD ETF position with puts. Paulson & Co as of 3/31/2010 owned 31 million shares of $GLD which was his top holding. The August and September in-the-money $121 and $122 put contracts performed well during the technical sell off. As you can see from the chart below, the puts are up 25% to 50% in 7 days while $GLD lost 3.3%. $GLD is sitting right at ascending channel support from the 2008 low and being squeezed in an ascending triangle near the vertex point (where ceiling resistance crosses the uptrend line). The same can be said about $SLV (the Silver ETF) and $GDX (Gold Miners).

REIS Vacancy Rates, Kass (Bottom's In), UBS Cuts S&P Target to 1,150 from 1,350, Overnight Gold Chart

Below are interesting articles and the Fast Money video from tonight featuring Doug Kass vs. Brian Kelly (of Kanundrum Capital see Seeking Alpha articles). Kass thinks the market bottom's in for the year while Guy Adami still thinks the market is headed "significantly" lower, with 1040 as bogey level. Dow $1,000 anyone? I'm watching GLD and SLV here, they are both at serious inflection points (ceiling resistance/uptrend support are meeting). They held the 2008 uptrend today, we'll see about tomorrow. Overnight, GCQ10 (Aug Comex Gold) is testing the downtrend line from 6/28-7/1 peaks. Links, chart and CNBC video are after the jump.

Dick Bove: Citigroup Headed Toward $8.50 (Down 93% From 2007 Peak)

Here is Dick Bove of Rochdale Securities conversing with Harry Rady of RAM on Citigroup (on CNBC). Bove thinks Citi will trade at $8.50, 117% above today's close ($3.90). Citi's been making some moves recently, here are recent articles and a quarterly chart since '87.  In 2009 Citi hit the 1990 low, down 93% from the 2007 peak.

Niall Ferguson: Treasury Bond Vigilantes Coming, Default Or Inflation Choice For US

Harvard Professor Niall Ferguson was at the Aspen Ideas Festival and met up with Eric Shatzker of Bloomberg. He said the Treasury bond vigilantes are coming. Meaning US Treasury bonds will be under attack by short sellers, like Bear Stearns and Lehman Brothers.
"Sooner or later, maybe after Japan has felt the pain, the bond vigilantes will get to the United States. I don't think it will be this year, because the worse things get in the Eurozone, the more attractive US Treasuries look. But in the absence of any political will to address this problem and the latest numbers from the congressional budget office should scare everybody in this country. This is simply an inevitability."
"So we really have at this point a kind of choice before us. Is it going to be inflation or is it going to be default.  Right now what's really troubling is that there's no sign of inflation, which is the easy way out of a debt burden in the United States. On the contrary, we have monetary contraction at a really quite alarming rate and effectively zero inflation in terms of core CPI.  So the [option?] of inflating this debt away, which a lot of people think will be exercised, doesn't seem to be there right now. What you're left with is therefore default and I think it's a fair bet that the United States will default, at least on the unfunded liabilities of social security and Medicare at some point in the foreseeable future."

Tokyo Nikkei Index Around 9,000 Support, EWJ Similar (Chart)

Watching floor support and downtrend resistance levels on the Nikkei Index (Tokyo) and $EWJ (iShares MSCI Japan Index ETF). The Nikkei tested the 9,000 level three times since summer 2009. It is currently trading at $9,255.94, -0.88% tonight. Also take a look at the long term downtrend/descending triangle on EWJ since 2007. Something has to give at some point. Here are a few articles and charts.

James Altucher vs. Roubini and Prechter, S&P 1,500 or Dow 1,000? WTF!

Watch James Altucher and Professor Nouriel Roubini battle it out on CNBC. Altucher sees 1,500 on the S&P with S&P EPS hitting $80 in 2010. By the way, Barton Biggs just slashed his 2010 EPS estimate to $70-75 and liquidated US stocks aggressively, at least that's what he said. Backing out cash, Altucher said stocks are trading at 11x earnings, below the historical average of 15, so he wants the S&P to fill that gap. Doesn't 80 x 15 = 1,200? The S&P already hit that level in April. Nouriel disagrees with James, he thinks the market is overpricing Q2 growth. Roubini sees 1.5% GDP growth vs. the 3% consensus estimate in the second half of the year. More estimates: Doug Kass sees $90 on the S&P in 2011 with 2%+ growth in the second half and Robert Prechter of Elliott Wave thinks the Dow will hit $1,000 over 5-6 years. Yes $1,000. Who to believe, who to believe.... Video courtesy of

Barton Biggs Sells Stocks, Expects $70-75 EPS, Double Dip and Afraid of Policy Errors (1930s Redux)

After being bullish throughout Q1 and Q2 (1, 2), Barton Biggs (Traxis Partners) on Bloomberg TV said he reduced his long exposure in US stocks aggressively. He was mainly in tech. Biggs is afraid of policy errors tanking the market and singled out 1937 as a template.

S&P Death Cross Imminent! Non-Event So Far (S&P Future, Index Chart)

Below are charts of the September S&P E-mini Future (ES_U) and S&P Equity Index. The death cross is underway, when the 50-day moving average crosses below the 200-day moving average. The S&P is trading below both moving averages so they act as resistance.

Some people think the death cross is backward looking or a BS event. It could already be priced in, but should be respected. It confirms the fact that shorter-term price action (50 days) is beating out longer-term price action (200 days), to the downside. Ultimately, the death cross could confirm a new bear market. But you know what I find interesting people?

Links: Illinois Budget Crisis, Commodities Relapse, Shipowners, Gold Chart and BP Foreign Interest

Supercharged global link-fest for July 5, 2010

Illinois facing 'outright disaster' amid budget crisis - MSNBC/NYT (h/t @future_shock)
Commodities `Relapse' May Last Through 1st Half of 2011, RBS's Moore Says - Bloomberg
Greek Shipowners Waiting for Lower Prices to Buy Vessels, RBS Banker Says - Bloomberg
Speaking of RBS: Bob Janjuah Leaves RBS - Zero Hedge

Federal Reserve Express?

I found this article interesting at Business Insider. Happy July 4th weekend!