Cramer Calls Bottom in Oil

This bottom call is strange. Jim bases it on "tell", that Exxon Mobil (XOM) is staying flat above it's bottom when oil is going down. The fact that oil futures can't break level of $40 for barrel also tells him that oil has bottomed.

Let's take a closer look at oil market. First of all, fundamentals. The only bullish development is OPEC cuts, which are really happening. But it doesn't look that OPEC cut enough to account for huge drop in demand. US inventories are full to the brim. A lot of oil is still stored in tankers by traders playing contango. US economy is not even close to recovery, ditto for Europe. I don't think China can change situation alone.

Next: fundamentals of the second order, or oil futures. I wrote several times already that because volume of the future market exceeds market of real oil by at least an order of magnitude, sometimes future markets disconnect from real supply and demand situation, they are driven by supply and demand of future contracts. The biggest disconnect happened in the beginning of the last year, and markets are still digesting results of oil futures bubble which burst. I outlined mechanisms here.

Last, but not least, technicals. You can't completely ignore technical analysis, because it shows you real market action. Let's never forget that markets are interactions between people. Technicals show us what traders are doing. Let's take a look at picture below.



This is a chart of U.S. OIL FUND ETF (USO) since January 1 (click on the chart to see bigger picture). This ETF represents oil prices even a little better than futures, because it ignores rollover effects. I don't see one bullish indicator on this chart. We have lower highs, lower lows and downwards triangle formation, it's as bearish as possible.

I don't see any oil bottom so far. Cramer's "tell" might be caused by some other action. Maybe hedge funds stopped selling Exxon, maybe some mutual funds are buying, who knows. There are no real fundamental or technical reasons to call bottom.


Full disclosure: at the time of publication author did not have any positions in USO or XOM. Positions can change any time.

Dansing Bull Cramer, Revisited.

Jim Cramer surprised me today, again. We already had one surprise conversion on December 5 (commented here), today we have another one.

What happened? Market rallied today. As far as I see, it's a typical bear market rally, we saw even bigger ones in the last 12 months. OK, it was rally on all bad news. So what, bear rallies happen for a lot of reasons or without any reason whatsoever. Even the fact that it was two days rally doesn't matter a thing: we saw four days rally between December 29 and January 2. And hope that China somehow can implement some smart infrastructure investment and save the world from the Great Depression 2.0 is just hope. Jim has an excellent commandment in his great book "Real Money: Sane Investment in an Insane World": "Hope is not a part of the equation".

Sorry Jim. It's still bear market. It will bottom when public accepts the fact that we are in Great Depression 2.0. And that would happen some time after you accept it.

Selling Into Strength

Sold a little bit of remaining Apple (AAPL) position today. I'm still thinking if it worth to keep some Apple or to sell it all, but stock is great for trading right now.

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

Bad Feeling

This market action doesn't make me to feel good. Tech rally is good, sure. Apple (AAPL) and Google (GOOG) made new highs for the year, moving my portfolio a little bit up.

But I see problems with broad market. Despite today's rally we are way too close to the bottom of current Dow range. One slip and we are going down. I don't know where most of the traders keep their current stops, probably around Dow 7800. If we break this level, all hell might get loose. I just don't see any conviction in this market.

Fundamentals are awful. Some Tech companies are rallying because they have plenty of cash. They don't need any loans. Anybody who needs loans pays through the nose. Altria (MO) paid 587.5+ basic points over Treasuries for five year loan on February 3. That's one of the best companies in the world! Imagine what auto companies would have to pay! No wonder Ford (F) drew full amount from credit lines. They decided not to wait until those lines were closed under some pretext. And economic situation is simple: it's Great Depression 2.0.

Barely visible silver lining: corporate debt market started thawing. There is some movement up in bonds. If it's not a sucker's rally, things might start improving. Might. And Treasuries are down a little bit from their incredible high. Still very high though.

I'm waiting for January inflation data. If we see more deflation, as I expect, then we are in it for a long time.

One more strange thing is a movement in commodities. Most of them are up. Looks like China is doing some planned purchases. If it's true, all commodities might go down when China finished. Which also means that oil isn't going up any time soon, but might go down even more.

Last, but not least: gold is up. It's a huge mystery. India's import is down sharply, who's buying that 30% of production? Or maybe we see discrepancy between future market and real product again?

Let's wait and see.

Full disclosure: at the time of publication author had long positions in AAPL, GOOG, MO and no positions in other companies mentioned. Positions can change any time.

Closing Red Hat

Sold last portion of Red Hat (RHT). Sale was planned long time ago, selling today into strength.

Full disclosure: at the time of publication author had no positions in RHT. Positions can change any time.

Closing Ebay

Sold last portion of Ebay (EBAY) today. Company obviously lost its way. Internet commerce rocks, Amazon.com (AMZN) and Google (GOOG) report great results, even Overstock.com (OSTK) is doing fine. This is management problem. No sense in keeping this position anymore.

Full disclosure: at the time of publication author had a long position in GOOG and no positions in other companies mentioned. Positions can change any time.

Glimpse of The Future

Latest earning reports paint very interesting picture. Almost everything is bad. And here we have exceptions: Apple (AAPL), Google (GOOG), Amazon.com (AMZN), Research in Motion (RIMM).

All companies are getting revenue from the sectors which are hurt badly. Apple is in consumer products, which are also fashion accessories, RIMM is in cell phones (OK, smart ones, but cell phones anyway), Google is in advertising and Amazon.com is in retail. What's different? Two companies are Internet companies.The other two make devices to connect to the Internet. This is the future, predicted in 1990s. The future has arrived. The Internet business model, which was buried by countless commentators in 2000-2003, is working. And it's taking business from brick and mortar companies in many sectors of economy.

What's next? It's really easy to predict, just read what was written in 1990s. Almost everything was right, except the timing. It takes time for any revolution to develop. And first comers are quite often die in droves. But survivors strive.

In the next several years we'll see complete death of newspapers. Some of them will switch to Internet, but most will die. Printed edition will survive, but just a handful of them and most probably they will be much thinner. Local press will be mostly free, nobody's going to buy some county paper. They are free in many places already. I'm getting local papers for free, without even asking.

Next shoe to drop will be most of retail. We'll see many chains die. Brick and mortar retail will survive, but it will become much smaller. Computer shops are almost all dead now. Remember Egghead, CompUSA? Circuit City (CC) is next. Best Buy is the only big survivor. Of course, there is Microcenter, but it's a small niche player, and probably a survivor. It's the place geeks go to buy parts.

TV stations will go next. Unless they will be able to switch to Internet delivery. It won't happen soon, we need good broadband in most places for that, but it will happen. We'll see a lot of fight, attempts of cable companies to prevent video over IP, sabotage of traffic a la Comcast, but future always wins. Horse owners tried to fight cars too and sometimes succeeded (red flag laws in England). Never mind. in about 20 years, cable service will be replaced with TV over IP, and most of TV stations will die, to be replaced by unknown new companies.

There will be a lot of things impossible to predict. Just watch for opportunities. And if you see them, pounce. I lost money on several companies I bought in 1990s. Yahoo and Apple brought enough profits to make those investments wildly successful. Same will happen now. Internet is still in infancy.

Full disclosure: at the time of publication author had long positions in AAPL and GOOG and no positions in other companies mentioned. Positions can change any time.