Oil & Castor Oil

by Larry Levin

What a reversal, eh? The bears decided they had had enough of the bull's Castor Oil today and really turned the tables around. Or was it just that the bulls can't ignore the handwriting that's on the wall? I say "who cares"...follow the trend.

Oil made yet another new all-time high by trading above $123.00-barrel today. This new high was made despite builds in both crude oil and gasoline supplies. Hello $5.00-gallon gasoline!

"The market can keep saying it is sunny outside for only so long when really there are storm clouds gathering," said Len Blum, managing director Westwood Capital. "The problem is the consumer, who is seeing their largest asset squeezed, while being hurt at the gas pump and the super market."

But Len, the Federal Reserve and Treasury say gas prices and escalating food prices just don't matter. Get with the program!

Of course oil and gasoline price increases weren't today's only news. Added to the mix this afternoon was news from the Fed that consumers just can't help themselves...and I don't mean refusing their third helping of greasy fries and chicken-fried steak...and fried ice cream...and fried God knows what else. No, Barney Bungalow refuses to stop charging his lifestyle to the ball-and-chain of debt: Americans added on $15.2 billion of new debt during the month, or a 7.2% annual rate, to $2.56 trillion! What the hell are these people thinking? Or right, I forgot, the Fed has cured all economic ills with one wave of its magic wand. My bad.

Regarding this, Len Blum said, "What it shows you is a big run-up in credit card debt. Banks just aren't allowing consumers to borrow against home equity, so they can't do what they used to do and tap their home like an ATM, so they are using credit cards instead, which is dangerous and harder to repay."

Question: How'd that magic home-ATM experiment work out? And now Barney Bungalow wants to keep partying like it's 1999 with credit card debt, eh? Helloooooo...McFly!!! Anybody in there? Ferchissssakes people - wake up! When you take money from your real ATM that is cash you have saved from your income. Home-ATM's are BS, as well as any idea of a credit card-ATM. You need to spend from current income to get your balance sheets in order.

Surprisingly, this may have caught Wall Street's attention, but probably for only one day. Tomorrow some jack@$ on television will be telling you to go out and spend, spend, spend, after all - you are the most resilient consumer in the world. Of course, that's just a euphemism for, "These bozos never stop buying junk that they don't need with money that they don't have. It's the American way."

They have, however, slowed the buying of homes they can't afford with money they don't have. Banks have wised up to that losing proposition...for now. In a sign that the U.S. housing market may continue to weaken, an index of sales contracts on previously owned homes fell 1.0% in March from the prior month, setting a new record. The NAR's index, considered a leading indicator of existing home sales, was 20.1% below the March 2007 level.

A downward trend in the pending home sales data has reasserted itself, wrote Ian Shepherdson, chief U.S. economist at High Frequency Economics. "With house prices plummeting the incentive to buy a home is now non-existent, so sales will keep falling until builders cut production far enough to bring inventory down."

Hmmm, this is odd. I have heard at least a few dozen times that the worst is over in housing...the bottom is in. I guess not. I sure am glad the government is loosening the lending rules for Fannie & Freddie (repeat this line as sarcastically as possible and you'll get my drift).

Inflation was on the mind of Federal Reserve Bank of Kansas City President Thomas Hoenig today. In a speech today he said that inflationary pressures "now stand at unacceptably high levels." What is wrong with this guy? Doesn't he know oil's ever increasing cost is "priced in?" Hey Thomas - don't believe me? Just ask a portfolio manager in New York . Oh, and you can also consult Easy-Al Greenspan and Helicopter-Ben Bernanke, both of which say to exclude all things that go up in price from both the CPI and your concerns. Voila - no problems.

Finally, we have the story of Vallejo. The city of Vallejo California filed for bankruptcy today, firing a huge warning shot for a situation that could play out nationwide. Here are the issues.

City and state governments have negotiated salary arrangements that are not affordable.
City and state governments have guaranteed pension benefits to teachers, fire fighters, police, and other city and state employees that cannot possibly be met.
Taxpayers cannot possibly afford higher taxes to pay bloated pension benefits of government workers in sweetheart deals.
Home foreclosures and falling home prices have dramatically reduced the city's real estate tax funds.
There will likely be a ripple effect in the pricing of municipal bonds.

Did Ambac or MBIA underwrite the city of Vallejo? How much will the insurance provider have to pay out? Finally I wonder, will that spread to Ambac and MBIA's other municipality customer? Oh well, what does it matter? These firms continue to enjoy AAA-ratings because they are politically connected.

Trade well and follow the trend, not the so-called "experts." When you do, you will be selling on days like today even if your rose-colored glasses are as dark as Dennis Kneale's or Abbey Joseph Cohen's.

Real Time Trading Signals*for

Trade Date: 5/7/08

E-Mini S&P Trades*
(before fees and commissions):

1) FT buy @ 8:35am at 1417.50 = -1.75 (1 lot)

2) IDVA sell @ 9:45am at 1417.50 = -1.75 (1 lot)

3) Engf sell @ 11:40am at 1411.50 = -1.25 (1 lot)

4) OTF sell @ 11:55am at 1412.50 = +5.25 (1 lot)

5) FT sell @ 12:20pm at 1409.50 = +2.00 (1 lot)

6) Engf sell @ 12:50pm at 1407.75 = b/e (1 lot)

7) FT sell @ 2:40pm at 1397.25 = +1.50 & +2.00

8) Algorithm trades (2)...combined total...+2.75

E-Mini Russell Trades*
(before fees and commissions):

1) Sell @ 9:12am at 729.8 = +.2 & +.2

2) Sell @ 9:25am at 730.7 = +.1 (1 lot)

3) Buy @ 9:48am at 732.1 = -.1 & -.4

4) Sell @ 12:39pm at 725.0 = +.9...+$90


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!