A Rally Into Fantasy Land

As I have stated, people needs to take advantage of this rally to sell out of their stocks. This is the “prayer answered” for those who have suffered big losses.

What’s ahead? My own opinion is that the rally is soon going to stall a little at about here. Many people are looking for selling out at Moving Average of S&P500 reaching 950. I’m not going to count on that. The market will always do the least unexpected. So either it stops just short of 950 at maybe 935, or it surprises every bear out there with a much stronger recovery to 1000 or above. I’m a bear, and I would definitely like to be pleasantly surprised.

The energy stocks are the stronger ones that have staying power through this counter rally. I have not sold out my energy stocks. In fact, I only just started to lighten up a little. There is a not-small possibility that they will stay strong until early July. I will continue to watch them very closely for a clean sell-out in the coming days/months.

Looking at upturns in gold stocks in the last few days, it appears that the last sector has waked up to the bullish train. And that is a bad omen. Once the last bullish guy joins, you know what happens next. Precious metal mining stocks will be subjected to stock market fluctuations. I think there is still room to run in both PM and general stock markets. The initial reaction of a stock market fall for PM stocks will be down for sure. I expect them to hold support this time, although the magnitude of fall will always be more exaggerated than general stocks due to its higher volatility.

I have pinned that stock markets with a high likelihood will not be able to go beyond August/September timeframe. In my opinion, it’s more likely that it will drop starting in mid-July with a bigger magnitude. Nevertheless, towards the year end in November/December, another counter-rally will be attempted. I hold the opinions that the second counter-rally will reach a height that is going to be at least 5% lower than the current or July height. I will not wait for that to sell, nor I won’t be shorting into Nov/December.

Let’s enjoy the temporarily sunshine for now. Best luck trading.

Sell Your Energy Stocks

With the exception of uranium, I am not so hopeful on energy industry for this year. If you don’t sell them this round, there may be one more chance after some 1 or 2 weeks of the current short-term corrections. After that, energy stocks will probably drop along the general market, with bigger percentage of course.

The inventory picture for crude oil is simply terrible. Too many speculators have been playing the contango in the commodity futures market. What has been happening is that short-term price dropped too fast, while the longer term prices held up much better. A contango (higher future prices than current prices) in the futures market encourages traders to take current delivery, store it, and sell the futures at the same time. What resulted is basically additional (false) current demands that cushion the oil producers, at the expense of increase in future supplies from the release of inventory.

When inventory increases, it simply means that oil producers are not cutting production fast enough to match the fall in demand. That doesn’t bode well at all for the future prices.

I maintain my position that we will probably see something like a double-top formation in the general stock markets, with a second top forming at about June 15, plus or minus 1 week. After the second top falls off from the support trend line, the “sell in May, and go away” will reassert its power.