Where is the Dow & others heading in 2005?

[seguna]

Oil margins

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What will become increasingly interesting, is the costs associated with oil extraction. These costs are going up significantly. To hire a drilling rig for a day costs $400,000 (in 1990 it was $100,000). Drilling one foot on a rig on cost $284 against $80, ten years ago. Steel has more than doubled in price. Thus the cost of extracting that extra barrel of crude is going up all the time. Even after maximising economies of scale, BP, SHELL and XOM are finding it pretty tough to keep their margins up.
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Are you sure mate? In 2000-02, I was an insider at one of these oil companies. This was when crude averaged $18-25pb. In those days, the long term (5-10 years) cost model used was $10 pb. i.e. as long as Crude sold for $10pb or more we could continue to explore and trade oil at a profit albeit minimal and we were overjoyed with oil at those 'high levels'. In fact, there was often debate as to how long the 'bonanza' would last. Believe you me, with oil way over $50pb these days, these guys aren't half rolling in it.

They are actually under pressure to make themselves look and sound as if they are struggling along with everyone else over the high energy prices, which to a small degree they are.

But look out for even more 'obscene' record breaking profit figures (even after they've been creatively massaged downwards), from these oil majors.

 

[kriesau]

Are you trading the reality of the market or your 'hope' of it? Be careful of shorting too early. Why not let the market signal a downmove first? By most consensus, oil will continue to rise and take the oil majors with it. These boys are so big they weigh heavily on the rest of the market - both in terms of weighting and ultimately sentimentally.

When folks ask why the DOW is not below 10,000 - think two things: oil majors and a strengthening dollar (rising interest rates).

By the way, at what point will you know if your short is definitely 'wrong' ?

Peace
:-0

The only oil company in the Dow 30 is Exxon and their weighting is just over 3% so oil does not have the significant impact on that Index that BP and Shell have on the FTSE where they collectively constitute 20%.

 

[mickandpete]

Karmit
Many wise words have been posted here over the last few days
Several posters have kindly given the benifit of their obvious hard work to anyone who cared to "listen"
For what its worth i"ll add my tupence worth
I was an FX trader for an international bank from 1970 till 1985.Times and circumstances were very different then.I worked in Frankfurt 72-74 as a 2 man team during the first oil crisis.The office consisted of a chief dealer and myself.As tools of the trade we had:1 telex machine,2 direct phone lines to brokers,3 outside phone lines and the German equivalent of a reuters ticker tape for news.Sophisticated it was not.We had to literally deal from the seat of our pants.
Having left the FX market I changed career but the motto of the Forex club is"Once a dealer allways a dealer"
So having aquired a primitive computer I decided to spread bet with IG in 2000.again somewhat primitive by todays standards with many drawbacks This was the time the Dow was attempting to cross back through 10,000 for the first time.Unfortunately I was unwell for the later shenanighins in 2002/3
I have returned again because I think that we shall see similar action soon.
The first thing to say is "you have never had it so good"
Why??
Because the ability to trade and the flow of information now available over the web far exceeds anything I have previously experienced.When I left FX in 85 interbank trading was Cable 5 point spread Doll/Mk 10 points.INTERBANK TRADING.When I read threads on here complaining of SB firms I just chuckle.
Why have I returned??
Because 10,000 DOW is a very emotional number.The emotion of the number provides opportunities to make MONEY if you have a preconceived plan.
The closer we draw nearer to 10,000 the more erratic the market becomes,IF it pans out as in the first time,the market will widen and accelerate movements.300 point daily ranges may become the norm.However you cannot make the market do what you want,you must learn to read it.I was bearish and took a short position over the long weekend.As has been said (go back and read the last 10 days )it SHOULD have gone down.It didnt,so I squared,(my position was in S&P ) I tend to jump from S&P to Dow with the main eye on the Dow,because it stops me becoming over emotional about actual numbers,OK but it works for me.I am still sitting square,as much as I felt the market would rise I could not go long,again works for me,in fact yesterday I shorted on the way up and nicked small profits a couple of times.The point of all this is you must exercise patience,it will come ,I think,and there will opportunities time and time again to make really good profits ,when the Dow falls,it crashes here,200,or even 300 points in minutes and then back again.Dont be pig headed,if it wont go it wont go,get out and bide your time.
I would sincerely like any corrections to my premise from anyone who traded the break down through 10,000 as time does blur and compress the memory somewhat.

 

[leovirgo]

Well.. I actually use long stops - part of the "strategy".

I placed the last short around 100 points before this one.

DOW may have a temporary consolidation before another irrational up before it finally comes down.

But...well, who knows? I'd rather go with the flow, trade what I see.

 

[macbonzo]

Are you sure mate? In 2000-02, I was an insider at one of these oil companies. This was when crude averaged $18-25pb. In those days, the long term (5-10 years) cost model used was $10 pb. i.e. as long as Crude sold for $10pb or more we could continue to explore and trade oil at a profit albeit minimal and we were overjoyed with oil at those 'high levels'. In fact, there was often debate as to how long the 'bonanza' would last. Believe you me, with oil way over $50pb these days, these guys aren't half rolling in it.

They are actually under pressure to make themselves look and sound as if they are struggling along with everyone else over the high energy prices, which to a small degree they are.

But look out for even more 'obscene' record breaking profit figures (even after they've been creatively massaged downwards), from these oil majors.

Absolutely sure.

I'm not saying their margins are falling off a cliff, but BP's extraction costs are up 9% this year and will go up another 9% in 2006. Clearly BP and SHELL will still be the most profitable companies in the FTSE for some time, however, as they are forced to extract oil from more remote and inhospitable locations it becomes more expensive.

A couple of years ago the Saudis could extract oil for $6 a barrel (which was the cheapest anywhere). I seem to recall that BP's model meant that they would be profitable down to $11 bp, which is about the same as you seem to recall. The problem they face is that all the costs (steel, rig hire, wages, tankers) have gone up exponentially too. Sure with Crude at $60, they are going to be highly profitable, but remember, last week in the energy sector of the S&P, insiders sold $55, 600,000 of stock and purchased nothing.

 

[seguna]

... but remember, last week in the energy sector of the S&P, insiders sold $55, 600,000 of stock and purchased nothing.

Where do you get such precise data on their activities? I am always very wary of such numbers for use as a market/trading indicator. I know it can and has been used to wrongfoot certain people who think they can anticipate prices by watching these figures.

$55mill is not as much as one may think. You probably need to see large sustained selling by insiders for it to be significant. How did the $55m net sales fit into the recent trading profile for these sectors? Was it a spike?

 

[karmit]

Are you trading the reality of the market or your 'hope' of it? Be careful of shorting too early. Why not let the market signal a downmove first? By most consensus, oil will continue to rise and take the oil majors with it. These boys are so big they weigh heavily on the rest of the market - both in terms of weighting and ultimately sentimentally.

When folks ask why the DOW is not below 10,000 - think two things: oil majors and a strengthening dollar (rising interest rates).

By the way, at what point will you know if your short is definitely 'wrong' ?

Peace
:-0

"Why not let the market signal a downmove first?" - well... if I new astrology then maybe!

 

[Racer]

It is making a bit of a down move today with daily dow down about 40!

 

[leovirgo]

DOW will be down today!!

LONDON (AFX) -- Rising oil prices and concern that the Federal Reserve isn't
convinced of the need to pause the interest rate hike cycle combined to weaken
stock market futures Thursday. Deal news in the Internet sector also was a
focus, with reports of an eBay acquisition and News Corp. agreeing to a $650
million purchase.
S&P 500 futures fell 3.3 points and Nasdaq 100 futures were off 3 points.
Crude-oil futures climbed back toward $65 a barrel Thursday ahead of
expected weak inventory data, after closing the previous day at a three-week low
as production in the Hurricane Katrina-ravaged Gulf region continued to improve.
The White House has told U.S. refiners to postpone all scheduled maintenance
in a drive to maximize gasoline and diesel production as the administration
raised its oil price forecasts in the wake of Hurricane Katrina, the Financial
Times reported Thursday, citing sources in Louisiana and Houston.
Meanwhile, Federal Reserve officials reportedly haven't decided whether to
continue raising interest rates at the Sept. 20 meeting, according to The Wall
Street Journal.

 

[macbonzo]

10:30am 09/08/05 U.S. CRUDE STKS DOWN 6.4 MLN BRLS LAST WEEK: ENERGY DEPT

10:30am 09/08/05 U.S. UNLEADED GAS STKS DOWN 4.3 MLN BRLS: ENERGY DEPT

10:30am 09/08/05 U.S. DISTILLATE STKS DOWN 800,000 BRLS: ENERGY DEPT

API have just said Crude stocks down 14m barrels LOL

 

[Racer]

oh I had crude down 14.32

 

[kriesau]

Ranging 10595 - 10630 - more or less the same as yesterday.
Will there be a late spike up this afternoon with oil down to $63.30 ?

 

[macbonzo]

oh I had crude down 14.32

API figures suggest Crude down 14.3mb as opposed to EIA which suggests Crude is down 6.4mb

Market seems to favour EIA, Crude slipping 1% $63.70

 

[kriesau]

DOW may have a temporary consolidation before another irrational up before it finally comes down.

But...well, who knows? I'd rather go with the flow, trade what I see.

Interesting comment from Richard Russell of the Dow Theory Letter. Russell has a very good track record and the DTL is ranked second in performance of all US newsletters over a period of 25 years.

Russell has just moved from a bearish to a neutral stance on the market. According to his latest chart analysis, if the SPX hits 1250 that could trigger a big upside move of 100 pts (this would put the Dow well over 11000). His interpretation, last week, also indicated that if the SPX broke through 1230 (currently 1233) then it should trigger a move up to 1250. He also quotes a new all time high on the DJ Utility Average as another supporting signal for this view.

However he remains bearish for the longer trend on the basis that he views the market as overvalued. With short term bullish sentiment and longer term bearish sentiment he is advising investors (as opposed to speculators) to remain primarily in cash :!:

It'll be interesting to see what does happen next and whether his reputation remains in tact a few months from now :cheesy:

 

[macbonzo]

I know everyone has their own trading framework and timeframes, however, this weeks market has be schizophrenic to say the least. First we get a strong ISM number, so we get a rebound in the dollar and an increase in bond yields - suggesting a further increase in interest rate at the next meeting. The Dow rallies 141 points on the news too, presumably relieved that the economy is showing strength. Now people seem to be thinking the strength in the Dow is down to the fact that the FOMC may not increase rates at the next market.

It seems market participants are unclear about just about everything.

 

[mickandpete]

It seems market participants are unclear about just about everything.

Yup that about sums it all up!!!!!!!

 

[karmit]

Yup that about sums it all up!!!!!!!

I agree... so the basic rule is to cut out the "noise".... just focus on the numbers...

up-down-sideways!

and believe NO one... no matter how "expert" their opinion is..

yes... no harm in listening politely though

no one knows your strategy, position, constraints, ability to sustain "pain", emotional intelligence better than you!

 

[kriesau]

Yup that about sums it all up!!!!!!!

The "reasons why" are always retrospective rationalisations by the so-called experts. Oil prices down can be interpreted as bullish or bearish (increases likehood of an interest rate hike) to enable them to appear authorative in their subsequent analysis.

Currently I'm just watching and will go short today if the Dow breaks below 10590 and long if it breaks above 10640.

Dow to 10750 tomorrow anyone ?

 

[User]

10600-10650 is a horrible area for the Dow on the weekly charts.

10650 is major resistance.....

10700 on the daily charts is not a glamorous area either......

Good Luck all

 

[Racer]

I know everyone has their own trading framework and timeframes, however, this weeks market has be schizophrenic to say the least. First we get a strong ISM number, so we get a rebound in the dollar and an increase in bond yields - suggesting a further increase in interest rate at the next meeting. The Dow rallies 141 points on the news too, presumably relieved that the economy is showing strength. Now people seem to be thinking the strength in the Dow is down to the fact that the FOMC may not increase rates at the next market.

It seems market participants are unclear about just about everything.

They will just fit the appropriate news to justify the movement because they really haven't got a clue.