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Oil, smh. My favorite setups this week and beyond.
(if you just want actionable charts, scroll down)
Top news out of Ukraine is that they are not willing to budge on territorial issues. I don't think this was anything unexpected given the vast support and lack of swift resolution on the Russian side as well. This issue between the two countries have now pushed a massive thorn in the side of the entire world. Why? Energy prices.
To add insult to injury, U.S. Secretary of State Antony Blinken said the Biden administration and its allies are discussing an embargo of Russian oil, a move that threatens to make an already heated oil market even more volatile
As I am writing this up, the futures markets just opened up and sent from month WTI all the way up to 130...
No new high in June/Dec spread! That is divergent price action...
This is incredibly disruptive not only for consumers, but actually the countries and OPEC members which export oil as a large percentage of their GDP. Why? Stronger currency. A lot of these countries have their currencies pegged to the dollar which gets weaker as oil goes higher. The move and volatility in some of the EM and "extra EM" currencies might be underpriced relative to the drawn out nightmare that the energy situation could be.
The reality is, Russia has the capacity to hold Europe hostage with oil & gas for the next 100 years. It is not in anyones best interest for this to be a prolonged issue, and now with the sanctions, it is no longer in Russia's best interest (not even close) to continue down this path. There will most likely be a situation where separatist controlled territories will be part of Russia. Unfortunately, I don't think Putin bends first but the West will with the energy dependence. I hope that will not be the case. Anyway, let's move on to the markets.
We have been pretty bullish on the whole space for a while, but pretty light footed on the positioning front. Isn't that how it always goes? Ugh. Annoying. I saw today that Carl Icahn sold the remainder of his OXY trade. This guy literally bought the nut lows during the week of Covid that the market bottomed (OXY below $10 per share). That is a 400% return since.
But what about now? Is it really time to pounce on into the energy trade? Look at the XLE/SPY ratio from a DeMARK perspective. When I see weekly exhaustion into a pricing panic, I like to think just panic buying these things is generally not a good idea.
But what about other niche energy plays like solar. Surely this energy crisis would finally make sense for these to start outperforming.
*buzzer sound no*
Look at balance sheet on some of these names. Still trading at massive multiples in an environment where interest rates continue to massively compress these high flyer names. I've been leaning short no these names for a bit since that TD Combo 13 on the monthly chart. I still see no real big reason to buy, as the ratio between TAN and SPY got back below the TDST level near 0.19. Stay away I think.
But nuclear names, Petr. Surely they are safer to invest in.
You know what? Maybe. I've avoided names like CCJ et al for a decade plus. Last year, uranium bulls finally saw their day in the sun as all of these green energy names really started to take off. My thought was that it was an early wave 1 impulse move that would met with a wave 2, long sustained downside as the hype dies off and people realize nuclear technology at scale across the world is still decades away.
Nevertheless, did Russia just shoot the entire OPEC world in the foot by making the capitalization process quicker? What I mean is: did Russia just make nuclear investments a more safe place to park capital because of how reckless they were with oil&gas to Europe. I think the answer is 100% yes.
I think if we print this chart out of CCJ and look back in 20 years, it will be fun. Obviously with CCJ near the 20 handle, you have to control your risk. Always. Does the story change below $20 per share? I mean, no -- most likely not. I would try and figure out a long term strategy that doesn't involve oversized and stress on adverse price action.
So the focus on this week for me is tactical trading around possible shorts in Crude with a focus on alternative energy spread trading: being long nuclear while shorting solar names.
Watching to see if AAPL will spill any more blood here. Could be a very big deal for markets securitized by high net worths holding AAPL as collateral. I think the wave 4 leg lower could be deeper than most people realize.
Like I said before, I am totally in the "Triumph of the optimists" camp. Art Cashin had a nice piece out recently about what happens to markets when you hear about missiles and bombs going off in other parts of the world. He is not wrong, its better to think long term. I wish we had an updated chart from my friend Keiron Nutbrown that showed the last few centuries of stocks and narratives about why someone should sell. Western equities go up. Russia holding the world hostage with energy isn't going to change that. So, when you see me getting bearish remember I talk a much bigger bear game than I actually play.
Another look at AAPL
XBI coming into massive retracements
And trend lines..
I'm getting asked what I think about European banks here. I haven't touched a single EU bank since I lost money on SAN back in 2015. Below is a chart of Credit Suisse. Does that look like something you want to buy? Forget about DeMARK exhaustion and everything for a minute. Even if you are right, isn't it better to wait for a base? Why just buy the hole. CDS is blowing up on a lot of the European banks due to dollar funding issues at the moment. No reason to be involved I think.
Even Goldman broke down and retested / went south. Market is clearly saying to stay away from banks.
ARKK is getting very, very close to long term support. This tech unwind has been quite remarkable to witness. Nothing new under the sun, really. Feels 7th or 8th inning now though (that 8th inning could take years of bottoming and range trading at lows though)
OK to forward. Good luck this week!