Time to go shopping?

..or will the time to year end be all about returns, as in selling?.    This question will likely not be getting any answers on Friday as attendance will still be light and news flow weak.

...30...20....8...

Those numbers are the consecutive spreads of low to high on the SPX for the week.   The market is simply trading, (if that’s what you call it?)..in a holiday mode.   Well,  we’ve made it to class to this week and the only potential trade in the makings, unfortunately has been hampered by the attendance.

Early in the week,  we pointed out the E&P sector,  known here as the Shales  in particular may have been a potential buy -in after the sell- off Monday on already light volume.    Any other time of the year this might have already worked out as a profitable trade by now as ‘ Heating gas’ (UNG)  has been the only thing of interest even as Oil continues it’s slide the past 2 trading days.      On Tuesday, Natgas strangely saw its best day in a long time, surging 8.5% to $5.74MM/.   We were scratching our head as to why the E&P's were not reacting much to this at all for some reason.   The low volumes/attendance was our only guess.     On Wednesday, Natgas had pretty bullish inventory numbers compared to all the other inventory numbers (as stockpiles dropped more than expected).     If demand is destroyed,  why are these numbers getting bigger.     Leading into Friday’s trade this is the only group we are coming for,  hopefully this move in stocks is just lagging because the performance of Natgas caught traders by surprise.   You can see by the UNG chart,   it had a late day surge to weeks high (AH) after the 12pm data came out and E & P’s were still lagging.    Maybe 1 hr before XMAS just ain’t enough.    Besides low attendance, the reaction is in part to Oil continued decline and so this Shale move is in limbo.     If we start getting a higher Oil by Friday,  the Nat gas chart may help awaken a few that come to class.

...energy patch

The theme for Tuesday’s trade remains as it did going into last Tuesday’s trade with a few possible curves thrown in.

The E&P -Shales and a watch of support for the SPX at 855.  There is not much else out there we need to watch or trade with or against with these low volume days.   Just pick our spots.   Stocks bounced a few times off SPX support around 855 and finished at 869.  The bias seems to be positive with 2 trading days left in the year.  The possibility exists for a nice broad day this week,  if we get a nice curve to hit by the Financials.  If we get ‘a positive’  GMAC headline ( Alert note today) we could get this action.  The SP financials came off worst levels of the day,  despite the DOW-Kuwait failed acquisition weighing on some banks committing bridge loans for the DOW ROH follow through deal.  GS and JPM continue to show strength implying a market coming to health.

Because we want to keep our hands somewhat clean heading into the 2009 trading season,  we haven’t strayed into pursuing more of the crude action affiliated names which is just fine with us.  So far the E&P’s are providing enough,  outperforming even on a day where Oil ruled the headlines.   Today,  NATGAS advanced to 6.06,  last week it was 5.40 per contract.   Todays Natgas 12% gain cannot be fully attributed the rise of oil,  we actually saw oil forfeit all of it’s overnight gains at one point before finishing just off $40.   We’ll continue to favour the energy patch over the Oil names as long as the tension doesn’t escalate w/ other Oil bearing countries involvement.

We’ve stressed the holiday mode attendance, but keep in mind the market can celebrate  on just enough liquidity,   just like your family and friends during the holidays.  Otherwise,  just watch the support levels to the downside talked about here.

...positive bias holds

Even though volumes are below 50% of pre-holiday trading,  the market has shown it ‘can celebrate’ with or without the Bear or Bull fully in attendance.  Yep, one triple digit up day is reason enough to party and put an end to a crazy year!.     Hopefully,  DJIM’s traders have celebrated some this past week by focusing on the E&P shales such as HK, GDP, CRK and just letting Journals / Alerts guide to a high note finish to 2008.   Today, we got what we were looking for the day before to set this market up for a move…GMAC good news.    Previous day all the noise was around the DOW-Kuwait -ROH deals and nothing on GMAC.   We saw it differently as we felt the market wanted an answer it didn’t get yet surrounding GMAC.    Most have become immune to the word bailout and many underestimated this potential news and its potential impact.  Without going into deals,  this announcement was much better than just a bailout.    The follow through hit just were we wanted on the Financials/ brokers,  particularly GS and JPM, respectively up over 7 and 4%,  rallying the market into close and the SPX to 891 just above the 50ma resistance.   (funny thing is when we said 888 is small resistance, we were looking at a chart without the 50ma on it).    Almost in tandem,  the $OSX (for our Shales) and GS bubbled right after our 2:15 pm note highlighting them to finish strong..“OSX and GS/ JPM to follow for last 2hr, should tell the tale if we hold triple digits".

Despite energy and Oil stumbling for most of the day, Crude trading off by a $1 to $39/bbl, off lows of $38/bbl and Natgas prices lower to $5.86MM/btu,  we still got a better rebound in individual stocks into the close.   Partly, we think this positive action also has to do with new SEC rules on reserves where the value of the reserves will be based on average oil and gas prices over the previous 12 months, rather than at year’s end price giving major Oil co's the ability to re-evaluate and increase reserves.

Of course, tomorrow is the last trading day of the year, we may get more action than anticipated because many will be winding up their year end activity. 

Most importantly,  we'd like to take a moment to say thank you to our members/ friends for sticking through this tumultuous year with us and to wish you all a Very Happy New Year and a prosperous 2009!.

Sincerely,

Demi & Jon