WASHINGTON, March 4, 2015 – For well over a week now, the Maven has been sitting here in front of his souped-up, big-screen iMac watching trading screens and wondering why the hell he’s still sitting here wasting his time. Wednesday’s trading is, at least as of 3 p.m. EST, just as lousy as it was yesterday before some of the losses were countered in part by that mysterious but ever-present Plunge Prevention Team.
What’s ailing this market anyway? Oil price uncertainty? Cold weather slowing hiring and homebuilding? Dwindling employment due to layoffs in the oil patch? God knows. The Maven does not.
The market still seems stuck in a pattern of buy-sell-buy on alternate days. Or, if we get a big rally like Monday’s surprise, we get two or three straight days of selling so that on balance, each “big” rally is followed by a greater move down. Again, yesterday’s Caucus Race Metaphor hold true today. We’re going nowhere.
Typical this morning were the banner headlines on CNBC and elsewhere proclaiming oil was making a big move down. But as oil futures closed for trading this afternoon—WHAM—all of a sudden, West Texas Intermediate was goosed up, moving from $49 and change per bbl. to $51.51 at the close.
This narrow trading range—roughly $48-52 bbl. for WTI—seems for now to be where oil is most comfy, with North Sea Brent Crude, the usual benchmark for some reason, running about ten bucks higher.
As we’ve mentioned before, we think that for some time, oil’s broad trading range will be between $40 and $60 bbl. for WTI. The reason we’re sticking with this wide band is simple. From tie to time, we figure speculators and/or HFTs will find it irresistible to spoof markets to spike down or up, catching traders without supercomputers unawares so these evil HTF miscreants can pocket bucketloads of profits generated by their fake prices.
But for the most part, barring some international catastrophe of course, oil seems reasonably happy oscillating right around $50, give or take.
Sure, we’re still getting those scare headlines, but these clowns, mostly on CNBC, are just talking their books whether they’re short or long. We’ve been cautiously picking into a few oil-related positions, for once taking the long-view that even if we get hosed near term, demand for oil isn’t going away and prices will firm eventually.
Meanwhile, dubious employment figures came out via ADP, showing anemic employment numbers, likely due to the cold weather and layoffs in the fracking complex to compensate for the current U.S. oil tsunami and the Saudi’s Custer-like Last Stand on pricing. We’ll see how that works out as demand picks back up again at the first sign of crocuses here.
Today’s trading tips
Kind of thin here again today. We dumped a small position in USL, a lesser-known oil-based ETF that the Maven can trade without a commission at his trading house. USO, the much bigger currently priced U.S. oil ETF is the one people know best.
But the Maven is surprised that in the current situation, no one is focused on USL. That’s because USL is built on the 12-month forward oil contract. I.e., future demand, not current.
Right now, the big issue most traders seem to be having is with the unpredictability of current prices, not those in the future. Even oil bears figure that oil will be higher a year from now and maybe sooner. So why not place our bets on USL instead of USO, working with those likely higher future prices rather than today’s HFT-manipulated lower ones.
We sailed out of USL today because it wasn’t playing nice, but we still made a few bucks on the trade. If it counter-intuitively dips again tomorrow, we’ll probably start scaling back in. It’s a trade, not an investment. But when the rest of the market is as boring as this one is, making even a few easy bucks every few days is more fun than just watching your portfolio value sink.
We also added to our position in Royal Dutch Shell (RDSA) today, averaging down when we got near a 6% loss on our small existing position. We’ll keep doing this again and again until the damn thing stops moving down. The giant, vertically integrated international oil company pays a well-protected dividend of nearly 6% now, so we’ll simply buy a few more shares each time it tanks and collect the dividend until the nonsense reverses.
Similarly, we’re re-entered the dangerous territory of MLPs again, buying into our periodic favorite, Calumet (CLMT) which not only does conventional refining, but also makes specialized products such as specialized oils and chemicals and, ta-da, asphalt in case anyone decides to actually fix roads instead of spending taxpayer money on making Republicans look bad.
Again, though, nothing much else right now. Charts are congested, as we explained yesterday and, at least short term, they want everything to go down. But if we keep our cash position fairly high, we’ll have money for the bargains that kind of down move can create.
Stay warm. Weather man is issuing dire threats again for the DC area. Snow? Again? This is getting old. Where are those crocuses?