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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (40774)	3/3/2004 3:51:52 AM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69134

, A Quick Look at Oil The Wall Street Journal "Crude Oil Shines as Gold Fades" Published: 3/1/2004 Brief Summary: "And what of oil and other commodities? Though they remain viable bets as asset classes themselves, equity investors who buy stock in the industries are buying t oo,-pricey assets." This article recaps the recent performance of commodities such as oil and gold. The analyst quoted in the article notes that "His firm earlier recommended getting out of oil stocks, and he's short some gold shares." Contrarian Takeaway: A contrarian is always interested in situations where strong price performance is met with sk ,epticism. In the case of oil, there appears to be a clear lack of enthusiasm. A composite measure of analyst's ratings from Zacks shows that just 33 percent of the 156 ratings on stock in the oil sector are "buys." More information on the oil sector can be found in this recent commentary - "The Allure of Black Gold." As a side note, the two quotes below are also worth mentioning: "Sm all caps had the biggest run, so they're the ones that a,re pricey." "Better spending on technology products, however, can't entirely ameliorate concerns about tech stocks being overvalued, bears contend." This fits with a theme we have been tracking that there are still some signs of skepticism on tech and small-cap stocks. Black (Gold) Bears, The Sequel Financial Times "Hedge funds blamed for high oil price " Published: 3/2/2004 Brief Summary: This article takes a different look at why oil prices are so high. It is argued that institutional investors and the influx of hedge funds has contributed to exaggerating oil prices by as much as 10 percent. The "influx" of activity that is influencing hedge funds can be seen in the futures markets for gasoline and other oil-derivative products where the number of long positions stand at multi-year highs. The trading in the futures market has become so active that OPEC officials are complaining to Nymex and the International Petroleum Exchange. "They point out that every day 350m barrels of oil are traded on the Nymex and IPE, far outstripping daily consumption of 80m barrels." One trader in the article explains that the price of crude oil would be trading at $28 a barrel if all crude futures positions were sold and if the U.S. dollar would make up the 25 percent it has lost. Contrarian Takeaway: Yes, the derivatives market can play a role in the price of oil, but the article seems to underplay the influence of growing world demand for oil (especially from Asia) and OPEC's decision last month to cut production, which may be leading to the build-up in futures trading. Additionally, a quote from Richard Bronks, managing director of Goldman Sachs commodities trading, seems to indicate that the industry has not prepared for rising demand. "'While demand has risen, global refinery capacity has been unchanged for the past 20 years,' Mr Bronks said. 'There has been a lack of investment in new infrastructure, pipelines, storage facilities, refineries and in oil tankers, which is very evident given the tightness in the shipping market,' he said." From a sentiment perspective on this topic, it seems Wall Street is not completely bought into the recent performance in crude oil and those companies in the oil industry. The overall consensus on Wall Street is that crude oil will be trading at $28/barrel with it already trading in the mid $30s range. Additionally, the number of "hold" and "sell" ratings on the stocks in the oil and oil-service industries outweigh the number of "buy" ratings. This is not exactly an overly optimistic view. 3/2/2004 4:16 PM Hold onto Your SOX CNN/Money "Scoop up chips on the dip? " Published: 3/2/2004 Brief Summary: This article gives a mixed review of the semiconductor sector. While it points out the recent dip is a curious one-"The timing of the pullback is a bit curious beca,use most of the eighteen chip and chip equipment companies in the SOX, including Intel, reported extremely strong fourth quarter results and gave upbeat guidance for the first quarter. " One thing I found to be curious was the consensus that the place to be is in consumer-related chip companies. "If Intel raises this guidance and gives an indication that consumer spending remains strong and that corporate spending is continuing to recover, then that could be a big catalyst for chip stocks. But even if Int,el's news is extremely good, it might not be the best bet. Some fund managers think that the recent dip in chips represents a good opportunity to get into lesser-known semiconductor names...especially those that have strong consumer electronics exposure." The article goes on to quote two separate analysts that favor the chip companies that rely on demand for consumer electronics. Contrarian Takeaway: If you look at the Semiconductor HO,LDRs Trust (SMH) and the PHLX Semiconductor Index (SOX), they have both just bounced off of support at 40 and 495, respectively. Care to guess where the peak front-month put open interest is on these two? You guessed it, 40 and 500. The open interest at the 40 level on the SMH shows a huge discrepancy between puts and calls: 48,216 to 9,050 contracts. Meanwhile on the SOX, the open interest is not as numerous as the SMH, but the discrepancy is still better than 4.5 to one with 1,612 puts to 341 calls. Intel (INTC) h,as seen its Schaeffer's put/call open interest ratio drop over the past week. However, puts were unusually active in today's trading and we would not be surprised if this trend continues over the next two days ahead of the company's mid-quarter update on Thursday. One other note on the SMH and SOX: both the aforementioned levels coincide with the lower rail of a regression channel that dates back to the lows of October 2002 , schaeffersresearch.com