The Insightful Trader

Bidu Trade 1-13-2010

by on Jan.14, 2010, under Trade of the Day

Comments Off on Bidu Trade 1-13-2010 more...

Gold Trade 1-13-2010

by on Jan.14, 2010, under Trade of the Day

Remember to click button to see full screen

Comments Off on Gold Trade 1-13-2010 more...

EURUSD Trade 1132010

by on Jan.13, 2010, under Trade of the Day

Comments Off on EURUSD Trade 1132010 more...

Energy Prices Continue to Pressure Consumers

by on Jan.07, 2010, under Editorials, Market Commentary

The recent winter blast across much of the country will only continue the recent trend in energy prices that are putting pressure on an already squeezed American consumer. After dropping dramatically in the latter half of 2008, energy prices, led by oil have, have rebounded significantly aided by a weak dollar.

The increases have been significant, and perhaps more so now than in 2008, in regards to the impact on discretionary consumer spending. Let’s look at recent moves in the past year. Oil, which bottomed at $35 in December of 2008, has now, without much fanfare from the administration or the talking heads on TV, climbed to over $80 per barrel. Crude oil imports averaged about 8.5 million barrels per day in the latter half of 2009.

The result has been that gas prices have made a huge move upward to nearly $2.20 per gallon wholesale in the past year from a low of $.82 a year ago. This is closing in on a 200% increase in just over a year. According to the EIA, we use about 380 million gallons/day in gasoline. Just in direct costs to the consumer, that’s a huge cost increase in the past year when many are already stressed financially. That’s $456,000,000 per day increase out of the US consumers pockets. That’s a lot of discretionary income up in smoke daily. This doesn’t include indirect costs for food products, transportation costs of products, electricity, etc.

Natural gas prices, which were the lone bright star in energy costs through the end of summer have spiked from a low of $2.65 in September to close at nearly $6 yesterday. Though at least our supply situation is much better in nat gas, as more users switch, primarily many of the utilities and recent winter weather, have caused a serious spike in prices in just the past 30 days. So when you factor in that many of the newer homes built in the past decade use natural gas for heating, that’s another hit to the consumer as well as those who use other forms.

Increasing energy prices are one of the most regressive taxes on consumers, affecting those who can least afford them the most significantly, yet not a peep out of anyone in the current administration, who have purposely pursued a weak dollar policy in order to cover our growing indebtedness. We’ve seen a definite move upwards in longer term interest rates the past 30 days which have a direct effect on mortgage rates.

So my question is, who and what is going to lead this economy out of recession, as unemployment remains high, foreclosure levels are at record highs and will probably continue, see here, and now a further squeeze as energy prices are once again seriously affecting consumers pocketbooks. Yet no one is even talking about the effect that these energy prices are actually having on the consumers. The Fed, led by Ben, says they’re keeping an eye out for inflation. I suggest they go to the grocery store and stop on the way home for a fill-up at their local gas station.

Comments Off on Energy Prices Continue to Pressure Consumers more...

Delinquent Mortgage Borrowers Find it Harder to Catch Up

by on Dec.30, 2009, under Editorials

If you think housing will bounce back in 2010, check out this graph from Michael David White at


The graph shows cure rates, the percentage rate at which delinquent borrowers repay past due amounts so as to restore good credit standing on their mortgages. As recently as June 2007, 80% of borrowers who fell behind one payment were able to catch up. The graph also seems to show that as of September 2007, homeowners who counted on eager buyers to bail them out of overpriced homes began to have a tougher time of it.

In hindsight, the difficulties of borrowers who were two or more payments behind began to intensify a year earlier, in June 2006. One suspects that the graph captures the experience of the really junky mortgages whose borrowers went into early payment default (EPD).  EPDs happen when the borrower defaults within only a few months of taking the loan out.  If their lender sells the mortgage to another investor, that investor may have the right to put the mortgage back to the lender in the event of an EPD.

Thinly capitalized firms can’t survive too many EPDs. It was the epidemic of EPDs that forced a rash of undercapitalized mortgage bankers out of business.  Their bankruptcies helped mark the beginning of the housing crisis.

What does the graph tell us now? Most striking to me is that more than 90% the borrowers who miss two payments fail to catch up. As recently as March 2007, at least half of them succeeded in catching up. Data from the recent monthly Mortgage Bankers Association (MBA) survey and the quarterly FDIC banking industry profiles seem to bear this out. The MBA surveys show that about five million borrowers, or roughly 10%, are at least one payment behind on their mortgage.

The FDIC data show that the current delinquent population presages many more foreclosures to come. We know this because the aggregate amount owed by borrowers 90 days or more past due is in fact much larger than the amount owed by borrowers 30-89 days past due. That’s the reverse of what we expect during normal times.

The FDIC’s third quarter “profile” shows that 8.06% of the home mortgages held by FDIC insured institutions were “non-current,” 90 or more days past due as of September 30. FDIC institutions had $1.929 trillion in home mortgages outstanding then, so there were $155 billion in non-current loans. If we assume that the average borrower owes $200,000 on a mortgage, that would make for 777,000 non-current loans. (The FDIC data don’t count loans made by non-bank financial institutions that are also covered in the MBA survey.)

The FDIC numbers additionally show that 3.15% of the outstanding mortgages are 30-89 days past due. That would be $61 billion worth, and these borrowers correspond to the top two lines of the graph. White used data from MBA and the National Association of Realtors, so the correspondence is close but not exact.

Since the FDIC’s 90+ days late group owes more than twice as much as the 30-89 days group, it only makes sense to guess that lots of people in the 30-89 days late group, just stop paying their mortgage. By definition, everyone who is 90+ days late, was once 30-89 days late, and then fell further behind.

These FDIC data square well with White’s graph. The graph tells us that 30-59 days of delinquency indicate more borrower stress than they used to, and 60 days of delinquency is now a point of no return.

The MBA cites the job market as the culprit for this change in behavior. High levels of long-term joblessness (six months or more out of work) mean that that those who stop paying because they have lost their job, are less likely to find work again in time to catch up on their mortgage than in previous postwar recessions.

Our data have some important implications for the housing market and for housing related stocks. The data help show that there is a large “shadow” inventory of homes that will eventually come onto the market, or that owners would sell if they could. The number of homes officially listed for sale is only part of the supply that weighs on the market .  Clearly the homes that secure loans 60 or more days past due should be counted in shadow inventory, though they are only one part of it  (the Calculated Risk blog does a good job of explaining shadow inventory and all its components).  And a large shadow inventory means, new homes will have to compete with homes offered in distressed sales over the foreseeable future.

Obviously I don’t expect homebuilder earnings to rebound anytime soon. On the other hand, I wouldn’t short the major builders because the government has given them massive tax breaks and seems hell-bent on bailing them out. That’s why I am also reluctant to short banks that got TARP money. Investors who want to exploit this situation, need to short overvalued housing-related stocks that are not likely to benefit from government assistance.

Comments Off on Delinquent Mortgage Borrowers Find it Harder to Catch Up more...

Gold Trade 12-16-09

by on Dec.17, 2009, under Trade of the Day

Comments Off on Gold Trade 12-16-09 more...

BIDU 8-15-09

by on Dec.16, 2009, under Trade of the Day

We’re trying a new format here to help expedite making more posts to our Trade of the Day area to give you more examples of current trades to help you in looking for different signals that we watch. We hope that this will help you in your trading.

We’re using Jing Pro to record short videos of actual called trades so that we can quickly post these on a much more frequent basis. Enjoy and please feel free to leave comments or suggestions that we may do to help you in your trading.

1 Comment more...

Key Saudi Oilfield Continues to Show Signs of Aging

by on Dec.03, 2009, under Editorials

Some largely overlooked news shows that worldwide oil production capacity continues to plateau if not fall. Of course it might be bad form to back up the truck right now on oil stocks, given that oil and stock prices have rebounded so smartly since March. But the long term oil news is bullish.

The news I refer to came out of Saudi Arabia on Friday, November 6. The Saudis all but confirmed the accelerating decline of the Ghawar oil field. With an estimated production capacity of 5.2 million barrels per day (mmb/d), Ghawar accounts for about half the Saudis’ production, give or take, and is the most prolific field ever found. Many experts believe that when Ghawar’s production decline curve accelerates, worldwide oil production, which now runs about 85 mmb/d, will tip into decline as well.

The Saudis expressed their concern, not with an explicit press release, but by concluding a five year, integrated turnkey contract with Halliburton (HAL) to redevelop Ghawar. In other words, Saudi Aramco, which is among the more sophisticated national oil companies (NOCs), felt the need for some outside extra help to keep Ghawar’s oil flowing. The contract calls for HAL to do directional and horizontal oil drilling and to drill 153-185 oil and water injection wells, among other things.

When Ghawar oil production began back in 1951, it might not have been much of an exaggeration to say that all the reservoir managers had to do was stick wells in the ground and enjoy. As time went on, Aramco resorted to enhanced oil recovery (EOR) techniques such as injecting water or other substances into the field to force the oil towards well openings. Aramco also employs other EOR techniques such as horizontal and directional drilling, both of which can be used to angle the well so as to maximize the length of oil well pipe in contact with the “pay zone,” the layer of oil bearing rock.

EOR is standard procedure especially over the later history of many if not most oilfields. It’s natural to pump the easy oil first; as a field matures the rest gets harder to extract. Over time as the oilfield owner pumps out the crude, the pressure which drives oil to the well and up to the surface falls off. In addition, the early, higher quality product of crude oil and natural gas liquids, often gives way to a product increasingly mixed (or “cut”) with water, which must then be separated from the crude before refining takes place. With this background in mind, oil analyst Michael Lynch of GLG Group (h/t, has some choice words about the HAL contract.

“The contract makes no mention of Ain Dar, the most mature part of Ghawar…  Ain Dar has been under pressure maintenance by peripheral water injection for over 40 years. Ain Dar began producing salt water in the late 1970s and by 2005 the cut was 42%… Once water became a major problem, many existing vertical wells were converted to short lateral horizontals running along the top 10 feet of the Arab D zone, the main pay [zone for both Ain Dar and other parts of the Ghawar]…Today the entire field still contains a great deal of crude oil but it is much harder to get and the production rates continue to fall off. Halliburton’s mandate will be to deal with the higher and higher water cuts, utilize all known new technology to hold [production] rates as high as possible… It’s a good, long-term contract and a tall order for the company.”

As a side note, the Saudis objected fiercely in 2005, when Matthew Simmons stated in his book, Twilight in the Desert, that Ghawar was in decline and that the Saudis were making strenuous efforts to maintain production. Simmons also highlighted difficult geological problems that the Saudi petroleum engineers faced. The HAL contract would seem to confirm Simmons’s work.

If Ghawar were still in its early phase when oil flowed easily to the surface through highly productive wells, Aramco most likely would not need an EOR program like this. The need for this program is evidence that we may indeed be facing “twilight in the desert,” and that Saudi Arabia’s glory days as a leading oil exporter are winding down. Can “peak oil” be far behind?

Nonetheless, there is reason to be cautious about oil stocks in the short to intermediate term: demand for crude is down. US refineries processed 14.2 mmb/d of crude in October 2009, which is down about 200,000 b/d year on year and down 800,000 b/d from the October 2007 level. No surprise for a weak economy. Furthermore, both Sunoco (SUN) and Valero Energy (VLO) have in fact closed refineries recently. US crude oil inventories sit at about 24 days’ supply, 2 days above the year-earlier level. These numbers don’t indicate tight markets, and I have to wonder if current prices are sustainable.  I just don’t know how far they fall from here, and how long they stay down.

1 Comment more...

Gold Soars to Record Highs – Is it Time for a Pullback

by on Nov.24, 2009, under Market Commentary

As most of you know by now, gold has had a meteoric rise since breaking over the key $1000 level in the middle of September. After a slight back test, since the 1st of October, gold has climbed to it’s peak this morning of 1172. That’s a huge move, basically uninterrupted of 17% in 7 weeks.

It then spent the rest of the day selling off slightly to the 1158 area and currently trades about 1166. So the question is, where do we go from here? Just using my simple trendlines which are pretty steep, it looks like we could easily pull back to the 1148 area which also coincides with the 100ma on the hourly chart. Below is a 4hr chart with the Fibs drawn in from the 10/28 pullback. As you can see there is a cluster of support at just below the 1150 mark.

Gold 4hr 112309

As we can see below on the hourly chart below that a fib taken from the November 20th low, shows that a 62% pullback puts it right at 1148 which also lines up with the high cluster from 11/18. Notice that it just bounced off the 38% fib just a few hours ago. As strong as it’s been, that may be all we get for the moment, but I think not. But be wary of standing in front of locomotives, lots of big, hot money jumping onto the gold bandwagon. Every slight pullback has been met with a new wave of buying so far, so if you’re looking to play the pullback, be nimble and watch your stops. Or you can just sit back and watch the show if you feel like you’re too late to join the party on the long side.

Gold 1hr 112309

Comments Off on Gold Soars to Record Highs – Is it Time for a Pullback more...

Private Coaching Now Available

by on Nov.23, 2009, under Coaching

I’ve had some inquiries about private coaching. This is a service that I am going to start offering on a very limited basis.

This will entail setting up your charts correctly with the indicators that I use, the mental aspects of trading, position sizing, picking and executing trades, and spending the day looking over my shoulder and vice-versa as we do actual trades. This can be accomplished quite easily with Go-to-Meeting, which I will provide, which will enable you to watch over my shoulder and I yours during the trading day. If you’re new to trading or experienced, whether a day trader or swing trader, this service should get you on track to help make consistent profits.

The cost for this service is not cheap but not prohibitively expensive as I tried to make it affordable to newer traders as well as experienced. Cost for a full trading day is $500.00 or for 1/2 day – $300. However,  you may be able to recover the majority of this during the trading day, depending upon market conditions and your risk tolerance.

If you’re interested, please contact me at

Comments Off on Private Coaching Now Available more...

Looking for something?

Use the form below to search the site:

Still not finding what you're looking for? Drop a comment on a post or contact us so we can take care of it!


Links That May be of Interest: - excellent articles about trading psychology and strategy has daily stock ...