Schizophrenic Energy

  • January 8, 2001
  • Marc Dupee

A barrage of bullish news failed to leave oil and heating oil markets in the
plus column, even as February natural gas and unleaded gasoline rallied.
Heating fuels went in markedly different directions with heating oil declining
4% and natural gas rising 4%. 

February crude
(
CLG1 |
Quote |
Chart |
News |
PowerRating) and
heating oil
(
HOG1 |
Quote |
Chart |
News |
PowerRating) failed to rally despite comments from OPEC officials
that they will likely increase the amount of oil they’ll take off
the market by a more-than-expected 1.7 to 2.0 million barrels per day.
Kuwait oil minister Sheikh Saud Nasser al-Sabah also chimed in on this regard
saying  “OPEC would cut its oil
production by at least 1.5 million barrels a day.” Such comments before
next week’s OPEC meeting to determine quotas have been bullish up until now and
the subdued response supports the argument for lower prices. Heating oil closed
on its lows just above a 20-day low and sets up a Turtle Soup Plus One buy
signal for tomorrow. 

 

Unleaded gasoline
(
HUG1 |
Quote |
Chart |
News |
PowerRating) rallied against the grain on word that a refinery
had been shut down in Venezuela, but gave back nearly all of its gains to close
near its lap-up opening level in a sigh of weakness. Nonetheless, this market
has rallied for seven consecutive days and made good on an early momentum
signal, the

New 10-Day Highs List. 

Natural gas
(
NGG1 |
Quote |
Chart |
News |
PowerRating) closed just shy of an
all-time high, on the view that the cold
that has descended upon major consuming regions of the US will linger longer
than thought and that California will continue to experience high demand to fuel
power plants stretched to meet high demand in a tight electricity market.
However, note in our Futures
Pre-Opening Outlook that a building number of small speculative positions
could lead to a long covering plunge. 

Two good ways to take
advantage of futures when they go into a momentum impulse phase (as demonstrated
by their standing on the New 10-Day High List or Momentum-5 List) is to either
trade the Off
The Blocks method or the 1090
Open. 

Stock index futures poised powerful rallies in the last hour.
Nasdaq 100 futures
(
NDH1 |
Quote |
Chart |
News |
PowerRating) declined through the reduced-level trading curb
(down 65.00 points) and then drifted another 50.00 lower, finding support at the
2170 handle. From there, NDH rallied an impressive 147 points to end up on top
for the day with a gain of 31.50 to 2325.00. 

The action in the December S&P futures 
(
SPH1 |
Quote |
Chart |
News |
PowerRating) was similar for a
5.00 positive finish to 1309.50. Dow futures
(
DJH1 |
Quote |
Chart |
News |
PowerRating) closed up 5.0 at
10,715.0.

Short-term interest rate futures exploded while the
longer end of the yield curve remained subdued. Indeed
T-bonds
(
USH1 |
Quote |
Chart |
News |
PowerRating) closed flat and
10-year notes
(
TYH1 |
Quote |
Chart |
News |
PowerRating) closed up 8 /32 at 106 12/32 while March 2-years
(
TUH1 |
Quote |
Chart |
News |
PowerRating) set new highs for a sixth consecutive day. This action reflects the
perception that the Fed will move swiftly in the near term to lower interest
rates. 

The best predictor of short-term
interest rates, the federal funds futures contract traded on the Chicago Board
of Trade, had the February contract
(
FFG1 |
Quote |
Chart |
News |
PowerRating) close on its high of the session
at 94.520. This implies that the market is pricing in all of a 50-basis-point
cut and has a 32% chance of a 75-basis-point cut. (See
Fleckenstein’s article to learn how to use this valuable predictor yourself
and also see this week’s Trade of the Week featuring Tony Crescenzi on our BeginningTrader.com
site). The February contract is pricing in slightly more than a 100% chance of a
50-basis-point cut at the FOMC meeting.

Soymeal (SMH1),
now an Implosion-5
market, found support at its 20-day low in a Turtle Soup Pattern. The Turtle
Soup is a reversal pattern that occurs on the same day rather than on the
following day (as in the “Plus One”) and is among many patterns and
trading techniques identified in Larry Connors’ and Linda Raschke’s Street
Smarts. Meal closed .1 higher at 183.3.

In the softs, March sugar
(
SBH1 |
Quote |
Chart |
News |
PowerRating) closed on its high
of the session, making good on its
New 10-Day Highs “early momentum” signal for a gain of .20 to
10.47. Sugar has a statistical tendency to rally off its opening bid as
indicated in my 1090
Open trading strategy.