It was good old-fashioned fear that consumed trading on Friday. Gold soared to over $1000.00 an ounce in anticipation of more bad news. The market was convinced that another shoe was about to drop and that drop they thought could be the failure of Citibank. Citigroup shares fell below $2 a share, which was an 18-year low causing angst among the investors in the market place. The last time gold rallied to these highs was an anticipatory move ahead of the Bear Stearns collapse and now this rally might have been about Citigroup.
What the market feared more was what the government might do about it. Senator Chris Dodd caused more fear when he suggested that U.S. banks might be nationalized for a short period. The White House later tried to clean up the mess that Dodd made and it seemed to calm the markets down quite a bit.
Yet today what is taking the heat off is a weekend Dow Jones Wall Street Journal piece by David Enrich and Monica Langley that said, "Citigroup is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation." The Journal says that, "While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said. Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks."
The market seems to like the plan at least at first glance and some of the fear premium is coming out of gold and bonds. The lack of fear of imminent financial disaster is giving oil a bit of support. We can see the wave of fear reduction and the fact that delivery is past for the last contract might give the market some boost. We still feel that oil is headed into the twenties but we may see a bounce before we resume the downward slide. Use strength to establish short strategies.
Where is the best place to put a Strategic Products Reserve? I do not know where the best place might be but it may end up where the political power base is strongest. According to sources, Democrats are pushing for the location of a new strategic products reserve to be located in either California or Massachusetts. Critics say it's just political payback to Democrats in those states and that it would be cheaper to put the Strategic Products Reserve closer to Louisiana where the bulk of the Strategic Petroleum Reserve is now. We are in the early stages of wrangling but a bill is in the process of being formed. Stay tuned!
If oil is going to turn around, we have to see Asian demand bounce back. Bloomberg News is reporting that Asian refiners increased gasoil shipments to Europe to the highest in four months, taking advantage of higher prices in the West as slowing economies in China and Indonesia cut demand for the fuel. Refiners in Asia have sold 160,000 barrels a day of diesel fuel to Europe this month, the second highest since 200,000 barrels a day were exported in October, said JBC Energy GmbH in a weekly report. The increase in these so-called arbitrage cargoes came as the difference between prices in the two areas climbed to $5.60 a barrel in favor of Europe, said JBC.
Are you finally ready to trade? If you are just call me at 800-935-6487 or email me at pflynn@alaron.com. Do not forget to see me each day on the Fox Business Network!
Sell April crude oil at 4160 - stop 4330.
We're short March heating oil from approximately 14000 - lower stop to 13600!
Sell April RBOB at 12700 - stop 13300.
Sell April natural gas at 500 - stop 540.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com.
