Oil companies have been on an impressive run of late. Money, annoyed at yields on bonds and returns on CD’s and saving accounts has been rotating into the stock market. For the safer investors and hedge funds, dividend paying oil stocks have been a favorite. That may change soon.
The parabolic moves in stocks like Chevron Corporation (NYSE:CVX), Dominion Resources, Inc. (NYSE:D) and Occidental Petroleum Corporation (NYSE:OXY) are great examples. Both Chevron and Dominion Resources are at all time highs and threatening to shoot higher. A major pullback is looming for all three of these. Below I will list the master levels.
1. Chevron Corp. is approaching a major inflection point at $122.50. This represents a cycle high pivot on the stock before a probable significant pull back. The last cycle pivots occurred at $110 in 2011 and saw a pull back to $86. In 2012 it happened at $118 and saw a pull back to $94.00.
2. Dominion Resources has had an epic move straight up. Since early November 2012, the stock moved from $49.00 to a new all time high of $61.57. The master level here is $62.25. The pull back will likely be a 10% correction.
3. Occidental Petroleum had some poor news recently. However, in this market that matters little. The stock is surging higher and has just taken out its 2013 high today. The master level is a double top from 2012 at $92.50. This represents a highly overbought point and major inflection price.
Proprietary calculations mixed with beautiful trend line analysis give us amazing trades here. These oil stocks are ready for a smack-down.
Deere & Company (NYSE:DE) is having a fantastic surge today as the stock market approaches its all time highs. The stock is trading at $89.29, +3.80 (4.44%). Deere and Caterpillar Inc. (NYSE:CAT) have been under pressure in 2013 because of slowing growth in China. Lately, they have recovered nicely. The key to the move in the Deere stock is the great trend line that is fast approaching. To find this trend line connect the recent pivot highs on the stock. Deere’s stock price just tagged this line. This is an awesome resistance point on the stock.
1. Every central bank in the world is pumping money into the financial system. The Federal Reserve started this so-called zero interest rate policy for the too big to fail banks in December 2008. They have also started their third round of bond purchases called QE-3 (quantitative easing) in September 2012. This is where the Fed buys U.S. Treasuries and mortgage backed securities. Currently, the Federal Reserve is buying $85 billion a month of these securities with no end of the purchasing in sight. Where do they get the money for all of this? They print it. Other central banks such as the Bank of Japan, and the Bank of England and most other central banks have followed the plan by the Federal Reserve. So if the stock market falls the central banks will just print more money and put it into the financial system. One day this will likely create another massive bubble, but they will worry about that when it happens.
2. Many stocks are reporting poor earning so these equities will usually decline sharply and lead to another buying opportunity. The key here is to understand the technical support levels. This has been evident in equities such as International Business Machines Corporation (NYSE:IBM), FedEx Corporation (NYSE:FDX), Caterpillar Inc (NYSE:CAT), Intuit Inc (NASDAQ:INTU), and others. In other words, the buy the dip mentality is embedded in the institutional traders right now.
3. Short trade setups are appearing everywhere. Many stocks have fallen despite all of the central bank money printing. Stocks such as Apple Inc (NASDAQ:AAPL), EMC Corporation (NYSE:EMC), and others have declined sharply recently. If you understand the technical chart patterns you can find many short trades in the market.
4. The bond market has not rolled over yet as many so-called experts have predicted. When the bond market shows strength it is telling stock traders that trouble could be lurking. Now please understand, the central banks are buying a lot of bonds so the bond market could be somewhat distorted. Either way, if there is a major sell off in stocks money will pour into the bond market despite the low yields. This tells us that the stock market will be volatile and continue to provide countless trading opportunities in 2013.
5. The housing market and housing stocks have been very strong since October 2011. Yes, countless private equity firms are buying single family real estate and renting out the properties. Many individuals now want to rent a home instead of owning a home. You can see that this is the opposite thinking from 2006 when people would do anything to own a home. This single family home buying by the private equity firms are certainly boosting the housing market. This is obviously part of the master plan by the Federal Reserve. After all, many construction jobs have been created with all of these home purchases by the private equity groups. It is also important to note, many home owners feel better psychologically when they see their home values rise. Remember, a home is usually the largest purchase that a family will make in their life time. Stocks such as Home Depot Inc (NYSE:HD), Lowe’s Companies Inc (NYSE:LOW), Sherwin-Williams Company (NYSE:SHW), and others have benefited greatly from the uptick in the housing market. As long as the consumer is spending money this stock market can hold up for a while. Right now, this market remains a great trading environment.
The markets are trading near their all time highs and very likely will continue higher. Today, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is trading at $158.85, +0.95 (0.60%). The all time high reached a few weeks ago was $159.71. While the markets will go higher, it is important to recognize a growing bubble in equities.
Right now, the S&P 500 P/E sits at around 15. This is high historically but not outlandish. While earnings this quarter have generally beat expectations, almost all big companies like International Business Machines Corp. (NYSE:IBM) and 3M Co (NYSE:MMM) have missed on revenue. This tells us that growth is slowing but cost cutting is helping earnings per share beat expectations.
So with growth slowing, how can the market keep going higher? The Federal Reserve has manipulated the yield curve so that there is nowhere else to go for any return on your money. With interest rates stuck at obscene low levels, investors feel they have no other choice than to put money into the stock market.
Is this a good reason to invest? Absolutely not. This is how bubbles are created and this is no different. If the markets break higher we could see another thousand points or more added to the Dow Jones Industrial Average before an epic collapse is signaled. Bubbles in history last a while, getting every average person into the market before the collapse. However, the risk of collapse is lurking each day should the right catalyst hit.