Does Crude Oil Follow the Trends of the Market?

Over the longer run crude oil is now following the stock market. Watch the USD, Dow, and S&P500 and we begin to see more and more linking of supply and demand. Floyd thinks it has been weakness in the USD that had fed the recent rebound in oil prices, and that over time the heavy supplies we have will be secondary to our perceptions in the market. Others believe the recent rise in the price of oil are what actually did fuel the USD weakness. In these studies there was little correlation between the dollar between 1986 and 2000.

And natural gas is at an overload of supply.

Even OPEC, Venezuela, Nigeria and the Middle East conflicts or statements do not seem to long term effect the price of oil. I suspect that over this year oil will settle into a "range", and hit highs of $70.00 to $90.00 by the end of the year. $50.00 is a strong support line for light crude oil.

Traders should watch geopolitical events, the bottoming or rebound of the USD, and the Dow itself to correlate oil prices.

We've seen a potential bottoming of the USD and a likely rebound, so a drop in oil, but also Floyd sees strength in Gold (GLD) to bring it to potentially $1200.00 to $1300.00 by the end of the year.

We'll be trading puts and calls on GLD and DUG (shorting of oil) at various times over the next few months, as we follow the whipsaw in both commodities.

I only have what I remember

One of my statements of life is: "I only have what I remember". Another, more important, is "I want to make a memory". I find most Americans, more than any culture I have visited, to be closed minded to "new ideas", yet our country was led by new ideas. I spend much of my adult life listening to Americans talking about "liberal" vs. "conservative" ideals, with no real understanding of the difference. Most of the people I speak with are simply ill informed about real facts economically, or have a clear understanding of what our situation is. This is yet another reason "we are fucked".

Most of us expect things to go back to what they were, and they could. But, if they do, the economy is messed for a longer period of time, and the crisis enlargens.

When we are told "too big too fail" the statement is actually correct. Our global economies are now so intercorrelated that G-20 must begin to formalize, and Obama is right to request other nations to NOT stop the stimulus now.

"Too big to fail" does not mean we will be able to pay off our debt, or for that fact, that any nation will. It was necessary, Floyd believes, to stimulate the economy. What "too big to fail means" is classic Floydian thinking:

1. Our versions of money (Euro, USD) are not real, but priced by supply and demand, with false information provided to us.

2. Our concern about high unemployment shows our lack of understanding of the severity of the situation, as high unemployment will now inverse with increasing profits at existing companies. We had simply grown too fat (in all ways) and even our employers are cutting.

3. 42% of Americans believe Congressmen chosen at random from the phone book would do a better job.

4. 1 in 33 women have "sexual conversatoins, liasons, advances, from their Christian clergy.

5. The world hated us, deserved in our arrogance, and only now is opening up to our spirit of bi partisanship and trying to bridge gaps.

6. For years we actually listened to people like Cheney, some still do, and Sarah Palin actually has a chance at becoming President. These, to me, are very alarming facts....we continue to allow ourselves be influenced by FEAR.

7. A Missouri high school bans marching band T shirt for promoting Evolution.

I kid you not. This is what we are up against.

Interpreting Charts on When to Buy a Stock

Many stocks are very overvalued right now with the rise that has taken place, so we must have even more caution than normal. We must not be fearful that we are "missing" another upsurge, or "losing profits" when not trading.

This weak link is what tricks most investors into failure.

When I do "due diligence" on a stock I am looking for TWO things first: 1. Am I looking to buy a break out stock? 2. Am I looking to buy a value stock?

If looking for a breakout stock I am student of William ONeil's CAN SLIM philosophy, which is listed and detailed in our book recommendation How to Make Money in the Stock Market (third edition)

CANSLIM has much of Wyckoff work in it, as is much of Mr. O'Neil's break out thinking which is the "springboard" charting taught in our other book recommendation on Wyckoff, whom we were taught by, titled

Charting the Stock Market: The Wyckoff Method

To learn the overvaluing of the market, or how the Dow itself works, I highly recommend The Dow Theory Today by Richard Russell. The author summarizes Dow Theory beautifully and it's an excellent adjunct to the Dow projections we provide on the website each week.

Perspectives on how a stock is doing are critical. The same thing can be viewed several different ways, changing your variables.

Here's an example of one of our holdings. This is Prestige Brand Holdings, which we just bought.

1. A classic candlestick chart.

2. A Classic 3:1 Pnf Chart

3. A converted .50:1 Pnf Chart

These charts were taken at close of market on 9/25. If learning charting it would be valuable for you to do a "re-chart" of each of these three techniques. I find the .50/1 ratio PNF fine tunes a standard 3:1 Pnf chart, and see the candlestick chart as too much information, so much that reviewing it "makes me nervous for what I don't know"

We keep fucking ourselves-A premonition

We keep fucking ourselves. It’s time to revert to old tried and true Floyd the provocateur, and to open some dialogue.

This is what appears to be happening:

· The Republicans have once again used the tried and true Karl Rove technique of providing false facts, and creating fear. And half the country believes it.

· The Republicans, who had no regard for deficits for the past 8 years, and historically actually create more deficits than Democrats, are now fearful the debt we have created, to undo the financial disaster that has filled every cranny of our society, and use this debt to their advantage, preaching our inability to pay it back, and the “socialism” of it.

· The lobbyists control the 540 in Washington that control our lives, and these idiot Senators and House members appear to be literally fucking around, playing games for their “constituents” and the whole concept of what free democratic government is suddenly has nothing to do with how our nation lives, and our people are easily influenced by advertising and media.

· So then we blame the media, which is instant and never completely factual, and filled with right and left wing idiots that spew more nonsense.

· Remember, most Americans only read to the 6^th grade level. More than 37% of all Americans have not read a book in the last year. We are unschooled, and influenced by the influencers.

· My week of vacation allowed reflection on our barrage of input, and as usual,

refreshed the mind from the stress or work worry, or fatigue, or whatever, that we create.

· But again this comes back to the way it is set up now most people are fucked, and it can get better. The country was seeing with vision just a few months ago, and beginning to think of all we needed to do (The Obama Agenda), all things that should have been done, and all that were imminent.

· Our financial crisis is far from over, but it has been slowed. The stock market has rebounded well, but suspect is that the most traded stock this summer has been AIG, all traded by speculators on wild swings, on a stock on a company that no one quite knows the value of. And how much do they owe us?

· So, as we have chances to create real change, and perhaps care for more of our own people with healthcare, to stop the robber barons by forcing competition. It’s a sad lack of regulations that have created industries like the financial and healthcare sectors that appear to be collusive and usury is accepted practice…but a change came over this country this summer, brought on by fear. Fear induced by false statements, and then again a speculative market that has showed tremendous gains, so much so that one wonders what bubbles we’re creating. The Treasury Note and Bond certainly are bubbles, as we again fuel our debt by buying from China, and having them buy our debt. Same with Japan. The simple statement “buy made in America” is both hard to do, and not even the right thing to think.

· All of this tells me we are “fucked”. We don’t know what is happening before our eyes, and we are letting it happen. Something in thusly, in my “way of thinking”, in the air.

· However I feel about the world, or how Americans eat at McDonalds by choice, there are influences to the world on how the G20 are thinking, and how the 540(House/Senate) are thinking, and the propaganda in our country is as ripe as it’s ever been. Something is up, and it will affect the market.

· That’s the beginning of my thinking of how to explain this to you, but get ready for October, where upward pull could surprise us.

Light Crude is breaking Down

Oil appears to be breaking down. When we chart $WTIC Light Crude (which you should) we see a bearish ascending triangle pattern and think playing DUG Proshares Ultrashort Oil and Gas ETF as a call, is both a very high risk trade on oil going down, but one worthy.

Buy DZGKN November Call (inverse trade) DUG (Proshares Ultrashort Fund) at no higher than 1.70 per contract. Let's watch for 100%% returns, and keep our eyes open on stop loss. This will be a potentially very volatile option.

Okun's Law and Unemployment

Floydian Theory on Okun's Law-THIS IS AN IMPORTANT STOCK READ

The economist Arthur Okun first formulated the theory that says "when the economy grows, it produces jobs at a predictable rate, and if it shrinks, it sheds them at a similar regular pace.

Joshua Ramo has an excellent article in Time Magazine. Cut and paste to your browser and really study, as Mr. Ramo explains the unusual predicament we are in, in that the economy is growing, but unemployment is not shrinking.

http://www.time.com/time/business/article/0,8599,1921439,00.html

As you complete the article, and think out Okun's Rule of Thumb, we are perhaps truly in a shift within our nation, with more unemployed than ever before, and for a much longer time.

As a business consultant for many years I could visually watch the layers of management at firms that were unnecessary, and that many companies were simply not productive with their employees.

We all know this. With the Cash for Clunkers it was 4 for 5 American cars clunked in, and 4 for 5 new cars being bought Japanese.

Walmart is China, and doing well, so it appears we are not willing to stuff. Trade tariff discussions are already starting.

I believe Obama's stimulus package has held us steady so far, and that the market is now naturally producing its Fib retracement , some on good news, some on hope, but most of our rise has been

as pre-indicater of what the economy should become. The market precedes the general economy. The issue of healthcare will be resolved, in a way I think that will define really what kind of nation we are, one led by anger and fear tactics, or one that can be bi-partisan and represent all the people, without the lobbyists that lead our world.

Wall Street has been warned. Regulations are not yet in place, and many schemes are already being hatched. We have to watch for this, as many predict there are more "hidden numbers" that will become clear

as the high unemployment hits the GDP, and hits our taxes, as there will then again be more subsidies. Stimulus some believe may need a second phase.

My point in Okun's "Law" is that his extraordinary "obvious" theorem "should be" right, but some tides are turning, or we are modifying the theory.