Sunday, January 25, 2009

Revisiting Old Charts

Over the past couple of weeks I've posted up a few charts with some vague intention/goal of updating them now and then.

One of these was the SPX bottom finding chart. When I first posted it up on the 6th, it was somewhat concerning because of the implied risk for a reversal even though the indicator itself wasn't as reliable at finding tops as confirming bottoms. Here's an update of that chart to the right. On the plus side, the market didn't exactly leap upwards since then. On the 6th, SPX opened at 931 and Friday it closed at 831. I guess that's actually not too bad all things considered. This chart still confuses me a little bit when it's viewed over the span from Q1/2007 until now. Strangely, the spikes in risk for a bear reversal on SPX keep getting higher and the bottom spikes continue to be more shallow, forming a channel of sorts. Why speculators should be getting progressively more risk-a-philic puzzles me. Perhaps everyone is just getting more comfortable with the new market realities. The next sign-post I'll look for on this one will be around -0.50 and at that time it will be interesting to see how other SPX analysis is doing. This is the height of earnings season and so anything can happen.

The next thing I've talked about a little more recently is oil and the contango spread. This definitely deserves an updated chart since the spread has collapsed and has been cut roughly in half. Again, chart to the right. The last time I talked about it, the 1-year spread in NYMEX pricing was pushing towards $25/bbl. This has subsequently collapsed to just under $12/bbl and the 6-month has fallen from around $18.50 to just over $7/bbl.

To add a bit more detail, it turns out the spike in the spread was due far more to the plunge in the front-month contract (February until Jan. 20 assignment, March since) than a price run-up in the farther months. You can see this in the next chart that shows the front month price and 1 year out. Again, it should be noted that there was a substantial surge in open-interest in the March NYMEX contracts. My guess du jour is that there were a lot of people scrambling to roll their contracts out of February because of the situation in Cushing. At some point, I expect those contracts will be liquidated but we'll have to wait and see when/if that happens.