Every Tuesday (the day I write for The Tycoon Report),before the article, I will list one or two "test your knowledge" technical analysis questions and after the article I'll list the answers. I hope you find this fun and I hope it helps you make more trading profits. Sometimes small bites can have a huge impact.
Technical Analysis Question of the Week:
In the Point and Figure 3-box reversal chart, trend lines are drawn at a 45-degree angle through the diagonal corners of the boxes. As you can see below (blue diagonal) the up trend line (bullish support line) starts at the box below the last down column before the up trend begins. The square nature of P&F charts make the 45-degree angle possible.
Once the up trend line (bullish support) is violated, a down trend line (bearish resistance line) is drawn (red line).
At what point does this occur? Which box had to be filled before the up trend line was officially violated, thus allowing us to draw the down trend line (red diagonal)?
a) The 36 box?
b) The 35 box?
c) The 34 box?
d) The 33 box?
The government, once again, risks spooking the markets and defeating the purpose of their "calming" words. They are talking about tapping the Strategic Petroleum Reserves (SPR), a measure that was last used in 2005 following Hurricane Katrina.
The Strategic Petroleum Reserve (SPR) is the "first line of defense against an interruption in petroleum supplies. It is an emergency supply of crude oil stored in huge underground salt caverns along the coastline of the Gulf of Mexico."
After the second largest 2-week rise in gas prices ever (from $3.17/g to $3.50/g), White House Chief of Staff William Daley said:
"We are looking at the options. The issue of the reserves is one we are considering.
"It is something that only is done, has been done, on very rare occasions. There's a bunch of factors that have to be looked at and it is just not the price.
"All matters have to be on the table when you go through -- when you see the difficulty coming out of this economic crisis we're in and the fragility of it."
Right!
Today's situation is not like the energy crises of the 1970s and 1980s (not yet). Tapping the SPR should be reserved (pun intended) for sudden interruptions in oil supplies like the 1973 Arab oil embargo, the Iranian revolution of 1979, or the war between Iran and Iraq in 1980.
What's interesting to me is not what they are saying, but what they are not saying. Read the Chief of Staff's comments carefully.
Tycoon Report readers know what higher commodity prices mean for the future. They mean higher future interest rates (to combat inflation, like during the late 1970s/ early 1980s). That means the U.S. will have to pay a significantly higher amount of interest on the money it borrows -- rates the U.S. just can't afford to pay. (It would also mean finance companies will get hit, because the money they are paid back won't be worth the money they originally lent.)
So the government is terrified of higher commodity prices, but they are more terrified about how to fight it. They can't let rates spike, or they may have to foreclose on their house when it's time to refinance the debt!
But the Fed has to keep printing money and lending it, at low rates, to the U.S. government, mainly to keep rates low. But by printing more money they are causing commodities to move higher! And how did we say the government will fight higher commodity prices? I feel like I should be walking around in a circle while I type this.
Why is Congress pressuring the Obama administration to look to the emergency oil supplies as a way to ease fears over fast-rising U.S. gasoline prices?
Is anyone else talking about tapping reserves?
Sources said IEA members South Korea and Japan, among the world's top 5 crude oil importers, have no immediate plans to tap into strategic reserves. An official with Japan's Trade Ministry (which manages Japan's strategic oil reserves) said: "There is no concern at all over supply shortages."
Even U.S. Energy Secretary Steven Chu said on Wednesday: "We're hoping market forces will take care of this," and has ruled out tapping the U.S.