Scots Beat Yanks in China Bank Deal

With visions of an ATM in every neighborhood in China, foreign banks and investment firms are queuing up to join the "China Club."

Moneybags Communism

The initiation fee for the "China Club" is straightforward and pure moneybags communism: invest cold hard cash in its largely insolvent state-owned banks, put your reputation on the line, reassure nervous foreign investors about upcoming IPO's, and share your risk management, corporate banking and other expertise with eager Chinese executives. The benefits of membership in the China Club are alluring but mostly maybes. Perhaps you will get some of your money back by underwriting an IPO or working in China with the bank in the areas of wealth management, credit cards or corporate banking.

But the temptation is too much too resist and they are lining up for membership. Bank of America, the German bank Allianz, Goldman Sachs, Merrill Lynch, UBS, and the Royal Bank of Scotland (RBS) have all agreed to or are in ongoing negotiations to take equity stakes in China's big four state-owned banks. There is another twist to the tale. Membership fees are not the same for everyone but are negotiated one by one and this can leave a sweet or sour taste depending on the deal that's cut.

Paying More for Uncertainty

The recent deal inked by the Royal Bank of Scotland led consortium is the best so far and beats the well publicized Bank of America deal hands down.

Bank of America purchased a 9% stake in China Construction Bank for $3 billion. The Royal Bank of Scotland (RBS) invested $1.6 billion for a 5% stake and brought along Merrill Lynch and Hong Kong tycoon Li-Ka Shing along to share the risks bringing the total investment to $3.1 billion for a combined 10% stake. The RBS group also paid less than Bank of America which paid 1.2 times stated book value. Even better than putting up less cash and getting slightly better value, the Scots were able to extract a life preserver from their Chinese partners. While details have not been released, the RBS group will get some of their money back if there are black holes in the books, if the IPO scheduled for early next year is cancelled or if the banks just don't see eye to eye.

Thank You. May I Have Another

The question is will membership fees decrease over time or get steeper? Goldman Sachs and Allianz are in talks to pay about $1 billion for a stake in China's largest state-owned bank - the Industrial and Commercial Bank of China. China favored UBS is also discussing an investment of $500 million in the Bank of China to cement its lead underwriting role in next years IPO.

This rush by foreign banks to get a piece of the China action should make shareholders pause. Just like when you join the local country club, there are unforeseen risks and expenses. Soon the monthly dues are raised and then there are the dreaded "special assessments" for new greens, a swimming pool or a new irrigation system.

Risk, Return - Maybe?

China's large state-owned banks have an enormous burden of non-performing loans made over the years to poorly performing state-owned companies. With a small minority stake, foreign banks will have very limited say about the management of their partner bank. As the old banking adage goes, if you owe the bank a little money, the bank owns you, if you owe the bank a lot of money, you own the bank. For investment banks, the payoff seems even slimmer. Investment banking and underwriting fees are notoriously slim in Asia and IPO after market appreciation will have to be substantial to enjoy a risk-adjusted return.

And don't even think of missing a payment. Last year Citigroup was chosen to underwrite a $5 billion listing for China Construction Bank after offering to purchase an equity stake. It was later dropped like a hot potato after failing to follow through.

I hope all of these banks make lots of money in China - but it may not be wise to trade billions of hard earned capital for a maybe.

By Carl Delfeld

Chile Leads the Latin Pack

Everyone's talking about China. Don't miss the opportunities in the other CHI..

Yes. Chile with an "LE" not "NA"

While the whole region is back in favor with investors, it seems appropriate to highlight Chile which is the economic star of Latin America.

Chile is about two times the size of Montana and has an incredible coastline of 2,650 miles. While only 3% of its land is arable, it has an amazing variety of climates and rich agricultural production. It gained its independence from Spain in 1810 and has 16 million citizens of which 90% are Catholic.

The Chile story is somewhat similar to Ireland before its economic takeoff. From 1978 to 1988, per capita income increased only $100 to reach $1,510.

Next, both a military government followed by democratically elected governments initiated market reforms and opened up the economy. Exports and foreign investment took off and debt levels came down. Foreign investors in Chile are treated the same as Chilean investors.

Chile's Take Off and Steady Growth

From 1991-1998 economic growth increased an average of 8% and per capita income on a purchasing power basis has grown to $10,700. Since then growth has moderated to a 4-5% range but a total Chilean public and foreign debt at 50% of GDP is very low relative to other Latin countries.

Trade is very important to Chile with exports accounting for 25% of GDP. It is rich in natural resources (copper, timber, fruit and fish) and has been busy signing free trade agreements. A Free Trade Agreement (FTA) with the US took effect in January 2004 and now 90% of Chile's exports to the US enter duty free. After a similar trade pact with South Korea last year, exports rose 50%.

Current President Ricardo Lagos Escobar is under pressure to improve economic growth rates and bring down the stubbornly high 8% unemployment rate. On the positive side, inflation and interest rates are low at 2-3%. Chile has demonstrated fiscal discipline and enjoys both a trade surplus and a budget surplus.

How to Take Advantage

There are no country- specific ETF's for Chile but there is the Chile Fund (CH) which is a closed-end fund managed by Credit Suisse Asset Management. It is up 53% over the past year, trades at a 7.7% discount to its net asset value and sports a 4.6% yield. Keep in mind that 19% of the fund is invested in just one copper company Empresas Copec S.A. and the annual fee is high at 1.80%.

Another alternative would be the iShares Latin America 40 (ILF) which invests in Mexico, Brazil, Chile and Argentina. It is up an eye opening 67% over the past twelve months with an annual fee of only 0.55%. Currently, 49% of this exchange-traded fund is invested in Brazil, 38% in Mexico, 10% in Chile and 3% in Argentina.

Interested investors might also consider the ADR for Banco Santander (SAN) which is an excellent bank and a good proxy for the overall economy. It is up 42% over the past year and up 11% so far this year. Banco Santander is one of the 30 companies in the Chartwell Global 30 Index which is an alternative to the Dow Jones Industrial Average.

By Carl Delfeld

How to Choose the Right Share Class

You'll want to opt for the no-load or institutional share class instead. If you're a no-load investor who is determined to buy a fund that's primarily broker-sold, go through a supermarket and opt for the D shares.

If you are using a broker or planner, the decision about whether to opt for the A, B, or C share class boils down to your own time horizon and, to a lesser extent, how much you're investing. If you plan to invest for the long haul--say, 10 years or more--the A shares will invariably make more sense for you than the B or C shares. That's because A shares' lower ongoing expenses will offset the higher fee you'll pay to get in. At Morningstar, we believe in long-term investing, and that's why we tend to recommend A shares over B or C shares; if you're a Morningstar.com Premium Member, you'll notice that our Analyst Reports of broker-sold funds typically apply to the A shares, too.

So should you ever use B or C shares? Possibly, if you expect to hold a given fund type for a short period of time. If you plan to own a fund for just a year or two, for example, you may want to opt for C shares, and if your time horizon is in the neighborhood of five years or fewer, B shares may be the way to go. Morningstar's Cost Analyzer tool can help you determine the correct share class given your anticipated time horizon and the amount of money you have to invest. (Cost Analyzer is available to Premium Members of Morningstar.com; for a free trial membership, click here.)

Protect Yourself: Know Your Rights and Ask Questions Many brokers and planners work hard to select the correct share class for their clients, but you should also be aware of unscrupulous practices in this area. B and C shares carry higher expenses, and part of those fees, called 12b-1 fees, go straight to the broker each year. Thus, some brokers might be inclined to recommend B or C shares even if they're not the best deal for their clients. Some fund shops--including Franklin--have stopped selling B shares altogether.

To help ensure that you get into the right share class for your needs and time horizon, it never hurts to ask your broker why he or she is recommending a certain share class of a given fund. What assumptions is he or she making about your holding period? Does he or she have a financial incentive to recommend one share class over another?

Also be sure to ask whether your total investment with a given fund family qualifies you for a discounted sales charge. These breakpoints often kick in when your total investment across the fund family reaches $25,000 or more, and they can save you substantial amounts of money. And even if you don't meet the minimum asset level yet, you may still be able to qualify for the discount if you sign a "letter of intent" that states you plan to invest enough money to qualify for the discount within a specified period of time (usually one year). Some brokerage firms have recently gotten into trouble for failing to provide these bulk discounts, so your broker should be well aware of the issue and able to tell you whether you qualify.

By Brian Dylan

The Convertible Craze Brightens The Future Of Equities

Convertibles are stealing the show with their safe investment image in today's "protective" market. They seem to be overshadowing the stocks and bonds, and this holds true for the mediocre issuers.

A convertible bond, as the name suggests, can be converted into a company's common stock. The bonds are a source of additional profit for the investors. Although investors are particular about short-term performance of stocks, they're upbeat about a long-term, fixed-income instrument that gives them profit on converting to common stock, if the stock price soars within a range of 20 to 40 percent.

Why the sudden craze for convertibles? The chief reason is the strong desire of the investors for "safe" instruments to lock up their precious life savings into. And the issuers have been smart enough to grab this lucrative opportunity. A few years back, liquid issuers-considered to be the stalwarts of the market-were ruling the roost in the convertible bond market, with the average size of a convertible issue touching $300 million to $350 million. But today, nearly nine convertibles have a whopping size of $1 billion and one has even crossed the $3 billion mark. The fall in stock prices and the frequent quivers in the credit markets have created a strong wave of demand for convertibles.

A convertible bond is issued at a strike price, 25 to 40 percent higher than the market price of the general stock issued by the company. The convertible bond has a 7-year maturity period and can be called after three years. The issuer can call the bond, if the market price exceeds the strike price. But if the strike price manages to remain high till maturity, the investors have two options: they can either get back the par value of the bond, or convert it to common stock. However, in case of a mandatory convertible, there is no choice-the bond has to be converted to common stock.

Convertible bonds are legally debt securities, which are above all equity securities in a default situation. Similar to other bonds, their value is also influenced by the existing interest rates and the credit worthiness of the issuers. However, convertibles have opened two ways for the investors to earn dollars. One way is by selling the convertible bond when its price soars in the market, and the other way is by converting the bond to common stock and selling the shares.

The best way for an individual investor to indulge in the convertible bonds business is buying a mutual fund. This is because convertibles are complex securities and, unlike common stocks, it's not easy for beginners to get all the information about them. Hence, the investors should check out certain things before buying a convertible bond. These are: the interest rate and yield of the bond, the number of years prior to maturity, the common stock price during conversion of the bond, the features of the bond that make it different from a usual bond, the negative aspects of the bond, and the benefits while converting to a common stock.

Besides this, the investors should also inquire about the company that is issuing convertibles. Any bond, either convertible or the general one, is a loan. Hence, the investors should ensure that their issuer has the capability to pay back what they owe. Therefore, going for a convertible bond demands an extensive homework on the part of the investor.

When we compare convertible bonds to convertible preferred stocks, the former are safer. There are two reasons for this: the interest on convertible bonds is paid before any stock dividends, and, if the company suffers a loss, the investors of convertible bonds have an upper hand over the investors of stocks while claiming the money.

However, it's not prudent to get carried away by the benefits of convertibles. Firstly, convertible funds happen to be costlier than domestic stock funds, as the former come packed with sales charges. Secondly, a majority of the convertibles are issued by companies involved in technology and telecommunications, which are characterized by unpredictable markets. And lastly, convertible bonds don't guarantee a risk free investment just because they are convertible.

By James Marriott

Investing Psychology Today Requires All Traders to Awaken Their Speculator Minds

Stock trading strategies are as rampant today, as they were during the Great Bull Market. Yet, can you truly master the stock market like so many investing books propose?

Consider this: When you can't even trust the financial reports of analysts, and the company bean counters that feed them with data, how can you? What's needed are robust, stock trading strategies; the type that enables you to think above the crowd, but not apart from them! The kind of strategies in touch with your speculator mind response!

Witness the Enron fiasco. It is a classic case of corporate character gone sour. The accounting firm that assigned to do the books also got paid to advise. Even the board members failed in their fiduciary responsibilities to guard and plead the cause of the stock holders. Result: The crowd got lied to and cheated!

That's what causes many to follow technical analysis whereby the fundamentals are considered reflected in the market action, and leads the investors to never have to trust anything beyond the tape itself. So, what if you developed a dynamite system that would track such reflections? Would that be sufficient?

I personally do not believe it would for one, very simple reason: There is no mastery of indeterminate arenas like markets; and they most certainly qualify as being indeterminate. At best, in my opinion, you may merely flow with them.

There is, however, a form of mastery that you can learn. It is the mastery of the self, whereby you can become a student of your own attitudes and behavior as much as a student of market behavior. Relative to conditions with potential uncertain outcomes as in the markets, this is probably the most underestimated of all trading methods.

With all due respect to your intelligence and financial background, that is a lot more difficult to achieve than you might now imagine. First, simply arousing your market senses is not a simple task. Pre-existing mindsets, supported by memories and emotions, often hinder the process. It truly takes an awakening that a new method of thinking far beyond what your formal education has groomed you to think thus far may be necessary.

Second, that awakening further requires an act of acceptance that is sufficient to instill the discipline to change. The initiating belief for all of this, in my judgment, is accepting the stark reality of cause and effect; that speculative markets are not the true cause of you making or losing money. You are! And many market psychologists teach their clients that.

After all, the markets exist merely as trading arenas with fixed rules of engagement, and neutral ones at that. They may appear at times to operate like living, breathing organisms, but they have no bias and no intimidating authority to issue you orders to personally lose or gain money.

Markets cannot even force you to trade in any particular way any more than they can coerce you to interpret their conditions. Only you can do that through your own mental framework; and therein lays the enigma that haunts traders as they attempt to garner their share of the market's riches.

Discrediting your mental framework with its emotional ties perhaps explains why outperforming any market on a consistent basis is such a difficult task, even for professional fund managers. It requires that profit-making senses become honed and kept razor sharp at all times; and that definitely requires full mental attention in league with self discipline.

After all, the nature of speculation centers on a collection of random events, and is by definition an uncertain environment at every moment. The very act of dealing with markets, especially on your own, exposes you to personal challenges not found in any other endeavor.

My own research and personal market experiences confirm this. So, I have defined at least four dominant drivers just to achieve some semblance of parity:



Personal conditioning that provides mental clarity and emotional stamina;



A process that supports goals through implementation of in-line strategies;



Technology that accesses timely and useful information;



Research that avails probabilities.

The greatest, in my opinion, is often the most neglected: Personal conditioning.

So, what is the status of your conditioning? Have you cultivated your own profit-making senses? Or has the market actually re-conditioned you to wonder and perhaps doubt your very own capabilities and market intuition?

What about the next wave of market changes? Are you truly prepared? Have you refined yourself into a dynamic, forward-thinking market edge, one that is fully capable of extracting and protecting profits from the market arena for years to come?

You see, some may interpret an edge as merely a system or a method of trading. I view it as the whole trader.

How about simply viewing yourself as an investing professional? If not, why not? After all, taking risks in any speculative arena is certainly not an amateur's game. Each of us expects to get paid. The only difference is that the average investor is on a 100% pay-for-performance basis, not a salary or commission like brokers and fund managers.

Considering that the public has been groomed over many years to attribute the term "speculation" to gambling, few have ever defined themselves as speculators. Investing, it appears, has been and is now still considered more noble and worthy of honor than speculating or trading.

For the record, the Commitment of Traders Report (CoT) already legitimizes the special position that the speculator has. Speculators, especially the large ones, are not hedgers like the large commercial traders such as those in the food industry. Neither are they small, one-lot traders like the average small investors. They range from large fund managers to large-account individuals.

While the big-money fund managers move markets like four-hundred pound gorillas, the large-account individuals, more commonly tagged as speculators, are so astute that they read those gorillas like a web page, and end up making millions over their careers.

In my mind, though, there is little difference between the words, "investor", "speculator" and "trader". Those merely ascribe handles along a continuum of time, cycles, expectations and needs; and the only real difference appears to be trading styles. Speculation is, nevertheless, still the true name of the market game; and, with every thesaurus I checked, never even associated with gambling at all.

Now, I'm sure one of your goals is to make money with as little risk as possible. In my judgment, associating your mind and learning with the ideas of the famed speculators is about the best way to establishing a path toward reaching your goal.

Regardless of your own distinction, though, the "long haul" of speculating is surely not an easy one. In all likelihood, the challenge of keeping profits through cycles of high volatility and bearish tests over time will verifiably increase for everyone, professional and novice alike.

The fact that the investment-selection process already encompasses so many combinations of value, safety and time factors is a testament that even the criteria itself will continue to morph just like the market. A daunting task for seasoned professionals, the process will intensify even more unnerving for the lesser-experienced, independent investors; that is, unless the speculator within you is awakened and cultivated.

So, that leads me now to ask the obvious: What have you done to awaken your inner speculator? Are you even aware that one exists? How about the presence of the power within the speculator mentality? Probably not, but it's not entirely your fault either; for it is clear that our educational system has seldom taught entrepreneurism, let alone any wisdom that the speculator model and its mental framework might bring.

It is still astonishing, though, considering the degree of education in today's world, that the trading public is still so susceptible to the conniving marketing ploys of the brokerage and mutual fund industries. All of us may be encouraged to lead our own paths but through the comforting arms of their professional advice and management. Our own judgments, however, are politely encouraged to relinquish to a back seat.

Caveats exist with financial outsourcing, contrary to these many sales ploys. By every rational count, we are supposed to know better and thereby in charge of our own wealth at all times. Misplacing trust there can be as financially fatal, if not more than personal misjudgments. Witness the holders of Enron stock who were lied to unto the very end.

Even following the so-called, safe, undervalued selections of the many acclaimed professionals, for example, does not guarantee a profit let alone consistency over the long run. It's even written in their fine print. Simply witness the record whereby 80-90% of fund managers seldom beat the S&P 500.

It's no wonder, then, that brokerage advice hasn't faired much better either. Touting their own analysts' picks with the fervor of snake-oil salesmen, they seldom give an actual sell direction to their clients until it's usually too late. Another case in point is e-Toys. A sell direction there was never given until its price dropped below $2 from over $70; and, by the way, was later delisted.

The general market, on the other hand, is no respecter of personal stock selections either. When it acts with bearish tendencies despite good news, all bets can especially be off. Regardless of fundamental value, the best of the best stocks can go down literally with the rest. That explains why purchasing pseudo right stocks at the wrong time can still erode capital.

So, what should you do? Should you solely trust the buy-and-hold mantra of the so-called professionals? Or should you go it alone, trusting your own judgments? If so, how would you develop a mindset and a method that avails the best of all there is to know in this arena we call "the market"?

The Message of Years of Research

It's one thing to recognize the difference between assets and liabilities. It's quite another to be astute enough to know where and when to trade them. There are factors beyond the strict asset-liability definition that is just as important and further requires your full attention.

The behavior of crowds and its effects is a case in point that confirms economics and its markets as indeterminate issues. That explains why all of us, esteemed professionals and novices alike, are still in some state of constant search for some grail that will enable us to deal with them sufficiently to make us rich.

Economics and finance, on the other hand, are also adaptive systems by nature. That explains why speculating their derivatives, the markets, is so difficult to predict. There's so much adapting and morphing going on that it appears that the only way to respond to them is to somehow become adaptive along with them. After all, the only true constant is their element of uncertainty.

The ability to recognize and adjust the self, though, just may be the key to that grail, if not the grail itself, which allows us to engage that uncertainty. Therefore,my goal here is to inspire a simple realization that a market edge is possible within you. If you address the uncertain nature of the markets, the importance of your internal character, and the awakening of your speculative perspective, your edge will be sharp.

Your own internal mental control must then be viewed as crucial to your independent success. Learning the posture of thinking which facilitates successful speculators in their quest for success is, according to my research, a required element in developing your own. With character as its ally, it is a powerful enabler to wealth being protected as well as simply being accumulated.

I also confirm that awakening your inner speculator is not a quick and easy process. It's a wrenching procedure not much different than any other life-changing event. The only difference is that this one must be totally self wrought, totally self driven and totally self actualized.

Point: The process of awakening the speculator within is between you and nobody else; and only you can get in the way. By the way, you probably will!

It may be easier for some to understand the premise of the speculative mindset than others; likewise, when it comes to practicing it. Nevertheless, egos and preset notions about markets and trading are quick to run interferences, regardless of the personal ease or difficulty. That explains how we lose winning positions.

Training books need to focus more on paradigm shifting than just a bunch of trading techniques and strategies. Without the priority of setting your mental framework to humbly accept the market' reality, your success is limited, in my opinion; and has a lesser probability of being achieved, not by the market's obstacles, but by the greatest obstacle of all: You, coerced through your own emotions.

Learning to think and self manage like a clever speculator is far more important to your market success than any other, because trading techniques and strategies alone often fade as markets morph over time.Just be aware that attaining the humble adaptability to achieve and maintain success will forever be a major challenge. After all, as humans, we always seem to get in our own way. I know I do!

You are not alone in this battle either. Even the best of the best who have ever succeeded in the markets have had their share of failures. They sweated their first trade; they battled their own internal fears and greedy impulses; and they will tell you outright that they experienced the losses to prove their early ignorance! In other words, few succeeded in the beginning; and all continue to battle themselves unto this very day.

There is hope for all of us

If the master traders learned from their mistakes to gain and maintain, then so can we!

Absolutes are difficult to define. In this case, I believe these two are the vital ones: market uncertainty and personal responsiblity. You have the responsibility and the duty to deal with the market's nature of uncertainty; otherwise, you put your wealth at even greater risk.

By developing your inner speculator into a more dynamic one, you will automatically take personal responsibility to the necessary higher level; and, considering the morphing power of every era's market, there is no time like the present to begin accepting the market's uncertain nature; that is, since you want to make money and keep it, too.

By Frank Sherosky

Waiting 20 Years Can Cost You Millions - Dont Wait Start Today

Many Young people live for Today. They really don't fully understand the power of compound interest. The Difference between investing as little as $20 a week at age 20 or waiting until age 50 can be over $3,000,000 (yes 3 Million). Don't wait start today!

Recently I was in a 7-11 and I watched as a young man Purchased $10 worth of Lottery Tickets. As he was walking away from the counter he started talking to me. He told me he just turned 21 and he was going to buy $10 worth of Lottery Tickets for every Pick six as long as he had a steady Job. In Missouri they have 2 Pick Six Drawings Weekly. I said to him Here is my card give me a call and I will show you a surefire way to become a Millionaire.

He looked at me and said sure sure. I looked back at him and Said I will meet you tomorrow across the street at the coffee shop and Coffee is on me would morning or afternoon be better. He Replied I get off work at 2pm So I can be here at 3pm. I said 3pm it is.

I went home and plugged some numbers in an Excel Spreadsheet. Remember I did promise to make this 21 Year old kid a Millionaire. I was going to do for him what no one ever did for me.

The Results are very telling. If my young friend were to invest his $20 a Week and receive a 10% Return on his investment

In 20 Years when he is 41 he will have a little over $66,000



In 30 Years when he is 51 he will have a little over $198,000



In 40 Years when he is 61 he will have a little over $550,000.



In 45 Years when he is 66 He would have a little over 920,000



In 50 Years when he is 71 He would have over $1,500,000.



If my young friend were to be able to average a 12% return the numbers are even more staggering

In 20 Years when he is 41 he will have a little over $86,000



In 30 Years when he is 51 he will have a little over $307,000



In 40 Years when he is 61 he will have a little over $1,000,000.



In 50 Years when he is 71 He would have over $3,400,000



The Above numbers are very telling. Not only do they show my young friend the power of Compound interest but the Show my Young friend the Power of Waiting. As an Example if my young friend Continues to Buy lottery Tickets for 10 Years until he 31 and then decides to take my advice and invest the $20 instead of having $1,500,000 when he is 71 at 10% he would only have $550,000. Waiting 10 Years cost him almost $1,000,000.At the 12% Return My Young Friend would loose over $2,400,000 the Difference between $3,400,00 and $1,000,000

Now if my Young Friend were to Play the Lotto for 30 Years and Wait until he is 51 to take my advice he would loose over 3,300,000 at 12% the Difference between $3,400,000 and $86,000.

By Mike Makler

Volatile Oil

The Light Crude Continuous Contract fell from $67.70 a barrel on Monday to $62.75 on Thursday, and closed at $65.79 on Friday. Consequently, oil stocks followed the sharp move in oil prices last week.

The first chart is an OIH (basket of oil stocks) daily chart, which suggests a consolidation or correction over the next few weeks. The Price-by-Volume bar (on left side of chart) indicates OIH may trade between 111 and 114 short-term. There's also resistance around 115, i.e. the 10 & 20 day MAs. There's further resistance at 117.88, which is the current Parabolic SAR sell signal (red dots). However, if oil tests $70 a barrel, then the high at 119.30 is another barrier. Oil is less than $5 a barrel below $70. So, OIH may rise and fall quickly.

OIH major support is at the (rising) 50 day MA, currently just over 108. However, if OIH closes below the 50 day MA, then next major support is around 105, i.e. the longer Price-by-Volume bar. Around 105 may be the bottom of the consolidation zone, while a correction may result somewhere in the 90s or 80s. The short-term price of oil is largely dependent on the rate of global economic growth, reflected in monthly economic data, and supply disruptions, including geopolitical events and hurricanes in the Gulf.

The second chart is an SPX (S&P 500) same period daily chart. SPX lead OIH higher and then lower recently. If OIH continues to lag SPX, then OIH will rise next week, perhaps to the Parabolic SAR sell signal, trade around the 10 & 20 day MAs, and then fall to a new recent low, e.g. 105. SPX created a bullish doji at the 50 day MA. However, a volatile trading range may continue next week, perhaps between 1,200 and 1,235.

Next week is a light economic data week: Mon: None, Tue: Existing Home Sales, Wed: Durable Goods Orders and New Home Sales, Thu: Unemployment Claims, and Fri: Revised Michigan Consumer Sentiment. The weekly oil inventory report is Wed at 10:30 AM ET. There are several other excellent trading opportunities next week, where large gains can be made quickly. "Chance favors the prepared mind"-Louis Pasteur.


By Arthur Albert Eckart