XJO - Does anyone trade it?

[Mofra]

Short here - first lower high & lower low confirmed on the Jo EOD (and the RSI daily), heading into September which is traditionally a "less positive" month and it's not often the XJO stages a quick recovery after ending a day 50 pts + down.

 

[DTM]

Short here - first lower high & lower low confirmed on the Jo EOD (and the RSI daily), heading into September which is traditionally a "less positive" month and it's not often the XJO stages a quick recovery after ending a day 50 pts + down.

Hmm...., I don't know. I was looking to go long at the end of the day but will wait until tomorrow morning to confirm this. Looking at CBA in paticular.

 

[mit]

Hurricane downgraded and the DOW finished up and oil back to $66. I assume that all things being equal we should have an up day today. Given that the 50 point drop in the XJO was probably pricing in an expected 100+ drop in the DOW and the DOW in fact rose by 60 points you would expect a strong move.

Today's close will probably give us a strong lead on the future of the market, better than yesterday's knee-jerk reaction to news.

MIT

 

[DTM]

XJO up 40 points in first 15 minutes. I should have followed my instincts yesterday. I was also looking at BHP also and its up 45 cents.

 

[markrmau]

I'm not convinced that the strom damage to gulf oil production was as small as crude futures seems to be pricing in at the moment.

Just because it hit land as Cat. 3, and damage to New Orleans was not nearly as big as feared, it was a much bigger storm over water where the oil platforms are. I have heard that there are 2 platforms adrift, and who knows what damage has been caused to underwater infrastructure.

Then again, the market is always right!

 

[Rockon2]

Spot On Mit...

 

[phoenixrising]

Steve Forbes of the CEO Forbes Convention at Syd Opera House says oil at $35 to $40 by this time next year.

Wonder what he knows that we don't?

 

[wayneL]

Steve Forbes of the CEO Forbes Convention at Syd Opera House says oil at $35 to $40 by this time next year.

Wonder what he knows that we don't?

Well sentiment is so universally opposite to this view, he could be dead right.

 

[Milk Man]

Maybe he thinks the bubble is about to burst on the US economy. No americans wasting money on credit= less production, transporting goods, SUV's...

Low demand = low prices. He might think the end is nigh but I don't think anyone really knows a timeframe except Greenspan & Co.

 

[tech/a]

Well sentiment is so universally opposite to this view, he could be dead right.

I think that Opec countries are very concerned at Oil prices.
Ponder this.
Consumers are already demanding alternative fuel sources and Multiple Millions are being spent.There are already some in place.

When--NOT IF-- a few become viable--the wealth of these countries will go from Riches to rags--what else have they to offer??

So it is in their interests to have fossil fuel as a viable alternative (Which is what it will become rather than the principal fuel source--environmental factors aside!).


Its like 20% interest rates-- theyve been and gone---and may again but all will return to a mean.

 

[mit]

Well sentiment is so universally opposite to this view, he could be dead right.

I believe he is putting forward the view that in the short term there is enough supply to meet demand and the price is being held up by speculative pressure rather than by economics.

I agree with him, however, I think that Peak Oil is real and if it drops it will only be temporary until it starts rising because we are running out of the stuff.

It might be better if the high price is maintained even though it is hurting us all as it will force us to look for and use alternatives before we run out.

MIT

 

[rembrandt]

Support held at 4400 and next test psychological 4500 resistance level.

Cheers ...

 

[Smurf1976]

Steve Forbes of the CEO Forbes Convention at Syd Opera House says oil at $35 to $40 by this time next year.

Wonder what he knows that we don't?

The maximum supply can not realistically surprise to the upside in a big way in economists' speak since supply is a function of: existing production less natural production decline plus new development coming online plus enhanced output of existing operating fields less production losses due to breakdowns, natural disasters, wars, quota limits etc.

Alternatively it's A - B + C + D - E = production a year from now.

The existing production is reasonably known. And the decline rates of existing fields are known pretty well too. New development and enhanced production projects not already underway is basically too late to affect production in 12 months time so the score is known there too. That leaves production losses due to breakdowns, natural disasters, wars, quota limits etc. as the only significant unknown over the short term (and 12 months is most certainly short term in this oil supply forecasting game).

There are various models of world oil production based on three fundamental approaches. These are:

(A) Resources assuming unconstrained development apart from Antarctica being off limits (assumes unlimited foreign investment in OPEC countries etc.).

(B) Actual planned production from operating and planned fields with or without assumed development of known and probable reserves over the longer term.

(C) Demand forecast which assumes that supply will rise to meet demand as a general economic principle and that sustained price increases (in anything) do not occur in practice.

I use method B in my own model since it suits my purposes for doing forecasts. That said I acknowledge the usefulness of method A. Method C has about as much credibility as a political promise during an election campaign IMO (remember that bull markets and bear markets in anything (including stocks) are impossible according to this model and that there's no such thing as under or over valuation in markets)...

So, what does Smurf's model say? In short production up just on 2% over the next 12 months globally. But this was before the storm in the Gulf of Mexico so it might be somewhat optimistic now. Various other models show pretty similar results.

(For those interested, the major production increases are deepwater fields in Angola and Brazil, heavy oil in Canada and NGL's (natural gas liquids) globally excluding North America. Smaller production increases are expected in some other locations but the majority of existing producers are expected to decline naturally over the period.)

With the probability that US refinery production is affected for some time yet due to the storm, the crude supply globally exceeds refinery capacity. An excess of crude oil no matter what the final products demand is seems likely. So it stands to reason that crude oil prices ought to fall whilst refined product prices could go the other way (unless final demand stabilises or falls).

The North American gas situation needs watching very closely since that could potentially add very substantial oil demand (fuel oil and mid distillates) via fuel switching if Gulf of Mexico production is severely affected for much longer. I suspect that many "experts" are assuming a best case here (they could be right but there's no firm basis for the assumption at this stage).

Starting to look interesting...

 

[rembrandt]

Failure at the double top at 4500 (resistance R2) was expected and triggered the SHORT entry coupled with the negative lead from US.

Cheers ...

 

[DTM]

Failure at the double top at 4500 (resistance R2) was expected and triggered the SHORT entry coupled with the negative lead from US.

Cheers ...

And with no lead from the US market, the XJO is moving up in line with a bull market although it won't get to 4500. I think that it will drop tomorrow because I think the US market is heading for a drop.

 

[rembrandt]

Hi DTM,

You could well be right.

Every trading system needs to be thought of as a 'continuum' of LONG/SHORT positions rather than being able to project with deadly accuracy at any given point in time ... with PROBABILITY in our favour we can stay in profit more often than not.

Currently, we see consolidation/distribution phase and price ranging between resistance(R2) at 4500 and support(S2) at 4400 and this will need to be played out ... at the expense of some 'churning' till the next trend develops.

Cheers ...

 

[RichKid]

Looks like it's taking aim at the new highs again, let's see if it can follow through. This market keeps getting stronger just as you think it has run out of puff. Wonder if that means anything? Can we even remember the doom and gloom after the last correction? Seems years ago. So technically the xjo is getting ready to hit blue sky.

 

[dutchie]

Q1.
Does anyone know how much the XJO fell in the crash of Oct 1987?

Q2.
The quotes for XJO options - each point is worth $10?
so a quote for 27 would require a payment of $270?

Q3.
If a call option can be exercised ITM then it is worth current XJO value minus the strike price times $10?

Q4.
XJO options are European style - is there another way to tade it so you can exercise when you want?

Thanks in advance

 

[rembrandt]

Another nice LONG run-up with the Market profit-taking Friday arvo ... sitting on our SHORT stop but not technically triggered although may do come Monday ... the churning at the Fib(161.8%) 4475 was expected and a reminder that our 'black-box' system can only trade the Market as it occurs.

Dutchie ... the XJO didn't exist in Oct 1987 and the XAO dropped over the month from a high of 2253 to a low of 1295 or a drop of 42% over four weeks.

Index Options such as XJO are quoted in points x $10/point. Quoted prices are determined using BSOPM modeling.

The 4700 Dec05 Call (XJORR) was quoted Friday at 79 points x $10 = $790 per contract.

Index Options are European style which means Exercise (cash settlement only) can only occur at Expiry. If you held an (bought) Index Option Contract that say moved 'in-the-money' and you wanted to realise your profit, you would not wait until Expiry (losing the residual time-premium) to Exercise but would simply sell your Contract.

Cheers ...

 

[dutchie]

Thanks for the info, Rembrandt

42% ouch!! - Quite a fall.