Chesapeake Energy Plunges: May 7 – May 11

Monday’s trading action was blatantly obvious a savior was buying stock. There were not pullbacks but there should have been due to a normal residual fear stemming from the worries in Europe. The other world markets all suffered erosion while the US market appeared to be Teflon. The jury is still out regarding this market’s true personality but I looked toward the rest of the week to provide some clarity. I watched the bond action intently at the opening Sunday night. I wanted to see the reaction the France election would inject into this market. The bonds response was almost a panic state initially and then held. However, as the opening of the European markets approached, the bonds seemed to be energized. I had a fantastic trading day subsequent to my largest single trade profit thus far in 2012. The action on Tuesday showed the market seemed to be Dr. Jekyll and Mr. Hyde. The net change movements throughout the last several weeks have netted very little progression or regression. It is definitely in a tug of war, which will be eventually resolved. I want to point out some historical data regarding the movement of bond market over the last six weeks. Successive higher movements up were made each week resulting in almost 10 full points. Generally, increments of consecutive up moves of this caliber have a sharp correction at least for a short period of time. The early morning advisory trade recommendation was filled on both the entry and exit literally in minutes, which generally is indicative of a high-octane market. Bonds probed to challenge and slightly exceed the highs made in December f 2011 during intraday trading on Wednesday.

It is disconcerting to the bulls that the high plus NYSE tick was noticeably absent Thursday. It looks more and more like a box. If it acts like a box and looks like a box, than it probably is a box. The outside extremes of the box cover from 1349 to 1365 approximately. This fits the description of a box by the range size as 20 to 30 S&P points from floor to ceiling are required. Secondly, it has journeyed to the floor, to the ceiling, numerous times with containment. Therefore the table is set for the box formation. A close above 1365 would be the bulls delight. The 30 Yr. Bond Auction results provided the backdrop of a substantial rally to save the prices. I am skeptical of this since the bonds were reeling prior to the news. If the bonds were to close below 144, the short-term uptrend would be broken.

A couple big time stocks took a beating this week, including Chesapeake Energy, whose chairman recently stepped down and JP Morgan Chase. Chesapeake’s stock dropped 14%, while other energy stocks in the S&P 500 fell about 1.4%.

The box is becoming ever more clear. It faltered as the move above 1360 and is a veracious body builder as it approaches 1340. The end result is that a prison of containment has been established. It appears that Benny Boy needs to go the vault for a few more billion to be able to climb the mountain and reach the summit. The bonds are logging an all time high close for the contract, if they do not falter at the end of the day. There was no volatility with a very narrow range on the final trading day of the week. A very powerful computer program is set-up to hold these prices. The overall environment remains overbought. Next week should bring more volatility to our markets.