ZOOM, ZM

ZM

Zoom has done very well despite the virus and anyone owning it should be congratulated. But there is a time to buy and a time to sell. These actions require qualities that are seldom found in one person and require a great deal of flexibility of mind, something I certainly do not have enough of.

Anyway Zoom seems to have completed a 5-wave sequence, roughly from $60 to $180. Since this is a new stock we have no way of telling whether this wave is a third wave – to be followed by a 5th to complete the initial 5 waves- or already a 5th wave. In the former case, as no overlap between waves 5 and 1 is allowed, the stock can only drop to about $110 to use round numbers and the process could take about 4 months. In the latter case the stock could drop all the way to just above zero. Neither of these possibilities are very attractive.

Royal Dutch (RDS.B) and Crude.

RDS.B

crude oil historic

The bottom chart of WTI crude is from Trading Economics. It has a rather low resolution and consequently the highs and lows are not correct. Furthermore the whole chart is stretched a little bit in order to harmonize the time axis with the Bigchart  of Royal Dutch above it. What stands out immediately despite a reasonable level of correlation between the stock and the “stuff”, is that the stock has two peaks, the second one being the highest by a very slight fraction of a dollar whereas the oil peaks just once (at $144) and does not even get close the second time. Partly this may be due to the fact that commodities typically extend their 5th waves, not their 3d as is more normal for stocks. Also the 2009 stock crash was the result of a loss of integrity within the financial system itself which seemed to have been quickly remedied by the TARP programme. Whatever the differences in the dynamics of the two charts the end result is roughly the same.

It appears that both the stuff and the stock may have hit bottom. On oil the e-wave within the multi-year triangle has a low around $10. That LEVEL was reached on the JUNE futures contract the other day and then some.  $10 is not a sustainable level for oil. At that level 3/4 of US production would be uneconomical and all of the offshore activities and this is not likely to happen. Ergo Royal Dutch may have seen its lows already. That does not mean that it will trade back to the recent low of $19 but it might be worth looking at the buy side if the stocks trades into the gap at <$30. Keep in mind that the RDS.B chart is of the ADR, so there are 2 shares in each ADR. The yield is >11%

By the way, we had RDS.B as a buy with a minimum target of $56 5 years ago asper the analysis below;

rds.b 2015

Futures, as in Oil CL

futures

Futures are not always well understood and the idea that oil traded at a negative price is INCORRECT, the futures did.

Typically futures are traded either as hedges to cover a physical position, or as speculation in order to reap a gain. In both cases the physical oil is not relevant as the hedger has no interest to actually sell the oil and the speculator has no desire whatsoever to either receive or deliver the stuff.  Essentially the futures are created by a trade and extinguished by a trade. Each trade must have a counterparty as you cannot sell or buy without somebody else doing the opposite, even if the “house” always takes the other side for practical purposes.

Oil futures go out 10 years plus 2 months so there are more than 120 of them at any time. Virtually all the interest is in the front months, now June, July etc. All the action is concentrated there and consequently the open interest, that is the number of open contracts will initially grow and then shrink as the last day for the month (not calendar) approaches sort of like a balloon that you blow up and then let the air out. If all goes well all contracts will be offset before the final hour and the players move on. Some futures are cash settled but not oil futures, they can be delivered and must be delivered if not offset earlier, partly in order to keep a connection with the real world. This is when the theater goers all race to the exit at the same time because their counterparties refuse to play, at least not just yet.  In the end of the day they all find each other but in those last hours very strange things can happen.

Anyway oil did not trade at –$40, the May futures contract did and this happened because the market in futures was cornered. Supposedly there was this lack of storage space but if that was true how come there was enough space the next day?