More Signs of the Tiring Bull - A Look at Valero (VLO)

By Dr. Duru written for One-Twenty

May 30, 2006

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Two weeks ago, I cited compelling evidence pointing to a tiring of the current bull market. As usual, TraderMike kept up the case and provided you blow by blow account of the market's slip and unconvincing rally.

No need for me to provide a review of the carnage that we are all too familiar with now. I also wish I could stick my neck out bravely and declare that despair is running amuck, but I cannot. For example, the Fed continues to try to jawbone the market into submission. The president of the Federal Reserve Bank of Chicago, Michael Moskow, issued hawkish comments claiming that inflation is running too high ( kidding!). Now, you would expect the market to tank but leave intact the common inflation hedges of the metals, oil, etc... Instead, even gold gave into the selling pressure into the close. What this tells us is that the market is not really afraid of inflation (as I have intimated in a roundabout way in earlier missives). Note that when we got the "first" big inflation scare earlier this month, folks were all too happy to let go of their inflation hedges along with the rest of the dirty bathwater. Instead, folks are now fearing the Fed is going to truly go buck wild and stamp out the remaining flares of speculation and easy money in the financial system by continuing to jack up rates far beyond anyone's worst fears. Folks fear that the Fed fears inflation much more than they do. It of course remains to be seen whether the Fed is afraid enough of inflation to kill the economy, and brave enough to think that they can engineer yet another "soft landing," but we have gotten plenty of proof in the recent past that the Fed stands ready to smoke us away. I have written a bit about this before in "The Fed As Foe" and "The Fed Nudges Resources Downward" among other places.

So, instead of a review of ALL the bloodletting everywhere, I thought I would share a chart analysis I did on Valero (VLO) for a friend while waiting for some late-night analyses for my real job to finish. Mind you. I remain quite bullish on the fundamentals on VLO - potential economc slowdown and/or recession notwithstanding. I even hold a small position (see disclaimer here), but I cannot argue with the detereorating technicals for long. VLO is just one signal amongst many that the bull market is reaching situation critical. If some positive news flow or some sort of capitaluation does not come in the near future, we are looking at true bear market action again.

In the meantime, be careful out there...and preserve that capital!

Valero short-term

Valero short-term

DrDuru, 2006