Good morning. The last publication of the Morning Energy Report was on December 19th discussing the market action of December 18th so 10 calendar days have passed and 5 trading sessions. During this time we’ve had a heck of a holiday rally with the Dow climbing 699 points, 4%, the S&P 500 climbing 76 points, 3.8% and the Nasdaq jumping 163 points, 3.5%. On Friday the Dow closed at 18,053, its 38th record close of the year. The S&P ended at 2,088, its 52nd record close and the Nasdaq finished at 4,807. The Dow had the best 5 day run before Christmas since 1991. Historically, December boasts the best long-term average stock market performance of all the calendar months with U.S stocks having made a full recovery from the decline in the first half of December when global markets were roiled by the months long slide in oil prices. Now granted, trading volume was very thin last Friday and Wednesday and the market was closed for Christmas but it is what it is and I’ll take every point of it.

Driving markets higher are basically three things. 1) the U.S economy continues to show strength. On December 24th the U.S. Bureau of Economic Analysis reported GDP in Q3 increased at an annualized rate of a whopping 5.0% up from an earlier estimate of 3.9% and Q2’s GDP of 4.6%. This is the best growth rate since Q3 2003 when the economy was sizzling hot (actually too hot!) growing at 6.9%. 2) Continued economic stimulus. It is widely expected, and the signals are impossible to miss, the ECB will buy some sort of assets to stimulate the eurozone which has been bordering on falling back into recession. And 3) the stabilization of oil prices. As mentioned previously, in early December investors were bailing out of energy and energy related stocks as fast as possible which hammered the major equity indexes. However, now that oil prices have stabilized the selling has subsided and investors are viewing the lower oil prices as a QE, and a QE for Main Street, not just Wall Street.

This morning I’m seeing some light profit taking with Dow futures down 48 points. The next couple of days may get kind of weird because investors will be squaring their books up ahead of the new year with some buying and selling based upon window dressing and tax consequences. The S&P is up for 8 consecutive sessions and some correction, some consolidation, is overdue. But the trend has been from the lower left of the chart to the upper right and as “Old Turkey” said to Jessie Livermore in Reminiscences of a Stock Operator, “After all, this is a bull market.” (This is a great book and must read for anyone interested in the stock market. Witten by Edwin Lefevre in 1923, it has been described as a “classic” by the Wall Street Journal, ranked #15 on ‘Fortune’s 75 The Smartest Books We Know,’ and Alan Greenspan said it is “ a font of investing wisdom.”

On December 18th WTI closed at $56.47 and Brent settled at $61.18. On Friday WTI closed at $54.73 and Brent at $59.45, down $1.74, 3%, and down $1.73, 2.8%, respectively. Both oils closed at their 2nd lowest settlements of the year. So while both oils are lower and close to yearly lows, in the broader view, they have somewhat stabilized when compared to the pummeling they’ve taken over the last 6 months. Oil is getting a minor bid this morning, up 72¢, from events in Libya where rebels have attacked oil facilities there reducing production. That being said, the term structures continue to wane bearishly. The average WTI-Brent front month spread a month ago was $2.40 contango. This morning it is out to $7.28 contango. Crude clearly continues to bid for storage. And let’s not forget what Saudi Oil Mister Mr. Ali al-Naimi said last week when interviewed by the Financial Times “It is not in the interest of OPEC producers to cut their production whatever the price is. Whether it goes down to $20, $40, or $60. It is irrelevant.” Statements like this are not feed for a the bulls.

A week ago Thursday natural gas closed at $3.702. It has gotten destroyed since then closing at $3.007 on Friday. This is a huge decline of 69.5¢, 18.8%, over the last 5 trading sessions. Friday’s settlement prices was the lowest closing prices in over two years with the last time prices settled this low being September 25, 2012 and that was with the warmest winter in 30 years in our rear view mirror. Natty prices have fallen a staggering 26% this December. It’s all about Mother Nature and natural gas production. The latter is setting record highs and the former has been benign. This December the U.S. has experienced the effects of an El Nino with warmer than normal weather in the Midwest and much needed rain in California. Chicago has had one of the least snowiest December’s in over a hundred years!

Courtesy of MDA Information Systems LLC

Today’s weather forecast shows some pretty darn cold weather in the upper U.S. plains but most of it, so far, is staying to the west of the major natural gas consuming regions of the U.S. although Chicago will indeed see some below normal temperatures for the next couple of weeks. Today the January Nymex natural gas futures contract closes setting the price of next month’s electricity and natural gas supplies for those of you that haven’t already hedged. This morning we’re getting some short covering with natty up 4.9¢. Have a good day.