Equities and the Economy

Good morning. Yesterday we had a second consecutive great day on Wall Street with all the three major indexes closing materially higher. The Dow rose 369 points, 2.27%, ending at 16,654, the S&P 500 added 47 points, 2.4%, to 1,988 and the Nasdaq closed up 115, 2.5%, at 4,812. Global equity markets surged as well with China’s Shanghai gaining 5.34% but this comes after the index lost a stunning 25% of its value in a week! Fundamental news is once again being looked at by investors for making decisions and the news was good yesterday. The Commerce Department released its revised Q2 GDP (this number gets published at least 3 times!) showing the economy grew 3.7% for the period which was not only an improvement from the initial estimate of 2.3% but blew out forecasts of 3.2%. It appears that consumers spent more and businesses invested more than previously estimated.

I’m going to move right along because we’ve now had a nice, welcomed bounce from a panic driven dramatically oversold market. This bounce has taken us right into the area I mentioned yesterday which is the 1987 to 2016 range basis the S&P 500. I know this and many, many other traders and investors know this. We are now in for trench warfare. In this range buyers are going to be on the sidelines. They want to make sure the move up the last two days is not a bear trap. We need to break above this range to bring in those sidelined buyers. I’m not sure what’s it’s going to take to break us out but it will take at a minimum positive economic data. Data out this morning is showing professional money managers have cut back exposure to global stocks to three year lows which means there’s capital on the sidelines. By the way, stocks are still down 7% from their May high.

Turning to the overnight action, China’s Shanghai closed nicely higher up 4.82% but Hong Kong’s Hang Seng performed poorly. While closing 1.04% lower it opened 3% higher only to give up all the gains. European markets are all trading lower currently with Germany’s DAX down 0.72%. A German consumer confidence survey was released which was modestly negative for equities. Locally it appears investors are being very cautious going into the weekend and fearful of events that could develop over the weekend and are shrinking their positions with the Dow down 46 points which is a nice recovery from Dow futures being down 124 points when I came into my office. There really isn’t much fundamental news so this must be investors wanting to get “smaller” over the weekend. By the way, CNN’s Fear & Greed Index has “risen” off its nadir low of 3 to 13, still well in the Extreme Fear zone.

Oil

Wow! Saying oil had a good day yesterday is an understatement. It had the best day in 6 years! Oil futures prices jumped by more than 10% yesterday with WTI popping $3.96 closing at $42.56 and Brent jumping $4.42 settling at $47.56. This was the largest single session percentage gain since March 2009 following prices settling below $39 on Monday for the first time since February 2009. Cases of Maalox are being consumed! Similar to equities, we had a radically oversold market followed by positive fundamental news. The aforementioned Q2 data as well as Wednesday’s DOE crude and products report were the catalysts. Additionally it was reported that Venezuela asked OPEC for an emergency meeting but I’ve got to believe that fell on deaf ears, i.e., Saudi ears. Another bullish factor was that Shell declared a force majeure on Nigerian exports.

This morning Texas Tea continues to garner strength being up materially, $1.56, and this is with a marginally stronger U.S. dollar vs. the euro. I guarantee you traders noticed that WTI broke through a strong resistance line dating back to late June. Now I’m not saying we’re going back to $60 in the next 4 weeks but $39 is too cheap.

Courtesy of MDA Information Systems LLC

Natural Gas

It was an exciting day for natural gas yesterday for we had both the EIA releasing its storage report and the September Nymex contract expiration. The EIA reported an injection last week of 69 Bcf which was considerably more than the consensus of 62. This put pressure on natty prices and the September contract expired down 5.5¢ on the day settling at $2.638. So all of you out there who have been floating on the heat rate product for electricity and Nymex plus basis for natural gas can pull out your calculators and figure out what your cost is for the month of September.

Today marks the first day with October as the prompt month and it’s bouncing 4.7¢ trading $2.711. The weather forecast continues to show materially above normal temperatures for the eastern 2/3rds of the country for the 6-10 day term and above normal temps for the 11-15 day period. This will most definitely bring on some natural gas fired peaking plants for at least the 6-10 day period even though it is early September which is bringing in the bulls.

Elsewhere

We’re all very familiar with Boston massacre. British soldiers guarding the Boston custom house fired into an unruly mob of dock works, killing five of them. A trial was set and the soldiers needed representation and a local Boston lawyer stepped in to defend theme. When the trial opened the defense attorney, who himself was a colonial, was held in almost as much ridicule as the soldiers and with outright hostility meeting him on the street. The defense counsel maintained that the mob was in reality an unlawful assembly. So brilliantly did he argue his case that after only 2 and a half hours the jury came back with a not guilty verdict for six soldiers and manslaughter verdicts for the other two. None of the defendants went to jail including the two guilty ones who escaped incarceration by, get this, being branded. Thus it was that eight British redcoats owed their lives and freedom to a colonial lawyer who laid aside his own political feelings to do his duty. That Boston attorney who successfully defended these soldiers was none other than John Adams, our second president, one of the most ardent anti-British patriots Massachusetts ever produced.

Have a nice weekend.