Equities and the Economy

A morning rally in U.S. equities fizzled out in the afternoon and stocks closed lower on the day with the Dow down 51 points to 16,280 and the S&P 500 and Nasdaq both losing 4 points closing at 1,939 and 4,753, respectively. It could have been a much worse day for the Dow was down 118 at one point. Stocks have now closed lower 4 of the past 5 days. Gloomy economic data out of China is once again to blame. As reported in yesterday’s blog, a preliminary PMI report showed the index hit a 6 year low and importantly, it continues to be below “50” which separates growth from contraction. Quite frankly, investors are waiting for China’s data to stop deteriorating and start improving. Locally, the research firm Markit released its “flash,” or preliminary PMI for U.S. manufactures and it came in at expectations, 53, which as mentioned previously, indicates manufacturing is growing here.

Asian stocks closed mixed with Hong Kong’s Hang Seng and China’s Shanghai up and down 1% but Japan’s Nikkei got hammered falling 2.76% to a two week low. Japan was playing some catch-up for it had been closed the previous 3 days for holiday. European stocks this morning look like caca all trading lower with Germany’s DAX and France’s CAC materially lower, 1.95% and 1.77%, respectively. As is usual, U.S. investors early in the day take their que from our neighbors across the pond and Dow futures are down a whopping and hurtful 232 points. Ouch. Folks, don’t shoot the messenger but I don’t believe this move down, this correction, this pullback is over. I think we’re going to test the low of 15,666 on August 25th. I just don’t see anyone having a reason to buy. Additionally, the retail investor is still in this market and that’s a big indicator for me. The retail investor is always the last out and last in. When the retail investor panics and sells this down move will be over.

Our Fed Chairperson, Janet Yellen, will be speaking at 5:00 EDT at the University of Massachusetts on the economy and monetary policy and I guarantee you investors all over the world will be tuned in looking for information on when interest rates will be raised.

Oil

Oil futures ended yesterday at their lowest level in more than a week with WTI losing $1.88 closing at $44.48 and Brent falling $1.33 at $47.75. Prices earlier in the day got bid up on the back of the weekly DOE crude and products report showing a second straight weekly decline in U.S. crude supplier. However, it was the accompanying data showing U.S. production edged a bit higher in the latest week that brought in the sellers. That statistic in conjunction with the lousy Chinese PMI data brought the bears out of their caves. Since early September support has been around $43.30 with the market bouncing off that level each time we’ve hit it, and it looks like it will be tested again for WTI is down 6¢ as I write trading at $44.54.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas spent a second day doing nothing with the October Nymex contract closing down 0.8¢ at $2.596. Support is at $2.550 and if prices definitively fall through that level the next support is the intraday low of $2.443 hit last April. Today is EIA storage report day and the market is expecting an injection of 98 Bcf which is a pretty big number for last year for this week 90 Bcf was injected and the 5 year average is 75 Bcf. Weather forecasts are little changed from yesterday showing widespread warmth across the country for the next 2 weeks. Traders must already have their positions on going into the storage report because natty is doing nothing right now being down 1¢.

Elsewhere

I’ve discussed many time how natural gas has been and is displacing coal in the electric generation sector. And the coal companies are really feeling it. The number of new and reactivated coal mines that began productions in 2013 has fallen to its lowest level in at least 10 years, per the EIA. The addition of 103 mines in 2013 came as 271 mines were idled or closed resulting in a 14% decline in the total number of producing coal mines from 2012 to 2013. The 2013 total was 397 less than in 2008 when production was at its highest. The lower number of new mines and the closing of less efficient mines resulted in 2013 having the lowest number of active coal mines on record. The declining number reflects reduced investment in the coal industry, strong competition from natural gas, stagnant electricity demand, a weak coal export market, and regulatory and permitting challenges. Just go check the stock price of coal companies. They’ve been destroyed the last couple of years, and that’s if they’ve managed to stave off bankruptcy.

Have a nice day.