Equities and the economy

Brexit. What Brexit?! Yesterday European and U.S. stocks posted a second consecutive day of super gains with the Dow climbing 285 points, 1.64%, to 17,695, the S&P 500 rose 35 points, 1.70%, ending at 2,071 and the Nasdaq finished up 1.86%, 87 points, at 4,779. Over the last two days the Dow has captured back 63% of the losses the previous two days. London’s FTSE rose 3.6% yesterday and the only reason I bring that up is because as of yesterday’s close the FTSE is now above last Thursday’s pre-Brexit close! Folks are realizing that Brexit is going to take a least a couple of years and that in all likelihood after all is said and done the relationship between Britain and the EU won’t be all that different than it is today. We’ve also seen some bottom feeding on a short term oversold market. As of yesterday’s close the Dow has perfectly rebounded to technical levels (Fibonacci retracement). The last two days could be nothing but a dead cat bounce in a bear market or if we can rally higher from this level one of the longest living bull markets in history will continue. We’re at an important inflection point. And I’m not the only one who recognizes this because traders and investors are on the sidelines this morning with the Dow up 21 meaningless points with everyone waiting for the next event from which to take direction. By the way, for those of you like me who love this stuff, research Fibonacci. Leonardo Fibonacci was an Italian mathematician who in this 1202 book, Liber Abaci, introduced his numerical sequence. The Fibonacci sequence is everywhere in nature including the branching of trees, arrangement of leaves on a stem, the fruitlets of a pineapple, the flowering of an artichoke, the uncurling of a fern, the arrangement of a pine cone and the family tree of honey bees. And it’s used in technical analysis when studying price movement in markets including equities and commodities.

Turning to the fundamentals, yesterday the National Association of Realtors reported that’s its Pending Home Sales Index fell 3.7% to 110.8 in May which was greater than expectations. However, the reason is there’s a lack of homes for sale which is frustrating buyers.

Remember, in trading and investing, use the fundamentals for direction and the technicals for entries and exits.

Oil

Commodities around the world responded to the strength in the equity markets yesterday, and that included oil. WTI rose a big $2.03 closing at $49.88 and Brent posted the exact same gain settling at $50.61 marking the biggest one day move since April. The DOE’s weekly crude and products reported certainly helped the bulls. U.S. aggregate inventories (crude, gasoline and distillates) fell a whopping 5.1 million barrels not only being greater than expectations of 4.2 million barrels but much greater than the 5 year average of a 0.61 million barrel withdraw. Here’s real evidence the global oil market is coming more into balance. The number of oil tankers used for storing oil around Singapore fell to 30 this month from 40 in May. Additionally, chartering rates have fallen materially. Rates for a one year VLCC (Google it) have fallen by $9,000/day from this time a year ago.

This morning oil is taking it on the chin with WTI down 99¢. There are reports today that negotiations with Norwegian oil workers are progressing abating concerns about a strike. Additionally, is news that a temporary ceasefire between government and Nigerian militants has enabled the country to 200k – 300 bpd of production following a drop in supplies of 600k bpd over recent months to a multi-year low of 1.24 million bpd. Looks like somebody got paid off.

Courtesy of MDA Information Systems LLC

Natural Gas

Although natural gas gave back 2.7¢ yesterday settling at $2.863, prices are no doubt very strong primarily driven by the cash market. Cash gas at Henry Hub, LA (the Nymex contract location) traded $2.93 this morning. The extended weather forecast (30 & 60- day) continues to show above normal temperatures across the entire country which if materializes will significantly boost natural gas consumption for electric generation. Don’t forget, for the past 3 years coal plants, particularly in Ohio, Illinois, and Pennsylvania, have been decommissioned and replaced with natural gas fueled plants.

Today the EIA releases its weekly natural gas storage report and the market is expecting an injection of 48 Bcf which is materially below last year and the 5 year average. Natty is currently up 3.1¢

Elsewhere

Being this is a late Blog and I need to get it out, I’m keeping this brief. Always aspire to inspire before you expire.