Good morning. We ended with a small gain on Friday, Dow up 29 to 16,944, S&P 500 up 3 to 1,968 and Nasdaq up 19 to 4,415, but it wasn’t enough to prevent the market’s biggest weekly drop since April. For the week the Dow was down 0.4% and the S&P down 0.9%. Investors got nervous last week, specifically Thursday, with the word Portugal’s biggest bank missed a debt payment which alone is not that big of a deal but with P/E ratios at lofty levels and the Fed exiting QE there’s no room for error. Now for the glass being half full. Actually more than half full. The S&P is up 6.5% so far for 2014.

This morning is starting out great with the Dow futures up 129 points. Asian markets ended materially higher and the major European bourses up as well. The European markets strength is impressive considering a report came out this morning showing industrial production in the Euro zone dropped sharply in May. Output in the 18 countries dropped 1.1% on the month in May but it was less than the 1.2% drop forecast. Germany’s stock market is leading the ways. Investors must be buying on their euphoria from the World Cup. Regarding that, I’m sure I’ll come across some ludicrous article on the relationship of who wins the World Cup and global equities’ performance.

For those of you nervous and cautious out there, here’s an arrow for your quiver. Retail investors are plowing money back into the U.S. stock market in large amounts. So how much is large? How about at a rate of 10 times more than the previous 12 months. Individuals deposited about $9.5 billion in June to stock funds and have added cash in 8 of the past 10 months. That’s a reversal for the 5 years through 2012 when $300 billion was withdrawn. The growing optimism contrasts with forecasters at UBS AG and HSBC Holdings who say the stock market will be stagnant with valuations at 4 year highs. While the strategists have a mixed record of being right, history shows the bull market has already lasted longer than average (a year longer than average) and individuals tend to pile in at the end of the rally. Retail investors are always the last ones to the party. Paraphrasing Sir John Templeton, “You should be buying when they’re crying and selling when they’re yelling.” And take it from an ex-energy trader, that is very, very hard to do. You have to go against every instinct in your body.

Oil got destroyed on Friday with WTI losing $2.10 closing at $100.83 and Brent falling $2.01 settling at $106.66. WTI had its biggest one day drop since April. Oil was eroding all week but got hit hard on Friday as it really does appear Libyan oil will return to the market. Additionally, last week the IEA (not our EIA) reported that world oil demand over the next 12 months was increasing marginally but completely offset by production increases, particularly in non-OPEC countries (that would be the U.S.!) WTI is getting down to some good support levels and after it’s big fall last week it wouldn’t surprise me to see it bounce. This morning WTI is down 3¢

Natural gas closed out the week up 2.6¢ at $4.146 down 16% over the past month and near 6 month lows. I definitely saw some profit taking on Friday after the big drop which began the week before with the EIA storage report and continued with the weather forecast when we came in last Monday from the holiday weekend which showed the mini-polar vortex which is now in the 1-5 day time frame (see below). I can hear the turbines ramping down. Now that weather forecast may show cool temps in the Midwest this week but here in Houston it’s going to print 96 degrees with 90% humidity with a “feel like” index of 105. Sure wish that vortex would push a little further south. Next week and thereafter the weather gets back to pretty much normal and those turbines will be ramping up. This morning is staring out quietly as the natural gas traders recover from their World Cup parties being up 1¢. Have a good day.

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