Equities and the economy

U.S. stocks fared better than Houston yesterday with 20 inches of rain falling in the city in a 24 hour period forcing the city to shut down, which is why the Blog was not published yesterday. The Dow, which gained 107 points, 0.60%, closed for the first time over 18,000, at 18,004, in nine months. The Dow is now only 2% off its all-time high. We’ve really bounced back hard from that scary February low. The S&P 500 climbed 14 points, 0.65%, ending at 2,094. It’s best close since December 1st. The Nasdaq added 22, 0.44%, closing at 4,960 and at its highest level since December 31st. The fear index, the VIX, which moves conversely to equities, is at its lowest level since August 2015 and CNN’s Fear & Greed index is at 70, in the greed category, all meaning investors are feeling pretty good right now and are willing to take on more risk.

Yesterday’s performance was driven by the energy sector which closed 1.6% higher on the heels of an amazing recovery in oil prices. Early in the morning oil prices got hammered after OPEC and Russia failed to reach an agreement on limiting production at Sunday’s meeting in Doha which pushed the S&P down 1.3%.

Regarding fundamental data, the only meaningful report was the National Association of Home Builders report noting its NAHB/Wells Fargo index of builder sentiment came in at 58 for April. When this index is above 50 it indicates those builders who participated in the survey view industry conditions as positive. Bottom line here is that the housing market continues to show strength.

While you slept the Asian market rose sharply with Japan’s Nikkei closing 3.68% higher and Hong Kong’s Hang Seng ending up 1.30%. The European markets are trading up big today led by Germany’s DAX which is up 2.24% as I write. Here in the U.S. stocks are continuing their strong march forward with the Dow up 82 points.

Oil

As mentioned above, the meeting on Sunday in Doha, Qatar of oil producers that supply nearly half the world’s output yielded nothing. Saudi Arabia is not going to limit production without Iran agreeing to also, and the latter says it will not even consider it until its production reaches pre-sanction levels of 4 million bpd, which is 900,000 barrels more than it’s currently producing. On the news oil prices got hammered with Brent and WTI falling 7% and 6%, respectively. Remember, these two countries do not like each other at all, and that is an understatement. In Syria and Yemen they’re backing opposite sides. It’s the old Sunni vs. Shia thing. Very complicated. Very messy.

As mentioned previously, after it was announced there was no agreement the bears came in galore whacking prices, and then an interesting thing happened. Bulls came in to scoop up the bears selling and those 6% and 7% losses turned into losses of 1.4% for WTI ending down 58¢ at $39.78 and Brent recovering almost 100% of its losses closing down 19¢ at $42.91.

You know I always watch the price curve and something very interesting has happened. Brent has gone into backwardation. One month ago the 1st and 2nd Brent futures contract was 60¢ contango. Now its 14¢ backwardation. On the other hand the one year contract contango in WTI has actually widened out from $3.58 yesterday to $3.79 today. This is all somewhat confusing but the fact Brent has gone into contango has got my antennae up for both oils. A backwardated curve is bullish sending the signal current demand is greater than current supply. Hmmm.

This morning WTI is screaming higher by $1.25 and higher than the close prior to the Sunday’s meeting.

By the way, Baker Hughes released its rig count report last Friday noting a drop of 3 rigs looking for oil. The natural gas rig count was flat.

Courtesy of MDA Information Systems LLC

Natural Gas

After hitting a 3 week low yesterday of $1.872 intraday natural gas prices bounced back to close 3.8¢ higher at $1.940. It looks like we’re in a trading range between $1.87 and $2.05 for this morning natty is up a strong 9.0¢ trading $2.030. Although storage levels are record highs traders are looking forward to the summer which is forecasted to be warmer than normal as well as flat to declining production levels. I’m not saying it’s not going to break it, but $2.05 is currently pretty strong resistance. Weather forecasts are indicating above normal temperatures for the eastern half of the country for the next couple of weeks but being it’s April, that is no load conditions. You bears out there be careful though. This is nuclear power plant refueling season.

Elsewhere

Goodwill, the king of thrift shops. I’ve been in them. Clothes thrown on racks and roughly organized. Stuff placed on shelves in what seems to be no order. Well the company is revamping its business model and image. Goodwill is going online (www.shopgoodwill.com). They have created a website where customers can bid on the most valuable donations such as gold, jewelry and coins. And they’re serious about this. Employees have a spectrometer to evaluate the quality of gems, necklaces and pendants, which will never see a shelf. The website is used by more than 100 regional Goodwills, more than half their stores. For the mothership San Francisco store the effort is paying off. E-commerce has become 10% of its overall business. The Portland, OR store is racking up a million dollars a month in online business. However, there’s one product that doesn’t sell online. Clothes, which make up 70% of Goodwill’s donations. That’s where boutiques come in. Yes, you got that right. Boutiques. In San Francisco, Seattle, Denver and elsewhere boutiques are being built with retro interior designs.