Good morning. The only person who might be feeling worse than Seattle Seahawk’s fans is Tiger Woods. Why? Because on Friday he shot his worst round ever as a professional golfer, an 82, and also his worst ever 9 hole score, a 44. Now it sure would be a lot of fun to talk about the Super Bowl and the Seahawk’s play call with 20 seconds remaining but I must remain on task and focus on the markets beginning with the stock market, which didn’t end well on Friday. Notice I said “end” because 1 ½ hours before the close the markets were trading very close to the previous day’s close. But then the bottom fell out and stocks got routed with the Dow ending the day losing 252 points (1.5%) at 17,165, the S&P 500 falling 26 points (1.3%) closing at 1,995 and the Nasdaq down 48 (1.0%) at 4,635. Note that the S&P closed below 2,000. That is an important support level. My antennae are up! For the week the Dow, S&P and Nasdaq were all lower by 2.9%, 2.8% and 2.6%, respectively. It was a lousy month too with the bourses losing 3.7%, 3.1% and 2.1%, respectively. What weighed on January’s performance was lackluster corporate earnings. That and I guarantee you investors are really trigger happy on the sell side knowing this market is way overdue for a correction and are fleeing to the safety of Treasuries. The yield on the 10 year note is 1.7% which is the lowest level since May 2013. This flight to safety is really quite interesting because earlier in the week we had great consumer spending (fastest pace since 2006) and consumer confidence data (highest in 11 years) but it appears earnings and concerns over Europe, including how Greece will work out its debt with Germany, et al, trumped the positive data. By the way, this whole Greek thing, while important, is not as big a deal as it was 6 years ago. The European banks are in much better shape (improved balance sheets) than they were then and we need to put Greece’s size in perspective. Their GDP is about equal to that of Louisiana. So while important, Greece will not bring down Europe.

Overnight the Asian market all ended in the red with China’s Shanghai getting whacked 2.56% and the European markets are trading mixed. Here in the U.S. the equity futures markets were in the green which I came in but the Dow is tanking being down 102 points. Not helping us at all was the report the Chinese government released on Sunday on its Purchasing Managers Index for January coming in at a surprising and disappointing 49.8, down from December’s 50.1. The market was expecting a 50.2. Now a 0.3 move is not that much but the focus here is the number has fallen below the very important 50 level which delineates expansion from contraction. This is the first time this index has been below 50 since the early autumn of 2012.

Oil

Oil prices skyrocketed on Friday on massive short covering with WTI closing up a huge $3.71 higher at $48.24. That’s a jump of 8.3%! That’s equivalent to a Dow move of 1,425 points!!! Friday’s jump in price was the largest one day percentage gain since June 2012. The catalyst for the move was Baker Hugh’s rig count report which is released every Friday. It showed that 94 rigs were “laid down” last week compared to the week before and now there are 242 less rigs working than a year ago. 68 of the 94 are in Texas and Oklahoma. The rig count decline was the largest weekly drop since1987. It didn’t take a rocket scientist to see this was coming. There is a high correlation between oil prices and rig count (duh!) and this is, as is said in Texas “Is not the oil and gas producers first rodeo.” They’ve been through these cycles before. That doesn’t mean they like them but they know what must be done when oil prices drop. Even with Friday’s huge bounce WTI prices were down 16% for the month of Januarys.

This morning WTI continues is up marginally, 14¢. It was up $1.48 earlier and near a two week high. That Chinese PMI data is weighing on oil prices. Getting headlines today is that union workers are on strike for a second day at 9 U.S. refineries and chemical plants. The United Steelworkers union is seeking a new national contract with oil companies covering laborers at 63 plants. The walkouts were the first in support of a nationwide pact since 1980 and targeted plants with a combined 10% of U.S. refinery capacity. Diesel and gasoline prices are higher this morning which makes sense but not sure why WTI prices are up for a lessening of demand by refineries will back up crude forcing it into store. Guess shorts are still covering.

Natural gas

All the action was in equities and oil for on Friday natural gas was very quiet closing down 2.8¢ at $2.691. If you recall, all the action in natural gas was on Thursday on the bearish EIA storage report. Natural gas prices are now down 40% and nearly $2.00 in less than 3 months and trading close to a 2 year low of $2.60. Folks, I guarantee you at these price levels natural gas fired generation is displacing some coal fired generation. So why are prices so low with us being in the middle of winter, very cold weather blanketing the eastern half of the country currently with below normal temperatures for the next 2 weeks (see map)? Production my friends, production. Natural gas production is not at the record level seen in December but it’s pretty darn close, and this is with freeze-offs which normally come at this time of year. Now we need to keep a really close eye on this because the drop in rig count will affect natural gas production.

This morning the northeast is blanketed with a fresh round of snow but it’s not helping the bulls with natty prices down 7.1¢

Courtesy of MDA Information Services LLC

Elsewhere

Here’s a little Super Bowl trivia. The University of Phoenix stadium where the game was played yesterday was the first stadium in the NFL to light its playing field using only light-emitting diodes (LED) in its light fixtures. The stadium was retrofitted with 312 high performance LED’s replacing more than 780 metal halide fixtures. The LED’s use 75% less electricity than the metal halides. LED’s last longer than metal halides which will save on maintenance costs and they run cooler than metal halides resulting in an a projected 30% decrease in stadium cooling costs.  Have a great day.