Equities and the Economy

After a three day hot streak the dice came up 7 and U.S. stocks crapped out with the Dow losing 189 points, 1.14%, ending at 16,432, the S&P 500 fell 25 points, 1.26%, to 1,921 and the Nasdaq closed down 67, 1.46%, at 4,504. I bet you can guess what’s being blamed for the decline? You got it. Oil prices, which fell yesterday (more on that below). Yesterday’s close leaves the Dow 10.3% below its bull market high. The S&P is down 9.8% from its high. But folks it’s been pretty straight up since the Dow bottomed on Feb 11th. In the six trading days since then it’s rallied more than 960 points, 6.1%. Yesterday’s performance once again puts in the spotlight China’s slowing economy, global growth being under pressure and U.S. corporate earnings undergoing a period of contraction. Markets never move straight up, or down. This could simply be a pullback off a good rally. Here’s the technical numbers you need to pay attention to (yes, you really need to. The smart money does!). The resistance is the 1,945 to 1,950. I mentioned that last week and that’s exactly where we failed. Support is the recent low on February 11th at 1,829 to 1,867, basis the S&P. I expect it to be tested. We could pull back to that level and hold which would mean we’d form a nice base from which to go higher.

Turning to the economic data, yesterday the Conference Board reported that its index of consumer confidence fell from 97.8 in January to 92.2 in February driven lower by concerns about an economic slowdown and the turmoil in the equities markets. This was well below the estimate of 97.2. That ill news was offset by the National Association of Realtors report that existing home sales rose 0.4% in January to an annualized rate of 5.47 million units and much better than Wall Street’s estimate of 5.22 million units. The housing market, and associated construction, has been and continues to be the backbone of the economic recovery.

This morning the weak length continues to bail with the Dow down 253 following the European markets where the major indexes there are between 1.45% and 2.41% in the red. Oh, oil prices are down this morning. This is really getting old. Is the oil market REALLY the only market or commodity or factor in this huge global economy that matters to the equity markets?!

Oil

Oil prices fell yesterday with WTI closing down $1.52, 4.6%, at $31.87 and Brent fell $1.42, 4.1%, at $33.27. There is absolutely no doubt what drove prices lower yesterday. As you well know, there’s been discussions among OPEC producers and Russia about freezing production at January’s levels. Now we all know that this isn’t about OPEC and Russia. It’s about Saudi Arabia who not only is OPEC’s largest producer, but is also the only country who, if it chooses to do so, will not produce all it’s got. Well at the annual IHS Energy CERAWeek conference here in Houston (it’s a major global conference folks!) the Saudi Arabian Oil Minister, Ali al-Naimi, spoke yesterday stating that before production freezes or cuts would happen more countries needed join the deal. That comment obviously leaves open the door for a forthcoming freeze. The subsequent comments from Saudi Arabia’s arch enemy Iran slammed that door shut with its oil minister saying that asking Iran to freeze production was, and I quote, “ridiculous” and “laughable.” No ambiguity there. Bottom line, there is no way Saudi Arabia is going to cut production only to give up its market share to Iran.

So what’s happening this morning? WTI is down $1.07 and it’s not because of comments by an oil minister. It’s more fundamental than that. After the close the API released its weekly crude and products report stating that U.S. crude stocks increased by 7.1 million barrels last week which was more than triple the forecast of 2.0 million barrels. Gasoline inventories came in slightly lower than estimates at +600,00 barrels and distillates (mostly diesel) increased by 300,000 barrels with the market looking for a decrease of 800,000 barrels. Nothing bullish in those numbers amigos.

Courtesy of MDA Information Systems LLC

Natural Gas

Natural gas slipped marginally yesterday closing down 3.9¢ at $1.762. The noon weather forecast update came out shifting the temperatures marginally warmer in the 11-15 time frame which pushed prices a little lower. Yesterday’s settle is just a penny higher than the 16 year low prompt month closing price we saw in December 2016 of $1.755. Prices over the past couple of months have slid more than 70¢. Can you say El Nino?! Each day that goes by gets us closer to spring, and from a trading perspective we’re only one day away it for tomorrow the March Nymex contract settles and on Friday we’ll start trading April which is the first month of the “injection season.” The weather forecast this morning is the same as yesterday’s noon forecast and natty is basically flat to yesterday’s close. Additionally, that 16 year low of $1.755 is going to be technical support.

Elsewhere

There’s only one place in the universe where the U.S. flag flies all day, every day, never going up, never going down, never at half-mast and never getting saluted. That would be on the moon. Since Apollo 11 landed on the moon on July 20, 1969 there have been 12 American astronauts who have walked on the moon spending a total of 170 hours roaming over 60 miles and planting six U.S. flags. The six American flags were planted during the missions of Apollo 11, 12, 14, 15, 16 and 17. The Apollo 17 crew were the last men on the moon. We all know the first words ever spoken on the moon which were said by Neil Armstrong, “One small step for man. One giant leap for mankind,” which upon returning to earth he stated he thought he said, “one small step for a man.”

But I bet you don’t know the last words spoken on the moon. They were spoken by Apollo 17’s commander Eugene Cernan, “America’s challenge of today has forged man’s destiny of tomorrow.”

By the way, the first landing of the moon is celebrated in the festival of Evoloterra on July 20th.