Equities and the Economy

Boom! Did you hear the equity rocket take off yesterday setting off the sonic boom? A super, duper 305 point, 1.76% sonic boom! That’s what the Dow did yesterday closing at 17,666. Of course the two other major indexes also went into the stratosphere with the S&P 500 closing up a huge 29 points, 1.44%, at 2,050 and the Nasdaq lifting off the same launch pad zooming up 51, 1.09%, to 4,728. After bouncing off technical support, basis S&P, the market has rallied for the second straight day and on top of Monday’s almost 200 point gain putting the two day total at 501 points. I know it’s early but we really need a good February for history says a down January suggests a rocky road for the entire year. I have a saying about history and trading which is “History will make history of you” but Wall Street does pay attention to these things. If you want some fundamental reasons for yesterday’s rise look to the energy sector, the best performing sector yesterday, where equities rose on rising crude prices and the auto stocks with Ford, GM and Chrysler reporting sales increases from last year of 15.3%, 18.3% and 14%, respectively. Also, the encouraging news from Greece’s Finance Minister on willingness to negotiate with its lenders steadied European markets.

This morning the Dow is down 15. As I’ve mentioned previously, equity traders are taking their cues from oil (note oil has rallied for 3 days [big yesterday] and equities the last 2 and oil is giving up some of its recent gains this morning which is weighing on equities. The good news for your equity portfolio is that the Dow is performing a lot better than WTI is. Friday the Labor Department releases it every-so-closely followed monthly employment report for January and investors look to ADP’s report, which was just released, as a barometer to Friday’s report. ADP reported private employers added 213,000 jobs in January which came in at the low end of expectations but considering what’s been going on in the oil patch that’s a pretty decent number.

Oil

Oil prices jumped yesterday with WTI adding $3.48 (7%!) closing at $53.05and Brent popping $3.16 to $57.91. WTI settled at its highest level in 2015. Oil have been extremely volatile recently (trading like electricity and nat gas!) surging 19% over just the last 4 sessions. Boosting not only WTI but all commodities yesterday was a tumbling U.S. dollar. The spark of this move was the Baker Hughes rig count report on Friday showing a drop of 94 rigs putting the rig count at its lowest level in 3 years.

I’m not a “buyer” of this move, yet. WTI has fallen relentlessly (60%) with virtually no corrections since this summer. Folks, this boat was listing so far “short” it was taking on water. Now I’m not, and have been saying for a while, saying short WTI for that day has passed. But I’m not comfortable buying it here. I’m looking for a better place to get long. This morning WTI is down $2.32 on the weight of API’s crude and inventory report after the close yesterday. The 5 year average has been an aggregate build of 3.24 million barrels. API’s number? An enormous 8.4 million barrels! Now wonder WTI is lower. That being said we need to see the DOE’s figures which are released today.

Courtesy of MDA Information Services LLC

Natural gas

Natural gas has been getting whacked since last Thursday but yesterday finally found some buyers rising 7.4¢ settling at $2.754. The east is and will continue to see below normal temperatures over the next couple of weeks which will provide some support. Statistically, we’re in the coldest part of the year with HDD’s decreasing beginning in the middle of February. And traders know this very well. Now Mother Nature can wreak havoc to the best trading strategy but you trade with the research and data you have available. And one thing I do know is that natural gas fired generation is displacing some coal fired generation in the southeast and Texas. This morning natty is giving up most of all of yesterday’s gain being down 6.3¢ as I write.

Elsewhere

I heard a quip yesterday that is so apropos I have to pass it along. The road of life is always under construction! You’re going to hit potholes. Four lanes will sometimes be reduced to one lane drastically, frustratingly slowing you down. But you prepare as best as you can for these “bumps” and persevere on your journey.

On a logistical note, the author will be out of the office beginning tomorrow and returning Wednesday. Have a great day.