Equities and the Economy

Waving the white flag. Throwing in the towel. Capitulation. All were done at 11:47AM Central time yesterday. That’s when the Dow was down a portfolio destroying 565 points from Tuesday’s close. Very fortunately we didn’t end there, although it was still a very, very ugly day. The Dow closed down a material 249 points. 1.5%, closing at 15,767 and the S&P 500 lost 22 points, 1.19%, ending at 1,859. Of note, the S&P closed below its 2015 low on August 25 of 1,868. The Nasdaq actually performed well closing down only 5 points at 4,472. Going back to the Dow, it was the blue chip index’s worst one-day drop in the past 12 months and is now down 9.5% for the month and a 401K hurting 13.9% off it’s May 19, 2015 high. The energy sector was the worst performing sector on the day losing 2.9% on guess what? Yep, lower oil prices. As I mentioned, the Nasdaq held up really well while surrounded by Armageddon surrounding it because the biotechnology sector actually closed up 2.8%, but full disclosure is warranted. The sector is down 15.6% in 2016.

The carnage is global my friends. Here is how much major global indexes are performing from their 52 week high: Down: S&P 500, 12.90%; Dow, 14.08%; Nasdaq, 14.53%; Russell 2000, 22.89%; Stoxx Europe 600, 21.93%; U.K’s FTSE 100, 20.04%; Japan’s Nikkei, 23.56%. Be glad you’re not an investor in China’s Shanghai. It’s down a crushing 44.37%.

I’m not even going to talk about fundamental reports for they had no influence on yesterday’s price action. The world is going through a massive move to reduce leverage. Let’s take a look at some important technical data because a guarantee you the smart money is. Regarding the S&P 500, it has broken the three previous closing lows of 1,931, 1,921 and 1,886 set on September 25, 2015, September 4, 2015 and October 17, 2014. This is not good my friends. The next support is 1,815 which as I said in yesterday’s Blog is really not strong support. The Dow isn’t really doing any better. It closed yesterday below its low of 2015 of 16,102 on September 4, 2015. The next support is not far below at 15,698.

CNN’s Fear and Greed Index is way down there now at 8, obviously Extreme Fear. This may be where we see a bounce. After the relentless sell off we had lately (yes I know we had that one day bounce but an equities’ dead cat should bounce for more than a day) the market is oversold and with the CNN Index in single digits we’re primed for a correction. Now I’m not necessarily saying it’s time to get all “bulled up” but I’m not interested in pressing the short side right now. Additionally, the ECB monetary committee just concluded its policy meeting and Mario Drahi, the ECB president, stated the ECB will review and “possibly consider” more QE with “inflation dynamics weaker than expected” and that the current global market turmoil raises downside risks. On the combination of everything in this paragraph the Dow is up 146 and hanging in there from being lower when I came into the office.

Oil

Oil prices continued their seemingly not stop race to zero yesterday with WTI falling $1.91, 6.7%, closing at $26.55, its lowest settle in nearly 13 years. Yesterday was the expiration of the February Nymex contract. Brent lost less, 88¢, 3.1%, settling at $27.88. Brent’s premium to WTI expanded to $1.33. Western Canadian Select crude is trading barely above $14/bbl. And that’s good for some heavy, sour crude in the Bakken is trading negative. Yes, producers are paying to have someone (like Koch Brothers Flint Hill Resources refinery) take it. The API released its weekly report after the bell yesterday noting that crude inventories unexpectedly rose 4.6 million barrels. The market was looking for a 2.6 million barrel increase. Gasoline stocks increased by 4.7 million barrels, nearly four times expectations of 1.2 million. Distillates, which is predominately diesel, also were above expectations which were for inventories to be unchanged came in at a 1.5 million build. Nothing bullish there amigos. This morning the March WTI contract is now the prompt month and it is up 34¢. Chatter.

Courtesy of MDA Information Systems LLC

Natural Gas

You folks in the Midwest may be freezing your keisters off and the Northeast preparing for the biggest snow storm of the season but natty is not getting any love. The February Nymex contract closed up 2.7¢ yesterday at $2.118. Chatter. Prices have fallen 18% over the past 2 weeks. The bull’s albatross is the not the current weather but the weather forecast which continues to not be bullish. Normal temperatures are forecast for the eastern U.S. in the 6-10 day time frame but Chicago is going to be above normal. Additionally, the 11-15 day time frame is showing much above normal temperatures. That being said, the latter period has moved marginally cooler which is bringing some buying in with natty up 4.0¢.

The EIA releases its weekly storage report today and the market is expecting a withdrawal of 190 Bcf which compares to last year’s whopping 220 Bcf withdrawal and a more reasonable 5 year average of 177 Bcf.

Elsewhere

Here are some facts regarding yesterday’s crazy markets.

$735 billion – The net capital outflows from emerging markets securities, per the Institute of International Finance
203.22 – Represents the closing of the FTSE 100, its lowest score since 2012.
11.4% – Represents the percentage loss for the Nasdaq in 2016 qualifying it for bear market territory and marking the worst performance in January since 2008.
$26.55 – The lowest front month Nymex contract expiration price since May 7, 2003.
23% – the percentage decline for the S&P Transportation Composite Index since its 52 week high which was in April 2015 placing transports squarely in bear market territory.