Equities and the Economy:

Soooo choppy! Just when we’re getting all “bulled up” with U.S. equities having a really good day on Monday Chicken Little makes an appearance. Yesterday the Dow lost an even 200 points, 1.09%, to finish at 18,129, the S&P 500 lost 27 points, 1.24%, to end at 2,137 and the Nasdaq fell 82, 1.54%, to 5,247. Investors definitely did not like the earnings season maiden corporate report from Alcoa which disappointed both on revenues and profits. The big aluminum refiner’s stock price lost a very material and P&L damaging 11.4% yesterday. Ouch! This being said, yesterday’s down move did not violate technical support on the charts. We’re still in the pennant formation I’ve been discussing recently. Additionally, technical support for the S&P has not been violated. That being said, we’re right on that support line so we don’t want another day like yesterday.

The only economic report of significance yesterday was the NFIB’s Small Business Optimism Index which came in pretty much unchanged from last month and at expectations and had not effect on the market. Interpretation: Small business is cautiously optimistic.

This morning traders are testing that support with Dow futures down 8 points after being down 40 points earlier. It’s early. Lot of day left. The most important fundamental report today will be the release of the minutes of the last FOMC meeting.

Oil

After a huge up-day on Monday oil prices retreated but only gave back a third of their gain with WTI closing down 56¢ at $50.79 and Brent falling 73¢ settling at $52.41. Fairly minor losses considering the bludgeoning that went on in equities. As I mentioned yesterday, Vladimir Putin’s announcement that Russia will cooperate with OPEC in discussions of a production freeze pushed prices higher. After hitting a recent high on Monday of $51.60 oil prices have retreated a bit. Again, I am very skeptical a production freeze will materialize. Oh there may be one on paper but will it transcend to the pump??? OPEC and it’s members cheat. They cheat openly. They cheat often, and they cheat materially. Although some folks are saying “This time is different” I don’t think so. Sovereign treasury coffers say so. Oh, and I did I mention that per the EIA OPEC’s production increased in September by 160,000 bpd to a record 33.64 million bpd. As Desi said to Lucy, “You got some ‘splain’n to do!”

Goldman Sachs is not bullish of oil. Their analysis is showing that the U.S. industry is already adapting to lower/current prices and activity is increasing. Their evidence: the amount of equity issuance in the industry has more than doubled from last year with planned equity issuance for this year to be in the order of $65 billion. At this level they are looking for the rig count to rise by about 300 rigs from current levels by the end of 2017. That’s would be a 70% increase from last week’s the rig count.

This morning oil is once again on the defensive with WTI down 61¢ on a momentum trade from lower equities in Europe and the U.S.

Courtesy of MDA Information Systems LLC

Natural Gas

After being on a tear, natural gas prices retreated a bit yesterday with the November Nymex contract closing down 3.8¢ at $3.237. This is after a 15% rally over the first 6 trading days of October and hitting a 1.5 year high at $3.300 earlier this week. Weather forecasts continue to provide little support for natty with above normal temperatures forecasted to cover the entire eastern 2/3rds of the country through October 26th. From here on out and for the next five months natty prices are going to be solely by the weather. Cold weather, we go higher. Warm weather, we go lower. You placed your bets?

This morning natty is absolutely quiet trading flat to yesterday’s settle.

Elsewhere

So we had the presidential debate Sunday evening. Subsequently there was tremendous discussion about who won. I can tell you who won. Ken Bone won! Ken Bone was in the audience that evening and was selected by Gallup and screened by the moderators being identified as an “undecided voter.” His question to Donald Trump and Hillary Clinton was a great one. “What steps will your energy policy take to meet our energy needs while at the same time remaining environmentally friendly and minimizing job layoffs.” However, it was Bone’s comforting demeanor and attire that made him an internet sensation. Wearing a red cardigan sweater, something like Mr. Rogers would have worn for those of you that can remember him, along with his general look of kindness and sincerity that brought a sense of civility to an otherwise contentious event. Since the debate he has been on the morning talk shows and even Jimmy Kimmel. He was so likeable Jimmy K. asked him “Do you have any idea of how adorable you are?” Ironically, he wore the now famous red cardigan sweater as a back up to his original plan which was to wear an olive suit he had in his closet that his grandfather had helped him pick out. Per Bone, “I thought, ‘Wow, my grandfather would be so proud if I wore this suit.’” “But apparently I have gotten somewhat more fat since then, and when I got into the car, I split the seat out of my pants and destroyed my olive suit and I had to do an emergency wardrobe change.” Prior to the debate Mr. Bone had a total of 7 Twitter followers with 2 of them being his grandmother because she forgot her password and had to do it over. Now he has a couple hundred and says he can’t understand why anyone cares what he has to say. By the way, Ken Bone’s red IZOD sweater has sold out on Amazon.

On a logistical note, the author will be travelling on business the next couple of days, therefore, the next Morning Energy Blog will be on Monday.