Oil Rally Wednesday A Fool*s Errand
Logically, oil prices fell early given the massive build in EIA Petroleum Inventories to 10.4 million bbls vs prior 3.5 million bbls. And, by-the-way, there’s no place to put all this oil now. But, oil prices surged thereafter as another short squeeze occurred based on weird logic as noted below:
Anthony Headrick, energy market analyst at CHS Hedging stated "It seems more likely that $26 is in the rear view mirror at the moment," Headrick said.
"Fundamentals remain bearish but prospects of OPEC freeze and downward cycle in U.S. output will likely limit a retest of the recent lows."The slide ended weirdly even after OPEC members led by Saudi Arabia, which traditionally cuts output to support prices, started pumping oil at record highs to protect its market share.
So, I guess bulls expect a production freeze at current levels but the Saudis have a different idea. And, again, a freeze if and when it occurs doesn’t diminish production, it’s just a misreading of reality for another short squeeze. Remember, if OPEC and others freeze production, then cheating, as always will begin almost immediately. Iran and Iraq for example will continue to ignore what others do. (“A Fool’s Errand” via Urban Dictionary; “A task which is widely known to be unwise, yet is carried out against a person's better
judgement.”). Noises to the contrary continue to emanate from habitual liars, Venezuela.
The only other thing I can think of for a rally is there’s something negative only known by a few participants to drive prices higher. The last such news happened in 1990 just before Iraq invade Kuwait driving prices sharply higher.
Will there be 8 more years of this ruinous courtesy of the Fed and incompetent government policies?
Data today included the always inconsistent ADP Employment Report up to 214K vs 193K. The Fed’s Beige Book didn’t offer anything new but were clearly focused on the stock market even as they say publicly the opposite.
We live in bubble land San Diego where prices for housing is even worse than the previous housing bubble 2007. Nothing seems to change. At its core only Wall Street and CEO’s with lucrative stock options and those supporting presidential candidates Trump, Sanders and Goldman Sachs.
Stocks were able to build modestly on Tuesday’s major short-squeeze rally. The bottom line is HFT and other algorithmic programs are in control of markets while the rest of us are just shills in the game. That sounds pretty negative but we also follow the tape and are long some positions but only tentatively so.
Once again as you view market action short-term overbought conditions remain making fresh long positions rather risky.
Market sectors moving higher included: Financials (XLF), Banks (KBE), Regional Banks (KRE), Biotech (IBB), Energy (XLE), Energy MLPs (AMLP), Small Caps (IWM), Gold (GLD), Gold Stocks (GDX), Crude Oil (USO), EAFE (EFA), China (FXI), Shanghai (ASHR), Hong Kong (EWH), Australia (EWA), Spain (EWP), Brazil (EWZ), India (EPI), Emerging Markets (EEM), EAFE (EFA), Japan (EWJ), Mexico (EWW), Asia ex-Japan (AAXJ) and a host of others especially in EMs.
Market sectors moving lower included: Volatility (VIX), Junk Bonds (HYG), Consumer Discretionary (XLY), Materials (XLB) and not much else.
Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red).
Dependent on the day (green) may mean leveraged inverse or leveraged short (red).
Volume light on the day allows for a late day push higher and breadth per the WSJ positive. Money Flow was mixed.
As volume lightened bulls seized the tape supporting Tuesday’s large move higher.
Why are markets moving higher isn’t yet clear. If this is based on something solid we’ll know it in the future, and as trend-followers, the “news will follow the trend”.
Clearly, weakening earnings projections along with economic data aren’t supportive yet. It just may be that more stock buybacks are in the cards financed by cheap debt. This activity has supported stock prices by reducing float and increasing earnings over fewer shares. That said, it does little to grow companies in the long run.
Let’s see what happens.