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The futures market is speaking loud and clear about the impact of the Gulf oil spill on oil prices but is the Obama administration listening? As I have pointed out in a previous article, the futures market is saying that when it comes to the gulf oil spill we will not have to pay today but hang onto your wallet tomorrow. The futures market is screaming that in the in the longer dated futures contracts that if we restrict offshore drilling in the Gulf or overregulated the price of oil it will go through the roof. Theses sentiments were outlined by an article in Bloomberg News.
According to Bloomberg News, "The oil market is signaling that prices have nowhere to go but up as the biggest spill in U.S. history curbs drilling and makes it more expensive to develop new fields.” Bloomberg point out something we talked about last week and that the spill in Gulf is signaling higher prices in the long run. Bloomberg says that, “Crude’s premium for delivery in eight years rose 86 percent since the April 20 explosion at the BP Plc leased Deepwater Horizon rig in the Gulf of Mexico, based on June 4 prices.
Oil for December 2018 was $22 a barrel more than for next month, compared with $11 before the disaster.” They go on to say, “More regulation may add $5 to the long term contracts, according to Deutsche Bank AG. President Barack Obama extended a ban on new deepwater permits and exploration by Royal Dutch Shell Plc in the Alaskan Arctic for six months, putting off limits as much as 23.2 billion barrels of potential resources, equal to 76 percent of all reserves proven in the U.S.”
The number of rigs drilling in the Gulf of Mexico plunged 50 percent last week to the lowest level in 16 years, Baker Hughes Inc. reported June 4. “The president said stop drilling, and now we are seeing the result. Yet is the president getting the message? The Wall Street Journal reports, “The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters.”
Phil can be reached at pflynn@pfgbest.com and don't forget to watch him daily on the Fox Business Network
No change in crude oil's outlook. As noted before, recovery from 64.24 should have finished at 75.72 already. Further fall should be seen to retest 64.24 low first. Break there will confirm that whole decline for 87.15 has resumed and should target next key level at 60, which is close to 50% retracement of 33.2 to 87.15 at 60.18. On the upside, above 75.72 will bring another rise, but after all, upside should be limited by 61.8% retracement of 87.15 to 64.23 at 78.39 and bring fall resumption.
In the bigger picture, prior break of 68.59/69.50 support zone affirms our view that whole medium term rebound from 33.2 has completed at 87.15 already, just ahead of 50% retracement of 147.27 to 33.2 at 90.24. Further decline should be seen to 50% retracement of 33.2 to 87.15 at 60.18 at least. Also, as rebound from 33.2 is viewed as as a correction to the whole correction that started at 2008 at 147.27, we'd anticipate a break of 33.2 low in the longer term. On the upside, break of resistance at 78 level is needed to be indicate that fall from 87.15 is completed. Otherwise, we'll stay bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Friday's job numbers were very disappointing with private sector hiring declining significantly. What people need to understand is that there are enormous deflationary pressures in this economy and job growth is the only way to overcome those headwinds. Without strong job growth, this recovery and this stock market are both toast. The consumer and the private sector are continuing to deleverage and pay down debt....which is very deflationary but is a needed process in a system that had too much leverage. Even with the public debt soaring, total US debt (includes private and public debt) is declining.
We think this process will need to go on for many years with higher saving rates than what we have seen the past decade. Given this, the economy and the market can still do well if we have job growth to replace the aggregate demand lost due to the increase in savings. Also, after a few years of credit card debt going down, more income will be used to spend instead of interest payments which is a boost to the economy. As we have mentioned before, companies have cut to the bone and we believe that productivity can't go much higher in the short run so any increase in demand will lead to higher job growth than what we saw in May. We must watch the ISM and durable goods data to determine if demand is still increasing and if so, we expect much better private sector hiring in the months of June and July.
We are also still watching the 200 and 50 day moving averages on the S&P 500. We are well below both of these key moving averages with the 200 day at 1006 and the 50 day at 1154. It is very possible that the market may get a relief rally soon and we'll need to get a close above the 200 day moving average in order for us to put on more positions. If the economic data still points to demand increasing, then we should see the market get back above the key 200 day moving average quickly. Having said all of this, I am not selling or buying right now... and so I have no stock picks tonight. We'll need to keep a close eye on the economic data this month and on the charts and we'll let you know when it is safe to buy again or if it is time to sell all of our remaining positions.
I'm still a believer in this recovery... but if the market keeps hanging around below the 200 day and we can't get a close above it on the next leg higher, then I'll have to rethink that. Also, if the economic data starts coming in weaker than expected, then I'll also have to rethink that. We need good data this month to get the one thing we need to keep this economy and market going, JOBS.
Analyst Kevin Keifer can be reached at Kevin@tickerhouse.com
Check out more great articles from Kevin and the staff at Ticker House .Com
Crude oil closed down $0.54 at $70.97 a barrel today. Prices closed near mid range today. Bears have regained the near term technical advantage and have resumed a five week old downtrend on the daily bar chart. The next near term upside price objective for the bulls is producing a close above solid technical resistance at $76.00 a barrel.
Natural gas closed up 14.4 cents at $4.941 today. Prices closed near the session high today and closed at a fresh three month high close. Prices have seen a bullish upside "breakout" from a recent trading range at lower price levels. Recent price action suggests a major market low is in place in natural gas. Bulls have gained fresh upside near term technical momentum recently.
The U.S. dollar index closed up 23 points at 89.02 today. Prices closed near the session high today and hit a fresh 14 month high. European Union sovereign debt troubles will continue to support the dollar index. The bulls still have the solid overall near term technical advantage. There are still no early technical clues to suggest a market top is close at hand.
Gold futures closed up $23.10 at $1,240.80 today. Prices closed near the session high today on short covering and fresh speculative buying. There was a rumor that one big hedge fund was a major buying of gold with the Euro currency today. More safe haven buying interest in gold was also seen today. The gold bulls have the solid overall near term technical advantage and regained upside momentum today. There are still no early technical clues to suggest a market top is close at hand.
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The reason why last week's jobs report was so bad was because we were mislead and told it was supposed to be so good. The Obama administration told the markets a big whopper and the market made them pay. The global economy is looking for confidence and credibility so when the administration misled us the market now thinks they may be hiding something worse. Both Obama and Bided falsely raised the expectations of the market place by touting a super strong jobs report that was not there on Friday.
If you don’t have anything truthful to say about an upcoming report then say nothing at all. If you want to spin the report to your own political advantage, well that is fine with me but do it after the report is released and not before. So much for this so called great jobs report that showed that the private sector employment is struggling. The part of the report that they were trying to get people to focus on was the headline number that showed there were 431,000 jobs created in May nationwide. Sounds great but.....Read the entire article.
As noted before, crude oil's recovery from 64.24 should have completed at 75.72 already. Further decline remains in favor to retest 64.24 low first. Break there will confirm that whole decline for 87.15 has resumed and should target next key level at 60, which is close to 50% retracement of 33.2 to 87.15 at 60.18. On the upside, above 75.72 will bring another rise, but after all, upside should be limited by 61.8% retracement of 87.15 to 64.23 at 78.39 and bring fall resumption.
In the bigger picture, prior break of 68.59/69.50 support zone affirms our view that whole medium term rebound from 33.2 has completed at 87.15 already, just ahead of 50% retracement of 147.27 to 33.2 at 90.24. Further decline should be seen to 50% retracement of 33.2 to 87.15 at 60.18 at least. Also, as rebound from 33.2 is viewed as as a correction to the whole correction that started at 2008 at 147.27, we'd anticipate a break of 33.2 low in the longer term. On the upside, break of resistance at 78 level is needed to be indicate that fall from 87.15 is completed. Otherwise, we'll stay bearish.....Nymex Crude Oil Continuous Contract 4 Hours Chart.
Crude oil dropped for a second day on concern the government debt crisis in Europe will widen and after the U.S. added fewer jobs than forecast last month, slowing a recovery in fuel demand.
Prices posted their biggest two day decline in a month as the euro dropped against the dollar on speculation Europe’s sovereign debt crisis will spread into the financial system. Oil fell 4.2 percent on June 4 after the Labor Department said that payrolls rose by 431,000 in May. Economists projected a 536,000 gain, according to the median forecast in a Bloomberg News survey.
“The U.S. payroll data was on the weak side of expectations and put a question mark next to the rate of U.S. economic recovery,” David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney, said by telephone today. “Concerns about Europe haven’t gone away. There are stories starting to emerge about Hungary’s fiscal position and that is affecting market sentiment.”
Crude oil for July delivery fell as much as $2, or 2.8 percent, to $69.51 a barrel in electronic trading on the New York Mercantile Exchange, and was at $70.04 a barrel at 10:22 a.m. Singapore time. The contract has fallen 6.1 percent since closing at $74.61 a barrel on June 3, the biggest two day decline since May 6.
The U.S. government hired 411,000 temporary workers for the 2010 census, accounting for the bulk of the gain in employment. Private payrolls rose a less than forecast 41,000. The growth in jobs in the private sector followed an increase of 218,000 in April that was revised from 231,000.....Read the entire article.
It was another extremely volatile week sharp rallies followed by sharp sell offs. Fear is in no doubt controlling the market. The bulls and bears continue to battle it out. The charts below cover some important trends and market internals I pay attention to on a daily basis.
US Dollar Index – Daily Chart
The past two months the dollar as been in rally mode. The last 14 days we have seen a large bullish pennant form and this pattern typically marks the half way point for the current tend. The measured move for the USD is pointing to 93 over the next few months.
Gold Futures Prices – Daily Chart
Gold as we all know is seen as the major safe haven and the price per ounce has been steadily climbing. Friday we saw the major indexes sell down very hard but both the dollar and gold posted some solid gains. Gold does looks as though it needs some time to digest the recent move higher and this could take a week or two before anything exciting happens but I am on the lookout for low risk setups.
VIX – Volatility Index – 60 Minute Chart
This index measures the fear in the market. When fear is high and everyone is selling their positions we see the VIX jump in price. Over the past month we can see a possible Head & Shoulders pattern forming. If this pattern unfolds like it should then we will see the price of equities bottom in the coming week with the VIX dropping below the blue neckline. The old saying is “When the VIX is High is time to Buy, when the VIX is low its time to Go”.
Put Call Ration – 60 Minute Chart
In short, when the put/call ration is over 1.00 then there are more traders/investors buying Put Options than Call Options. Put options are when people are buying leverage to take advantage of lower prices. My thought/opinion about this is when more people are trading with leverage anticipating lower prices, I figure they have sold all their long positions and are now using leverage to profit from lower prices. Well if the majority of individuals have sold everything then in reality there should not be much left to be sold… So I feel this correction which started in April is almost finished.
NYSE Advance/Decline Line – 60 Minute Chart
This is one of my favorite charts to look at. While there are several indicators, market internals and technical analysis needed to clearly determine if the market is currently overbought or oversold, this chart is one that can help give you a good idea if you should be looking to buy, short or just stay in cash for the time being.
SP500 Futures Prices - 2 Hour Chart
The SP500 has been up and down like a yo-yo with some very dramatic moves. Up 2+% day down 2+% the next… very sharp and powerful moves can be both every profitable or costly if not traded correctly. Last week we caught a nice 2% gain in less than 24 hours which was an exciting trade. It looked at though the market was about to breakout to the upside and possibly reach the 1150 level but early Friday morning there were rumors about some Euro bank having serious problems and that was just enough to cause a domino effect sending the market lower throughout the entire session closing on a very strong negative note for the day/week.
That being said the market internals are indicating that equities are oversold at these current prices and a bounce is due any time. With the panic selling on the NYSE Friday reaching 119 sell orders for every 1 buy order I think we will see some follow through next week with lower prices, then a rebound once investors finish selling everything they own at which point we will be looking to get involved again.
Weekly Trading Conclusion:
In short, money continues to flow into the safe havens (Gold & US Dollar). The major indices are showing extreme panic selling and look ready to in the next few days. There is a possibility that the market could break down and start another major leg lower which is a big concern to me. I will be glued to the market internals and support levels for the major commodities and equity sectors in hopes to catch the bottom or to avoid another melt down.
