The Market Perspective

XLE Mounting Comeback

Monday Nov 11 2019

XLE appears to be mounting acome back.

CHK is going down the drain, another sign of a forthcoming bttom Firms which took on too much debt in the previous boom disappear or take Chap 11

during bear market periods, CHK will probably take Chap 11  BK.

We think the stage is still set for a major low in energy prices by end of month November.

Markets at ew Highs, Oil Nearing a Significant Low

Weekend Nov 9, 2019

The DJIA new high has been confirmed by a  new high in the Transports.

Outsiide the US, emerging markets are coming back from a long correction.

I think the result oof this will be stronger oil prices with the expectation of another year world growth.

WTIC

OIl prices are converging on the end of a triangle.  The MAs are converging which happens prior to a change in trend. I believe the result will be higher oil prices.

As noted in our weekly column previously osted, CHK issued a going concern  warning. The firm will likely end in Chapter 11 re organization.

XES Energy Service

Keep the big picture in mind here. XES is lower than  at the worst of the  2009 financial crisis.

Mood Generates New Highs in Stocks and Scandals

Friday Nov 8 2019

Friday November 8, 2019

Another week, another few scandals emerge.

 

Mattel and its 145 year external auditor, PwC, hid accounting issues. The firm is under investigation.

 

Under Armour is under investigation for its revenue recognition practices.

 

McDonald’s CEO resigns over ‘an inappropriate relationship’ with a staffer.

 

If it were not enough to have riots from Moscow to Hong Kong to Santiago, , now we have fights breaking out at Popeye’s over a chicken sandwich.

 

This news prompted a headline in my Professor Elam weblog, Can’t Anyone Behave? (Scandals are a product of hyper social mood at market highs. Participants case aside behavior norms and take an anything goes stance.)

 

Finally a private equity group proposes to take Walgreens private. If so this would be the biggest private equity deal ever at $70 billion.   Social Mood is inclusive at market highs where most mergers and take-overs occur. With the DJIA at 27,600 it is fitting the biggest deal ever is proposed.

 

All of this has the stock market surpassing that pesky 26,400 DJIA level and moving today to 27,600 more or less.

 

Let’s consider stocks first.   Thee SPX set a new high at 3,093.   Ten-year Treasury yields are re testing their September high at 1.9%. While Trump has been scolding the FED for not lowering rates (why with a strong economy asks the Chinese), this looks like a 40-year low in rates to me.   In Dow Theory terms, Transports hit a new high at 11,163.

 

At the same time, defensive sectors of utilities and gold are pulling back. This is more confirmation of an industrial advance.

 

Emerging Markets fell throughout 2018. Now EEM, the emerging market ETF is nearing a break to the upside at 44. Again this reflects world market strength.

 

Regular readers will remember we have been calling for a low in oil prices recorded in August and October.   As I write this morning, crude oil is down 75 cent at $56.40. We look for a pullback in to mid to late November. That would create what chartists call a fourth higher low. The moving averages on the crude oil price chart are converging. This happens prior to a change in trend. All of this supports our view that given renewed industrial strength around the world, pil prices will be moving up. This of course is the opposite of what the mainstream media has been reporting, with slowdowns in energy markets across the board.

 

The bear market in energy service has done its job of clearing out the weak sisters who took on too much debt and lacked cash to sustain themselves. This past week beleaguered Chesapeake issued a going concern statement. This means CHK cannot pay its bills for the next year. Weatherford is in bankruptcy. Eagle Ford stocks are either at discount or below book value.

 

Keep your cash ready, an important low in energy shares is at hand.

 

Shake Shack

Wed Nov 6, 2019

Shack Shake Shares Dive on Sales Results

Recent events at SHAK support the idea that social mood moves stock prices.

SHAK has traded over 100 price earnings ration

Compare that to industry leaders

MCD        23

JACK        17

WEN        33

SHAK operates about 200 restaurants but is valued at $4 billion about the same as Wendys. Wendys operates 6,711 restaurants.

WEN

JACK 2,200 Restaurants

 

Stocks Peaking, Energy to Bottom Later in Nov

Wed nov 6, 2019

XLE Energy ETF

Energy bottomed in August an  October. This assets up a final low on the uptrending blue line later this month.

We are thinking this will be a major opportunity for a low risk entry into energy markets.

Stock markets overall despite the outburst of positive headlines are a few hundred points over resistance at  DJIA 26,400.

Stocks are likely making a first high now and then a secondary in various indices mid month, then look for a bit of pullback.

 

 

Energy Scores Big to Start November

Weekend Nov 3 2019

 

name	symbol	yield
Alerian mlp	AM:P	843
Canadian Nat Resources	CNQ	4.49
Mesa Royalty	MTR	12.45
MVO Oil Trust	MVO	16.43
Permian Basin	PBT	10.91
BP Prudhoe Bay	BPT	28

 

 

See my latest weekly newspaper column  in the previous post.   Above is a list of Master Limited Partnerships with their current dividend yields. No those are not typos, the prices are so low that has driven the yields so high.  All but CNQ are in single digits.  The most conservative approach is Alerian, 73% of holdings are in ten different MLPs.

PBT has been around since 1980.

Here is a monthly chart all the way back to the $140 price of oil and then its crash levels.AS you can see the price is now close to the 2009 and 2016 crash level. This pretty well sums up why I think this is a likely low.

xes

Okay the monthly chart has not turned up yet but..

Halliburton

The August low was followed by two inside m months.

Abraxas AXAS

AXAS is actually making money, trading at a 1.2. P/E, trading at 34% of book value. It closed up nearly 10% Friday.

Transocean is in trouble.

it may be that drilling comes back in time to save it but let's avoid it for now.

ACWX NOn US Equities

After a near two year correction, foreign markets are making a comeback.This also supports the idea that oil prices are ready to advance.

Well we could go on but I like energy as it has been the laggard and now is coming back. Tech stocks have been on a tear but are too high priced for me.

 Bellweather Apache APA makes 9 % move Friday

 

Socionomic Signs of a Bottom in Energy / Energy Service

Weekend November 3, 2019

 

Thursday Oct 31 2019, 10 00 AM CST

 

The Permian Basin economy declined for the sixth month in a row.

Karr Ingham, InghamEcon LLC

 

Almost half of the US fracking firepower is expected to be sitting idle within weeks. In the previous slumps, frackers parked equipment waiting for an upturn. This time it is different, equipment is being stripped for parts or sold for scrap.

Fracking Equipment Being Sent to the Junkyard, Bloomberg News

 

And that readers is precisely the kind of headline that accompanies a bottom in oil prices. Benchmark Patterson and RPC are retiring pumping units. Well no wonder the firms are trading below book value.

 

Transocean RIG is scrapping rigs that cost billions to build. No wonder it trades at 20% of book value.

 

Infill founder Joeph Triepke announces there is too much of everything from horsepower to sand.

 

In Odessa everything is being stacked from pipe to rigs to sand haul trucks.

 

Social Mood maxes out at the top and bottom of markets. The most intense mood occurs then. That results in comments like this one in the Bloomberg Article.

 

And next year does not look much brighter.

 

We’ll need to see oodles and oodles more attrition from other pumpers to clean up this market absent a notable demand boost.

Tudor Pickering

 

All of this is typical of conventional economic analysis. Economists tend to think in linear fashion. At bottoms there is nothing but an endless trend extending as Buzz Lightyear would way, to Infinity and Beyond.

 

The Philadelphia Oil Service Index is down after rallying some eight points (61-68) this month.   The XES has also turned down again. FRAK has turned down in price.

After brief rallies, Patterson and Transocean have pulled back as well.

 

However the S & P Energy Sector Bullish Percent Index is above its August low of 20 now trading at 46.

 

I may be early but for now this looks like an energy low is in the making for the last quarter   of 2019.

 

The US Economy registered a gain of 19% for the third quarter. Trump’s trade policies are to blame. The FED has lowered its overnight rate to 1.75%. The ten year Treasury trades at a 1..8% yield. What is the FED going to do if the economy in fact does sour a bit? Trump has what he asked for. He had better make the best of it and wrap up a few trade deals, declaring victory going into the 2020 campaign.

 

Yes the S & P hit a new high but rally and the Dow Industrials are a few points above the recent year-long trading range.   Uncertainties include trade, impeachment, interest rates, world social unrest (even Chile has joined the fray), and finally the election itself. Stock market momentum is up but it may be slow going in the election year.

Markets Have Positive Week,Energy Leads

Weekend 10/21/19

Regular readers are aware we have been expecting a low in energy prices by mid November. Looks like it is already happening.We have thee Economy ETFs ranked by their last week performance.  Energy service which has lagged all year is number one. This is the kind of low we have been  looking for.

Weekly Energy Service XES has not turned but look like it is in early stage of a bottom.

RIG and PTEN are as cheap as they ever get and have similar patterns.

XLE

XLE made a higher low amid all the negative news on energy.   Again this is what we are looking for.

Crude Oil

Focus on the red line that is the long  200 day MA. It has turned up above the other three, this is a positive. It appears the MAs are converging, now we need a move up in the other three.

Transports

Transports are finally making a new high confirming the new highs in Industrials, ie, a Dow Theory buy signal.

It appears that the long correction is ending.

 

Are Energy Service Shares Starting the Bottom We Expected?

Friday Oct 25 2019

Patterson

Can you see the change in social mood jumping off the page?  The low in energy service shares is probably already behind us. WE thought mid November but mid october may have been the case.

 

HAL

Here is another obvious clue, look at the huge day Oct 21

 

Let's Get Serious about Warren

Thursday Oct 24 2019

Let’s Get Serious About Senator Warren

 

Biden 21, Warren 28, Sanders 15, Buttigieg 10, Harris 5, Yang 1, O’Rourke 1,

Klobuchar 3, Booker 1, Gabbard 1, Steyer 1, Castro 1, Bennet 0

 

Real Clear Politics latest poll numbers today

 

Biden’s early lead is evaporating and let’s face it, the hard Democrat left never really wanted him. He spent one million dollars on private jets in just one quarter. Sanders had a hear attack and has likely seen his best numbers.   None of the rest are anywhere close to Warren. Warren is the best organized and is emerging as the probable candidate.

 

And she is hiring a Texas campaign manager.   This is hard to imagine in the state that has almost single handedly made the USA the lead energy exporter in the world.

 

Elizabeth Warren has promised to ban fracking on her first day in office. I suspect that would create lots of lawsuits but in the mean time the entire energy industry would face the wrath of the EPA (remember the Obama EPA staffer who promised to crucify energy producers?).

 

Her ‘everything is free campaign’, college, health care, child care, will no doubt appeal to the ten million plus female single, no matter how unrealistic the math. Would Texas vote to wreck its own economy?

 

Karl Rove points out that 350,000 Texans work in oil and gas. Another 100,000 work in refineries. And then there are the support folks in restaurants and repair shops. The State of Texas received $14 billion in state and local taxes and royalties. School districts took in $1.2 billion and counties collected $366 million.

 

As I write California Governor Gavin Newsom blames oil companies for his state’s $4+ gasoline, about twice what Texans pay. Requiring special grades unique to California is the real reason.   But progressives like Newsom and Warren are never satisfied.

 

The clean up in auto emissions was not enough. I see estimates that if Warren got her way, oil might reach $150, and no telling where natural gas might soar. Worse we would lose the long sought energy independence we now finally enjoy. And then there are the billion dollar export terminals along the Gulf which would sit idle.

 

Trains, planes, and ocean going ships do not travel on renewable energy. The promise to rid us of fossil fuels in ten years is a pipe dream but a Warren candidacy is not. Plan to get out and vote.

 

Meanwhile the price of oil is firming at the mid 50s. energy service shares are down hard again today. We remain focused on a mid-November low in share prices.   It may be the market is anticipating a strong Warren threat to the energy industry.

 

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