Weekend Dec 30 2018
Computer Trading Gone Wild
The Dow Jones has rallied 1400 points off its Wednesday intraday low and the Volatility Index VIX is still at 30. That ought to tell us something about the market environment we're in. One piece of bad news could easily send us back to the recent lows, so keep that in mind if you're trading short-term. Crude oil ($WTIC) is higher by 1.50% this morning to $45.28 per barrel, also remaining rather close to its recent lows - not a great signal for global economic conditions.
Tom Bowley, Stockcharts.com this morning
Energy
While speculation reigns whether stocks are in a bear market. there is no question that is the case in the energy market. As energy prices rose to $76, they led or moved in tandem with stock prices. Monday’s drop to $42.53 was suggestive that $40 will soon be tested. Yes price rebounded Wednesday only to retreat Thursday to $44.61. If the energy market is indeed setting the tone for the overall stock market, notice that many share prices are already below their 2008-09 levels.
XES Energy Service hit another low this week at $8.14. That is well under the 2008 level of $12. One statistic says it all, I filled my tank for $1.99 a gallon this week. That is an indication of low prices, plenty of supply , and a world-wide lack of demand.
Dan Neil in his latest Rumble Seat WSJ column, speculates that electric cars will be upon us much sooner than most think, noting major European cities are banning internal combustion engines over the next few years. Yes electricity will still be required but probably from natural gas powered generators. As he put it, that $70,000 fancy pickup may be worth a fraction of its original cost. In addition the maintenance cost for electrics, no fluids, no ignition system, no fuel system may make Mr. Gooodwrench a modern day equivalent of the 1900s Blacksmith. Are low crude prices forecasting just this change in oil demand?
Stock Market
The two weeks around the Christmas Holiday season is usually very quiet. Yet this is the worst December since 1931. The culprit is identified in Michael Lewis book Flash Boys. He describes the construction of elaborate high sped networks capable of trading thousands of stocks per minute for cents on the dollar. Algorithm computer programs make the decisions. This volatility is not being driven by Mom and Pop re-balancing their 401Ks. With professional managers on vacation, the machines rein, hello Terminator Trader!
But various indicators are at January 2016 levels so a temporary bottom may well be at hand. If so look for a rally into mid January. The extent of any rally should tell us a lot more about 2019.
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