Friday January 31 2020
The Jury is Out
Crude oil closed at its lowest level since August, copper prices have fallen 12% since January 14, and the Chinese Virus Roils Emerging Markets.
Wall Street Journal Today
Our headline refers to the stock and commodity markets rather than the endless impeachment hearing.
Crude oil fell apart on January 8 dropping from $65.65 to $59.61. Yesterday’s close at $52.14 was another 2.2% drop. The problem is two-fold. The fears that the China Virus Coronavirus will spread has lead to reduced expectation of fuel consumption on every manner of human transport. Airlines, rails, trucking and autos have all been hit, not to mention casinos in Macau. West Texas Intermediate now sits right at former support around $51. Will this triple bottom hold?
The rest of the energy complex has fallen as well with unleaded gasoline trading at $1.50, down from $1.80. The most troubling event in the complex is the waterfall decline of natural gas. It has fallen from $2.90 in early November to $1.83 yesterday. That price set a new low for the move. The last big low was in 2016 at $1.61. That is the level to watch at this point.
This sort of analysis reveals the truth that low energy prices reflect a lack of confidence in the economy rather than a great bargain for consumers.
Copper prices have fallen 12% since January 14. Copper is an important economic indicator with China as the big buyer the last few years. Copper prices just had the worst eleven-day stretch since 2011. China will not be buying as much as it quarantines its giant cities.
The DJIA has fallen below 28,800 this Friday morning to 28,652. A weekly close under 28,800 turns the daily trend down.
Emerging markets have also been hit hard. The US Dollar has rebounded making foreign stocks more expensive. And the lower copper prices are also forecasting less growth in those markets
Industry giant Exxon Mobil dropped to $64.79. This is barely above the late 2018 low at $62. The ETF for FRAK, the Shale producers, has fallen from $11.60 to $9.77 threatening to take out previous lows under $9.40.
Overall the stock markets in the US are overbought, not having touched the 200 bar moving averages in years. The last visit on the weekly chart was in 2016. With the DJIA at 28, 652, the 200-week MA is 23,342. Given the uncertainty of all of the above plus the election, I would not disregard the potential for further weakness.