The Market Perspective

Oil Complex Further Weakens in Monday Trade

Monday Feb 10 2020

Brent closed at a new low while WTIC did not but did close under 50.

News from China what little can believed is terrible regarding the virus. Now the animal Pangolin is  blamed as the origin of this virus.

At any rate our comments from last Friday are spot on, 40 for WTIC is probably in the future.

Coronavirus Brings Impariment Write Downs in LNG

Monday Feb 10 2020

I warned that LNG prices could go even lower in my column Friday.

The coronavirus is wreaking havoc on already-battered liquefied natural gas prices, as a mild winter in the U.S.  combines with concerns that the outbreak in China is eroding overseas demand.

LNG prices hit $3 per million British thermal units late last week, a record low, according to S&P Global Platts. And an array of energy companies—from oil majors Shell and Chevron to export terminal operators such as Cheniere Energy and shale-gas producers like Cabot Oil & Gas—are trying to cope with the fallout, writes Ryan Dezember.

S&P cut its credit ratings on six of Appalachia's highest-volume shale gas producers last week on concerns of a supply glut and weaker projected demand growth. Prices may not rebound for years, the ratings agency said, posing a risk that lenders and investors might avoid funding gas projects.

As the world’s second largest economy—and No. 1 oil and natural gas importer—shows signs of a slowdown, a key price for liquefied natural gas in East Asia also hit an all-time low last week. The price drop rendered the compressed gas too inexpensive for producers to profit from spot cargoes shipped from the U.S., notes Wall Street Journal “Heard on the Street” editor Spencer Jakab.

Even before the coronavirus struck China, Chevron said in December that it was restructuring operations to focus on fewer prospects in the face of persistently low natural gas prices.

In the largest write-down by an energy producer in years, the company said it was cutting the value of several properties, including a planned facility to export liquefied natural gas from Canada.

Around the same time, Shell said it would take an impairment charge of around $2 billion. The company didn’t offer details about the post-tax impairment charge, but analysts said it is likely linked to lower projectionsfor gas prices.

The global gas collapse has broader implications. Many companies see natural gas as an important part of their journey to a lower-carbon future. If gas becomes a less viable business, it could slow the industry’s so-called energy transition.

— John Simons, London Energy Editor

Are Markets Topping ala Oct 2018?

Weekend February 9, 2020

NYSE Advance Decline Line

A positive jobs report and zero follow thru in the markets. See our Friday post noting TSLA at  183 times earnings and more volume than the next ten large stocks. That is a sign of some sort of bubble top.

Transports 2018

Transports today

After  an up down sequence in 201, Transports  made a high and then swooned. The same pattern exists now.

Ten Year Yield

Investors brushed off the China virus scare earlier in the week, now they have gotten more defensive deserting Transports, ships, trains, trucking, and are buying Treasuries back. Note the big4% drop in yields Friday from already ridiculous low levels.

US Dollar versus Canadian Dollar

The US Dollar moved to new highs against commodity based currencies like the Canadian loonie. Commodity prices fell

accordingly including energy and metals.

XOM finally showing its real weakness

It is said that XOM is not generating enough cash to fund investments, run the company, and pay the dividend. It did so in  2018 and  2017 by selling 19 and 16 trillion dollars of investments. Okay but how long can XOM do that and still replace reserves?

Elsewhere all things energy look terrible.

Energy service is way worse than 2009 and still falling. Look for  more bankruptcies.

TESLA

Tesla looks to have made a final island reversal top at the conclusion of a parabolic run up.

This is how bubbles end.

MSfT, FB, GOOGL, Apple and others need only to return to some normal rate of growth from this hyperbolic rate to slow the averages.

We think the markets have discounted all the good news about the economy, witness the sell off Friday from the good jobs number. And everyone who ever wanted to own Tesla, now does, not new buyers left. Market should retreat for a while.

 

Dollar Surge Threatens Commodity Prices

Friday Feb 7 2020

Dollar Surge Threatens Even Modest Energy Recovery

Friday Feb 7, 2020 6 52 AM CST

Liquefied natural gas is at the lowest price on record in Asia at $3 per million British thermal units BTUs. That is down from $20 six years ago.

WSJ Friday Morning 2/7/20

Legendary Investor Jim Rogers observed that commodity markets have to fall below the cost of production to finally make a bottom. This wipes out the bull market excesses off those who borrowed too much money. Their debt load forces them out of the game, bankruptcy or merger, as the ‘strong hands’ take over. This column has warned that low LNG prices might/would threaten the billion dollar LNG export terminals being constructed in Corpus Christi and elsewhere along the Gulf Coast. Sure enough, Cheniere symbol LNG (how is that for irony?) dropped 3.4% Thursday to a new recent low of $57.65.   Debt ridden Chesapeake CHK is trading at 54 cents.

The entire energy complex (crude ,heat, gasoline, natgas) registered lows this past Tuesday. Taking those lows out will suggest any hope of a mild temporary recovery has been erased, which we suggested last week. The low Tuesday for natural gas was $1.80. Over production and lack of transport to markets has overwhelmed demand and price continues to fall.

As we have so often observed, to make matters worse, the US Dollar has surged to a new high. Asian contagion flu has investors running away from all things China and embracing the US Dollar, up 1.2% Thursday. The last high was 99 on the dollar index. I expect that be taken out this next week. Commodities like gold, silver, and energy are priced in US Dollars. A stronger dollar means commodity prices fall and still maintain their relative values.

Even if crude manages a short-term rally from its oversold condition here at $50.95, the wave patterns suggest lower prices over the next month. As posted last week, if the $50 level falls, $40 looks likely.

Narrowing breadth is a feature of a topping stock market. Just five stocks, MSFT, AAPL, FB, GOOGL, and AMZN account for 18% of the S & P 500. And it is their continued rise and weighting that is powering the averages to new highs. This reminds one of the top in 2000 when dot.coms, GE, and MSFT dominated. Speaking of which, TESLA is now worth well more than the BIG three automakers in the US. $55 billion of TESLA was traded on Tuesday more than the next ten most traded stocks including several of the FANGS.

TESLA is now valued at 183 times its $4.10 earnings. This looks awfully frothy to me, especially as social mood deteriorates further at the end of the State of the Union Message.

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TSLA Falls Back to Stratosphere

 

EnergyWed Feb 5, 2020

Tesla shares fell  18 % after posting a new high on Tuesday

To have run up on the expectation of China sales in the midst of an epidemic in China speaks to the bubble action here.  A WSJ article today wonders the same thing.

Energy XOP

The entire energy complex was over sold and due for a bounce, This is likely the start of Wave 2  in  a larger five wave sequence to the downside. 223 where the MAs converge seems a likely target.

 

I do not believe this is THE LOW by any stretch, look for a corrective rally and then another dive to the downside.

NYSE Advance Decline

Apparently the world is not too worried about the Corona virus..Stocks snapped back in a big 483 point advance in the DJIA. And I suspect that is a vote of confidence in Trump, even though Nancy tore up his speech.

 

China Opens Monday

Weekend Feb 1 2020

Chinese exchanges have been closed for the  lunar New Year. They open Monday. As Everything China elsewhere in the world has sold off,  expect more of the same in China.

Ten year bond yields are the lowest in four months, copper prices are faling and gold is rising, all of this is negative economy wise.

This snapshot says it all for what happened Friday around the world.

 

The next table is a snapshot of what happened to Chinese Stocks Friday.

Next is our most reliable indicator, the NYSE Advance Decline Daily Line

Look for further bfreakdown here.

Weekly Advance Decline

The weekly chart is also breaking down, note the MACD at bottom.This could take a while to bottom out.

Crude Oil

The oil chart looks simply awful. It appears a third wave is underway on the daily chart. if that is the case, the 51 support area will surely be taken out.

Weekly Crude Oil

It would take a miracle to keep oil from falling through 51.  Forty is the next stop and the next stop after  that is 30. That is sheer speculation but it could happen.

As i recall the price drop from 2014-2016 was on over supply,  we still have over suply and now a potentail lack of demand. Everything transport wise fell this last week.

Transports

Okay just for the heck of it, is it possible that the top at  29,000 was in fact THE TOP for the last ten years.

 

The exponential moving  averages are higher than the simple. Let's consider whether this MIGHT BE a social mood top of more than just 'a correction' significance.

Remember there is always a mix of mood. While positive mood reigns as it has the last ten years, there are signs of negative mood emerging. Those of you old enough,  I cite1964-1966.   My Fair Lady and Sound of Music were winning Oscars. But the Man With No Name made his debut in 1964. The first spaghetti western a tale of violence, was so popular it was quickly followed by For a Few Dollars More. That worked so well another genuine Hollywood icon was hired, Eli Wallach, to join newly minted Clint Eastwood and Lee va Cleef, a star at last in Good Bad and Ugy. the final film brought in 25x what it cost to make. The mood had flipped from Julie Andrews to Lee van Cleef.

What is going on now?

Positive Mood

Check any popular stock website and the positive mood is evident, all go for 2020 just like  2019 screams the headlines. Unemployment is at record lows and new trade deals have been signed. And anyone with any money is in the stock market - big time. 

Negative Mood

But more signs of  negative mood keep popping up.

Moscow, Paris, Caracas. Hong Kong are all demonstrating against their governments.

Mood is the most polarized in the US since the late  1960s, the period following Good Bad Ugly that gave us Midnight Cowboy, the Exorcist, and the Godfather, all negative theme movies. The third Presidential impeachment in history will likely end this week with Dems still seething.

Epidemics were already spreading in South America, now in the world's most populous country, China.

England is finally out of the EU, separation is a sign of negative mood. And one wonders if Germany and a few small countries like Denmark can carry Portugal, Italy, Greece, and Spain.

The China model is not under attack, failure to forsee this coming an long simmering criiticism of Chinese accounting and reporting, all suspicious.

Commodity prices dropping in waterfall fashion, copper, iron, crude oil, and where will natural gas finally land.

Treasury prices are at multi decade highs with rates at decade lows.  Trump got his wish, if things do weaken, the FED has zero bullets left to stimulate the economy.  Buying of Treasuries evidence of a defensive mood. 

So the puzzle pieces are in place, whether this happens now or after the election remains to be seen.

I am out of town Sunday through Monday, next update Tuesday.