Wednesday
January 7, 2015
1-855-RWT-0008
Prepared by the good people at Random Walk, LLC.
Great Morning !
Closing Prices From Yesterday
Today’s Number(s)
Yesterday
Spanking, but a light one. Please pass the markets its medication – it must have forgotten it the last few days.
The markets were nuts once again. Oil opened down and the market fell with it. Once oil rebounded so did the markets, with the Dow going up 70 points (E-minis +7) for a moment. After that brief ray of hope oil began to fall again with news coming from Saudi Arabia indicating that they were not going to scale back on drilling. This took the E-minis down 30 and the Dow down over 200 points.
At the end of the day Boehner was reappointed Speaker of the House, Obama indicated that he was boycotting the Keystone pipeline, and oil began to bounce a little. The Dow regained most of its losses, only to sell off once again on the close.
AAPL was up for the first day in 6, albeit only $0.01. Interest rates are at record lows, along with oil (for the last 5 1/2 years).
Below is two overlapping charts of the Dow and Oil. Notice the direct correlation.
TODAY
Let me check….NOPE…it is still January so I have no idea what the market is going to do.
That said…
The market does appear to be wanting to go up. As oil drops the Dow falls slowly, but the slightest bounce in oil and the Dow climbs 70 points from current levels. We get a day when oil is up $2 or $3 and the Dow will likely fly high.
Apparently the economy doesn’t care about a soaring dollar or low interest rates, which will be comforting giving that the Fed releases its minutes on interest rates today. No longer does the market have to worry about what Janet Yellen will say, rather we will worry when Abdullah ibn Abdilazīz of Saudi Arabia gets the sniffles.
It doesn’t matter if unemployment goes to 30%, but watch out if gasoline goes to $1 a gallon – that will be the doom of America. God forbid shipping food to market goes down in price and people with little money can afford better meals (as a result), it will ruin us. MY A$#.
Kidding aside, this is the type of insanity the markets go through. Sometimes the markets irrationally focus on one instrument regardless of the insanity. This time is is oil that is causing concern. The rational? 8% of the S&P is oil related. So a few companies have lousy earnings, who cares? It is directly and evenly offset by gains in airline stocks and money in consumer pockets. So in the end, oil can go to $30 for all I care, I still say it is a good thing (Unless you work an oil rig in the Dakotas).
The last time we saw this was in 2008. Robert Chastain and I were teaching a class and oil was at $145. Right at the highs Goldman came out and stated that every American should have oil in their portfolio as a hedge, much like they should own gold for an inflation hedge. We told the class that Goldman is not doing a public service message out of the kindness of their hearts. Instead, they were probably long oil at $145 and needed a lot of buyers to sell their position to. So we told the class it was time to buy puts. Within 5 months oil had fallen from $145 to 33.98.
Oil is one of the most volatile products there is to trade. It will go up and down. And when oil was at $145 a barrel the same idiots that are saying low oil prices are bad were telling us high oil prices were bad. They stated (correctly) how the high cost of oil was going to ruin the airlines, increase shipping costs of every product we see in stores, and cost a fortune to heat our homes. So how is the reverse of that bad? I will NEVER KNOW, or than the lousy 8% of companies in the S&P that need high oil prices for a profit. 92% benefit from lower prices (directly or indirectly).
What stinks for Exxon and Chevron benefit every other company, especially the airlines and automobile industry – which is having better than expected sales. Now SUV’s are back in style. Now everyone can buy a new F150 and not worry it will cost $100 to fill the tank. I hope Hummer comes back.
CONCLUSION
Yes we are following oil into the ground, but this is just insanity. We fell 1,000 points when the government shut down 2 years ago because Obama refused to negotiate, and instead just spread fear. He put all but a giant blanket over Mt. Rushmore, and prevented WWII veterans from seeing a memorial to make a point. This time we are down 650-700 points because of oil, and may fall a little. But it is just emotion, not intelligence. When the fear of the boogie man fades and people come to their senses, this market will bounce back all it has given up. I just don’t know the length of time for the insanity of crowds to come to their senses. I should have been a sociology major.
POT is held each Wednesday night at 7:00pm eastern.
A busy POT class tonight.
We are starting the year out with a game plan for the year.
Contract the office at 1- 855 – RWT – 0008 for more details.
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Damn…first cheap gasoline, and now this. What s the point of going to Venezuela if you can’t get french fries? I am surprised they even had them given that they can’t get toilet paper. It is not a problem if one has to use leaves in the bathroom, but God forbid no fries with the Big Mac.
