Our suggestion that oil prices would bottom in early May has proven correct. A spike down to $43.76 on May 5, has quickly reversed to yesterday's close at $49.07. That improvement in price has not been enough however to stem the decline of energy and service stock prices.
Our suggestion that oil prices would bottom in early May has proven correct. A spike down to $43.76 on May 5, has quickly reversed to yesterday’s close at $49.07. That improvement in price has not been enough however to stem the decline of energy and service stock prices.
The XES Energy Service ETF bottomed May 5 as well at $16.57. But it has only managed to rise to $17.07 since. The energy producers ETF XLE had only gained a $1.25 from its low around $66.
I had suggested that the new kids on the block, Anadarko and Apache might offer more insight on price direction. Anadarko suffered from an accident in Colorado which knocked the stock down nearly 10 bucks, so that idea is out. Apache posted its high last Monday, having risen from $45 to just over $52. It closed yesterday at $49.92. This is troubling from a bullish perspective. The peak just over $52 is lower than the last high in April at $54. A pattern of lower highs and lower lows defines a bearish, or lower pattern.
And looking at various share prices, many are exhibiting such patterns.
The problem though exists on a much larger scale. The Trump rally from last November has probably ended, as well as the longer rally from March, 2009.
As we have noted, the Dow Transportation Index along with several other indexes, peaked March 1 around 9,650. It then dropped 900 points. One would never know that reading the rest of the financial media, all agog over Amazon and Apple. It then recovered to 9,300 or about half way to the former high.
And then the bottom fell out on Wednesday. The media is forever attempting to pin causality on some event. In this case the popular choice is President Trump who continually offers his critics garbled messages, sending them into another round of frenzy. The point here is that the peak and decline of the Transportation index forecast a change in market direction. All the taunts and charges in Washington are just white noise confirming what the internals of the market were telling us.
Transports dipped below support at 8850. The Industrials DJIA collapsed 372 points Wednesday. Interestingly one fifth of that drop was due to weakness in Goldman Sachs. GS is the most expensive stock in the DJIA. The DJIA stocks are price weighted. So the largest price had the largest effect. GS fell from $222 to $214.
Now what can we expect? A guess is that the Transports continue the recovery begun Thursday. The close was 8,825, yes, that support level again. Having breached it once, I suspect Transports will seek but fail to regain a bullish stance. Often markets after a sharp fall, re-test the breakdown area. A final failure signals further market decline.
Meanwhile in Saudi Arabia
President Obama turned his back on the Saudis, favoring Shia Iran. It is no accident that Sunnui Saudi Arabia will be Trump’s first overseas stop this week. And here are a couple of names to keep in mind regarding a re-set in the Middle East.
Saudi King Salman is 81. His son, Mohammad bin Salman holds the title of Deputy Crown Prince. The King has appointed another of his sons, Kalid, age 29 and a former fighter pilot, as ambassador to the United States. Clearly an all out family effort is underway towards regaining US support in the Middle East.
And Mohammad bin Salman MBS is planning quite a get together for the Trump visit. No less than 50 Islamic political leaders will be on hand to greet the President.
Another thing to remember is that it is the objective of MBS to diversify Saudi off its reliance on oil revenue in just five short years. Big investments in the US are planned. An IPO offering of part of ARAMCO has been discussed. And to set the stage for all this a genuine Western Style extravaganza over two days is scheduled.
No less than the Harlem Globetrotters will play a Saudi basketball team. And the group will be serenaded by Toby Keith, what could be more western than that ( I shoulda’ been a cowboy!).
Rumor has it that women may soon drive cars in this formerly constricted society. Saudi does not want a potential conflict with Iran occurring in Saudi Arabia. Seeking US support to avoid that is the aim of this gathering.
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