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Thursday, December 11, 2014

Daily update 12/11

The high TRIN brought out the dip buyers this morning as expected.  However, in the afternoon as the price of oil kept dropping sellers showed up in force.  Here is a look at the chart.

That was some rally out of the gate this morning after the gap up.  More often then not fast and furious moves don't hold up and so was the case with this one.  Breadth was 74% during the rally, but ended the day at 53%.  That was serious selling into strength.  There were 113 new highs and 211 new lows.  A lot of new lows for a day that started with a big gap up and still ended positive.  It is an eerie reminder of 2000.  Today ran up and kissed the top trend line good bye and ended slightly back below the 2012 trend line.  Kind of looks like sellers may not be done yet doesn't it.  Lets see what the futures chart looks like.

The futures zoomed back up through the 100 SMA.  They almost touched the 18 SMA before turning and running.  They ended the day just below the 100 and sold off a little more after the close.  They are currently 8 points below the 4 PM close.  I have no idea why.  This is a second failed rally now.  That may give the buy the dip crowd something to think about. 

The VIX crossed above its weekly 200 SMA (17.41).  The last cross in Oct. was the first weekly close above that MA since 2011.  With the close today of 20.08 it would take a monster rally tomorrow to get back below the MA this week.  A second VIX spike this close in time to the last one is pretty rare.  It is likely a signal that volatility in general is on the increase.  I expected that to happen after gold, bonds , FX and emerging market stocks went crazy last year.  Usually that ends up bleeding into developed markets.  Maybe now it finally is.  Something to watch out for.

The rapid drop in oil prices is starting to panic some people.  I have seen lots of people saying the bottom is near.  I just don't think so.  I will stick with the premise that production will have to be shut in first or we get down to $35-40 where it bottomed in 2008.  This chart was in Energy Bond Risk Soars To Fresh Record High As Stocks Slump To 20-Month Lows

That certainly looks like some panic there.  In Norway Central Bank, Slammed By Oil Plunge, Warns Of "Severe Downturn", Unexpectedly Cuts Rates I found this interesting tid bit.

The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge. As Bloomberg reports, Oeystein Olsen said today in an interview after a press conference in Oslo, "our job now is that we need to prevent a severe downturn in the economy... that is presently the major concern of the board."
New oil projects are being scrapped in Norway amid falling production and low oil prices.
Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.

If Norway is in trouble the much less well managed oil producing countries have got to be in very bad shape.  I hear the pundits on TV saying not to worry because oil producers are hedged.  In looking at the numbers I don't think that is entirely true.  Since nobody saw this coming it does not seem likely there was a lot of hedging.  Hedging is expensive if you don't need it.  I also suspect that the ones that are hedged are the better financed companies that could afford it.  The higher risk companies probably skipped that extra cost.  The producers are probably the ones slamming the futures every time they bounce a bit.  As I said the other day this really has the potential of a serious black swan event.  Stay tuned.

The short term trend is down.  It might not be wise to fight it at the moment.


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