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Tuesday, April 14, 2015

Daily update 4/14 Global oil storage

It was a rather mixed day today.  After some early selling dip buyers came out to scoop up the bargains.  While SPX closed in the green many indexes did not.

SPX found support just above the 18 SMA.  Breadth was +59% which is a bit strong for such a mixed market.  Thus continues the fairly often breadth/price mismatches we have seen this year.  New highs dropped down to 82.  Just a reminder that during this 100 DMA buy pattern most of the time new highs dropped below 90 the bounce was over or very near being over.  This bounce continues to look very lethargic. 

The futures had one red price bar this morning which brought out the dip buyers.  However, the futures could not climb above the high of that red bar.  This looks like a neutral pattern at the moment which could still go either way.  Do we retest the high or break down below today's low first? 

The way the new highs dropped today I am a little suspicious that a retest of the high might end up in failure.  The upper trend line on SPX has moved down enough to correspond with yesterday's high adding some potential resistance.  With the difficulty the market has had rallying this year the bulls need to prove it is different now.  It is not clear to me that is the case.

I commented earlier this year about how breadth has been positive, but the market just isn't going up.  Here is a look at the latest breadth data.

Both the 10 DMA breadth lines and the McClellan oscillator have been green most the year.  Normally with breadth like this the market would be making steady progress higher.  The fact that we aren't doing that indicates it is not institutions that are buying stocks.  This looks like the footprint of retail traders and investors.  While most commentary I read is expecting this trading range to get resolved on the upside this does not look right to me.  Normally a trading range that breaks higher shows selling pressure that somehow does not break the market down.  What I call the invisible hand holding the market up.  This looks like the opposite case.  There is buying pressure in the breadth, but the market is being held down by the invisible hand.  In my experience that invisible hand is pretty powerful and rarely changes direction.  My best guess is that this trading range gets resolved to the downside eventually.  I guess we will see.

This chart of global oil storage is pretty interesting.


Oil stores have been filling up for the entire history of the graph back to 2008.  Clearly demand has not been keeping up with production.  I guess I have to wonder what was going on with price.  If oil in storage has been rising the entire time why did oil go from the 30s to over 100?  Not normally how supply and demand work.  Was some of the price increase simply global liquidity looking for a place to go?  It may take a while for demand to catch up with supply to put real price pressure on oil as opposed to liquidity price pressure.  Oversold bounces may continue to happen, but I still think oil will work lower over time until we see real production cuts.  At the moment everything I hear is everybody is still pumping as much as they can.  I think I heard the other day Saudi Arabia pumped more last month then they ever did before. It does not seem like we have the conditions necessary for a sustained rally in oil yet.


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