The Battle between North Sea Brent and West Texas Crude: North Sea Brent, which trades in London, closed at $105.78 today and at its highest level since late 2008. In stark contrast, West Texas Intermediate crude closed at $93.5 – widening the discount between the contracts to a near record of $12.28 a barrel.
Part of the explanation lies in rising inventories of oil in Cushing, Oklahoma, where U.S. oil storage facilities are based. Inventories have been rising steadily in the United States; and until Egypt’s Black Swan event last month which shocked the oil markets, West Texas crude was in a steady decline since mid-January.
Not all oil markets are the same. Increasingly, it seems that North Sea Brent oil is more representative of the true state of the global oil market. Investors should tread carefully if looking for oil-based index funds. They’re not created equally.
Such an interesting week. If you remember last Friday's report, I talked about whipsaw coming up in a symmetrical triangle. I don't think anyone would argue that that's exactly what we saw this week. The triangle is alive and kicking. They are so emotional, especially when over played on either side. Longs struggle. Shorts struggle. Lots of back and forth that plays on your mind. Usually causes bad outcomes. You get aggressive in a symmetrical triangle you pay the price, even though you probably didn't put on a bad trade. It just feels that way at certain times within it. Again, nothing aggressive. If you play only a few plays you can more easily deal with what's taking place.
The whipsaw week is caused mostly by the gap down off the top a little over a week ago. The Doji top, which was last Thursday, I believe, maybe Friday, set the ceiling, but the market has not fallen hard off this gap down. It has tested down to the gap just above the 50-day exponential moving average on the Nasdaq, but held with relative ease. It has tested back up twice to the open gap at 2808 on the Nasdaq, but both times it failed. Quite normal within this emotional pattern. The bears are failing at the bottom, which is the way it normally is while the bulls are doing their share by failing at the bottom of the open gap down. Nice to see everyone doing the right thing.
So the week is over and we are still slightly closer to the top of the range at 2808 than there bottom 2727. The middle. Makes perfect sense since it leaves us guessing about what's on deck. The week lived up to its billing, and I am afraid we are about to embark on a repeat performance for next week.
One real good thing about symmetrical triangles is that by the time they have matured some, the daily oscillators have taken quite the move lower from overbought conditions that bought on the existence of the triangle in the first place. If you study the daily index charts across the board it is easy to see that a lot of good has taken place as we have gone from overbought to nearly, but not quite, oversold. But bull markets don't always need oversold.
We have had massive reduction in price, but we have had a lot of strong oscillator unwinding as well, which is bullish bigger picture. If we had price racing down then that would be a different story. Not the case at this moment in time. That can always change but what has taken place thus far can only be looked at as a net positive for equities. Stochastic's have raced down from the high 90's while rsi's have raced down from the 70 level. You can't say price has raced down with that so it's good action for the bulls when you look only at the technical picture.
The title tonight talks about oil and employment. Let's take a look at both of these important factors in terms of how the market thinks of them at this exact moment in time. We were all on pins and needles waiting on that employment report this morning. I know I was as the market was expecting some very decent news.
The market received the news it was waiting for when the employment rate for those who are still looking was 8.9%. It doesn't count those who have given up, unfortunately.
The 192,000 jobs created were generally on target. That news took the headache of this potential worry and put it aside. The market was vulnerable to bad news on that front, so the bulls had to be excited about this situation being taken care of in a positive fashion.
The next worry being oil. This is getting completely out of control and is still a major issue for this market. We closed at 104+ on oil today. You really have to wonder when a certain price will take this market out and bring it to its knees. You'd think we have to be close, although the market is not reacting that way to be sure. At least not at this moment. However, there has to be a number where the market says enough is enough, and the economy just can't handle this any longer.
This is a MUST watch situation on a daily basis. There is real risk to the stock market with oil this high folks, so you don't want to get overly aggressive on the long side even though we're still clearly in a bull market. Some exposure, but not overly aggressive with oil over $104.00.
Some stocks had bad weeks and took on more of a down trend short-term, which is a change of character. But when you think about it, the market is holding up well so it's not wide spread. That's good, even if some stocks are suffering more than they have in quite some time. Every stock has bad times, even when they're bullish bigger picture. Usually happens to the stocks that have had the worst earnings reports in the latest quarter. The ones with the best reports remain quite strong in their patterns, even as the market sells off.
Stocks such as Google Inc. (GOOG) and F5 Networks, Inc. (FFIV) remain in difficult patterns along with many others from just about every sector. But again, the total picture is not bad at all. Just understand the pattern we're in and keep in mind how nasty the swings can be, while at the same time, keep an eye on the price of oil. Some exposure is fine. Nothing out of hand. Play appropriately and you'll be fine.
Do something nice for someone because you can every day of your life. Enjoy the energy of children if you get the chance.
Peace,
Jack
Jack Steiman is author of http://SwingTradeOnline.com (www.swingtradeonline.com). Former columnist for http://TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007. Sign up for a Free 21-Day Trial to SwingTradeOnline.com! (https://www.swingtradeonline.com/reg/AT)
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