Happy Valentine's Day! Let's hope we can avoid a massacre!
It's another tricky day for the markets and let's pray we can end this day loving our stocks or we may all be heading into a bitter, messy divorce on a pullback.
Usually coming off a nice up day like yesterday I'm just hoping to hold our levels but these are not levels we want to hold. If we hold here – these "levels" become TOPS! I wrote an article back in December about how hard it was to break orbit and I recommend it to new readers.
At the time I predicted that Paulson and Bernanke's trip to China would be a success and we would be rewarded for flooding the world with dollars, even though everyone was panicking as China had just passed the Trillion dollar mark. That was 350 Dow points ago and it's now time to put up or shut up if we're going to break 12,700.
It's all up to Chair Man (my superhero name for Bernanke) as he and Super Banker (Paulson) work their magic this week in what I think looks like an optimum time to kick the markets up to a new level. While Bernanke likes to play tennis with the markets, enjoying the long volleys back and forth and waiting for the right moment to put a little spin on the ball, Paulson is more of a sniper and he likes to make a kill shot and move on. I think window may be right to kill the commodity rally but that will only happen if Goldman is done with it so today will give us some VERY telling signals.
DCX's Mercedes division is just plain tired of carrying Chrysler around like Marley's chains, so it would be a hell of a trick today as the markets will be haunted by the closing of 3 US auto plants and 13,000 job cuts. When questioned about providing benifits to the workers, Dick Cheney said: "Are there no prisons, are there no workhouses? If they are to die then they'd best do it quickly and decrease the surplus population!" Oh wait, that might have been Scrooge – I get those two mixed up sometimes (Scrooge is the one who changed for the better).
If we can get past this bad news, I think we'll be in pretty good shape. No matter what the crude inventory reports show today, we are probably going to have a big build in crude and gasoline next week as a big chunk of America takes a day off due to today's storm. In a country that uses of 20M barrels of fuel a day, taking a day off from driving and flying for just 20% of the population can back up 3M barrels.
Asian markets were led higher by Australia, who posted a new ATH, led higher by miners and other commodity producers as bets piled up against the dollar all around the world. SNE gained 4% in Japan as all those cheap semiconductors have led Sony to decide not to bother making their own anymore.
European markets are pretty flat. UBS had my favorite kind of earnings, the kind that sound bad but are actually great! Income declined 47% but that's because last year they had a huge gain from the sale some private banking assets. Even without those revenues, total revenue was up 15% and the company will be buying back 10% of its shares as they are way too cheap. We're going to let this come in and then make a long-term play.
A holding pattern is just not good enough and we'll be taking some protective puts if we don't get a breakout today. We can afford to be wrong and have the markets rally but it would be very sad to get caught on the wrong side of another 200 point drop:
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Dow needs to break 12,700! Not today but every day must show progress.
- Transports need to hold 2,850 and need to progress to 2,900.
- S&P needs to retake 1,450.
- NYSE needs to prove it's a leader by taking out 9,400 – Below 9,300 is no longer acceptable.
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Nasdaq must retake 2,475 but so what? Until we see 2,500 hold for a week, this is still one very woozy canary!
- SOX 460 must hold – this is sick canary number 2! 470 is our magic number, and that's only because we've scaled back expectations following a sort of Moore's law of diminishing SOX returns as they get 10x more pathetic each quarter.
- Russell is our co-leader and 810 needs to hold – 820 would be an authoritative move up.
I know it's a lot to ask but fool us 4 times and we have to start admitting we're just fools!
TOT had a drop in Q4 profits. Why? 2% production cuts of course – these are the sacrifices one must make as a shadow member of OPEC… Without beneficial gains from 13% ownership of SNY, the company dropped 10% this year vs. last year as costs climb (see Zman's post on the subject) and demand falls. Total pledges to increase output by 6% next year (+150Kbd), bad news for Saudi Arabia who can't afford to let their coalition of the willing fall apart on them.
Projections for oil today are for a 1.6Mb build in crude, a 1.8Mb build in gasoline and a 4.6Mb draw in distillates. Just worry about the net (-1.2Mb) but, by next week's inventory, winter will be looking over with "summer driving season" still 3 months away. Since hardly any NYMEX barrels have actually been used for 3 months (almost all contracts have been rolled forward as we tracked them) we could end up with our first ever 500Mb month in May. There's already 92Mb on order for that month and we are sure to pump April over 400Mb by next Tuesday. June offers nowhere to hide as there's already 102Mb there – it's kind of like trying to find space in your cabinets for one of those jumbo-sized boxes of cereal and you have to keep moving everything around…
Joe Rotger posted an excellent article on the contango game in Seeking Alpha today and I encourage you to read that as well as the links he has to get a real handle on the game that is being played here. Notice in this chart, how far away the reality of the current contract price is getting from the forward expectations – you can see the very literal pile-up of contracts in March and April and the early March compression wave that looks just like a car trying to slam on the breaks to avoid the accident ahead!
I'll be doing a review of ZMan's potential oil puts after the market opens as this review has taken longer than I thought but I promise to have us tee'd up and ready to go by 10:30 as it promises to be a wild day, both for the energy market and the broader markets!
We have to keep an eye on gold at $670 and the dollar at 85 as Bernanke begins two days of testimony but, if he doesn't drop a bombshell today, I don't think we'll get one tomorrow.
Let's be careful out there!
