How do we keep ending back at the same spot?
Is it a good sign or a bad sign to revisit 4,200 on the S&P 500, over and over again? We've been doing it since mid-April so an optimist would say we're consolidating for a move up but a pessimist would say we've been to the mountaintop and we're paying market multiples that can only be justified in the promised land – but we may not get to the promised land and, right now, we're paying a lot of money for a stock market dream.
Since we have been up here for almost 50 days, however, the 50-day moving average has been dragged up to meet us – all the way to 4,121 at the moment but the 200-day moving average remembers where we've been – and that's way down at 3,748 – more than 10% below where we are now. The problem is, if the 50 dma rises to 4,200 and then we can't move any higher – we will slip below it and fall into that very wide gap with no support until we hit that 200 dma.
So that's what we'll watch out for but, as long as we stay over the 50 dma – we're in good shape and it will take an 80-point (2%) drop to get there – not likely to happen in a single session so we're still basically bullish – though not foolish enough to pay promised land prices for new positions, right?
We'll have a look at the Fed's Beige Book this afternoon during our Live Trading Webinar with Bill Olsen of Newsware and you can join us HERE at 1pm, EST, where we'll show you how to use the news to make profits in the market.
We caught a nice $1,000 per contract drop on Oil (/CL) yesterday and that was a news-based trade we discussed in yesterday's Morning Report and this morning we have a chance to re-short /CL at $68.50 as we can see from the news that the only reason oil popped back up is a statement from OPEC that they expect a resurgence in demand – a statement not backed up by the evidence so far. As noted in "DJ Oil Edges Higher, Though Infection Rates, Iranian Supply Risks Loom — Market Talk":
"Bullish over-confidence of a tight oil market
could be a bit premature," says Rystad Energy's Louise Dickson. "Demand
euphoria is still receiving daily doses of reality as Covid-19 cases are
boundlessly spreading in India and other parts of Asia," she says, pointing
to numerous lockdowns in major economies. The threat of a breakthrough in
negotiations between the West and Iran, opening Tehran's export tap, would
meaning "traders will have to retract some of their oil pricing."
When we see oil moving higher and we scan the news and find no other reason than the one they had yesterday to push it higher – we can assume we'll fail at the same turning point ($68.50) as we did yesterday and, since the bad news isn't worse than it was yesterday, we can assume that we'll stop falling at about the same spot ($67.50) unless something changes as well. Yesterday, OPEC agreed to a 450,000 barrel per day increase in supply, justified by what they expect to be higher demand but now we're bringing back half of the 9.7Mb/d OPEC cut last year (9.7Mb/d) to keep supply in line and this, like market multiples, is a gamble – betting on future demand that isn't actually evident yet.
A technical committee of the OPEC+ group forecast on Monday that oil demand would jump by six million barrels a day in the second half, according to OPEC delegates. As a result, global oil stocks will fall below their five-year average for the 2015-2019 period by the end of July, signaling an end to the pandemic glut, they predicted.
We'll see if demand actually ramps up as quickly as OPEC hopes but, meanwhile, consider the fact that they have almost 5Mb/d of production capacity still unused. That means the threat of a supply disruption boosting prices should be practically zero but there's still a lot of that priced into the oil market that shouldn't be there and people may start driving again – but if they are driving electric cars, that isn't going to help OPEC one bit, is it?
