Oil down 5% Unnerves the Year End Rally | Tuesday 12-8-15

While Oil settled moderately below $40 on Friday following the OPEC meeting in Vienna, it made no attempt to regain that level Monday, starting  2% lower and heading south all day, finishing with a 5%+ loss on the day.

Peripheral OPEC members all but pleaded with the Saudis to agree to production cuts in order to tilt the supply/demand equation.

The Saudis would have none of it, knowing  that Russia is too in need of cash, and a rise in the price toward $60 would only bring marginal fracking operations in the US back on line.  OPEC has lost its pricing power, supply is everywhere, and the Saudis have transitioned from swing producer, managing a soft cartel where everyone cheats to the low cost player driving a Global Market Share game.

Oil down 5% Unnerves the Year End Rally

Maybe they’ve been studying the life story of Amazon and Jeff Bezos.

The decline in broad market averages Monday was as uniform as the 2%+ move higher was on Friday as The DJIA, S&P 500 and NASDAQ all lost -0.7% to -0.8%. While we didn’t quite have a 1% move in the major averages to match the first 4 days of the month, there was plenty of volatility to go around:

Oil down 5% Unnerves the Year End Rally | Tuesday 12-8-15

The Oil Service Sector, OIH  fell -4% with some names in the space having declines of -10% to -15%.

Natural Gas, already an investor killing field, also declined 5% as like with Oil, supply is everywhere and moderate temperatures the last 6 weeks in the Midwest and Northeast has early season heating costs from Nat Gas and Heating Oil lower by as much as 25% from last year.

Oil down 5% Unnerves the Year End Rally

MPLs continue to be in a death spiral with many quarterly cash payments almost certain to be cut.  Industry leader KMI traded at an all time low Monday, and dozens of other names are at 2 to 3 year lows.

The DJ Transports; 7884.78 -0.9%, have closed below the 8000 level for 3 straight days.  The Transports managed only a 1% move higher Friday when the major market averages all rallied by +2.1%. While the Transports are still above the August and September lows, we must watch closely the immediate support level of 7800  which held the intraday lows the last 3 days, and below that, the 7675 – 7700 level on a closing basis, which is where the Transports held during the September sell off.

Oil down 5% Unnerves the Year End Rally

The Russell 2000; 1164.30 -1.6%, is also a point of concern.  After showing a 3% gain in November vs. a flat S&P 500, the Russell is down 3% 5 days into December while the S&P 500 is less than flat, by the smallest fraction.

Even if the S&P 500 were to make up the 2.5% gap and post a fresh all time high by year’s end, it will be a hard sell that we’re starting a new leg of the secular bull with the Russell 2000 10% below its all time high of 1295.80.

Oil down 5% Unnerves the Year End Rally | Tuesday 12-8-15

The Early Line: European markets are off to a rough start in early trading as Global Mining behemoth  Anglo American Plc has announced it will suspend its dividend through 2016 and is looking to make $5 billion is asset sales.  The stock is down 5% midday in London, trading at its lowest level in 15 years.

Other mining and mining equipment stocks are lower around the globe while investors look for collateral damage, and maybe a few pockets of opportunity.

US Equities appear likely to test yesterday’s lows in the first hour of trading, with futures anticipating a 150 point decline in the DJIA and close to 20 handles lower in the S&P 500.

We’ll quickly see how much fortitude the “buy the dippers” have in the first 30 minutes, and as the day goes on whether what’s left of the bull market is running on fumes or high octane.

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