Oil is in the Driver’s Seat!!
Since last fall when it became clear the decline in Oil prices would be much more severe and long lasting than anticipated, we’ve heard from esteemed economists and market strategists, each smarter and more accomplished than the last, that an oil price decline of this magnitude would be a boon for consumer spending, and thus the economy.
In another piece of news which could drive up oil prices, the IEA revised its forecast for oil demand, and the revision called for demand to go higher. In its April Oil Market Reports, IEA experts:…
Demand for oil will be higher this year than previously thought, according to new forecasts from the International Energy Agency (IEA), released Wednesday.
Well……..we’re still waiting. Take Tuesday’s report on Retail Sales. Ex auto sales (with the average age of a car on the road at 11+ years, prime auto loans barely 3%, and terms extending to 7+ years, how can there not be brisk demand) March retail sales showed fractional improvement over the February deep freeze and nowhere near the windfall economists had projected if oil were still in the $50s 4 to 5 months out.
On the contrary, the stock market either never got the memo, or had the financial news channel on “mute” that day, as stocks have rallied, lock step in response to higher Oil prices for 2 to 3 months. Right now, Oil is on the verge of breaking above a crucial near term resistance level that could spark a $6 to $10 rally into the mid to high $60s.
Stocks have been testing upside resistance also, and don’t be surprised if a sharp move higher in oil sometime in the next few weeks is the catalyst for stocks breaking out of their range to the upside resulting in fresh all time highs. Don’t fret the economists and market strategists. If it plays out that way, they’ll have a perfect explanation for it.
Tuesday recap: Equity markets fought off a couple of earnings disappointments and an ugly first hour of trading to finish with mixed results on the day. Given where we were at 10:30 am the day felt like a decisive “win”. This was at least the 4th day since the beginning of last week when sharp declines in early trading were well absorbed by the market, leading stocks to recover to post at least modest gains on the day.
Nowhere was Tuesday’s recovery more dramatic than in the Transport sector.
The Transports have been a major concern for the health of the market since declining 6½% from March 20 to April 6 and breaking below their 200 day MA for 3 to 4 days. Tuesday, after an early 100 point decline, the DJ Transports were 1½% below the 200 day MA.
Fundamentals were beginning to reinforce the technical damage as NSC was -5% following a significant earnings warning late Monday. With CSX scheduled to report Tuesday after the close, It was a tough call to place bets long on the sector.
The contrarians were well rewarded, as by the end of the day the DJ Transports -0.1% at 8697.79 closed with just fractional losses and after the close CSX traded +2% to +3% after beating on 1Q earnings and revenues.
CSX Corp. said earnings rose a better-than-expected 11% in its latest quarter as the rail operator benefited from what it called “an improved pricing environment.”
CSX (CSX) reported higher-than-expected first-quarter earnings, raised its dividend and announced a new buyback program. The operator of 21,000 miles of track in 23 states said earnings per share minus one-time items grew 13% to 45 cents, a penny better than expected. Revenue of $3.03 billion ticked up from $3.01 billion a year ago, edging past consensus for $3.02 billion. The company raised its quarterly dividend 13% to 18 cents, effective in
Shares of CSX Corporation (NYSE: CSX) surged over 4 percent in pre-market trading after the company reported better-than-expected earnings for its first quarter and lifted its quarterly dividend.
The Transports are still not out of the woods, and “follow through” has certainly not been a market theme the last 2 months, but their reversal yesterday has to be respected as potentially the beginning of a turn.
Today, we start to accelerate the earnings calendar a bit, but as we saw with NSC, it’s just not the type of an environment where 1 big high profile earnings miss can send the market reeling for more than a knee jerk reaction. We should mention that INTC did report earnings inline to +$0.01 but a glaring revenue miss.
With the stock already -14% YTD, INTC rallied +3% after the close with investors relieved this quarter was now behind them.
In addition to individual earnings investors will continue to focus on the price and direction of Oil and the key resistance levels of DJIA 18,000, S&P 500 2100, and NASDAQ 5000, all of which are easily within reach.
Tim Anderson Managing Director TJM Investments, LLC
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