The recent market rise was fueled by an intended "collusion." A combination of short-covering, higher oil prices, and what I'd describe as just a planted seed (phony oil-cut story out of the UAE last week). A story which occurred right at the crucial threat to break the S&P 1800 level. As likely intended, that created a 'double bottom formation' that indeed while hollow, was critical as occurring not only on the edge of another heavy break risk, but recognized as capable of a sharp rally. This was simply because it was at a last-ditch threshold and if held, would have the capacity to provoke (not so much spark) a sharp rally.
That rally of course was visible as on a dubious basis, so given what really was and is going on in the world, was not widely embraced (still isn't). It did ease an oversold condition; and (also not likely coincidentally) combined with the most important stimulant (reduced 'bond' fear in Europe, combined with a Deutsche Bank (DB) rebound that may be exhausting, but that's not the point,) which is that liquidity issues were tabled for the moment. Also that softened sovereign sales playing a role in US selling, at least temporarily); allowing the rebound we had.
Having the lack of any oil deal (even today media reported Iran thinking about it as opposed to reporting Tehran said they would not participate, while the earlier story said it was 'contingent' on having Iran and Iraq participate); and nothing at all regarding production cuts (rather than merely freezing historically high levels of course), nevertheless was followed by an Oil rally that we do welcome.
Late today (Wednesday) a report of a 'draw-down' of inventory contributes to a logical expectation for yet-higher oil early Thursday; which we're in favor of. I'd warned about the risks of selling or shorting oil after it got so low; countering a few firms that were bullish on crude at 100; and bearish as it broke 30.. to me it made no sense at all, even if oil did (or does) go lower in time.
As to Iran, their very smug approach is a sort of stick-it to producers as much as possible while hoping others curtail production levels, as they've not agreed to do. Saudi Arabia probably thought they put Tehran on the spot; the inverse is more likely. I think the point here is that there is no oil deal; but you do have an oil rebound. And you do not have any 'real' move to reduce oil production.
In-essence: fueling equities, is primarily a massive short-squeeze, and might very well be the best rally of the year's first Quarter; though it definitely takes an edge of 'panic', which is also what European central banks (Chinese too) very clearly desired going into this week. There was an unfolding global sell-off.
For the U.S., it's seasonally typical; but not technically typical (because 'natural' washout price discovery was clearly interrupted by the oil story 'inserted' last Thursday right as prices were at the edge of an abyss risking a drive off a cliff right into 'no-man's-land'). That means just as many trading desks were caught off-guard by the market plunging from the initial 2016 'brick-wall'; others were miffed that a suspicious (and non-existent) news story stopped a spill after they had finally (and belatedly) recognized a bearish liquidation tone to markets.
As examples of how views collided but inadvertently colluded; you had firms like JP Morgan (JPM) warning of a big plunge last week (just before announced that Jamie Dimond was buying shares equal to a year's pay); while Morgan Stanley (MS) was calling for risk of a short-squeeze. Ironically both were correct; even we indicated one shouldn't be short (for trading or scalping) ahead of a Fed Capitol Hill testimony; although ironically Chair Yellen's worsened the market's status, only to have it rescued initially by the planted oil story; and then by having theNew York Fed President (Bill Dudley) follow-up Friday with assurances that the possibility of NIRP (Negative Interest Rate Policy) would be only given unseen 'extraordinary' conditions, that he didn't expect.
That was quickly followed by a further stance of financial support in Europe for the banking picture there (Germany was the focus and we didn't think anything more was going to happen to Deutsche Bank, as in a sense it is a State bank for Germany, which is why it was incumbent on them to lead the refinancing of the captive nations; and thus questionable debt or under-performing loans that evolved over the years; especially as regards investments in Russia after Putin turned it into an oligarchy after many European investments were made, and all of that is before the post-Ukraine sanctions by the way).
Why summarize all this now? Because the basic concerns haven't changed; at the same time the psychology was interrupted; and then a seemingly organized financial orchestration chimed-in to support everything in terms of intent. Not surprising; as everyone at that point knew what the concerns where.
In sum: you got the bears essentially colluding with the bulls to fuel the move, with the question pending: will the money managers who were truly struggling with their fully-invested and sometimes leveraged stances throughout 2015 and doing little or nothing during months of distribution, or ahead of New Year's, use this rebound move as a 'gift' to allow cut backs?
2:30 (intraday + Fed) MarketCast
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