Market Briefing For Friday, March 10

Swelling crude oil inventories certainly contribute to the majority of fears about economic slowing and of course the XOI's influence on the market big caps. But it's not that simple. First on Oil; it's been rising supply rather than slackening demand, that contributes to that aspect.

Even the Saudi's in a clear-cut comment yesterday (that really accelerated the Oil decline) lambasted the Americans (how dare we, right) for increasing 'Shale Oil' exploration quickly, which hurts their plans to use any tactic they can, to hobble our Petroleum Industry as much as they'd like. Oilmen aren't in a 'cartel' here, and they are a feisty entrepreneurial bunch; pretty much sticking it to the Saudis or OPEC just as quickly as reasonable price allows.
 

This highlights why I've often said the American consumer (and the naive in media who cherish low gasoline prices every time they arrive 'as if' that's a good thing) should fear what they wish for; since allowing our Oil industry to be hobbled, is exactly how we got high retail fuel prices years ago in the first place, when the Energy Crisis was thrust upon us as OPEC declared 'war', in a time when Washington advised sweaters and resetting thermostats, not a head-on confrontation by simply refusing to buy Oil from them, even if for a time we had to issue WW2 style ration coupons. (We also did at a point.)

It was another example of weak leadership that valued comfort; not putting a cartel in its rightful place. Today North America (all 3 countries) basically are self-sufficient; so strong leadership could tell OPEC to 'go fish', more or less, and rely on slipping-demand from China and India to buy their Oil.

For us this pattern isn't long-lasting; as already you have traders who were urging buying (we observed both high inventories and a struggling technical pattern that could have broken higher but did not) but now flip-flopped to call for 40 or even 30 oil, which pretty much ensures you are unlikely to see that especially with gearing-up for the Summer driving season coming shortly.

But there are other issues; and too many naysayers. That sets-up periodic short-squeezes like you saw today; after a couple strategists outlined panic and disaster prospects. Sure, those kind of 'bubbles' exist, but dismiss the economic realities that prevail for now, until serious growth materializes. It's a conundrum, because the 'actual' growth the market's advance anticipates, is, should it transpire, be what breaks the back of the market for awhile.

But I doubt it's a Fed (Yellen-based) attempt to topple the Administration, or any of those extreme viewpoints out there. Let's presume we have a neutral at best economic environment; with lots of optimism among 'real' people for a better future, but skepticism (logically) about market valuations, after our over four-month post-Election upside thrust. So now these strategist views come forth... well not surprisingly most have been skeptical all the way up.

Now that doesn't mean this isn't a developing 1937-style situation; nor that a serious correction isn't in the wings, but it does suggest that the 'stair-step' pattern correction we've been experiencing (began before the post-Speech rally, and it was that thrust we called a blow-up that should see fading and a consolidation at minimum. Then a rally, which did fail so far, and now more of a soft-patch induced by Oil's decline, and not much else, which is why we'd made a point about NASDAQ strength).

In-sum: the market is simply hovering after a reasonable retracement. It is doing so even in-absence of a rebound we'd hoped for in Oil (though might still develop given how bearish everyone suddenly got on Oil). Yes it could crater if the 'algo' crowd responds to technical breakdowns on a broad basis but if that's coming... well that is not 'yet' the case.

So why oppose the idea of a gut-wrenching panic of historic proportions? In a sense because it would not only be based on monkey-see/monkey-do sort of liquidations by institutions (who generally got into the move belatedly); but it might not realistically reflect what's beneficial in the slow gears changing the future perceptions of growth and economic leadership for the USA.

In that regard, sure, we'll respect and anticipate decline; but doubt it has any prospect of being a repetition of the worst-case scenario; barring exogenous event risk. And I say that not as a 'cover' for a possible decline; but really as it makes sense. You have a determined mindset (here and in the UK too) by those who still believe in entrepreneurial growth or less Government dictate, that has an opportunity (probably the last best chance to do this, very much as Trump has claimed, regardless of his other shortcomings) to right the US ship. The market has known this since Election Day as I've proclaimed, and the skeptics or improperly-positioned strategists have in-common a plunge idea; because some believe it and others need it (for buying purposes).

Bottom-line: We recognize the extent of 'risk', which is why I've believed we must see not just 'Healthcare', but 'tax-reform' sooner rather than later. If it's later, then yes, you'll still get a subsequent bull move again. But after what in such a case could be a deeper and more protracted decline than if they get it together in Washington, and move forward. Either way the market likely is not going to see much higher near-term prices overall and we're talking of a 'degree' of evolving correction, even if we get a decent rebound for now. Of course a lot will hinge (for the moment) on how goes the Oil market.