Unconfirmed S&P rallies like we saw Monday, often forewarn of just what in fact we got on Tuesday. That's why I pointed out (last evening) the 'divergence' of so many sectors (even the entire Nasdaq Composite too) that weren't going higher, in what we described as essentially an Oil-led solo-walk rally.
The inability to get things moving; and particularly the renewed story affirming a great difficulty getting even modest potential concurrence on plans to constrain oil supply at an upcoming OPEC + others Oil-producer meeting in Russia (we'll see if the lack of harmony compels cancellation of that March 20th gathering), was my primary reason of calling for a 'failing' Tuesday turnaround rally.
Clearly it was Kuwait stating they'll not go along unless 'every' OPEC member does (and we know that there are producers who said they won't but even as it regards Iran, they might revisit that given enough pressure from Moscow); that reminded us that the internal dynamics of the oil market (supply & demand) are not changed; but price came up primarily because of short-covering. That was a reason why we 'want' to see $50 / bbl. oil; but might not right away because it is a manufactured rebound (and has been all along).
In this regard, what lots are missing is that it's 'in' Wall Street's interest to bring oil higher, and enhance the ability of oil companies to service their bank debts, rather than having those subordinated to bond holder payments perhaps. It's a complex scenario that varies from case-to-case, but in-general banks are better served if the price of oil advances. Part of the problem with the market until this day was that recently 'only' Oil was advancing, which is why short-covering for sure matter, but there was only so much of that fuel remaining before traditional buyers had to show up (they mostly didn't) or risk oil setting-back somewhat.
In absence of other sectors participating, this had good odds of faltering. Earlier today I noticed that pundits were promoting the attractiveness of restaurants, of retail, or autos etc., and saw nothing particular to validate any of that...hence I'd suggested they were desperate to get a sort of rotation going on to supplement oil strength, which was already starting to wane slightly.
Bottom-line: last evening, without judging their motivations, I questioned 'why'firms like Goldman were parading analysts (first an economist Kotsin; then later the lovely Abby Joseph Cohen) to parody their 'optimistic' outlook for as much as a 5% upside goal for the year for the S&P 500. My thought; who in the world buys for a 5% move, if that's even achieved? The answer: basically nobody.
It wasn't to be critical of Goldman, but to highlights Wall Street's growing angst; which is why I mentioned how certain analysts tend to appear in public after a move, and when it's long-in-the-tooth, at least in the short-run. Yesterday was a day of that type; as so-noted. It's part of why I was skeptical of where we'd go in terms of upside; and (even before yesterday) felt the S&P would have some trouble getting through the 2000-2020 resistance zone; much less higher still.
In-sum: the short-term pattern's broken down 'slightly' as outlined. (See video, including the final which was recorded just as the NYSE closed today; but does cover all most points I thought particularly valid today. The 2 o'clock video gives more intraday info; as well as the interesting post-lunch pivot we though breaks as it did shortly thereafter.) We held our ongoing March S&P 2065 short-sale of course; and suggested shorting that rebound for those inclined to do so daily.
There are lots of variables in the days just ahead; including the ECB and later a new FOMC meeting. However, Oil is actually more critical than rates here. The miserable Trade Data from China was also a contributor; and to that extent Oil also dropped (besides Kuwait) if anyone 'thought' Chinese demand would rise. The macro conditions are correlated to lots of messes out there; including the High Yield risks, which are still out there too.
Tuesday (final) MarketCast
2 o'clock balloon (intraday) MarketCast
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