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Market Overview for May 6, 2016

This video covers the near-term outlook for the following securities in this order: QQQ, SPY, MDY, IWM, AAPL, GLD, GDX, UUP, USO & UNG:

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2 Comments

  1. pangblood May 7, 2016 11:13 pm at 11:13 pm

    Randy, I think the oil picture has slightly been skewed due to the wildfires in Alberta, where producers there are forced to halt production. What are your thoughts on this? Or do you think such events have little to none lasting impact on oil prices?

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  2. jegersmart May 8, 2016 5:00 am at 5:00 am

    The Canadian disruption would probably have a fundamental effect in a few months (a few companies have already declared force majeure, including Syncrude who run a very advanced converter business which is very highly leveraged), but as it is a sentiment driven market I wouldn’t rule out this supporting prices. Libya is in a bit of disarray recently as you also know and Veneuzela is a basket case economically. Longer term I am bullish oil, however I am going to come out and say that I do believe there is a greater chance than currently and seemingly priced in that we retest the lows and then some. I am not trading oil flat price at the moment as I do not understand sentiment-driven trading in this commodity well enough to bet heavily on it. At the end of the day price of crude oil is meaningless, it is what you can do with it that sets the price. That is why most professionals do not trade flat price, but rather the WTI-Brent spreads, crack spreads. calendar spreads and arbs etc. These all react better to fundamentals so are more easily understood. When you have $billions of dollars flowing in and out of ETF/ETP’s it tends to distort the fundamentals. A couple of months ago, there was such strong buying in USO that it drove the underlying futures market up considerably, which is the first time I and others have seen this. I have found that technical trading (that both Randy and I and many others use) does not work quite as well as in equities and related markets, but if you feel you want to trade flat price you might as well use the technical method because the fundamentals are hugely complex for the layman, the oil market is dominated by far fewer players and so making profitable decisions is very difficult.

    Remember also that bankruptcies continue in the tight oil plays, I don’t think $45-50 is going to save most of the weaker players and that there is a lot of hedging going on (selling forward) by most. It remains to be seen whether the hedging can steepen the curve back to where it was and beyond bearing in mind sentiment driven short term bullishness. At the end of the day, and very much imo we will know we are out of the longer term woods when we start to see backwardation driven by robust demand globally, however this will only really happen realistically when we start to see considerable big draws over a period out of inventory. Some of the financials I talk to are currently running oil production forecasts $10 up from here, and in my opinion is that this is because they are long and they are looking for an exit. There is a lot of money on the long side now that have no exposure to the oil price per se (in terms of their core business) that could start selling (and potentially flipping short) at any time.

    In the medium+ term, the outlook is pretty bullish in my view. When you consider that due to the huge drop in investment by producers in exploration (replacing barrels), selected majors have only replaced around 70% of the barrels they produced in the last year, and the longer this goes on the worse it will get because the loss of investment hasn’t even start to bite properly yet. Like most markets, this one also flip-flops hugely around the fundamental or “true value”. This is why I am of the view that the market is always *wrong*, only occasionally do we surf through the real value. If you look at HCLP, is the company as a whole really worth 7% more one day, and then 10% less the next day? Of course not:)

    This is why I am staying largely out of flat price trading, unless I see some desperation buying or selling (divergent highs/lows) where I feel a lower risk entry is in line with my risk tolerance.

    All imho, hope that helps.

    J

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