Economic principles explain why the Saudis began, in late 2014, to pump crude as fast as they could – or close to as fast as possible. In fact, there is a good reason why the Saudi princes are panicked and pumping.
With global equity and especially FX markets underoing historic moves in the last two days, every trader's playbook has been tossed aside as setups and trendlines everywhere have been broken. So for everyone trading on nothing but momentum - which these days is most, and certainly all algos - here are some observations from BofA's chief technicial Stephen Suttmeier who says that with the S&P failing to breach 2,100 again, and having broken 2025, "all eyes are now on 1950."
Time will tell whether today’s selloff is the precursor to a real cannonball shot to the gut of the post-February rally, or merely a glancing blow. The cannonball scenario probably should not be dismissed, however, since the weakness is occurring from the right price levels.
Despite ongoing Central Bank interventions which boost asset prices and acts as a huge wealth transfer tax from the middle class to the rich, corporate earnings are a direct reflection of what is happening in the actual economy. Wall Street has always extrapolated earnings growth indefinitely into the future without taking into account the effects of the normal economic and business cycles. This was the same in 2000 and 2007. Unfortunately, the economy neither forgets nor forgives.
BofAML's Stephen Suttmeier views the 61.8% retracement of the May-Feb decline at 2010.72 as critically important. A failure to close above this retracement would send a bearish message, especially given negatively positioned and falling 100 and 200-day moving averages.