Event Horizon
It was reported this week by the Finanical Times [11] that Wall Steet Banks are delving deeper into the business of supplying oil as they increasingly compete with oil traders and merchants selling crude to refineries. For example, “JPMorgan, Morgan Stanley and Goldman Sachs have all recently struck deals to supply US refiners. Goldman Sachs is now the largest supplier of crude and the largest customer of refined products for refineries owned by Alon USA in California, Louisiana and Texas.”
Morgan Stanley and JPMorgan are lobbying regulators to remove from the Volcker rule “forward” commodity contracts for future delivery of stock. This would allow banks to trade these contracts for their proprietary accounts. The Volcker rule currently prohibits this. Morgan Stanley recently complained that restricting the banks’ ability to compete in commodities forced customers to use “trading houses, energy merchant companies, oil companies with trading desks, or other types of traders.” So, on top of warehousing copper, nickel, pot ash, etc, the banks are moving to further control the oil industry. (Wall Street banks step up oil trade role [12])
Market-Moving Forces
Are we in a recession? Doug Short’s analyzed four economic factors which together indicate the economy is in a recession and concluded that, no, we are not. Doug wrote,
“The ongoing debate about an impending recession in the US grew more conspicuous last week when ECRI's Lakshman Achuthan not only reiterated his company's recession call, but also went so far as to declare that we're already in a recession. Here is a link to his Bloomberg TV interview [13].
“The official recession calls are the responsibility of the NBER Business Cycle Dating Committee, which is understandably vague about the indicators it tracks for recession calls. This committee statement [14] is about as close as they get to identifying their method.
“There is, however, a general assumption that there are four big indicators that the committee weighs heavily in their cycle identification process. They are: Industrial Production, Real Income, Employment, and Real Retail Sales...”
Are the Big Four Rolling Over?
[15]
“As of the latest data, no, they are not collectively rolling over...” (See Doug’s “The Big Four Economic Indicators: [16]What They're Telling Us about a Recession [16]” for more charts and details.)
Charting the Universe
Scylla and Charybdis [17]
By Springheel Jack
Most of the Elliot Wave analysts that I watch are abandoning counts showing significant further declines this year, and they could be right. Nonetheless, the overall technicals look grim and the fundamentals seem weak. It's hard to see a big move up over the rest of 2012. The UK is finishing the third quarter of a recession, and the EU is most likely also in recession. The US economy looks weak and may drift towards a recession, with the ECRI predicting that the US is already in recession. Doug Short points out [16] that the U.S. is not currently in a recession, but the ECRI view is worth noting. It was founded in 1996 and has correctly predicted two U.S. recessions since then with no incorrect predictions between. Stock markets historically don't do well in recessions.
On the technical side, there are four main related markets that I tend to watch as indicators of market health and they all look sickly.
The first is copper (positively correlated with equities), where I posted the large head and shoulders pattern [18] (H&S) forming there last week. The second is the US dollar [19] (generally inversely correlated with equities), which is showing a very bullish looking technical picture. (For the full analysis along with charts, click here. [17])
Did You See A Bear? [20]
The signals generated by Allan Trends are similarly on the verge of turning bearish, and his subjective analysis (which is not a signal) is for future declines in stocks.
"So what’s with all of the charts to start off this weekend’s comments? Taken as a whole they paint a portrait of a very unhealthy market. That doesn’t mean it has to go down on Monday, or next week, or in the next month. In fact the trend models of the major stock indices are mostly Long. But it is not the picture of health. I think it looks like a market in transition from a three year rally to a long decline.
"The mantra here is not to let such observations control trading decisions..." (More here.) [20]
Visit us at the new Market Shadows website. [21]
A VIRTUAL portfolio of MS's trade ideas can be followed here [22].