The VIX and oil prices seem unshakeable. In the last month of geopolitical “crises” around the world both have moved little, and whatever movement they did have to the upside, has been retraced. Both the market and the oil market have absorbed the bad form of those who wish to die for and kill for the political beliefs. I might as well throw gold in too, as it has moved little relative to the “world falling apart.” The takeaway from this is there is little fear out there among investors, even when the bullets fly and people die.
- U.S. stock index futures edged higher on Tuesday following better-than-expected results from companies such as Pfizer and Merck.
Earnings are coming in strong and the US economic data is steadily positive. These might be two reasons the market is not showing its fear through the VIX. But why is oil not reacting to the hot spots flaring around the world? Why is the price for light-sweet crude remaining stable? In the last six months, the price for light-sweet crude has ranged between $96 and $106. A $10 swing is hardly big volatility.
- Record U.S. refining run is driving down gas (NYMEX:RBQ14) prices even as oil prices rise due to geopolitical risk. The Lundberg survey shows that gas prices have fallen 9 cents a gallon in the last 2 weeks.
I am curious, what rise in oil prices is the news above referencing? In the past ten days, light-sweet crude went up to $103 and is now down to $101.
As to my point, though, the refining capacity of the US per se is not a big reason for the price stability of oil, but it does speak to the one big reason oil prices are remaining stable – the US is pumping more oil than it has in three decades. This adds to the supply and therein is the reason. The world is awash in oil and demand is slowing, even if that slowing is fractional. Now, this brings up an interesting point – perhaps the bad geopolitics of the word is affecting the price of oil, but because the supply and demand equation is shifting, the price of oil is peaking.
If this is true, then perhaps we should expect a sizeable drop in the price of oil this fall when the peak driving season in the northern hemisphere ends. If this happens, say, oil drops to between $70-$80, or even $80-$90, then how will that affect the US consumer? How will that affect the market? It will be one more impetus for the market to continue its upward trend.
- The trend is CLEARLY up and given the run that this market has enjoyed, this remains a bull market until proven otherwise.
Yet, beware, as the technicians out there will tell you they have found historical chart-pattern comparisons that suggest the market is headed for a crash. Just look at 1950, 2000, and 2007, for example.
- Market technicians love to take the current chart patterns and look back at history to try and find charts that display similar tendencies. This is often referred to as seeking out the “nearest neighbor” to the current market.
Not that I haven’t mentioned this before, but what happened in those eras is completely different from what is happening today. In fact, it is unrealistic and rather short sighted to suggest, for example, that what happened in the market in 1950 is even anything remotely similar to what is happening today. The influences then are not the influences now. I would argue the same for 2000 and 2007. Keep this in mind when reading those who predict market movement on such a basis.
- Vacation season is in full swing and those traders still at their desks are likely waiting to hear what Ms. Yellen has to say this week.
The above brings us back to another point I have made this summer – this market is in summer mode. Keep this in mind as well when you are trying to figure it out and keep it in mind as we finish up summer this next month.
As I write, the Dow has taken a sudden turn from strong green to red. Some news must have come across the wire that I am missing. A quick look at my alerts tells me two things have come in.
- EU Agrees to Curbs on Russian Banks, Export of Some Technology.
- Consumer Confidence in U.S. Rises to Highest Since October 2007.
I must be missing something. Unless sanctions for Russia’s bad form is something the market truly cares about, then the downward move is, well, the bears of summer making a move while the bulls are sleeping.
In any case, the market is often inexplicable, as it R us, and humans, well, we do some crazy and stupid things sometimes. Just look around the world and you will see that.
- The rocket fire began late Saturday after Gaza’s Hamas rulers, who have … After initially rejecting an Israeli offer Saturday for a 24-hour truce.
Trade in the day; invest in your life …
