• November 21, 2019

ELAM: Markets shrug off bad news, move higher - Odessa American: Dennis Elam

ELAM: Markets shrug off bad news, move higher

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Posted: Sunday, November 10, 2019 5:00 am

Another week, another few scandals emerge.

Mattel and its 145 year external auditor, PwC, hid accounting issues. The firm is under investigation.

Under Armor is under investigation for its revenue recognition practices.

McDonald’s CEO resigns over “an inappropriate relationship” with a staffer.

If it were not enough to have riots from Moscow to Hong Kong to Santiago, now we have fights breaking out at Popeye’s over a chicken sandwich.

This news prompted a headline in my Professor Elam weblog, Can’t Anyone Behave? (Scandals are a product of hyper social mood at market highs. Participants case aside behavior norms and take an anything goes stance.)

Finally a private equity group proposes to take Walgreens private. If so, this would be the biggest private equity deal ever at $70 billion. Social mood is inclusive at market highs where most mergers and take-overs occur. With the DJIA at 27,600 it is fitting the biggest deal ever is proposed.

All of this has the stock market surpassing that pesky 26,400 DJIA level and moving today to 27,600 more or less.

Let’s consider stocks first. The SPX set a new high at 3,093. Ten-year Treasury yields are re-testing their September high at 1.9 percent. While Trump has been scolding the Fed for not lowering rates (why with a strong economy asks the Chinese), this looks like a 40-year low in rates to me.  In Dow Theory terms, transports hit a new high at 11,163.

At the same time, defensive sectors of utilities and gold are pulling back. This is more confirmation of an industrial advance.

Emerging markets fell throughout 2018. Now EEM, the emerging market ETF, is nearing a break to the upside at 44. Again this reflects world market strength.

Regular readers will remember we have been calling for a low in oil prices recorded in August and October. 

As I write this morning, crude oil is down 75 cents at $56.40. We look for a pullback in to mid- to- late November. That would create what chartists call a fourth higher low.

The moving averages on the crude oil price chart are converging. This happens prior to a change in trend. All of this supports our view that given renewed industrial strength around the world, oil prices will be moving up. This, of course, is the opposite of what the mainstream media has been reporting with slowdowns in energy markets across the board.

The bear market in energy service has done its job of clearing out the weak sisters who took on too much debt and lacked cash to sustain themselves.

This past week, beleaguered Chesapeake issued a going concern statement. This means CHK cannot pay its bills for the next year. Weatherford is in bankruptcy. Eagle Ford stocks are either at discount or below book value.

Keep your cash ready, an important low in energy shares is at hand.

DAILY OIL PRICE: November 21

Note: The December Contract has expired, and the January Contract is now prompt. Today, the January Contract price increased by $1.57.

Prompt month to prompt month increased by $1.47.

  • Crude Oil: 58.58 (+1.57).
  • Nymex MTD AVG:  56.9643.
  • Natural Gas: 2.567   (+0.008).
  • Gasoline: 1.7044   (+0.0481).
  • Spreads: January/February   (+.17)   February/March   (+.39).
  • Plains WTI Posting: 55.00   (+1.50)
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