• September 18, 2020

ELAM: The Bear emerges from hiding - Odessa American: Dennis Elam

ELAM: The Bear emerges from hiding

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Posted: Sunday, September 13, 2020 5:30 am

U.S. oil prices have slid 12% since the end of August, and on Tuesday notched their biggest one- day drop since June.

The NASD and the S&P both fell for four of the last five days.

Oil Traders Brace for Turmoil, Tech Stocks Lead Lower, WSJ Friday

To understand the oil market one needs to look at the entire complex of crude, gasoline, and heating oil. Unleaded gasoline in particular tells the story of a market unable to sustain a rally. Gasoline futures peaked along with stocks in February at $1.80. Prices fell into late March dropping to $.50. A countertrend rally could not penetrate the falling 200-day moving average. Since August, the price has peaked at $1.25 and now $1.10. As we have noted over the years, falling energy prices are indicative of a weak economy, not the other way around.

We noted that among the major international oils, a drop of a dollar or two, no matter which stock, would break fragile support that existed through the summer.

That has now happened to XOM, COP, CVX, and BP. As with gasoline, all are below all four moving averages I track. This suggests much lower prices ahead.

A front page WSJ article notes “the jobs recovery loses steam.” It did not take long for Brooks Brothers and J Crew to file for bankruptcy. Less noticed are thousands of smaller businesses suffering from slow down. Dry cleaners, shoe repair, taxis, and rent cars all suffer from reduced air travel, hotel bookings, and empty restaurants. Luxury goods are hard hit with LVMH backing out of its $16.02 billion takeover of Tiffany.

September is a seasonal down month. October is known for famous lows such as 1929 and 1987. The DJIA topped Sept. 3 at 29,199, falling 1,100 intra-day points. This column spent the summer warning of narrowing breadth. It took until that day for the FANG stocks to reverse. The DJIA on Thursday closed at 27,534 down about 1,650 points from the Sept. 3 high.

Momentum indicators are being quickly over sold. Expect some size upward bounces, but I doubt a recovery is in the cards. Our proxy stock Cullen Frost topped around $95 in February, dropped to $50 in March and recovered to $85 in June. That is when the vast majority of stocks excluding Techs, topped. Now CFR has fallen below all four MAs to $67.74.

Banks are indicative of social mood. Positive mood has companies borrowing, negative mood, bankruptcy, well not so much. And CFR earned $93 million last quarter. It appears poised for lower prices, much like oil stocks.

As an aside, lake front property is seeing a boom in demand. Real estate is a second derivative of the stock market. I suspect many are paying a premium for those properties now even as the stock market issues an early warning of trouble ahead.

DAILY OIL PRICE: September 18

  • Crude Oil: 41.11   (+0.14).
  • Nymex MTD AVG:  39.4410.
  • Natural Gas: 2.048   (+0.006).
  • Gasoline: 1.2366   (+0.0122).
  • Spreads: October/November   (-0.21)   November/December   (-0.29).
  • Plains WTI Posting: 37.50   (0.00).
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