ELAM: Crude prices rally

Crude prices found support Thursday after Russia’s Energy Ministry pledged to cut daily crude production this month by 971,000 bpd from the baseline of 9.949 million bbl. Russia in April and May over-produced relative to its OPEC+ target but said it plans to strictly comply with its quota beginning this month.

— Barchart.com

This is precisely what I warned might happen. In fact, I suggested a cut of one million barrels per day (mbpd) would increase prices. After breaking through $80 in early April, crude carried to $85. Then it retreated to just under $75 by the end of May. Then it rallied right back to $79.01 Friday, just under the $80 break out level.

In the same time period, gasoline futures almost reached $2.80 but fell below $2.40. Today the price has risen to $2.43. This is worth watching as the November elections approach. Gasoline prices are still in a downtrend. We need an upside break of $2.52 to resume the rally.

Despite the price rise, energy shares have not rebounded. Only 45% of SPX energy shares are in a bullish position on a point and figure chart. Apache (APA) just notched a new low at $27.62. ConocoPhillips and ExxonMobil have done the same. Exxon is down a full 1.03% as I write Friday.

A source of the difficulty is continuing weakness in the overall market. We have reported that fewer and fewer stocks are leading the way. Nvidia with a $3 trillion market capitalization is valued more than the entire German stock market.

We thought the market topped in late March but the concentration in a few weighted stocks like Microsoft and Apple have carried the party to this point. Now the NYSE Advance Decline line has turned down again as it did after the March high. While all eyes are on the Magnificent Seven tech stocks, only 35% of the NASD stocks are over their 50-day moving average. Only 41% of the SPX stocks are above their 50-day moving average. This is a dramatic drop, cut in half, from the 90% recorded at the first of the year.

Like the gasoline price, this will weigh heavily on the election outcome if it continues. I suspect it will. It is worth mentioning another warning I made weeks ago. If your financial planner was 25 years old when the bull market resumed in 1982, he or she is now 67. That means our FP missed the long dreary 1966-1982 bear market when the Dow Industrials only matched the 1966 high once, and then stayed below 1,000 from 1973-1982. This group has only experienced at most two-year bear periods such as 2000-2002 or 2007-2009. Their inclination will be to hold on, the market always recovers. Those who never experienced a prolonged period of stagnation (1930-1948 or 1966-1982) are quite unprepared for another one. We are spending one trillion dollars we do not have every 100 days.

Semper Paratus, be prepared, the motto of the U.S. Coast Guard.