ELAM: Stocks Topping, crude at $52

A month ago crude oil (West Texas Intermediate WTIC) had just moved back above $62.  Suppose your omniscient columnist had whispered in your ear this guaranteed prediction.

A month from now newspaper and the internet will feature photos of oil tankers on fire, having been attacked by Iranian torpedoes. The President has sent a carrier group to the Persian Gulf.

Venezuela will have long lines of autos backed up waiting for gasoline. Riots continue in France.  Riots have broken out in Hong Kong, police are firing non-lethal ammo in both instances. 

Russia refuses to cut back oil production. The Saudis and Poland step up the arms race with Russia buying F-35s from the U.S. Protest groups form in South Texas to oppose any construction of LNG export terminals.

Okay, armed with the knowledge of that guaranteed outcome, what would you expect the price of oil to be? You would probably guess, above the previous high of $66. All the fundamental events, including outright war on the high seas, would point to it.

But that is not what happened. Instead our prediction that oil was likely to fall in price has come to pass. Today it is trading for about $52. Our point is that the media is constantly trying to link a fundamental event, a torpedo attack for example, with a change in market prices. 

The better approach is to examine how social mood is affecting the prices as shown in graphic form.  Listen to the market, not the media.

Okay enough about Socionomics 101 and Technical Analysis. It does appear that crude oil prices are bottoming for the time being in the $52 area. 

Unleaded gasoline futures are the cheapest at the start of summer driving season in years at $1.70. The XES Energy Service ETF is down a whopping 3 percent today as I write this Friday. A test of $8.25 seems likely. 

Energy XLE, XES, and Exxon Mobil are all under the four moving averages I track. Look for sideways action in oil prices and further declines in energy share prices.

The DJIA has had a nice run from   just under 25,000 to 26,059 today, but one can watch the tape and see momentum is slowing the ball has been thrown in the air and is reaching the top of its arc.  A negative mood worldwide (see opening paragraph) is taking hold. Expect lower prices in to August and September. Both the Russell 2000 and the Transports remain under their 200-day moving averages.

Twenty Democrats take the stage in two weeks. Expect a blunderbuss of charges aimed at each other and President Trump. Negative mood is set to blast off.

 

dennislelam@gmail.com