The back and forth market action continues with a down day today following the strong move higher on Friday that fell apart in the afternoon trade. The S&P 500 traded as high as 1951 on Friday when sellers came back into the market to push it down near the lows before closing at 1915. There seems to be a modest liquidity issue that is clearing the path for more expansive moves across many commodity sectors but most particularly in the equities, long dated fixed income and energies. The market is down again today trading just below the Friday settle with a list of data scheduled throughout the day that should have a say in whether the bears or bulls gain control for the moment.
The most significant of that data will likely be the Fed committee members scheduled to speak today. Following the in-action of the FOMC two weeks ago, we once again are stuck paying undue credence to the rhetoric of the members who will once again have a chance to raise rates next month.
For example, in classic Fed double talk style, Yellen spoke last week and essentially confirmed a rate hike sometime later this year, though that window is getting tighter by the day. This would seem to be in contrast with the uber-cautious decision to not raise in September citing the global slowdown as the most significant rationale. Yet it is hard to imagine that in a slowdown like the one that China is experiencing, that much will have changed a month later, but that is apparently what the Chairwoman would have us believe. That being said, the markets will have a reaction to what is becoming more and more across the board hawkish sentiment in words if not in actions.
The crude has once again fallen in virtual lock step with the equity markets with the explanation being a demand side trade, though one could argue that the independent fundamentals are in contrast with the overall market sentiment. Rig counts in the United States fell Friday again for the 4th week in a row and gasoline demand domestically continues to be the most robust in over a decade. Supply numbers, while still toward the high end of the all time range, have shown some reductions as of late. The more radical market predictors all calling for anything from $25 WTI to $75 WTI (with the lower figure being the more popular).
In reality, however, it is more likely that a range trade between 40 and 60 is probably the better prediction for the next 6 months or so. This recent slide in the equities that is pulling the crude down toward the low 40’s may be just the opportunity that new longs have been waiting for.
The natural gas shrugged off the surprise build in inventories on Thursday to trade just modestly higher. It is not that great of a surprise as the market is already considerably low; it would seem to need to be a major fundamentally bearish incident that could move this market sharply lower considering the already baked in bearish sentiment.