Inspired by corporate earnings (that were good, not great), the market was able to come out of the gate yesterday. All the key names beat on the top line, but the bottom line, not so much; this is a pet peeve for so many market watchers, including myself. The banks were solid and Skyworks proved Microchip CEO Stephen Sanghi was reckless when he threw the entire industry under the bus because his company had come up short (again).

However, on cue, equities began to fade into the last hour of trading as blue chips moved into negative territory; the NASDAQ held on for dear life. Nevertheless, the Russell saved the day and it continues on as if it is ready for an oversold bounce.

I liked the fact money flowed into small cap names, albeit in a very tentative manner, but it is clear that these names are attractive. Of course, the chart is in a perfect “death swoon,” and will need to close above 1,100 before smart money becomes aggressive.

Over a Barrel

I use the term "death swoon" for the Russell, and there's no doubt that's been the case, but “death swoon” can also be used to describe the amazing collapse of oil prices which is something to behold. There are a couple of reasons for the sharp decline in crude oil prices though excessive production exist from Libya and other Organization of Petroleum Exporting Countries (OPEC) members, and a slowing demand; perhaps there is a plot by Saudi Arabia.

The Oil Kingdom has been in this position before where they saw oil prices fall just over four decades ago. In the 1970s, the Arab Oil Embargo sent crude oil down to $35 a barrel by 1980. The actions of Saudi Arabia were deliberate and kept oil production low. This forced America to make drastic changes in conservation and also brought about massive non-OPEC discoveries that included the North Sea that saw demand collapse and the price drop to $10 a barrel.

US Crude Oil Imports
Aug 1979	211,072
Aug 1985	96,547
Aug 2004	324,258
July 2014	236,310

US imports are at the same tipping point that eventually sent prices tumbling back in the 1980s. OPEC knows this, and must be nervous.

Shale Bust or Die Trying

This is all because of the US shale boom which produces "tight" oil. In 2008, tight-oil was 600,000 barrels a day; now it is 3.5 million and our imports are dropping.

The shale boom has been an economic miracle that McKinsey says will generate 1.7 million jobs by 2020.  Perhaps, this is the last chance Saudi Arabia will have to derail this miracle.

So, instead of reacting to freefalling oil prices, the Saudis are going to keep pumping and expect lower prices. The thing is that many experts say the economic oomph of shale oil could dry up at $80 a barrel.

People think I'm nuts, but consider what happens if Saudi Arabia grabs share as crude and natural gas are mothballed; they can go back to production cuts, and their normal form of extortion and manipulation. At least that’s just a thought…

Message from Corporate America

Intel beat on the top and bottom line last night with a record quarter and positive guidance. Management also put to rest the notion semiconductors are in trouble... just Microchip (MCHP) is in trouble. CSX posted strong results driven by the energy revolution that lifted its chemical segment by 20% year- over- year. While management sees modest growth, the rest of the year’s expectations of double-digit earnings growth and margin expansion lend optimism to the overall economy.

Today’s Session

It's been two weeks, and none of the 48 people in contact with Thomas Eric Duncan have shown signs of Ebola... it will be another week, although the vast majority of people develop signs by day 10. But this morning, we got the news of a second healthcare worker in Dallas contracting the virus from Duncan.

Why?

Those so-called protocols we keep hearing about were not in place and the training is spotty according to National Nurses United. In fact, the union's director, Rose Ann DeMoro, says these protocols are not in place anywhere in the United States. The specific issues at the Dallas hospital are:

• Duncan wasn't immediately isolated
• The nurses' protective gear left their necks exposed
• At one point, hazardous waste piled up
• Nurses got no "hands-on" training
• The nurses "feel unsupported"

In this era of lost confidence, it's really a shame that the Center for Disease Control (CDC) is on the cusp of becoming a joke. Just last year, it was the most admired of all federal government agencies.

Rate the job
Agency	% Excellent/Good
CDC	60
FBI	55
NASA	42
CIA	40
FDA	45
Homeland Security	46
EPA	41
Federal Reserve	33
IRS	27
Source: Gallup2013

There's no doubt the Ebola situation is part of the larger issue of a lack of leadership. It's just harder and harder to have confidence in elected officials, especially in the White House. There are disconnects and then there's a deaf ear to people's needs and concerns.

If Americans had confidence in its leaders, knee-jerk reactions in the stock market would be mitigated or nonexistent, but that's not the case, and even die-in-the-wool Democrats must have their faces in their hands wondering, how President Obama could fiddle through all the bad news.

In the meantime, how crazy is it to think if a poll was taken right now, the more admired federal government agency would be the FBI?

Consumers Holding Back

Although the Ebola news hit the market (more so after the financial media talked it up), futures where exhibiting some strength, but that was completely erased with news on retail sales that came in below consensus.

The US economy is driven by its rich citizens and their confidence to spend lots of money. When it's working, the economy is a fast car, but when people clutch wallets and purses it's easy to trigger prolonged bouts of slow growth.

Dealing in Panic

I know not everyone was able to raise cash, and even if you did, hits to the portfolio are painful. This is the time to be focused on fundamentals and the fact that every time you've panicked in the past, you lost and often lost huge. You have to be cool here, even as the bias remains to the downside and real issue mingles with other issues to create a cauldron of fear.

I'm not sure where the bottom is, and I'm anxious about the move into Treasuries and the free fall in crude oil, but this isn't a decline based on a bubble or economic overindulgence. The pain feels the same, but the outcome should be different. This market was looking for a place to pullback, but the more it does, the more vulnerable it becomes.

We're oversold here, but obviously this doesn't mean there will not be more pain... We just have to live through it and then try to benefit from it.

Comments

Investing in the stock market usually means a long, forward thinking, planned, adjusted commitment. Tough when chaos,uncertainty,confusion is the strategy this POTUS uses to manage us. Off balance! Each day, Bruised, scraped and with ankles and knees taped, we jump back on this shakey balance beam as we dip, dive, and fight to regain our footing! Keep spotting us, Charles. Hurts like crazy when one bombs on that beam. Lesley jenkins on 10/20/2014 10:49:51 PM

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