Should we call it a comeback?

It was a very interesting action in the market yesterday, as stocks popped out of the gate while crude oil stumbled - the former on good housing data and some earnings reports; the latter on a bearish note from Goldman Sachs on crude oil prices.  The wizards of Wall Street said Brent Crude Oil would trade in a narrow range of $45 to $50 a barrel from now through the summer of 2017. This calculation drawn from the conclusion major oil producing nations would not make adjustments to lower output.

Later in the session, it was reported Iran was open to some kind of production cap; that news reversed crude oil, sending it to a one month high.

Rigging Oil

Even before crude oil reached its most recent low point, oil rigs began to come back online. The focus has been on land-based oil rigs, which are up 90 from their June low, but it’s still down from 674 (885 total) a year ago, and 1,690 (1,930 total) back on October 10, 2014.  The key issue for Iran, Saudi Arabia, and Russia has been market share among themselves and the United States. I am not sure if an extra 90 would sway policies in the Middle East, but it has to be noted.

Oil Rig Count	Jun 27	Aug 19
Oil	316	406
Gas	87	83
Miscellaneous	1	2
Total	404	491

 

New home sales soared last month, crushing the consensus estimate and coming in near a nine-year high point.  The annualized pace of 654,000 was 12% higher than June and 31% above July 2015. I think we are in a housing boom that’s only limited by supply.  In fact, 70% of new homes sold last month are either under construction or haven’t even begun construction. 

On the upper end of the market, Toll Brothers (TOL) was selling high-end homes like hotcakes, sending its stock much higher for the session.  We would expect the upper-income bracket to spend money, including buying new homes; however, buying is improving in the lower-income bracket as well.

Getting Back To Normalcy

Parts of the economy are getting back to historical averages (new homes for instance average 650,000 annualized monthly growth) after years of slow growth and a sluggish recovery; it feels good against the backdrop of low expectations.

I would still be invested for further appreciation in crude oil and the housing market because we could go from celebrating mediocrity to celebrating a true comeback during the next year.

Meanwhile, the stock market continues to make new all-time highs, leaving a trail of broken short sellers.  

Overall, I would like to see even better numbers from businesses on the top line and economic data to justify the second half of the rally, but we are not beating against it; and for now, neither should you.

 

Today’s Session

At a certain age, we learn that things in life can change in a flash, from that first heartbreak in junior high school to that 40 year old rapper still sending out audition cassettes and still getting rejection letters, something happens, and we have an epiphany.  Like those eureka moments in life, the flashes of negative realization in the stock market really don’t come out of the blue. 

Take the most famous stock market crashes in US history, including the big ones in October 24, 1929, and October 19, 1987, they didn’t come out of the blue.  There were massive dips and concerns, weeks even months, before those events.

Then there are the so-called flash crashes that come out of nowhere and have proven to be more of an anomaly than a signal that the end is near.    Still, they are frightening to be sure.   One year ago today, the Dow Jones Industrial Average crashed to a low of 15,666 and the chorus of folks calling for the end was deafening.   The bears were calling for the long awaited second leg down, which they promised since the bottom was put in back in March 2009.

I was on vacation and called into my show Making Money on Fox Business to press folks to not get whipsawed, and not to panic.  My afternoon note headline that day explained what I felt:

Afternoon Note

August 24, 2015

Huge Opportunities

By Charles Payne, CEO & Principal Analyst

When the next big crash that derails the market for weeks or months occurs, it will be telegraphed with series of tremors and big dips, but probably not a flash.

Comments

find your comments valuable sidney hiller on 8/24/2016 10:00:01 AM

So, I have to ask about the pennant formation you mentioned yesterday. You said this forms prior to a major move either way. Does the talk of crashes today mean you are leaning towards a move lower? Scott Orren on 8/24/2016 11:38:05 AM

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