Oil Crashes, Takes Stocks Down With It

Quite literally, oil is the grease of the global economy. Nothing moves unless oil is pumped, shipped, distilled and employed in the manufacture of just about everything. It is instrumental not only in manufacturing, but in food production and distribution.

Thus, when the price of oil crumbles, as it did on Tuesday, it worth taking notice. WTI crude futures were down sharply on Monday and again on Tuesday, dipping below $46 per barrel before recovering slightly to around $46.50. Tuesday's slide marked a $30 decline in the price of crude in just the past three months. On a percentage basis, oil is off 40% from its high of $76 per barrel in early October, coinciding with an all-time high recorded on the Dow Jones Industrial Average (October 3).

While the price drop may superficially be assigned to oversupply, there's also the condition of slack demand amid what is largely being hailed as a global slowdown set to commence early in 2019, if not already well underway. If companies aren't growing, they're not using more oil. With too much supply already weighing down prices, a perceived lack of demand is causing futures traders to panic.

The price of oil is going to be a boon to consumers as gas prices have been dropping, with some states now seeing gas at the pump for under $2.00 per gallon. Cheaper gas helps people with moderate income, freeing up capital for other expenses. The last time oil was down in this range (2015-16) the price dropped as low as $30 per barrel but at the time, people expressed a desire to either save the extra money they weren't spending on gas or pay down debt. If that's the generally-accepted policy for consumers at this juncture, it's going to play right into the global slowdown meme and send not just oil and gas prices tumbling, but stocks as well, as has already been the case.

As far as stocks were concerned, traders tried to shrug off Monday's crushing losses by bidding the Dow up by more than 300 points on Tuesday. As has been the case for weeks, the rally fizzled midday, and the Dow - along with the other US indices - fell into negative territory early in the afternoon. In what's become something of a motif for this current regime of volatility, short-covering perked up the indices into the close, but the entire session wasn't much of a response to Monday's mess. In fact, there was more weakness on display as stocks failed to hold ground, finishing with minor success.

With oil in the dumps and stocks hitting the skids, now might be the right time to cash out and walk away from the betting tables. After all, it is December. Any losing wagers can help with the inevitable tax bill come April.

Dow Jones Industrial Average December Scorecard:

Date	Close	Gain/Loss	Cum. G/L
12/3/18	25,826.43	+287.97	+287.97
12/4/18	25,027.07	-799.36	-511.39
12/6/18	24,947.67	-79.40	-590.79
12/7/18	24,388.95	-558.72	-1149.51
12/10/18	24,423.26	+34.31	-1115.20
12/11/18	24,370.24	-53.02	-1168.22
12/12/18	24,527.27	+157.03	-1011.19
12/13/18	24,597.38	+70.11	-941.08
12/14/18	24,100.51	-496.87	-1437.95
12/17/18	23,592.98	-507.53	-1945.58
12/18/18	23,675.64	+82.66	-1862.92

At the Close, Tuesday, December 18, 2018:
Dow Jones Industrial Average: 23,675.64, +82.66 (+0.35%)
NASDAQ: 6,783.91, +30.18 (+0.45%)
S&P 500: 2,546.16, +0.22 (+0.01%)
NYSE Composite: 11,502.16, -29.96 (-0.26%)

Global Stock Rout Deepens; Dow Loses Another 500 Points; NASDAQ Down 16.7% Since August

The pain is spreading, and it doesn't seem to be about to abate any time soon.

According to Dow Jones Market Data, the S&P 500 closed at its lowest level since October of 2017, the NASDAQ finished at its lowest since November of 2017, while the Dow closed at lowest level since March 23. Only a rally in the final 15 minutes of trading kept the Dow from closing at its lowest level of the year.

The Dow had plunged as low as 23,456.8 with just minutes to the closing bell, but short-covering boosted the industrials more than 100 points in the final minutes of trading. Not that it matters very much, but the closing low for the year was 23,533.20. Prior to that, the Dow closed at a low of 23,271.28 on November 15, 2017.

Both of those levels are likely to be subsumed, as the stock rout about to be hit with another dose of reality. Trumping anticipation, the Fed meeting which ends Wednesday afternoon at 2:00 pm ET, is almost certain to include a 25 basis point raise to the federal funds rate. On Friday, the federal government, unable to reach a suitable compromise on President Trump's border wall, will go into a partial shutdown.

Neither event - especially the federal shutdown - is of the earth-shattering variety, but they come at a very inopportune time for the market, which is struggling to find any good news upon which to hang a rally.

Europe is either in flames (France), in a bear market (Germany), or about to enter a recession thanks to the end of the ECB's brand of QE. Beyond that, there's the uncertainty of an orderly departure from the EU by Great Britain. The official date for Britain to separate itself from the EU is March, but there have been rumblings of an extension and more than just a little unrest from the island nation to the continent concerning what effect a member country departing will have on the solidarity of remaining members.

In China and Japan, an economic slowdown is already well underway, so it appears that the sellers have reason enough to move away from stocks, and rapidly. There are just too many negatives floating around geopolitical and financial circles for all of them to be resolved in the near term. Rather, these worries turn into realities which the market doesn't appreciate, such as the actual imposition of tariffs rather than mere rumors and threats of them. The same goes for the Fed's upcoming rate hike and the government shutdown. It's become a market that's twisted the old saw into "sell the rumor, sell the news." Everything is on sale and buyers have been heading to the sidelines beginning in February. Since October, the pace has picked up noticeably, but December threatens to be the worst month of the year for the Dow, at least.

For perspective, February's loss on the Dow was 1120.19 points.

March saw a decline of 926.09.

In October the Dow lost 1341.55 points.

So far this month, the Dow is lower by 1945.58 points, making the October through December (November's gain was 426.12 points) period worse than the February-March spasm.

The NASDAQ is down 16.7% since August 29. WTI Crude was seen at $49.45 per barrel, the lowest price since September, 2017.

Throughout the years of experimental financial chicanery of QE and ZIRP, and NIRP (negative interest rate policy) by the Federal Reserve and fellow central bankers following the Great Financial Crisis (GFC) of 2007-09, the question was always, "how is this all going to end?"

Now, we have the answer, firsthand, and, as many predicted, it's not pretty and likely to get worse.

Dow Jones Industrial Average December Scorecard:

Date	Close	Gain/Loss	Cum. G/L
12/3/18	25,826.43	+287.97	+287.97
12/4/18	25,027.07	-799.36	-511.39
12/6/18	24,947.67	-79.40	-590.79
12/7/18	24,388.95	-558.72	-1149.51
12/10/18	24,423.26	+34.31	-1115.20
12/11/18	24,370.24	-53.02	-1168.22
12/12/18	24,527.27	+157.03	-1011.19
12/13/18	24,597.38	+70.11	-941.08
12/14/18	24,100.51	-496.87	-1437.95
12/17/18	23,592.98	-507.53	-1945.58

At the Close, Monday, December 17, 2018:
Dow Jones Industrial Average: 23,592.98, -507.53 (-2.11%)
NASDAQ: 6,753.73, -156.93 (-2.27%)
S&P 500: 2,545.94, -54.01 (-2.08%)
NYSE Composite: 11,532.12, -223.27 (-1.90%)

Friday Meltdown Leaves Stocks Near Lowest Levels of Year; All Major Indices In Correction

After the first week of December ended in tears, there were glimmers of hope for a rebound in stocks as the clock ticked closer to Christmas and the end of the consumer shopping/spending season.

While retail sales - as especially so, online sales - continued strong, stocks suffered through another week of volatility, though it didn't actually present itself until the very end.

The Dow was up a bit over 200 points as of Thursday's close, but at the opening bell on Friday it was apparent those gains would not hold. In the end, the Dow lost nearly 500 points on the day, sent that index into correction, along with the S&P, joining the NASDAQ, NYSE Composite, and the Dow Jones Transportation Average.

The tailwinds of the recent selloff have its roots in October, when the Dow most a cumulative 1,345 points. November's gains were only 426, but the Dow is down another 1438 points in December, challenging the closing low of the year, 23,533.20 on March 23.

Besides the usual concern over profits and/or losses, financial markets have plenty of issues to keep investors up at night. There's the continuing Brexit issues, which nearly cost Prime Minister Teresa May her government, and coming up this week is the Fed's FOMC meeting in which the federal funds rate is supposed to be hiked another 25 basis points, along with the real possibility of a particle government shutdown over budget issues, primarily concerning President Trump's promised border wall, and the funding of such.

So, instead of being perplexed over dollars and cents, Wall Street seems more focused on politics and nonsense, as the relentless - mostly baseless - attacks on Mr. Trump continue to overhang every discussion policy and threaten to throw the entire country into chaos.

Form a technical point of view, stocks are in very dangerous territory. The dreaded "death cross," in which the 50-day moving average falls below the 200-day moving average, occurred last week on the S&P, had already happened in mid-November on the NYSE Composite Index, made its appearance the last day of November on the NASDAQ and is maybe two more days away from happening on the Dow.

It's a fairly obvious phenomenon, which points up near-term weakness. When both the 50 and 200-day moving averages point lower in such a condition, it doesn't take a genius to figure out that a hungry bear is roaming free in the forest.

Despite trading having been buoyant during most recent holiday seasons, this one appears to be rather different. There's a distinct possibility of a global slowdown, especially since retail sales and industrial production in China both slowed in November. While politically-oriented pundits will point to Trump's trade war with the Chinese as the culprit, the issue seems to be more complex and deep-seated than such a superficial analysis suggests. China's economy, built on massive credit expansion, ghost cities, and often spurious economic data, has been booming for 20 years and has been due for a slowdown, correction, or even recession. As is the case with the longest bull market in US history, nothing lasts forever.

Any gains in the coming weeks are likely to be eaten away rather quickly as profit-taking is followed by loss prevention. Even as the Fed raises rates, bond yields should continue trending lower as investors seek safety and shun profligate speculation.

Dow Jones Industrial Average December Scorecard:

Date	Close	Gain/Loss	Cum. G/L
12/3/18	25,826.43	+287.97	+287.97
12/4/18	25,027.07	-799.36	-511.39
12/6/18	24,947.67	-79.40	-590.79
12/7/18	24,388.95	-558.72	-1149.51
12/10/18	24,423.26	+34.31	-1115.20
12/11/18	24,370.24	-53.02	-1168.22
12/12/18	24,527.27	+157.03	-1011.19
12/13/18	24,597.38	+70.11	-941.08
12/14/18	24,100.51	-496.87	-1437.95

At the Close, Friday, December 14, 2018:
Dow Jones Industrial Average: 24,100.51, -496.87 (-2.02%)
NASDAQ: 6,910.67, -159.67 (-2.26%)
S&P 500: 2,599.95, -50.59 (-1.91%)
NYSE Composite: 11,755.38, -180.82 (-1.51%)

For the Week:
Dow: -288.44 (-1.18%)
NASDAQ: -58.59 (-0.84%)
S&P 500: -33.13 (-1.26%
NYSE Composite: -186.55 (-1.56%)

Sluggish Trading, Late-Day Rally Lifts Dow

A late-session rally moved the Dow into positive territory into the close, and pared losses on the other major averages. The entire trading day was spent with the Dow criss-crossing the unchanged line. Trading was spotty, sporadic and inconsistent.

This was a bit of a change from the volatility seen recently, though there are still enough jittery global events and data points to make traders nervous heading down the home stretch of the holiday season.

Using Fibonacci numbers to exploit the current rally - using intra-day numbers on the Dow - maths out like this:

December 3 high: 25,980.21
December 10 low: 23,881.37

Difference: -2,098.84

First resistance (23.6%): 495.33 points = 24,376.70 (Dow closed at 24,370.24 on Tuesday, December 11; Close enough!)
Second resistance (38.2%): 801.76 points = 24,683.13 (the Dow exceeded this level on Wednesday, but pulled back below it at the close. On Thursday, the Dow approached this level but could not exceed it, signaling a possible breakdown to end the week.)
Third resistance (50%): 1,049.42 = 24,930.79
Fourth resistance (61.8%): 1,297.08 = 25,178.45 (this is usually the key, where resistance is very high and a pullback can be expected. If the Dow powers through this level, expect it to go all the way back to where it started, i.e., 25,980.21 (100% retracement).

Dow Jones Industrial Average December Scorecard:

Date	Close	Gain/Loss	Cum. G/L
12/3/18	25,826.43	+287.97	+287.97
12/4/18	25,027.07	-799.36	-511.39
12/6/18	24,947.67	-79.40	-590.79
12/7/18	24,388.95	-558.72	-1149.51
12/10/18	24,423.26	+34.31	-1115.20
12/11/18	24,370.24	-53.02	-1168.22
12/12/18	24,527.27	+157.03	-1011.19
12/13/18	24,597.38	+70.11	-941.08

At the Close, Thursday, December 13, 2018:
Dow Jones Industrial Average: 24,597.38, +70.11 (+0.29%)
NASDAQ: 7,070.33, -27.98 (-0.39%)
S&P 500: 2,650.54, -0.53 (-0.02%)
NYSE Composite: 11,936.16, -7.13 (-0.06%)

Federal Reserve Loses $66 Billion; Volatility Meets Fibonacci Sequence As Sucker Rally Extends

Here's a fun headline:

Fed piles up $66 billion in debt.

Now, since the Federal Reserve System has been known to conjure up money out of thin air, how can they incur losses, and, if they somehow manage that feat of economic alchemy, do they even matter. The author of the article says no, but the reality is that our fiat money system - and, with it hose of the rest of the world - are fantasies. The money created is all debt. Nothing but debt. Most of it is incurred when the US treasury - or the treasury of some other nation - issues a bond. It's debt, and it's bought by the Fed or one of their agents, and, viola! instant money is created.

Most of government-issued debt is never paid off, which is why the United States has a $21 trillion - and growing - debt. Some of it is owed to other countries, some to private investors (like the Fed), and some of it is owed elsewhere.

Getting back to the Fed and their debt, how they managed to get into debt themselves is pretty simple. They bought a ton of near-worthless paper called Mortgage Backed Securities (MBS) back in the halcyon days of sub-prime lending (2006-2011), and that paper is worth today, as some of it is maturing, worth less than what they paid. They did so to bail out their friends, the big banks, and now the piper is being paid. This will continue for some time, as theses MBS mature at different times. Like most mortgages, some won't mature for 30 years, so think 2036-2041 before they're all exhausted, though some will mature well before those dates.

The Fed wants to shrink its balance sheet, so this is how they're doing it, retiring debt. Do they care? Not particularly. To them, gains and losses are ledger entires and nothing more. They exist in a parallel universe from the rest of us who can't just roll over our debts indefinitely. The Fed will outlast all of us, and they know it.

As far as the impact this will have on the economy and markets and currencies, it's likely not good, but it isn't something to lose sleep over either. The Fed's money machine is massive and they'll just print more if they run into problems. However, for the rest of us, that may be inflationary, though that wasn't a huge issue all the time they were engaged in QE, printing to their heart's content to save the world from economic ruin.

As long as everyone keeps using their money, it's fine. If other countries shy away from the glorious dollar - something that some countries already are doing - it could get a bit rough in the international trade venues. Until very many people, businesses, and nations lose faith in the almighty greenback, we're all good, however. But the Fed will still be losing money for the foreseeable future. Nothing to worry about. They can - and will - make more.

As far as the stock markets are concerned, today was day two of the Mother of all Sucker Rallies which was presented yesterday. Stocks were once again bid higher, with the Dow up more than 450 points. Once again, the afternoon was telling, as sellers took control, leaving the Dow and other indices with reasonable gains.

With the rally ongoing, it might be instructive to concern ourselves with Fibonacci levels, as detailed below.

Fibonacci numbers are often used in technical analysis to determine support and resistance levels for stock price movement. Analysts find the two most extreme points (peak and trough) on a stock chart and divide by the Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent.

Using Fibonacci numbers to exploit the current rally - using intra-day numbers on the Dow - maths out like this:

December 3 high: 25,980.21
December 10 low: 23,881.37

Difference: -2,098.84

First resistance (23.6%): 495.33 points = 24,376.70 (Dow closed at 24,370.24 on Tuesday, December 11; Close enough!)
Second resistance (38.2%): 801.76 points = 24,683.13 (the Dow exceeded this level today, but pulled back below it at the close. Watch for direction on Thursday.
Third resistance (50%): 1,049.42 = 24,930.79
Fourth resistance (61.8%): 1,297.08 = 25,178.45 (this is usually the key, where resistance is very high and a pullback can be expected. If the Dow powers through this level, expect it to go all the way back to where it started, i.e., 25,980.21 (100% retracement).

This should give a signal of when the current sucker rally is about to expire. After that, the resistance points will become support, and if the Dow plummets through them, get ready for another round of massive losing days.

Happy Holidays.

Dow Jones Industrial Average December Scorecard:

Date	Close	Gain/Loss	Cum. G/L
12/3/18	25,826.43	+287.97	+287.97
12/4/18	25,027.07	-799.36	-511.39
12/6/18	24,947.67	-79.40	-590.79
12/7/18	24,388.95	-558.72	-1149.51
12/10/18	24,423.26	+34.31	-1115.20
12/11/18	24,370.24	-53.02	-1168.22
12/12/18	24,527.27	+157.03	-1011.19

At the Close, Wednesday, December 12, 2018:
Dow Jones Industrial Average: 24,527.27, +157.03 (+0.64%)
NASDAQ: 7,098.31, +66.48 (+0.95%)
S&P 500: 2,651.07, +14.29 (+0.54%)
NYSE Composite: 11,943.29, +82.64 (+0.70%)