In my report to clients on Tuesday night many stocks seemed to have turned the corner from the recent sandwich pullback and I said it could be the start of the Santa rally. I’m not a rocket scientist. I merely asked myself a simple question. If not now, then when?
Today the EIA released their latest Short Term Energy Outlook Report, which shows that U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015, and it is forecast to average 8.9 million b/d in 2016 and 8.8 million b/d in 2017.
If this were baseball, I am batting 500. As of Sunday night, the "No" vote in Italy was well ahead, and by Monday morning the winner, which I anticipated. I was not so certain about OPEC coming to a deal. I’m still skeptical it will remain sustainable. But to give you an idea, the Saudis and Iranians worked out a deal where the Saudis will cut 4.6% of their output per day while the Iranians only 2.3%. Keep in mind the Saudis are producing (round numbers) 10 million barrels a day while the Iranians nearly 4.
It was a short week but the takeaway is that every one of the time windows and cycle points were violated. I haven’t seen a situation like that on the daily timeframe in a long time. Even in China, which had the most bearish possible setup of all, we had violation.
Market action was interrupted by various holidays around the world but overall the U.S. dollar continued to rebuild the momentum it had after the elections. The minutes from the U.S. Federal Reserve meeting in November sent a strong signal about a December rate hike. The CME's FedWatch tool is showing a 93.5 probability of a rate hike on Dec. 14.
A lot of cycle points to look at today. Last week the markets survived 377 trading days from the S&P 500 May 2015 high. In the very near term, futures charts survived 161 hours up from the election low. The E-mini S&P 500 hit a new high 1,444 hours from the prior high in August and it has slightly backed off. The last one to report to you is the overall market is 720 hours from the Brexit low mid session Monday.
Fed fund futures are signalling a 95% probability of a rate hike when the Federal Open Market Committee meets on Dec. 14. A repeat of last year' lone rate hike is in the works for 2016. Donald Trump's win, while surprising, seems to have brought inflationary expectations that were a concern for the American central bank this year.
The election is over, aren’t you glad? Honestly, it was more stressful than I can ever remember for an Election Day. I am going to leave political views entirely on the curb. But we must talk about last Tuesday evening.
The dollar is higher versus most major pairs as it continues to surge in the aftermath of the 2016 presidential election. The shock victory by Donald Trump is being taken in stride by the market after the initial recalibration of democratic win expectations. The dollar had been higher for most of the year given the Fed’s insistence a rate hike is coming.