Friday, August 21, 2015

Dow, WTI Major Losses Today


Losses were the name of the game today, but the markets today acted very seriously today. If the stock exchange had agency, investors would feel as if a ground war had been waged on portfolios across the financial sector. The Dow Jones slid over 500 points today, reversing gains over the past couple months. From highs to a yearly low, today's movement has been called a major correction of speculative gains. The correction was fueled mostly by concerns over global growth augmented by the Chinese stock market and dampened projections for growth. Most of the speculation began after the devaluation of the yuan about a week ago, but market health and volatility has been shaky with the oil slump. As an input for most companies, low oil prices affect the market by reducing the inflation of prices and wages because of cheap energy. Although more demand and consumption are predicted with lower gas prices, dragging in the energy sector can play a role in weakening the economic condition. Since oil services have to cut costs, labor has been reduced as well as private investment that can have a trickling down effect on companies that work with integrated oil services. Survival in the industry has been enabled by the ability of oil and gas companies to cut costs significantly in order to preserve margins and revenue. In the future, the reduction of cash flow and the ability to liquidate will inhibit access to research and development investment as well as access to short-term and long-term loans. A lot of analysts have been looking for mergers that haven't occurred yet because of the success company's are having cutting costs. 

Looking at some technicals of some important securities and indexes for today reveals extensive losses and negative momentum. The Dow Jones Industrial Average fell to 16459, a total loss of 3.12% in a day. Both XOM and CVX fell as well as members of the Dow index, losing 3.27% and 4.39% respectively. These securities lost more than the market average which reflects their vulnerability to the major drop in WTI price. The international and the North American crude benchmarks saw extensive losses today as Brent fell $1.28 (2.75%) to $45.34 and WTI fell $1.03 (2.49%) to $40.29 with a brief drop into the $30's. Increasing rig data and poor demand projections inspired the loss as well as 223,000 (Brent) and 361,000 (WTI) sell-offs as no ideas of hedging emerged today. Further energy commodity drops in natural gas (down $0.07 or 2.71%) show the industrywide danger that exists. This trend hasn't been much of a reversal, but an exaggeration of the current losing trend that began in June and July. In fact, three days on August 19th the daily price trend dropped below the 200-hour simple moving average stretching losses to $2.80 over the past three days, a 6.50% drop. This has made the market very oversold per the technical indicators shown above, RSI and the MACD. Investors should not be fooled by the momentum indicators that may hint at a reversal upwards as any hope of a short term breakout seems blocked by negative sentiment. Bad faith continues to hurt the oil and gas sector as both XOI and XNG fell today (-3.72% and -2.37% respectively). Oil ETFs dropped as well showing the bearish attitude overwhelming the market, but their inexpensive price allows the entrance of bullish investors looking to make money on speculation. I continue to stick by a bearish outlook for the rest of the year. For hedging purposes, I could see a potential retracement between 38.2% and 61.8% of losses that began earlier in the summer. As I stated in my Stocktwits response, I'd like to see revenues increase in 2016 as hedging populates a rebound to $45-$47 and perhaps a revisit to $50 price levels if demand and growth are bullish.

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