Recoveries Dominate In U.S. Equities And Gold

Today’s big movers were crude oil’s two benchmark products, West Texas and Brent.

That gave U.S. equities strong push up, as other materials and components also showed strength. It is too early to call emphatically, but we could be looking at a commodities and materials inspired rally after the bottoming out we witnessed Monday in the sector.

Asia and Europe moved up earlier in the day’s trading, the Nikkei showing particular strength. It rode higher on a lower yen/stronger dollar and crude prices, which though up today, have moderated since they challenged and failed to breach the $50 per barrel mark.

West Texas Intermediate crude is up 2.9% on the day but Brent North Sea charged ahead more than 4.6% for the session. Yesterday we mentioned there seemed to be a convergence of the two crudes’ prices in the making. That usually signals a sharp up-move, which we most assuredly saw today.

Behind the rise today in crude was the Fort McMurray massive brush-and-city fire and an outage in Nigeria. In our eyes, the Canadian situation is not meaningful to the oil market beyond a little fear stirring. (Our thoughts and prayers are with the people in Alberta.)

The Nigerian problem is but the latest in a long series of missteps, technical glitches and military actions that affect that unsettled country’s economy.

Lurking behind the crude prices in the long run, however, are the usual suspects: 1) oversupply; 2) the Saudis wish to sell as much oil as possible right now before factors drive them out of their preeminent position in the market space; and 3) slack demand.

What are the factors that can drive he Saudis out of their top-dog spot? More efficient production methods by the U.S. and Canada in extracting previously unprofitable reserves are first. The rise in alternative fuels is second. And that is tied with general efficiency improvements when it comes to burning oil-based products.

For today, however, Brent and WTI traded on a combination of short-term fundamentals and lightning trades by short coverers and bargain hunters.

There are a few stray details on what otherwise is a gangbuster risk-on day.

Gold and silver are both up as regular trading fought off price declines that came about from a stronger dollar. That is a very positive upside sentiment move after yesterday’s Waterloo.

The yen slide is contra-positioned against the risk-on day’s bias, but the threat of the Bank of Japan (mentioned yesterday) to intervene to weaken its currency has some serious stickiness.

That is the reason that we find the dollar stronger but the 10-year U.S. bond yield lower (with face prices higher).

The Dow, S&P 500 and NASDAQ are all up a bit more than 1.00% on the day. It will be worthwhile, though, to pay attention to the S&P’s resistance levels. The S&P 500 is the best barometer for the overall performance of U.S. stocks. It’s been having trouble getting past 2100 during the last year and it is right in that territory – 2082.

Wishing you as always, good trading,