Risk Is Way Off as The Greenback Dominates Movements and Gold Prices Consolidate

Crude oil analysts have to make you laugh. But it’s a dark joke filled with dishonesty.

As oil enters its third straight day of losses, headlines are suddenly again reading along these lines: “Oversupply Worries Traders”; “Seasonal Demand for Crude Dips as Summer Gasoline Blend Transition Tapers”; “OPEC Production Up”; “Sluggish World Economy Stifles Oil Prices.”

Ladies and gentlemen, con artists, and small traders and large – there is a glut of oil. Any relief of that glut will be temporary. While that may add volatility to the trading of crude, it won’t lift the resistance level crude is now facing. (Barring some unforeseen calamity.)

The continued weakness in crude is taking its toll on the Dow and the S&P 500. The Dow is off triple digits in mid-to-late afternoon trading.

The NASDAQ is down as well but it has issues that are different from the other two indexes. Indeed, Apple, although up strongly today, is still spilling its jitters all over the tech sector.

In addition to worries about crude and the tech sector, as we said last week, we will probably not see much upside movement in stocks until after earnings season ends in a week or so. Even then, there is bound to be some volatility hangover that will only dissipate gradually.

One would think that on a strong risk-off day gold and silver would be doing very well. The precious metals, however, are fighting against a stronger U.S. dollar, which is accounting for all the loss in precious metals on the session. Gold is off around $5.00 per ounce. Silver is down 12 cents an ounce.

If gold and silver aren’t havens, then what is? The answer, and not a flippant one, is, “not much.” Bond yields are down. The yen can’t catch fire even a little today.

Some money did gravitate to Shanghai equities but that is mostly cash fleeing the Nikkei and Hang Sen. Europe closed much weaker than New York, which clearly hasn’t had a fiesta day.

Interestingly, even as China released some lackluster data, the Shanghai composite shot up. The Caixin manufacturing purchasing managers index (PMI) for April fell to 49.4 from March's 49.7, shrinking for a fourteenth month, coming in below a Reuters forecast for 49.9. (A number below 50 indicates contraction.)

Some analysts are trying to put a happy face on that but fourteen months is a long time for a sector to keep on contracting. Since China is so interlocked with the rest of the world’s manufacturing, it can’t help but be a worry.

Like the old 1950s song, “I Hear You Knock in’ But You Can’t Come In,” the only advice we offer is to stay calm and come back tomorrow and try it again.

Tim Dreiling, senior portfolio manager with the Private Client Reserve at U.S. Bank summed it up nicely: "I don't see one lever pushing everything. It's a combination of again more of that risk-off, valuations a little extended, earnings did come in a little better (but still declining), concerns coming out of weaker PMI numbers pointing to lackluster growth."

We would add that everyone is seeking direction, firmness and certainty. Those qualities may not come to pass in markets for a while. The VIX, although well of its January highs in the Himalayas, is rising again. It is off the recent low on April 20th of 12.50 and is now around 15.50. That’s a change of about 25%.

Again, though, as we’ve said, let’s see what the end of earnings reports season brings. That should help settle the markets.

Wishing you as always, good trading,