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Morning Note February 26, 2016

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Morning Note-

Fri, Feb 26, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +55bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +108bps

08:45ET                                          Update:  [Stockboardasset]FTSE100 +71bps DAX +124bps

 

In the past 2 weeks, Global equities have diverted from the normal rout and maintain a corrective impulse wave leading-in to the G20 meeting this weekend. US VIX in this timespan has lost more than 50%, as well as US-Equities panic buying +9% short cover rally. US Equities on a double-banded oscillators signal overbought extremes, but what’s more troubling is the volume drop off. Even more troubling is how the US Equities rally was stimulated. First, OPEC announced production freezes saving SPX from the 1800 level, the FED announces MBS POMO cancellation and a US 7YR Treasury auction cancellation creating more panic buying. The structure of the move is unstable and we maintain our view of an unfair high in the near term producing a reversion.

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Morning Note February 25, 2016

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Morning Note-

Thur, Feb 25, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -4bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +127bps

08:45ET                                          Update:  [Stockboardasset]FTSE100 +126bps DAX +86bps

 

Overnight China Markets crashed, Japan advances, as well as Europe advances. That is the vibe of the Pre- G20 meeting as it’s host country: China continues a rout not seen in a month. Typical comments out of Japan from Kuroda defending NIRP, meanwhile Japanese markets in a post-NIRP era have seen dramatic declines. Apparent this morning, normal coefficient correlations to US Equities have dissipated in preparation to G20. Last week’s OPEX rally short cover advanced US Equities in an unstable structure. The resistance on the advancement is a major 1.414 extension of the entire bull cycle at SPY 195. Markets are testing this level on a non-linear timeline of 4 days. If a rejection of this level occurs expect a reversion to 189.50, then fill the 187 window. If the 1.414 extension is successfully on the upside, a migration to the upper distribution of the bi modal will be seen. Markets at crossroads.

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Morning Note February 24, 2016

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Morning Note-

WED, Feb 24, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures -93bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei -94bps

08:45 ET                                         Update:   [Stockboardasset]FTSE100 -128bps DAX -228bps

 

Last week’s OPEX and Short Cover Rally in US-Equities had an advancement that rejected the 1.414 extension of the entire bull cycle. As we’ve noted, the structure of the rally in US-Equities was unstable due to the composition of how the market moved. Our analogy would be constructing a home without a sturdy foundation. The cracks in the foundation were so obvious that others such as Geneva Swiss Bank and Tom DeMark publicly voiced their concern of the recent advancement. SWFs have been the largest hurdle in US Equities as liquidity is not a constant variable, its highly conditional, thus explaining the volatility. The liquidity floor sits on Fib extensions 1.272 and as of recently a liquidity hole took SPX underneath such level, but a saving grace from OPEC in a well-timed manner saved markets from the inevitable clearing process. Markets are at a cross roads, do we open door number 1 (Market Clearing) or door number 2 (FED).

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Morning Note February 23, 2016

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Morning Note-

Tues, Feb 23, 16

08:45 ET                                         Update:

[Stockboardasset] S&P futures -30bps

08:45 ET                                         Update:

[Stockboardasset] Nikkei -40bps

08:45 ET                                         Update:

[Stockboardasset]FTSE100 -30bps DAX -55bps

 

Last evening we brushed up on our Kondratieff wave reading to determine the winter cycle could be here. The winter wave has characteristics of excess capacity worked off by massive debt repudiation, commodity deflation, geopolitical risk and an economic recession. Monetary policies by the FED in the form of QE have protected the US economy from the inevitable clearing process.

Prior Session, the global stage of economies experienced a terrible miss on manufacturing, as well as the US. The US Manufacturing PMI was 51 vs. 52 (expected). The world’s largest minor BHP reported a massive profit drop and for the first time in 15 years slashed their dividend. BHP echoed what many of economist point out of slower overall growth in China. Not to mention Standard Chartered, the Asian focused lender reported a pre tax loss of $1.5 billion in FY’15, down from a profit of $4.2 billion prior year. This was the first annual loss since 1989. Weakness in Chinese equities was also seen overnight.

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Morning Note February 22, 2016

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Morning Note-

Mon, Feb 22, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +113bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +245bps

08:45 ET                                         Update:  [Stockboardasset]FTSE100 +156bps DAX +202bps

 

Over the weekend, London’s Mayor Boris Johnson led to Sunday evenings collapse of the GBPUSD after he voiced his concern of supporting “Brexit”. The GBPUSD experienced it’s worst drop in many years, as EU frets the potential loss of it’s critical member. Around the globe, a confluence of manufacturing data showed a bleak forecast of future growth. From the Eurozone to Asia the manufacturing miss on data points to further weakness in coming months. Despite the global slowdown, BOJ still inspired the USDJPY spike driving global equities in an upward trajectory, and even breaking the EUREX. We were astonished to learn in the first 2 months, Chinese loan creation topped $1 Trillion. We assume Chinese firms will do what they do best and continue stockpiling commodities as Iron Ore touches $50 since EOY’15. The bad news is good news gang is back as Eurozone and Asia markets are marginally up. Global equities are sustaining the 11 session up trend leading into an important supply line. We note, recent movements in global equities are artificial and should warrant caution. US Equities have rallied in a short cover spree leading up to OPEX last week. The structure of the short cover is unsustainable and should rotate back into balance area of the high 180s on SPY.

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Morning Note February 19, 2016

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Morning Note-

Fri, Feb 19, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +22bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +277bps

08:45 ET                                         Update:  [Stockboardasset]FTSE100 -53bps DAX +118bps

 

We warned yesterday of the artificialness of the global equity index recent advancement as central bank members generate conversation to manipulate market participants perception of reality. FED Williams was the recent member to speak as he told market, we can’t pull the rug out from the economy right now. Over the course of this week, mutable FED members have acknowledge WTI and USD are generating woes for the US economy. The Global Equity Index is comprised of major markets around the world have halted the 5 day advancement forming an evening star. We believe there will be a retracement of the recent advancement. US Markets have advance near +700bps in a week’s time as forced short covering was produced by OPEC. Coincidently, the SPX tested and rejected 1.272 extensions of the entire bull cycle as support. We learned our markets continue to be highly manipulative as the overseers of the wave function spew nonsense i.e. OPEC. OPEC’s perfect placement of their comments at 26 and range bound of 30 via comments depicts pure manipulation. 4% of the global producers <35 will be below breakeven as the likely hood of WTI rotating the low 30s for an extended period of time is high. We do see improving fundamentals in place for 2H16 in the US Rebalancing, but a dark spot in the refinery sector. Just recently, the market saw the fire sale of WTI from 30-26 as PSX dumped Cushing for immediate delivery. Rumors of an OPEC emergency meeting in the March Timeframe.

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Morning Note February 18, 2016

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Morning Note-

Thur, Feb 18, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +22bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +277bps

08:45 ET                                         Update:   [Stockboardasset]FTSE100 -53bps DAX +118bps

 

 

Global equities continue their advancement in the fifth straight session as late January prices have been reached. Our guess, the recent price action is artificial by central banks. We should not forget global economies are fighting a commodity, currency, and interest rate war. Overnight, FED Bullard commented on Decmember’15 rate hikes weren’t a mistake. He added WTI and the dollar prices continue to hurt the US economy. We believe a delay of the March rate hike as central banks recognize recent global market price action.

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Morning Note February 17, 2016

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Morning Note-

Wed, Feb 17, 16

08:50 ET                                         Update:  [Stockboardasset] S&P futures +170bps

08:50 ET                                         Update:  [Stockboardasset] Nikkei +56bps

08:50 ET                                         Update:  [Stockboardasset]FTSE100 +112bps DAX -129bps

 

Global equities in the past four sessions have sustained a countertrend rather than the normal rout. The rout has been in response to the FED’s tightening program starting in Dec’15. Global economies are fighting a commodity, currency, and interest rate war. Overnight, the US FED member Rosengren spoke in a dovish tone underlining the dollar rise, oil falling, depressed inflation, and EM woes. In his words, rate hikes should be “unhurried” if US inflation is slower than expected. FED minutes will be released 2pm est. today, as well as 6pm est. James Bullard will speak.

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Morning Note February 16, 2016

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Morning Note-

Tues, Feb 16, 16

08:45 ET                                         Update:  [Stockboardasset] S&P futures +200bps

08:45 ET                                         Update:  [Stockboardasset] Nikkei +293bps

08:45 ET                                         Update:  [Stockboardasset]FTSE100 +62bps DAX -65bps

 

Global equities remain in a sustained rout as global economies are fighting a commodity, currency, and interest rate war. Front and center is OPEC announcing a production freeze with its major producers. Rumors over the past week were calling for production cuts, which spiked WTI from the 26 to 31 handle. WTI is stabilizing as schizophrenic Goldman Sachs revises their WTI to not much downside is left. US Equities revive their high correlation to WTI .925 on a 300min scale. Unprecedented geopolitics are unfolding as the Turkish Military is shelling into Syria. The Saudi’s are conducting the largest military drill in the Middle East called North Thunder involving more than 20 countries. How timely, the Middle East nations are standing behind Saudi Arabia as the Russian’s and Assad run a much in Syria advancing the most in the multi year conflict.

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Oil Note February 15, 2016

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Oil Note: Monday 15, 2016

 

Summary of Weekly Petroleum Data for the Week Ending February 5, 2016 (EIA)

U.S. crude oil refinery inputs averaged over 15.5 million barrels per day during the week ending February 5, 2016, 105,000 barrels per day less than the previous week’s average. Refineries operated at 86.1% of their operable capacity last week. Gasoline production increased last week, averaging about 9.6 million barrels per day. Distillate fuel production decreased last week, averaging about 4.4 million barrels per day.

U.S. crude oil imports averaged over 7.1 million barrels per day last week, down by 1.1 million barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.7 million barrels per day, 5.0% above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 683,000 barrels per day. Distillate fuel imports averaged 201,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.8 million barrels from the previous week. At 502.0 million barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at least the last 80 years. Total motor gasoline inventories increased by 1.3 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories remained unchanged while blending components inventories increased last week. Distillate fuel inventories increased by 1.3 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.3 million barrels last week but are well above the upper limit of the average range. Total commercial petroleum inventories increased by 0.3 million barrels last week.

Total products supplied over the last four-week period averaged over 19.8 million barrels per day, up by 0.3% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.9 million barrels per day, up by 2.6% from the same period last year. Distillate fuel product supplied averaged 3.6 million barrels per day over the last four weeks, down by 15.8% from the same period last year. Jet fuel product supplied is up 6.8% compared to the same four-week period last year.

Central Banks around the world are experiencing the negative feed back loop of cheap money in the form of deflation. Since 2009, Quantitative Easing programs, in the US have produced the Shale revolution overtaking OPEC as well as Russia to become the top producer globally. Since the end of Quantitative Easing 3 deemed “QE3” in 2014 as well as OPEC oversupplying the market to thwart the continued expansion of US Producers, the race to the bottom has driven oil markets to a -77% in FY’16.

At the moment, there is more oil production than demand. Several ways to resolve the problem: stimulate demand or cut production. Last week, Wood Mackenzie released a report citing around 4% of global supply is unprofitable <35 WTI. 4% of global supply equates to 3.4 million barrels per day, which would cure the 1.5 million barrels per day global oversupply. Majority of US Shale Producers are underwater <40. We note, on WTI chart in FY’15 mid-40 levels were a highly defended area as price oscillated throughout the fiscal year. Since FY’14, US Rigs have dropped -68% as budgets contract and investments have slowed due today’s fair value of WTI. Many US Producers are taking a loss, but continue to pump with hopes of a rebound in prices. Some highly leveraged Shale producers have to continue to pump or face a whirlwind of pressure from their bondholders. This is evident in the high yield debt space as 2009 levels have been reached.

As mentioned, US Rig Count plummets -68% since FY’14, and we note US production is laggard. This is due to the US Producer(s) refocusing Rigs to oilfields where the production cost is lower. US Production since 2H15 has fallen around -5% according to EIA via Quandl.com. The US production has experienced peak production, but the main concern is oil storage hitting an 80-year high. Cushing is near capacity as the fear is visualized in /ILT (NYMEX) oil storage futures nearly doubling in FY’16. If it couldn’t get worse, last week’s fire sale of WTI to the 26 handle could have started with Phillips 66 dumping Cushing crude for immediate delivery. The front month spread is abnormally wide showing stresses in the near term market.

Stresses in the WTI front month can also be seen in the spread of Brent vs. WTI widening. Late FY’15, the spread was at parity, but as of current date a divergence has edged BRENT up 3.73. Even with WTI draw last week in inventories, it seems as the market is waiting for consecutive weeks before the draw is taken serious.

As the race to the bottom continues, OPEC members and their Sovereign Wealth Funds continue to feel the pressure of <30 oil. OPEC members on Jan 22, 2016 told the world their issues and said they were ready to discuss. Fast forward to February 11, 2016, OPEC states everyone is ready to cooperate. Breaking moments ago Russia is to meet with major OPEC members including Saudis, Venezuela, and Qatar. We are eager to hear what transpires from the meeting. Next theoretical statement for a bullish attitude would be the mention of production cuts. Comments and meetings are months ahead of the typical OPEC meeting held annually.

The oil market is a two sided coin: Supply/Demand and Geopolitics. In an unprecedented Geopolitical event this weekend of Turkey and Syria spiraling out of control, we conclude the oil market cannot ignore this debacle. Turkey decides to shell Northern Syria, as the Russian’s work in lock step with the Syrian Government to retake strategic regions of Syria. Meanwhile, the Saudi’s have built the largest coalition ever in the Middle East comprising of 20 countries currently drilling in Saudi Arabia. At the same time, the Saudi’s are transporting personnel and supplies to Turkish air bases, which many think a ground invasion by the coalition is on the horizon. US is absent on the boots of the ground, but Kerry is striving for a cease fire deal. This seems highly unlikely, after the shelling and minor ground invasion by Turkey was seen over the weekend. As the West tries to de-escalate the situation by Merkel supporting a No-Fly-Zone to counter the Russian’s with Assad, we saw a tragedy unfold as a “supposed” Russian Airstrike hit a Doctor W/O Boarders facility. There are many sides involved in the fight, but to narrow down who is involved comes down to Saudi Arabia’s Coalition called Northern Thunder (Hint of the West) versus Assad and the Russians. Cold War could meet Hot War as the weekends events spiral out of control.

 

Technical-

Wave 1 timeframe 8-27-13 to 11-27-13. Counter Wave 2 timeframe 11-27-13 to 6-12-14. Wave 3 timeframe 6-12-14 to 3-18-15 extended from Upper rail of descending channel to beneath centerline. Counter Wave 4 timeframe 3-18-15 to 5-5-15 tests beneath centerline. Wave 5 timeframe 5-5-15 rejected centerline channel extending to lower channel rail finding resistance low 26. Low 26 is a major level of defense as 1.618 extensions from wave 3 end extended into 29. The probability of a counter A-B-C wave is likely once primary wave count 5 is ended. 25 days of support at 26-35 regions. Breaking moments ago, Analysts from Goldman Sachs are on Reuters saying that oil prices don’t have much further to materially fall. Goldman is referring to the 5th wave ending a possible counter structure to start in the near term after 900 days of the 1-3-5 impulse and 2-4 counter Elliot wave structure which is responsible for the -77% of WTI.

Mathematically, we measure price and time with the GANN Analysis starting with the focus point of the second wave count end of 107 level 6-12-15 range. The market continues to lack balance and is currently in a weak position. Even though, the market has strived to balance reclaiming ½ GANN as support on the lower channel demand line. Rule of Angles states that once an angle is violated the next angle it’ll move towards. On deck is for a balance of 1/1 GANN, but current fundamentals in WTI/BRENT do not support 1/1 migration this FY. The GANN fractions equate to Units of Price per Unit of Time.

On an intermediate timeframe, the primary 5th wave has seen nearly 30 days of resistance with a single print TPO at 26. The 30-day resistance is forming a geometrical formation notable for a reversal called a right angle descending broadening structure. Precedents of structure are 51% upward breakouts according to Bulkowski. The geometrical formation is producing a balance area with rotations of 30.63 point of control. The parameter’s of the VA area or balance is 27-35. The geometrical formation sits on wave 3’s 1.618 extensions adding a thesis for supportive area. We advise the market participants to understand the structural composition of the right angle descending broadening structure as well as understand all aspects of the balance area. Rotations of this balance will continue until the balance is mature, which will lead to an imbalance. As the balance area matures with a 30.63 point of control, and a notable structure for reversal, we expect a counter trend to start and our EOY’16 Price Target is 46 reversion. As of now, play the rotations of the 30.63 balance.

 

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