WASHINGTON, April 1, 2013 — Since it’s April Fool’s Day today, the markets might be having a little fun with us, at least as of noon today EDT. The Dow has been off between 20 and 40 points for most of that time and the other averages seem to be in the same space. But we figure this is really an April Fool’s Day joke by Mr. Market as, with all the money the Fed is pouring (indirectly) into stocks, every day is supposed to be an up day, right?
Well, maybe not if: Hong Kong, Australia, and a couple other major markets are closed for trading today; today’s U.S. manufacturing report is down; oil is down or up or down; and Cyprus Syndrome (“they” can take your savings away at any time paranoia) still lurks in the background. All this, coupled with the currently traditional low volume, puts the market in a slightly negative mood today, even though housing still appears to be on an even keel.
Another thought crossed the wires this weekend as well. With stocks having done so well, the numerous balanced funds out there—funds that invest in both stocks and bonds—will likely be forced to rebalance as soon as their final first-quarter numbers are in, given the substantial first-quarter uptick in stocks. That means, perversely, that they’ll have to sell some stocks and use the cash to buy bonds to keep their stated ratios intact. This kind of discipline is actually a good thing, but it’s likely to put some extra selling pressure on big stock winners at least in the short term.
That said, we got into a number of issues this morning—including a few shorts—on the recommendation of one of our investment advisory services. All are doing miserably today, which seems to be a Murphy’s Law thing applicable to almost any stock market recommendation the day that you purchase it. But there were some good technical reasons for getting into some of this stuff, and we should see a lot of this borne out in the coming week.
One of the weirder items on the investment horizon lately has been the price of crude oil and its derivatives. We are not futures traders and don’t really understand the subtle ins and outs of this particular market. But we do know a few things. For a variety of reasons, UK/Brent Crude—one of two major oil pricing components—is always 10, 20, 30 cents above its U.S. moral equivalent, East Texas sweet crude. That spread, recently, has been narrowing, taking some of the pressure off oil prices which had been spiking rather badly lately in case you hadn’t been looking at prices at your local pump, which have reflected that.
U.S. crude has been down today, slowed from last week’s slow creep toward $100 bbl., a price it had been achieving for no apparent reason due to the fact that this country is now generally awash in oil. According to the latest industry tea leaves, oil is actually inclined to back off a bit since supplies are increasing, while gasoline will continue to inch up since, after formula cutovers and refinery downtimes, the latter is in temporarily short supply.
But, on top of this, there is clearly still a premium being priced into crude—which should be lower—based on the constantly shifting powder kegs in the Middle East along with North Korea’s scary yet juvenile sabre rattling which goes on unabated as that hapless country’s latest Dear Leader and Chief Kleptocrat, the soft, indulgent, paunchy Kim-whatever-the-heck tries to cast himself as the latest Sun Tzu, which even the Chinese might not appreciate. (Maybe that’s partly why our reply box has been loading up with China-generated spam over the last few days.)
In other words, at this point, your guess on this topic is as good as the Maven’s, so who really knows? So much depends on energy, but so much is already up in the air that it’s hard to establish an investment position you can believe in. Current oil markets would stump even that late, great oil market manipulator, J.R. Ewing of “Dallas.” He should consider himself lucky he’s now off somewhere in that Great Trading Pit in the Sky. Our current on-the-ground reality is likely a great deal more confusing, rippling into the general markets as well.
So we’ll sit on our hands today after having gone a little short in the commodity area, while continuing to slip out of profitable positions, continually positioning for a nasty correction that, like our friend Godot, never seems to come.
Nothing more specific, so we’ll sign off with that observation.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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