Stock rally wilts, oil inventory, options expiration weigh

Just when things were getting to be fun again, Cushing storage depot at “practical limit” with nowhere else for domestic oil to go. Goldman protecting its oil shorts?

This sadly wilting flower, captured from a YouTube video, is the perfect way to represent today's market action after stocks' recent, intense rally.

WASHINGTON, Feb. 18, 2016 – Looks like the U.S. stock market has been having just too much fun over the last few days. After rallying big time since last Friday, stocks are getting a modest haircut as of 2 p.m. EST after achieving a slightly overbought situation by Wednesday’s close.

The villain today is—you guessed it—the price of oil once again. After yesterday’s proclamations by some in the CNBC punditocracy that the stock market had finally broken free of its connection to crude oil prices, it looks like stocks have reconnected with the currently fading fate of black gold Thursday. The bad news this time? Word that the mass crude oil storage depot in Cushing, Oklahoma, was filled to the brim and about ready to halt any further storage of crude from U.S. pipelines across the fruited plain.

Actually, the term being bandied about in the media was “practical limit,” as in “Cushing storage facilities have reached the ‘practical limit’ of their peak capacity. Reading the fine print, however, we discover that Cushing’s “practical limit” is 80 percent full. To us, that means they’ve got 20 percent more storage tank capacity to fill.

However, as a few oilheads are quick to re-explain, “practical limit” could also mean that Cushing has already contracted to top off remaining 20 percent of capacity. Hence, it has contractually reached that “practical limit.” Who knows what the truth really is?

Some wags contend that these Cushing “news leaks” may be rumor leaks, put out by Goldman Sachs on behalf of itself and the company’s rich clients who are trying to protect massive short positions in the oil patch. Comments on this “practical limit” story, currently running in ZeroHedge, are actually quite funny in this regard. Here are a few. All comments are as is, excerpted but unedited:

Quinvarius: LOL.  No.  Goldman is getting destroyed in oil.  Can’t wait to see them puke up their shorts.  Even if Cushing were full, they would still get stopped out.  80% full is a panic time?  LOL.  Every 5 minutes Goldman is screaming bloody murder in oil.  Too funny.

(BTW: Quin then undercuts himself by referencing the dubious, perma-bear, sky-is-falling, physical gold-bug Phoenix Capital, but others here and there are echoing his comments.)

Deathrips: GOldman will only be destroyed when the fed is independently audited. They are one in the same. they can take all the losses the market has to offer and come up swinging.

NoWayJose blames the current action on the HFT supervillains: Algorithms have flipped the switch to shorting. Didn’t see these Cushing articles for the last two days – only bullish (or bullshit) articles about production freezes and increased demand.

Other ZH commentators haven’t lost their sense of humor.

Ghost of Porky, for example, chimes in with two helpful hints for getting rid of or storing U.S. oil surpluses:

Drain Flint River, then fill it with oil. No one will notice.

We can store some of it in Chris Christie’s pants.

At any rate, markets are certainly roiled today as oil washes about. It was up nearly $2 bbl. for WTI early this morning, dipped into negative territory an hour or so after Wall Street’s opening bell and is virtually flat at the 2:15 p.m. mark, up just 3 cents. That’s actually not bad, given those scare headlines. It makes you wonder—are the guys reporting all this stuff crooks, or are they smoking something funny?

The Dow has been off as much as 50 points today. Yet roughly two hours from the closing bell, that major stock average is off only 4.72 points at 16449.11, down 0.03 percent. Other averages are in similar situations.

Apple (symbol: AAPL) has been chaotic today, having suffered an adverse tax court decision Wednesday in Europe (after which it went up) but now getting into a flap over a judge’s order to the company to hand over its iPhone encryption info to the FBI so they can snoop through the San Bernardino terrorists’ cell phone info. Citing serious privacy issues more involved with the judge’s idiotic and unconstitutional demand more than the FBI’s request for data, Apple’s Tim Cook has flat-out refused to break the iPhone Omerta.

This virtually guarantees a Supreme Court case at some point, unless someone backs down. That news has been hitting AAPL today, affecting the S&P 100 and NASDAQ averages, although the stock hasn’t been nicked too badly.

Lest we forget, options expiration is on tap Friday, so many manipulative moves are being undertaken today, with HFTs likely manipulating stock prices so they can pick off unwary option holders for fun and profit. With markets mostly down in 2016 up to this week, the machines may be wanting to roll the prices of some issues back a bit, the better to pick off options investors and hedgers who thought Wednesday that they were home free for the February cycle. It’s hard to say.

Bottom line—aside from firming up and or shedding some small positions, we’re still standing pat today, not trusting the near term action in these markets. The rally has been nice, and we’ve made some money on it. But we wish we were able to trust its durability more than we do.

We’ll be back tomorrow to close out this trading week.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17