Stocks back in yo-yo mode as Wednesday’s rally goes sour

The bears are increasingly controlling the pace and the trend on Wall Street as astounding dollar strength and oil weakness grind every sector down.

Pair of sourpusses.
No mystery here. This pair of sourpusses just took a look at their stock portfolio today. (Credit: Joe Goldberg via Flickr, CC license 2.0, share and share alike.)

WASHINGTON, March 11, 2015 – The stock market continues its weird behavior today. Averages are up for the most part (but the tech-y S&P 100 is down 2 points), with the DJI hovering around + 40 as of 1:30 p.m. EDT. But that number is already starting to go south again even as we write this. The mood is downright sour this week on the Street.

The problem is, as usual, after Tuesday’s tremendous beating, with all averages down hugely—including a DJI swan dive of well over 300 points—the market’s up-days are increasingly a pale and weak rebuttal to the massive declines. As we indicated in an earlier article, it’s increasingly one baby step forward and two giant steps back for each round trip, meaning we’re seeing a fairly relentless net decline with no apparent exit from the pattern.

An interesting tidbit late yesterday, as reported by a number of sources, is the American Petroleum Institute’s report that U.S. crude oil supplies “unexpectedly” declined by 404,000 barrels during the week ended March 6. Expectations had been for a stockpile build of 4.2 million barrels. That’s a long way from 404,000.

But, keeping our “flipping” motif in play, the EIA issued a contradictory report this morning, stating that we’d actually experienced a “build” in inventory of 4.5 million barrels—slightly higher than estimates—not a decline. That put oil back into the proverbial crapper mid-morning, causing it to break its near-term support at $48 per barrel. As of this writing, WTI is sitting at about 47.67, down about 62 cents, and the oil patch is weak across the board.

Meanwhile, the U.S. dollar continues to wallop the euro. Just yesterday, the punditocracy was predicting the dollar would reach parity with the euro—one dollar to one euro—perhaps by the end of the year. But right now, the euro has declined big time today, following its big decline to $1.07 Tuesday. The buck is sitting at just over $1.05 per euro right now, with the European currency cascading downward at a dizzying rate of speed. At this rate, we’ll reach parity by Friday, not by December 31.

This is good news in a way for the Maven at least. He and Mrs. Maven haven’t taken a European vacation in at least a decade now, due to the lousiness of the dollar vs. the euro. But now, all of a sudden and quite “unexpectedly,” we’re nearly at parity, which means perhaps an economical trip back “home.” (Mrs. M was born in Ireland and is actually a legal immigrant-become-US-citizen, a quaint concept in our currently “transformed” shambles of a country.)

Anyhow, we’ll always have Wall Street. Maybe.

Today’s trading tips

Confusion reigns supreme, so placing big bets here is not a good idea. The nastiness in oil today, urged on by speculators, is making oil suddenly more dangerous again, so we lightened up a couple positions for slightly less than pleasant losses, notably Royal Dutch Shell, which is probably getting pummeled a little extra because of that currency translation problem.

What may be scootching oil back down toward the lower end of our hypothetical $40-60 near term range estimate is the simple fact that as the dollar ferociously gains strength, this also pushes the price of dollar-denominated oil regardless of any supply problem.

Pundits need to remember that some of oil’s current swan dive is due to currency translation, not merely to a build in supplies. Plus, beware a robust vacation season likely coming up. That could increase fuel consumption, draw down those inventories and change the equation.

But as for now, while we’re sticking with shares of the MLP ETF (symbol AMLP) and pipeline company Kinder Morgan (KMI), we’re not adding to anything until we see how far oil’s current downward swing will take crude prices.

Our VXX (short term VIX) ETF hedge is working very nicely amidst all this volatility, and we were thinking of adding to it. But even as we write this, the market has just gone negative again. That’s why the brief rally, which may have just ended, hasn’t impressed us. Any buying now, it seems, is just an excuse for more people to bail on stocks across the board, and it looks like that’s happening again.

We think the market wants badly to keep going down, so we might as well act like lemmings here ourselves, trimming weak positions on any up move and developing short positions or hedges on the downswings.

Looks like cash is fast becoming king again here, at least for the short term. So maybe we shouldn’t be buying any “bargains” just yet. The might get marked down again.

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