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Forget the picnic basket: Bears eating Bulls slathered in Oil with a side of Chinese

Up, down, sideways the market goes. Where it stops nobody knows. Well, unless you are living with your head buried in the sand, the indicators are pretty good for further moves to the downside. Why do I say that? Just take a look around. You don’t need to see the forest fire to smell the smoke heading your way. So what does that mean for us? It’s kind of like dominos. When everything is lined up correctly, once the first one goes, the rest follow. What are the dominos you ask? Take a look for yourself.


Lots to say here. Currency devaluations, economic slowdown, your typical government intervention to try to stop the bleeding. But why is it going down? It’s simple, really. Manufacturing is slowing down. The purchasing manager (PMI) index is below 50. But what does that mean? Above 50 shows growth, and below 50 shows contraction. Right now the PMI number sits at 49.6. So, a number above 50, for example 52.9 dropping to 52.6, would indicate a slight slowdown whereas a number below 50 indicates a contraction, and that is what has the Chinese markets in a tizzy.

Fed uncertainty

Is the Fed raising rates, or keeping rates the same? Who knows? The problem is that this uncertainty leads to fear, which is having a huge downturn effect on the market.


Illustration courtesy of CNN Money’s Fear & Greed Index.

Energy Prices

With no surprise, most of the drop today was in the energy sector. For months the oil sector has been under fire. With OPEC refusing to cut production to prop up prices, the slide for oil continues. So you may think that low oil = cheap gas = good for consumers right? Well it is, unless you work in the oil industry, which has shed 91,000 jobs in the past nine months and shows no signs of slowing down. Remember, these are people that were making GOOD money with tons of great benefits.



Oil supply glut

News coming out of the U.S. Energy Information Administration for the week ending August 19th indicates that U.S. commercial inventories of oil rose by 2.6 million barrels.

2.6 million barrels of newly-stored oil floored traders as they were looking for a declining number, not an increase, which accelerated the downward momentum.

The reason traders expected a declining number is that oil refineries across the US have been running full tilt to produce gasoline before the end of the summer driving season on Labor Day.

But there was one catch, the largest refinery in the Midwest – BP’s plant located in Whiting, Indiana, is shut down because of leaking pipes, killing the total capacity of the plant.

Uncertainty in Iran

Is Iran going to be able to dump oil onto the already oversaturated market, or not? Traders are eyeing the fact that the deal with Iran is going to be approved. With sanctions lifted, it means that an extra 2.3 million barrels of crude a day will be on the market.

All of this means that you should expect more volatility moving forward, especially going into September and October, and history shows these are typically bad months for the markets when this much fear is rampant.

One comment

  1. I like the article. A couple other downward pressure catalysts… baby boomers “retiring” from stocks…millenials drowning in over 1 Trillion student loan debt not being able to invest or buy homes. Add these to China, interest rate rise, oil collapse, and the dollar and let the fire sale begin!

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