U.S. stocks unmoved by the oil price. The euphoria continues　Tetsuo Inoue『潮流 of the market』

Publication date: 2016/11/30 08:11

Trend 168: U.S. stocks are unfazed by crude oil moves. Euphoria continues.

First, the movement of crude oil futures ahead of tonight's OPEC meeting.
Since yesterday evening, despite the upcoming OPEC meeting, reports from traders such as “investors are generally optimistic. There is buying in futures and options, but no sign of selling off,” have continued the oil price rise and a dollar–yen strong dollar state. After the U.S. GDP (revised, Q3) was released at 22:30 Japan time, the better-than-forecast +3.2% versus the expected +3.0% led the market to think that “a stronger figure not seen in over two years is real,” boosting expectations for December rate hikes, and while the dollar strengthened further, this point effectively became the “inflection point.”

Crude futures peaked around 17:45 Japan time at $46.75 per barrel and then declined. After crossing the “inflection point,” the drop accelerated and could not be reversed; the close was $45.23.

What became material here was that no production cuts would be agreed upon at this meeting. The basis cited included statements such as Iran’s stance of “Iran will not cut production” and Saudi officials’ note that “if Iran and Iraq do not participate in cuts, the agreement may be scrapped” (from some information vendors). Russia’s Energy Minister Novak also officially announced he would skip attending the meeting, saying “first reach an agreement within OPEC,” which added to the disappointment.

However, this “Saudi vs. Iran, Iraq” theme had already surfaced in the pre-meeting talks among OPEC’s 14 member-state experts the day before, and the result was that the conclusion would be postponed and left to the ministers at the meeting to decide. It did not provide any additional direction toward either agreement or dissolution.

As for the production cut target of 32.5–33.5 million barrels per day that was agreed upon in Algeria at the end of September—the meaning of which to be maintained or changed, or whether it would be scrapped, kept unchanged, or reduced further—there is no point in predicting which scenario will be chosen at this time. After all, humans decide. What is known now is only that speculative funds hold large long positions in futures and options, as noted at the outset.

Still, U.S. stocks did not waver.
The Dow has now closed without a 100-point move for 12 straight sessions, and during this period the VIX 5-day average has fallen from the 16% range to the 12% range. The Dow’s rise by 313.72 points over these 12 days reflects the euphoric state. While some view the Trump rally as having paused, even if there is a modest correction from here, the potential for further rise ahead remains high, in my view, as part of the pre-next-step ascent.

Today’s close is likely to produce an historically high RSI14 for the Nikkei index. If yesterday’s close is used, it would be 96.446%. This is among the highest readings in the past 12 years, following the 99.562% and 99.488% seen on 09/08/03 and the following day (as noted in the Look Back after these readings exceeded 90%).

Tomorrow I will write about what can be learned from foreign investor activity and index movements in the period before this year’s presidential election and the two weeks afterward.