Mass financial distraction allowed the markets to  follow oil as if it were just a puppet pulled to-and-fro; and that’s really the only thing that impacted yesterday. It was clear after mid-afternoon that the bears weren’t going to regain control of hourly action; and more shorts threw-in-the-towel ‘as’ oil recovered in it’s third roller-coaster cycle of sorts during the session. 

And you have the runaway campaign of Donald Trump, which probably (as few seem to notice) may find him perceived as a seriously loose canon; but not one unfriendly to business in-general (certainly Wall Street prefers him to alternate choices at the moment). That the ‘turnout’ was very high in Nevada probably is a hint of higher turnout next week; which is rare in Republican primaries. Some have a sneaking suspicion that he evolves over time to be more centrist (as he actually is) and hence pull a fair number of voters from the Democrats, even as some Republicans abhor the though of his candidacy (interesting correlation). A few will forget to recall he favors ‘auditing the Fed’, which is part of why (with the glitches and impulsive remarks) he’s seen a threat to ‘established power’. 

None of this changes the overall backdrop; other than what I’ve often wanted: a high Oil market for the right reasons. This was not that. Most of what was seen was short-covering), after like in the stock market, people sold into weakness in Oil and the S&P; then recalculated it with blame on the higher inventories being lower than they might have been. Of course that explanation was just a spin, as the fact remains the U.S. is awash in crude for now.

That conclusion suggests the move should be temporary. However a technical breach had no follow-through; and they were able to ramp it along the lines of a possibility we’ve had out there: ‘initial’ downward action on Wednesday; and if a further decline decline didn’t occur, everyone has to deal with month-end plus a key upcoming G20 Meeting; not to mention geopolitical risks. 

On the latter do know that China and the United States have prepared a joint Declaration regarding North Korea which will be presented to the UN; and we’ll express slight optimism that China wouldn’t have gone this far without at least a belief that Pyongyang wouldn’t push these issues too far and essentially listen to their Chinese ‘sponsors’. Again the North threatens to attack ‘Blue House’ of the South Korean President; and the United States bases in Asia if large-scale exercises commence. The U.S. has quadrupled it’s participation in these as a response to the missile and potential Hydrogen-bomb test; and has deployed a second aircraft carrier to Japan this week (normally one home-ports there). 

Oil is more than just a narrative in this market; it matters. And it matters that so many smaller oil (or over-leveraged ones) might not make it. Chesapeake and Hess are among those bantered-about as among the more vulnerable but well known companies; while some think that BP won’t survive without a merger (I’m tending to think it’s critics are a bit myopic considering their overseas projects, but no doubt deep-sea leases like the Gulf are extremely costly extraction wells for any operator, and they have lots of that). The initial expansion of LNG (gas) exports will not have meaningful revenue contributions to many, due to a really heavy surplus of natural gas, and very low wellhead prices. 

Periods of volatility that haven’t left big imprints on the economy, was basically the tone of Stan Fischer (Fed Vice Chairman), as he implies the Fed does not at this time need to depart from its planned course (of tightening presumably) even if the market takes a shellacking. Richmond Fed President Lacker echoed those comments today; saying there’s no reason the Fed can’t hike further. 
 

Bottom-line: they scrambled shorts today; and not much else happened, other than Oil is holding. The stunning turnaround was well beyond the down-up-dip pattern we ideally sought; though knew there was this possibility given not just Oil, but the month-end meanderings. That Oil held in the face of the onslaught is a positive; and may point toward at least very near-term higher stocks; but of course the problem is there really isn’t the global growth that stronger oil means ‘normally’ (because what we have now are not normal price discovery times). 

Most data (like ISM) was unfavorable; and the 5-10% daily round-trips of Oil by itself is not really healthy. Therefore we remain skeptical (especially about most Financials) and see credit and other issues still to be seriously contended with. But, as the market character changes, we just look at this and wonder if it’s just a short-covering move (panic by bears), which won’t be particularly sustainable. This remains an earnings-recession; and a week with all the influences ongoing as we’ve mentioned; importantly month-end, G20 and so-called ‘ceasefire’.