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Market Futures Sink As Oil Breaks Above $80

This morning market futures are pointing lower as oil breaks above $80 and bond yields rise. Furthermore, investors need to fasten their seat belts, for…

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This article was originally published by Real Investment Advice

This morning market futures are pointing lower as oil breaks above $80 and bond yields rise. Furthermore, investors need to fasten their seat belts, for a busy week full of economic data, Fed minutes, and corporate earnings. The market gets a rest from data today due to the Columbus day holiday. Between CPI, PPI, Retail Sales, and JOLTs, all set for release this week, the Fed will have a new round of data to guide their tapering decision. Expect more tug of war in the markets as investors deal with new data.


What To Watch Today

Economy

  • No notable reports scheduled for release

Earnings

  • No notable reports scheduled for release

Politics

  • The U.S. House of Representatives and Senate are both out of session until Oct. 18.
  • The World Bank Group and the International Monetary Fund (IMF) kick off their annual meetings in Washington D.C. They will release the World Economic Outlook tomorrow morning.

Courtesy of Yahoo

Oil Breaks Above Key Resistance

This morning oil futures are pointing significantly higher with oil breaking above key resistance levels going back to 2009. While oil is very overbought, and a very overcrowded trade, at the moment, such does not mean prices can’t surge higher given the bottlenecks in the system. There is a good bit of overhead resistance as oil prices move into the $90-$100 range, and the bigger issue becomes the inflationary backlash of higher prices on consumption and economic growth.

Stock Futures Are Lower To Start The Week

“Stock futures were slightly lower on Monday to start the week as traders eyed surging energy prices and the start of earnings season around the corner.

Dow Jones Industrial average futures fell 107 points, 0.3%. S&P 500 futures lost 0.5% and Nasdaq 100 futures shed 0.7%. The Dow is coming off its best week since June.” – CNBC

As noted in “Is The Great Bear Market Of 2021 Over?” We need to see some follow through buying this week in markets to confirm the break above resistance last week. If we fall back below the 100-dma, stocks will retest recent lows. The risk is that continued failures to advance will lead to a break of support and a deeper correction will ensue.

Great Bear Market 10-08-21, Is The Great “Bear Market” Of 2021 Finally Over? 10-08-21

GDP Revised Down As Expected.

Futures also took a hit as Goldman Sachs cut its economic growth forecast. Goldman cut its 2022 growth estimate to 4% from 4.4% and took its 2021 estimate down a tick to 5.6% from 5.7%. The firm cited the expiration of fiscal support from Congress and a slower-than-expected recovery consumer spending, specifically services.” – CNBC

Such is not a surprise and is a function of the “second derivative” effect we have discussed since the beginning of this year.

In Q2 of this year, G.D.P. estimates started that quarter at 13.5% and ended at 6.5%. The third quarter started at 6% and is now tracking at 1.3%, as shown below.

As we discussed in “The Coming Reversion To The Mean,” the “second derivative” effect of economic growth is manifesting itself. To wit:

“We are at that point in the recovery cycle. Over the next few quarters, the year-over-year comparisons will become much more challenging. Q2-2021 will likely mark the peak of the economic recovery.09/24/21

Reversion Economic Growth, The Coming “Reversion To The Mean” Of Economic Growth

When writing that blog, our estimates were for a cut in growth to 3.9%. We are currently closer to 1%.

Secondly, fourth-quarter growth will also remain under significant pressure for several reasons:

  1. Year-over-year comparisions remain challenging.
  2. Manufacturing surveys look to slow in a challenging enviroment.
  3. Employment continues to quickly revert to long-term norms.
  4. Liquidity continues to turn negative.

The last point is the most problematic. The massive surge in economic growth in 2020 was a direct function of the massive direct fiscal injections into households. With that support gone, economic growth will revert to normality, particularly in an environment where wage growth does not keep up with inflation.

Payrolls Report

The BLS Jobs report was weaker than expected, with job growth of 194k. Expectations were for a gain of between 475k and 500k jobs. The BLS revised the prior month higher to 366k from 235k. The unemployment rate did fall from 5.1 to 4.8%, however, it was in part due to people dropping out of the workforce. 183k people left the workforce causing the participation rate to fall from 61.7 to 61.6%. With the number of job openings so high and jobless benefits ending we find it surprising people are leaving the workforce. Also interesting was temporary help fell slightly. With so many job openings one would expect many companies to hire temporary workers to fill gaps until they can hire permanent workers. The graph below from True Insights shows payroll growth is starting to fall back in line with pre-pandemic rates of 150-200k per month.

The Danger of Fighting the “Last War”

Bill Dudley, President of the New York Fed from 2009 to 2018, in a Bloomberg editorial, voices concern the Fed is too worried about deflation, or as he says, the “last war.”  He argues the Fed should be concerned inflationary pressures are more than transitory. He prefers the Fed take on a more hawkish tack sooner rather than later. Per Dudley:

This dovishness increases the risk of a major policy error. If the economic outlook evolves in unexpected ways, Fed officials will almost certainly be slow to respond. Hence, if inflation proves more persistent than anticipated and even accelerates as the economy pushes beyond full employment, they’ll have to tighten much more aggressively than they expect.

A faster pace of tightening would come as a shock for financial markets and could risk tipping the economy back into recession. That’s the danger of fighting the wrong war.

Oil Prices and Rig Counts

The graph below compares oil prices to rig counts. After falling to recent lows, rig counts are rising. However, they are still well less than should be expected given current oil prices. Why are oil producers not adding rigs and producing more oil to take advantage of higher prices? There are a few reasons.

First, OPEC is increasing production and will get more aggressive if prices keep rising. Second, oil producers realize the current economic boom and spike in economic activity, and demand for oil is temporary. It is the result of short-term fiscal stimulus and economic normalization. Lastly, President Biden is threatening to release oil from the strategic oil reserves. If the government indiscriminately caps the price of oil via rhetoric and action, the incentive to produce and add rigs is lessened.

The post Market Futures Sink As Oil Breaks Above $80 appeared first on RIA.







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7 A-Rated Energy Stocks to Buy Before Winter Strikes

The fact that the Federal Reserve is contemplating shifting its easy money policies as early as mid-November shows that inflation isn’t as transitory…

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The fact that the Federal Reserve is contemplating shifting its easy money policies as early as mid-November shows that inflation isn’t as transitory as thought a couple months ago. And that’s great news for energy stocks.

When inflation rises, the dollar weakens as interest rates rise. That means it takes more dollars to buy commodities like oil, for example. Certainly, the supply chain problems have something to do with this but it’s also a lack of supply that started during the pandemic last year.

Now, demand bounces back — until the delta variant slowed things down again — but it’s tough to ramp up production in a quarter or two. It’s certainly a unique situation.

But that doesn’t mean you have to wait until things get better before stepping into the market. Energy stocks like the ones below can be a great addition now, as we see that energy prices will remain high for some time to come. Another noteworthy aspect of these stocks is that each has an A-rating in my Portfolio Grader.

  • Continental Resources (NYSE:CLR)
  • ConocoPhillips (NYSE:COP)
  • Diamondback Energy (NASDAQ:FANG)
  • Marathon Oil (NYSE:MRO)
  • HollyFrontier (NYSE:HFC)
  • ONEOK (NYSE:OKE)
  • Royal Dutch Shell (NYSE:RDS.A, NYSE:RDS.B)

Energy Stocks to Buy: Continental Resources (CLR)

Continental Resources Inc logo visible on display screenSource: Maksym Vynohradov / Shutterstock.com

Exploration and production (E&P) companies are also called upstream energy companies. That means they’re the ones finding oil and natural gas and then selling it downstream.

CLR is an E&P player that primarily works out of the Bakken Shale in North Dakota and Montana. Its energy leans more toward oil than natural gas but it produces both. And both are in great demand, especially in global markets.

Since extraction costs are more or less fixed for E&P companies, the higher the price of oil and gas means the bigger the margins. And that’s precisely why CLR stock is up 203% year-to-date. But even after that run, its current price-to-earnings ratio is 48x. That’s a little high, but there’s a good chance earnings will be rolling in to justify it.

ConocoPhillips (COP)

a sign in front of the Conoco Philips office buildingSource: JHVEPhoto / Shutterstock.com

COP is a global E&P player with a nearly $100 billion market cap that also operates some midstream (pipelines, transportation) services to move production to demand markets.

This is a good time for COP since natural gas is in high demand in Europe and Japan, and oil is in demand in China. With a global E&P and distribution operation, COP can supply them with what they need efficiently. And COP can realize expanding profit margins.

The stock has risen 95% YTD and is richly valued. But this is the way the energy markets work — big swings in either direction — and we’re in an multi-year uptrend now. Earnings will catch up.

COP also still has a 2.5% dividend, which isn’t beating inflation, but it’s a nice kicker.

Energy Stocks to Buy: Diamondback Energy (FANG)

Image of an oil filed at the Permian Basin.Source: FreezeFrames / Shutterstock.com

FANG is a land-based U.S. E&P that has operations primarily in the Permian Basin, an energy-rich area in West Texas and Southeast New Mexico. The company has numerous properties in the basin and uses unconventional drilling methods — fracking and horizontal drilling — to access the reserves.

About 60% of its production is oil, another 20 is natural gas and the remaining 20% in natural gas liquids (NGLs). All these products are in high demand.

The trouble is, FANG has been struggling to keep its earnings in positive territory recently unlike other energy stocks. This shouldn’t be a problem moving forward, now that global energy demand has kicked into gear.

FANG stock has gained almost 130% YTD and has a 1.6% dividend. There’s still plenty of upside left.

Marathon Oil (MRO)

Marathon Oil (MRO) gas station carport on sunny day with blue sky backgroundSource: Jonathan Weiss/shutterstock.com

Like other E&P plays, earnings haven’t been great for MRO as we slowly emerge from the pandemic and the delta variant wave. But now we’re in recovery mode and demand it rising in all sectors, including energy stocks.

That’s great news for MRO, which has been drilling for black gold since 1887. And with that kind of legacy, today’s markets aren’t anything new to this company. It has seen a few things just as crazy since Grover Cleveland was president.

MRO stock is up 146% YTD and has a sub-1% dividend. But we’re not concerned about dividends now. This is about energy demand growth, and MRO will be a beneficiary.

Energy Stocks to Buy: HollyFrontier (HFC)

Pipelines in the desertSource: bht2000 / Shutterstock.com

Once you get the black stuff out of the ground and ship it along a pipeline, the business of turning it into viable products begins at the refinery. And that’s where HFC comes in. It operates about a half dozen oil refineries and three asphalt terminals.

In energy parlance, refineries are part of downstream operations, along with distribution and marketing to retailers and wholesalers. This is a key part of the process since getting the oil out of the ground doesn’t mean much if it can’t be refined in a timely manner.

HFC is one of the smaller refiners in the U.S. — it has a $6 billion market cap — which means its gains will amplify in current markets. The stock is up 43% YTD and still trades at a decent current P/E around 31x.

ONEOK (OKE)

Image of a gas burner with a blue flameSource: Shutterstock

Founded in 1906 as the Oklahoma Natural Gas Company, OKE is a leading natural gas and NGL marketer in the U.S. NGLs are derivatives found in raw natural gas that are then used in various industrial processes or for fuel.

The most common are ethane (plastic bags, anti-freeze), propane (fuel), butane (synthetic rubber, lighter fuel), isobutane (refrigerant, aerosols), pentane (gasoline) and pentanes plus (gasoline, ethanol).

The U.S. is like the Saudi Arabia of natural gas supplies. Even as prices have risen domestically, overseas prices are triple or are higher than they are here, which makes for great export opportunities.

This is a very good time for natural gas companies regardless of where they sit in the supply chain. And OKE is a sure beneficiary of the current demand but also a growing transition to cleaner burning (more efficient) fuels, which also boosts its interest with ESG investors.

OKE stock is up 75% YTD yet it only has a current P/E of 22x and offers an inflation-pacing 5.8% dividend.

Energy Stocks to Buy: Royal Dutch Shell (RDS.A)

The Royal Dutch Shell (RDS.A, RDS.B) logo on a gas station in Iceland.Source: JuliusKielaitis / Shutterstock.com

As measured by revenue, Shell is among the largest companies in the world. That’s some rarified air. But if you can recall a few years ago, when energy prices were headed in the opposite direction as they are today, RDS.A wasn’t very attractive. It had cut its dividend and was tightening operations, shuttering wells … the whole nine yards.

But in good times, the big integrated oil companies are like the desert blooming after a rain. Big energy stocks can grow their margins upstream, midstream and downstream. And just a little growth in margins is huge when you’re talking about the scale of RDS.A.

Plus, Shell is actively looking to establish itself in renewable and alternative energy markets as well. For example, it can convert some of its natural gas into “blue” hydrogen and then begin to use its filling station networks as distribution points.

The stock has risen 35% YTD and it has a P/E of 34x. It also has a 2.6% dividend that’s unspectacular but dependable.

On the date of publication, Louis Navellier has a position in COP in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.

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TSX’s winning streak ends as most sectors fall, loonie down

Well the green streak is over it lasted 14 straight trading sessions Tuesday October 26 saw the TSX Composite Index drop 0 52 per cent or 111 39 points…

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Well, the green streak is over, it lasted 14 straight trading sessions. Tuesday, October 26, saw the TSX Composite Index drop 0.52 per cent or 111.39 points to 21,173.45 points.

Bar financials, every other major sector lost ground. Still, this is only the second trading session the index closed in the red in October.

One-year price chart (October 26). Analysis by Kalkine Group

Volume active

The most traded stock was the Royal Bank of Canada with 11.49 million shares exchanging hands. It was followed by Athabasca Oil Corporation where eight million shares exchanged hands, and the Bank of Montreal with 5.78 million shares exchanging hands.

Movers and laggards

 

Ticker

Company Name

1-day Price % Change

Top-5 Gainers

CLS

Celestica Inc

7.2%

SIL

Silvercrest Metals Inc

6.1%

HCG

Home Capital Group Inc

3.9%

EQB

Shopify Inc

3.9%

CTS

Converge Technology Solutions Corp

3.2%

Top-5 Laggards

DOO

BRP Inc

-8.0%

SOY

Sunopta Inc

-4.7%

CS

Capstone Mining Corp

-4.7%

SHOP

Shopify Inc

-4.4%

IFP

Interfor Corp

-4.0%

 

Wall Street update

The Fed is expected to meet early next week. On Tuesday, the three main indices grew marginally after they rallied on market open and fell by afternoon then stabilizing before close.

The S&P 500 gained 0.18 per cent or 8.31 points to 4,574.79 points. The Dow was up 0.04 per cent or 15.73 points to 35,756.88 points and the Nasdaq grew 9.01 points or 0.06 per cent to 15,235.72 points.

Commodity update

Gold fell 0.74 per cent and traded at 1,793.40. Brent oil rose 0.48 per cent to US$ 86.40/bbl, while crude oil grew 1.06 per cent to 84.65/bbl.

Currency news

The loonie fell against the US dollar on October 26, while USD/CAD ended in the green at 1.2388, up 0.06 per cent.

The US Dollar Index was better off against the basket of major currencies Tuesday and ended at 93.96, up 0.15 per cent.

Money market 

Tuesday saw the US 10-year bond yield fall 1.4 per cent and end at 1.610.

The Canada 10-year bond yield fell 1.27 per cent on October 26 and ended at 1.632.









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Cryptos Crash Despite Tesla Leaving Door Open To Accepting Payments

Cryptos Crash Despite Tesla Leaving Door Open To Accepting Payments

Cryptocurrency prices plunged overnight with the selling pressure climaxing…

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Cryptos Crash Despite Tesla Leaving Door Open To Accepting Payments

Cryptocurrency prices plunged overnight with the selling pressure climaxing around the opening of the European markets, closing of Asia.

This left Bitcoin back below $60,000 for the first time in 11 days…

Source: Bloomberg

And Ethereum dropped below $4,000

Source: Bloomberg

There was no obvious news-driven catalyst for the drop and many investors were actually buoyed the last few days after a filing with the SEC suggested Tesla had left the door open to accepting Bitcoin for its products in the future.

“During the nine months ended September 30, 2021, we purchased an aggregate of $1.50 billion in bitcoin. In addition, during the three months ended March 31, 2021, we accepted bitcoin as a payment for sales of certain of our products in specified regions, subject to applicable laws, and suspended this practice in May 2021,” the 10-Q document reads.

“We may in the future restart the practice of transacting in cryptocurrencies (‘digital assets’) for our products and services.”

Additionally, CoinTelegraph reports that PlanB, creator of the popular Bitcoin Stock-to-Flow (S2F) model, called Bitcoin’s price retracement from the $60,000-level the “2nd leg” of what appeared like a long-term bull market.

In doing so, the pseudonymous analyst cited S2F, which anticipates Bitcoin to continue its leg higher and reach $100,000 to $135,000 by the end of the year.

The price projection model insists that Bitcoin’s value will keep on growing until at least $288,000 per token due to the “halving,” an event that takes place every four years and reduces BTC’s issuance rate by half against its 21 million supply cap. 

Bitcoin after the 2012, 2016 and 2020 halving. Source: PlanB

Notably, Bitcoin has undergone three halvings so far: in 2012, 2016 and 2020.

Each event decreased the cryptocurrency’s new supply rate by 50%, which was followed by notable increases in BTC price. For instance, the first two halvings prompted BTC price to rise by over 10,000% and 2,960%, respectively.

The third halving caused the price to jump from $8,787 to as high as $66,999, a 667.50% increase. So far, S2F has been largely accurate in predicting Bitcoin’s price trajectory, as shown in the chart below, leaving bulls with higher hopes that Bitcoin’s post-halving rally will have its price cross the $100,000 mark.

Bitcoin S2F as of Oct. 26. Source: PlanB

PlanB noted earlier this year that Bitcoin will reach $98,000 by November and $135,000 by December, adding that the only thing that would stop the cryptocurrency from hitting a six-digit value is “a black swan event” that the market has not seen in the last decade.

Despite the high price projections, Bitcoin can still see big corrections in the future. PlanB thinks the next crash could wipe at least 80% off Bitcoin’s market capitalization, based on the same S2F model.

“Everybody hopes for the supercycle or the ‘hyperbitcoinization’ to start right now and that we do not have a big crash after next all-time highs,” the analyst told the Unchained podcast, adding.

“As much as I would hope that were true, that we don’t see that crash anymore, I think we will. […] I think we’ll be managed by greed right now and fear later on and see another minus 80% after we top out at a couple hundred thousand dollars.”

Tyler Durden
Wed, 10/27/2021 – 08:23

Author: Tyler Durden

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