Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Opening Bell: Oil Breaks $55; U.S. Markets Open On Record Highs

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewNov 06, 2017 06:15AM ET
www.investing.com/analysis/opening-bell-200258345
Opening Bell: Oil Breaks $55; U.S. Markets Open On Record Highs
By Investing.com (Pinchas Cohen/Investing.com)   |  Nov 06, 2017 06:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

by Pinchas Cohen

Key Events

Major US indices including the S&P 500, NASDAQ and NASDAQ 100 set an eighth straight weekly record on Friday, the longest string of weekly gains since 2013, as Apple (NASDAQ:AAPL) earnings and services sector data spurred additional investor optimism about the country's economy.

Apple’s results revealed its revenue growth accelerated for the fourth straight quarter, with EPS growth of 24 percent on quarterly revenues of $52.62 billion, an increase of 12 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.07.

AAPL Daily
AAPL Daily

The stock has been trading within a rising channel since June. Friday’s earnings increased demand sufficiently to overcome the supply at the $170 level of the channel-top. That’s because the good earnings convinced some of the supply to convert to demand, tipping the scales of the supply-demand balance.

Once the resistance line at the channel top is broken, it is assumed to have turned to support, for the same reason some of the supply turned to demand, on the good news.

After the large 3.5 percent up gap—which occurs when everyone wants to buy at a price where there are no sellers—even after a decline pared the gain to 2.65 percent, it is ripe to “be filled.” This could happen on a dip, a downward correction, led by traders who may think that the initial spike could have been overly optimistic.

Since the channel-top is now a presumed support, this would be a good long entry point.

Global Financial Affairs

Global equity markets started the trading week muted. Asian stocks were mixed after China’s central bank chief warned again about excessive leverage and Trump, during his visit to Japan, brought up trade grievances in a press briefing.

The yen tumbled to its weakest position since March. In rare form, Japanese equities, including the TOPIX, joined the sell-off after BOJ Governor Haruhiko Kuroda said it’s crucial for inflation to exceed the 2% target, suggesting interest rate hikes or balance sheet tapering are nowhere in sight. On the face of it, the yen should sell off on its divergence from the US's path of interest rates and the resulting negative differentials.

Investment by foreigners in Japan's stocks increased by 697 billion yen during the week ending October 26, 2017. In YTD local currency terms, Japanese stocks are lagging developed markets, making shares cheaper to acquire. As well, Japan has ended its second-longest expansion since the end of WWII, even as corporate earnings are hitting yet additional record highs, with more than reasonable stock valuations of 16 times PE, relative to 20 times. For comparison, the current median S&P 500 PE ratio is 25.80.

Add to this that any uncertainty—such as the ongoing threat from North Korea or Donald Trump's aggressive stance on trade issues with Japan—along with the potential for a US tax reform disappointment, could send investors rushing headlong into parking capital in acknowledged safe havens such as the Japanese yen.

USDJPY Daily
USDJPY Daily

The price of the USDJPY pair has reached the top of the trading range in effect since May 9 and fallen, forming an intraday, extremely bearish Shooting Star, with a tiny real body and an extremely long upper shadow. It's a clear display that the bears are in charge.

The Stoxx Europe 600 Index fell, led by banks and telecom shares, offsetting outperforming basic resource and technology companies.

Crude oil broke through the $55 key level, after the US oil rig count dropped. Rising demand supports the global growth story.

On Friday, Baker Hughes said the number of active U.S. rigs drilling for oil fell by 8 to 729 this past week. That was the fourth weekly decline in five weeks.

Another critical impetus for the sudden demand are rising hopes this year’s OPEC production cap deal will be extended through 2018. This demonstrates a return to faith in the efficacy of the OPEC cartel, whose shine has been dimming since US shale production usurped their power to manipulate prices.

Traders are also following dramatic developments in Saudi Arabia, after an anti-corruption purge, spearheaded by Crown Prince Mohammed bin Salman and directed at dozens of princes, wealthy businessmen and government ministers, swept through the kingdom over the weekend. Observers see this as the acceleration of the crown prince's efforts to consolidate his power. Investors are seeing it as an upside risk to the oil market.

However, RBC's global head of commodity strategy Helima Croft suggested to clients that the arrests of some of the most powerful men in the kingdom were part of something bigger:

"The key question now is whether MBS has launched or preempted a new destabilizing 'Game of Thrones' by arresting his relatives in such dramatic fashion."

Croft doesn’t think the dramatic arrests are over. Private air strips in the kingdom remain closed and the national guard is keeping the population in line as clerics lead protests. Historically, unrest is seen as a potential disruption to oil output, causing crude prices to rise.

Ironically, these protests are in line with the interests of the kingdom. In order to break even on oil production, Saudi Arabia needs to sell oil at $70 a barrel according to the IMF.

Oil Weekly
Oil Weekly

On Thursday, the price of oil reached $55.76. The surge was extended on Friday to an intraday high of $56.24, registering a second-day peak higher than the former, at $55.24 on January 2, completing the second peak needed to complete a viable midterm uptrend line.

Additionally, the price has risen 33 percent since the previous low of $42.05 on June 19, more than the required 20 percent rise necessary to call this a bull market, in which upswings are presumed to be part of the trend, while downswings are considered corrections.

Up Ahead

  • The European Commission’s chief Brexit negotiator Michel Barnier and UK Brexit Secretary David Davis resume talks on the terms of Britain’s exit from the European Union.
  • Earnings season continues with reports from Toyota (NYSE:TM), Disney (NYSE:DIS), Adidas (OTC:ADDYY) and Siemens (OTC:SIEGY). European financial companies set to report include Intesa Sanpaolo (MI:ISP), Banca Monte dei Paschi di Siena SpA (MI:BMPS), Credit Agricole (PA:CAGR), Allianz (DE:ALVG) and Zurich Insurance Group (SIX:ZURN).
  • Donald Trump continues his first official trip to Asia as President, accompanied by Secretary of State Rex Tillerson and a group of U.S. business leaders. On Tuesday he heads to South Korea.
  • Also on Tuesday, New Jersey and Virginia will choose new governors in off-year elections.
  • U.S. consumer sentiment probably cooled in early November from a more than 13-year high; the University of Michigan’s report is out on Friday.
  • OPEC releases its World Oil Outlook, presented by Secretary-General Mohammad Barkindo.
  • Argentina, Australia, Mexico, New Zealand, Peru, Malaysia, Poland, Serbia and Thailand all set monetary policy.

Market Moves

Stocks

  • The Stoxx Europe 600 Index fell less than 0.05 percent as of 8:17 London time (3:17 EDT).
  • The U.K.’s FTSE 100 increased less than 0.05 percent to the highest on record.
  • Germany’s DAX fell 0.1 percent.
  • Japan’s Nikkei 225 gained less than 0.05 percent, its highest point in more than 21 years.
  • The MSCI Asia Pacific Index decreased 0.1 percent.
  • The MSCI Emerging Markets Index increased 0.1 percent.
  • S&P 500 Futures sank 0.1 percent to 2,580.50.

Currencies

  • The Dollar Index gained 0.7 percent, after falling 0.6 percent.
  • The euro rose less than 0.05 percent to $1.1611.
  • The British pound was unchanged at $1.3077.
  • The Japanese yen decreased 0.2 percent to 114.27 per dollar, the weakest in six months.

Bonds

UST 10-Y Daily
UST 10-Y Daily

  • The yield on 10-year Treasuries dipped one basis point to 2.32 percent, the lowest in more than two weeks.
  • Germany’s 10-year yield fell two basis points to 0.34 percent, the lowest in eight weeks.
  • Britain’s 10-year yield declined two basis points to 1.245 percent, the lowest in more than seven weeks.
  • Japan’s 10-year yield decreased three basis points to 0.025 percent, the lowest in almost eight weeks.

Commodities

  • West Texas Intermediate crude gained 0.7 percent to $56.05 a barrel, the highest in nine months.
  • Gold dipped less than 0.05 percent to $1,269.84 an ounce, its lowest point in more than a week.
  • Copper rose 1.1 percent to $3.15 a pound, the highest in more than a week.
Opening Bell: Oil Breaks $55; U.S. Markets Open On Record Highs
 

Related Articles

Marc Chandler
FOMC: Words Not Actions By Marc Chandler - Jun 14, 2021 1

The Federal Reserve's Open Market Committee meeting is the most important event in the week ahead. It is not that it will take fresh policy action. Rather, its observations about...

Chris Markoch
How To Profit From Value Investing By Chris Markoch  - Jun 14, 2021

Simply put, value investing is an investment strategy in which investors look to buy stocks that are on sale. However, that is an oversimplification. Value investors are looking...

Opening Bell: Oil Breaks $55; U.S. Markets Open On Record Highs

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email