Market Lab Report - Premarket Pulse 2/16/16
Major averages rallied on lower volume as oil rocketed more than 10% on Friday in anticipation of OPEC countries announcing cooperation on a production cut. Saudi Arabia, Russia, Qatar and Venezuela today said they wouldn’t increase crude-oil output above January’s levels as long as other major oil producers followed suit, in the first coordinated move to boost oil prices in years.
The Market Direction Model (MDM) had switched from its sell signal to a cash signal on Thursday as it detected a potential bounce in the majors,thus locked in profits. That said, any bounce may be shorter-lived than expected as the put-to-call ratio has recently spiked a number of times along with bearish advisers persistently outnumbering bullish ones, yet the overall downtrend has been relentless underscoring the inherent weakness in the averages. Further, the market's recent bounce off of its mid-January lows was the weakest in years.
On Monday, Japan's Nikkei jumped more than 7% as its GDP shrank for the second time in three quarters, spurring the belief that its central bank will ease even further. China's economic import/export woes further contributed to this belief, and the European Central Bank has suggested further easing is on the way in March. U.S. futures are up almost 1.5% at the time of this writing.
The current bounce should offer a good opportunity for shorting the right stock or stocks. We will keep members apprised.
Creeping, crippling tipping points are emerging such as the banking crisis which has been brewing over in Europe as more banks acknowledge they are carrying bad debt on their books. The negative interest rate environment, instead of spurring what could be called "spurious" lending, is causing banks to charge higher interest rates for loans, thus interest rates are on the rise for businesses, quite the opposite of what central banks were expecting. This begs the question whether the U.S. Federal Reserve will adopt negative rates if they think it will only cause interest rates to indirectly rise for businesses in general. Major European banks such as Deutsche Bank are now trading below their 2008 lows.
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