Notes From The Street: 'The Crisis Has Passed...But Really?'

The following is Kenny Polcari's morning note. He can be found on Twitter @KennyPolcari.

January 21, 2015

State of the Union - The Final Obama Speech -

"The shadow of crisis has passed"

Let's just start with that......If he or either party really believes this - then we've got an even bigger problem on our hands.....Do they even notice the empty storefronts, or the neighbor who has been out of work for months? Walk the streets of NYC - better yet - ride the subway......see the exploding homeless population which reminds me of the early 80's - Chicago? Boston? Los Angeles? Thoughts?

And for his speech last night - well - in usual Obama form - it was well delivered - but lacked real substance - offering up more TAX AND SPEND policies to cement his legacy as what exactly?

Wage growth? - 7 yrs after the worst recession that this country has seen since the 1930's - wages have NOT recovered to the extent that he led the nation to believe last night. And job growth? Well if you define that as - entry level, low paying, temporary jobs - then yes....I guess we can check that box for the democrats.. (there are still 1.7 mil fewer full time workers than before December 2007). .......and don't even get started on foreign policy.....

Mkts continue to be confused......up, down - then up again, down again and then up one last time as stocks closed mixed and investors continue to track oil, earnings, possible ECB stimulus, Greece and to a lesser extent the global downgrade by the IMF....
Let's start with oil......Another down day on the back of the IMF global downgrade........and increasing pressure as Iran hints that we could see oil go to $25/barrel before it stabilizes......Just to be clear - that would be another 45% move LOWER from here......or a 76% move off of the 2014 highs.... Seems a bit dramatic - but nothing surprises me any longer.....

When we look at OPEC - many still think that it is a collective group of producers that want to keep oil prices high.....well - 'That was then, This is now'. What we have learned is that there are different motivations among individual OPEC members - with the Saudi's the largest and most influential producer.

A former senior advisor to the Minister of Petroleum in that country, Mohammed Al-Sabban, has made it very clear - "prices need to go as low as possible.” And why? Because this will force the marginal oil producers out of the game. There will be blood on the streets....... He went onto say that the Saudi's can handle oil prices at the current level for “at least eight years.” This while Iran stated that $25/barrel is not out of the question. Think of the coming boom for consumers!

Other members of OPEC are not in the same position as the Saudi's - with Russia, Venezuela, Iran, Nigeria, already gasping for breath. I do not think the Saudi's will allow prices to fall that far - and we should start to see some stability in prices as supplies begin to wane....

Given this scenario the IMF argued that Western countries should continue with accommodative monetary policies. If rates can’t be cut further then figure out “other means” of supporting growth. It seem clear that the IMF has drawn a line in the sand and this will not be lost on the ECB.

Oliver Blanchard, the Chief Economist at the IMF was much more direct, saying in a Bloomberg interview that the ECB should go “all in” in its bond-buying program,

“We want to make sure that when there’s an announcement, that it’s as large as what the market’s expecting.”

......and this is the key statement - as large as the mkt is expecting......any perceived disappointment will unleash the wrath of investors.....so what will it be Mario? Considering the rally in European mkts over the past 7 days in anticipation of this announcement (Buy the rumor) ..... will any announcement on Thursday be met with a "Sell the fact" reaction? Just food for thought.....

Earnings - well they continue to be mixed at best....some clear disappointments - JNJ, MS, IBM, JPM, GS, BAC, CAT, MCD, and PFE.... but the season is still young.....so many more announcements to come...and today we will hear from a host of banks, tech and some healthcare......UNH, USB, AXP, EBAY, DFS......

Last night after the bell NFLX reported it added more new subscribers than it expected in the 4th qtr helped by a growing international user base, the stock rocketed higher up $54 and is trading at $402 in pre-mkt trading now....

IBM on the other hand was not so lucky.... IBM gave disappointing forward guidance for 2015 as it reported another period of sharply lower profit and revenue to end 2014. Traders shaved 3.5% off of the price in after-hours trading and this morning it seems to have stabilized around $153.50. The 4th qtr marked the 11th consecutive qtr that IBM has failed to generate a y/y revenue increase. The stronger dollar negatively impacting their ability to remain somewhat competitive.....

Technical's - in spite of all of the noise and earnings disappointments the mkt is in an oversold position - yet can't seem to get out of its own way......We have been churning in the 2005/2030 range now for 2 weeks.....unable to really break lower but not ready to move significantly higher just yet - suggesting that investors are happy to remain patient....no reason to go gang busters........The wild card as we know is the ECB and the Thursday announcement.......the question remains - will the mkt respond positively no matter what or will investors finally breathe a sigh of relief - take some profits and re-group before jumping back in?

The McClennan oscillator is still below zero - this is a negative - it must get back above zero to signal the needed momentum for another advance. With all the indexes below their 50 dma's - significant resistance lies just ahead.....so much depends on the message that the ECB, send to the mkts..... T minus 28 hrs......and counting......

This morning US futures are down 4 pts - as the mkt awaits....again no broad reason to jump in just yet.....Concern over recent dollar strength is creating a lot chatter in the currency trading pits as traders wonder if the FED will change the language over rate moves.....strength in the dollar is directly tied to the expectation that rates will rise by sometime this summer as well as more easing by the ECB, BoJ and PBoC.....After the SNB surprise last week - traders are a bit more cautious as they learned very quickly to 'expect the unexpected'......

Look for the mkt to remain in the 2000/2030 range as we move into tomorrow. a clear disappointment would cause European mkts to shudder and US mkts to test longer term support at 1967....a positive surprise will solidify more of a base right here and allow for a surge towards resistance at 2050..... Yes - January has been a volatile month - but we are still in the 1st inning of the game....

Economic numbers today include: Mortgage apps up 14% on a wave of refinancing activity.....Housing starts - exp of 1.04 mil, Building permits exp of 1.06 mil.....

European mkts are all a bit lower this morning as they digest the recent rally ahead of the ECB announcement. Mkts feel a bit jittery... Larry Summers warning of more weakness in the Eurozone - saying that they are 'on the brink of deflating and urgently need more stimulus'.....

Italian cooperative banks enjoying some strength as the Italian gov't approved an 'emergency decree' forcing these institutions to tighten governance rules setting up a path for some consolidation. In the UK - the BoE are keeping rates on hold..... Unemployment in the UK fell to 5.8% - a 6 yr low.

FTSE +0.66%, CAC 40 - 0.37%, DAX - 0.34%, EUROSTOXX -0.35%, SPAIN -0.54% and ITALY -0.07%

Take Good Care
KP

"The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates”

Image credit: Eva K, Wikimedia