Winners and losers from crashing energy prices.

Besides central banks, the falling price of oil is one of the dominant market moving forces as we move into end of year trading. Here is what is and looks to be the winners and the losers.

Winners:

The consumer. Every 10 cent drop equals about $10 billion in the consumer’s pocket…and that’s just here in the U.S. The longer prices stay down…the better.

Airlines, air freight, air anything. A huge percentage of their cost is fuel.

Truckers, drivers, Uber, taxis, the post office…ditto.

Mr. Obama: Notwithstanding a deflationary spiral, Mr. Obama can take credit, right or wrong, for the lower prices.

Business: Combining 0% rates with crashing oil prices means the cost of doing business continues to plunge…which equates to higher profits.

SUVs, gas guzzlers and big trucks: Consumers will be less worried because of the plunging price of gas.

Retailers: More discretionary buckos to spend.

Losers:

Energy companies and their underlying stocks. Just take a gander of the charts of the XLE,XOP,OIH. We wonder how companies that have not planned for a new cost structure will do in this environment. The whole industry is used to having prices much higher.

Start watching Texas, North Dakota and oil producing states. Profits are going to plunge which will directly affect these state economies which have done so well because of higher prices.

Inflationists: I think we just made up a new word. There are many pundits that have been calling for major inflation because of Central Bank’s money printing. We can understand their argument. But now, it looks like commodity deflation is at hand. Remember, it is not just oil. It is copper, gold, silver and others that are being crushed.

Russia, Venezuela, OPEC countries…but especially Russia and Venezuela. Couldn’t happen to nicer governments. Unfortunately it will be the people that pay the price in worsening economies.

Gas saving cars: Obvious reasons.

Solar and wind power: Who the hell needs them with prices coming down so much!

Bull and bear side by side!

Near term, markets remain stretched and extended to the upside…except as usual, the Russell 2000 and small caps. Bullishness remains rampant with some numbers off the charts. We are now past the Thanksgiving seasonal bias so with the negative divergence late in the week, don’t be surprised if markets do indeed settle down a bit in here. The divergence was the normal underperformance by the Russell and the small caps. Nothing has changed there as we believe any correction will be led by this area as the small caps have been relatively weak for many months. But the real story is underneath the surface as the meltdown in energy prices continues to produce big winners but at the same time…big losers.

The same areas we have been telling you to avoid have simply…just got worse as the energy markets opened wide and swallowed on Friday. There are those that believe that type of move may be the end of the move down. We would rather stick with the big picture. So…continue to avoid everything Energy, Oil & Gas and most anything involved. On top of that, continue to avoid most commodity areas as they remain bearish. This includes Gold, Silver, Coal, Steel, Solars, mining, ores, construction mining, commodity countries like Russia and Brazil, Emerging markets and now would start to be wary about Rails. Of course, Rails move the oil. Gaming also remains bearish.

On the other end, the continued beneficiaries are Airlines, Air freight, Truckers, Cruise Lines, Travel and Retail…but also Semiconductors, Biotech, Insurance, Managed Care,Restaurants, Food, Drugs, Beverages, Tobacco, Household Products remain bullish.

As you can see, a very much two-sided market Stay in gear.

Just keep in mind, since the lows, Fedheads yapped that more QE may be needed, Japan, Europe and even China announce more easing…some massive. So the agenda is still out there. They do not want markets going down and are doing everything possible to stop even a double digit drop. The agenda was successful again heading into the end of the year.

And you thought cronyism was bad here!

Source: http://www.economist.com/news/books-and-arts/21633785-academic-investigation-networks-control-russia-band-brothers?fsrc=scn/tw/te/pe/ed/bandofbrothers

Energy continues plunge!

Amazingly, OPEC has no reaction to plunging prices and does nothing. This morning, prices are gapping down in a big way for the price of oil and the underlying stocks. Lesson time: just about the whole energy complex has been in a bear market since the breakdown in July.  How does one know when something is in a bear market?  Simply put, all rallies fail in and around A DECLINING 50 DAY MOVING AVERAGE.  Conversely, when the going is good, price pulls back into A RISING 50 DAY MOVING AVERAGE.

We will be posting several charts over the weekend. Notice how the USO,OIH and the XOP have lived below the 50 day moving average with the XLE  , except for 2 days, has lived below it also. Notice how the rallies into THE DECLINING 50 DAY failed and not coincidentally, failing to the penny.  This has been classic.

As we stated in our last report, we are amazed when some think it is bad news when oil prices plunge. These people believe this is a sign of a worsening economy. They may be correct but we also know that every 10 cent drop in gas prices is a $10 billion expense cut for the consumer…and that is just here in the states. Also, all businesses benefit with airlines, truckers,shippers and the like getting the most out of it. Of course, it is all good news except for energy companies.

There is nothing bad about lower oil prices!

I have been amazed to read many articles by pundits saying lower oil prices are a bad thing. Their contention is based on lower prices are forecasting a major global recession. I have news for them. That is just a guess. If they were smart, they would just deal in the facts…and the facts are simple. Oil prices have plunged…which means gas prices have plunged…which means the cost of energy has plunged…and due to the fact the cost of energy is involved in everything we do, it is a huge expense cut to the consumer and business.

Very simply…a 10 cent drop in gas prices is equivalent to $10 billion staying in consumer’s pockets which potentially gets spent into the economy. Of course, this is based on prices staying down. Due to the fact that prices are down at least 50 cents at the pump in recent months, that is a $50 billion expense cut. This is huge.

There is a reason why retailing stocks have moved nicely in the past few weeks even though past numbers have stunk. The market is looking forward to a better holiday based on gas prices. Look at the charts of WMT and TGT for example. Their recent numbers were blah but the gas price story was good enough to break them out of range. Now add in the expense cut for business. This expense cut adds to the bottom line…especially for companies that are big consumers of gas. Is it any wonder the TRANSPORTS are soaring…especially the airlines.

So when reading about the “opinions” of some that say lower prices are not a good thing, throw out opinion and just look at fact. Nothing bad happens if energy prices come down and stay down…of course, unless you are in the energy business.

 

 

 

Holiday seasonality in force!

As we stated, this week contains a positive seasonal bias. So far…so good. The market was much better than the Dow yesterday and will never complain about that. Even the small caps got into the fray as the Russell actually led up yesterday. If that continues, the market only strengthens.

We have no complaints here as the move has broadened out on the back of massive easing around the globe. German announces they are almost in recession and their market soars. Again…easy money.

Don’t scratch your head. Price is price…and easy money to the tune of $13 trillion plus is in force with more to come. Yes…we said $13 trillion as we posted a chart here yesterday. Soon, we are waaaaay due for  some pulling in.. Markets are waaaaay stretched. The good news is that we are seeing rotational pullbacks on a daily basis which are  not affecting the indices.