"We don't have anybody in Washington that calls OPEC and says, 'Fellas, it's time. It's over. You're not going to do it anymore."
-- Donald Trump
Oil is in the forefront this morning as a potential OPEC deal has the US Oil Fund (USO) jumping around 6%. Market players tend to be very skeptical of the ability of OPEC members to not only make a deal but to stick to it, but this morning hopes are high.
One repercussion of OPEC agreeing to limit production is that it helps the U.S. shale industry to restart. Higher oil prices make it worthwhile to ramp up production again, and that ultimately undermines the OPEC agreement. OPEC doesn't have the power it once had, but it still can produce some big moves in oil in the short term.
We'll have some trading action in oil names today, but questions remain about the broader market. We had our first bout of any really selling in three weeks on Monday, and there was ugly intraday reversal yesterday, but overall the indices are sticking close to highs. The bulls tell us that it is a pause that will refresh and rejuvenate the uptrend. The bears argue that this is stalling that will eventually lead to further downside.
The bulls have seasonality, increased optimism, momentum and a strong rotation working in their favor. The bears have the likelihood of a Fed interest rate hike and the argument that the Trump rally has gone too far too fast and isn't that well justified.
As I've discussed, markets that have been as strong as this one has been since the election don't just fall apart, unless there is some dramatic change. The bearish argument is that this is just a speculative blow-off and we should be ready for it to come to an end as the market realizes the reality that the economy is still sputtering along with limited growth.
My focus has been more on individual stock positions than macro arguments. I've locked in gains and taken stops on a large number of positions and have a high level of cash as a result. I'm not trying to call a top in the market. I'm simply managing positions tightly and making sure I keep my portfolio as close to highs as possible.
Invariably we feel we give back too much when the market pulls back and have to do too much work to recoup the losses. Nothing is more unproductive than making up losses, but the trade-off is having less market exposure.
The bounce in oil is going to help the mood, but momentum has been slowing and the speculative action in small caps has narrowed. There are still some interesting charts on my radar, but they are much harder to find. One that I'm watching today is Yirendai (YRD) , which was a big winner for us this summer.
Early indications are that the S&P 500 recoups its late selloff, but will oil be the catalyst to restart market momentum?
