Midweek Macro Note: Oil Crisis on the Horizon Pt. 3, Latest Oil Shock Data, Portfolio Strategy Update, Homebuilder Situation Update
In the Midweek Macro Note we discuss the oil crisis on the horizon (in part 3 of our energy crisis segment), talk about the latest oil shock data, deliver a portfolio strategy update, & talk builders
Don Johnson (@DonMiami3), Chief Economist
Good Wednesday evening MacroEdge Readers & Community,
This afternoon, I departed the West Coast after a productive two weeks in Arizona and California, and I am heading to the Permian Basin again for several discussions on the state of all things oil and gas.
The market-at-large remains in a standby mode - as it has been now for the bigger part of 200 days (on the Nasdaq) as I highlighted earlier through a post on X. This was the fifth consecutive close below the 200dma for the QQQ, and longer term signals continue to point toward the last six months being a period of distribution and institutions setting up to roll things off onto retail. Retail trading activity has dipped lower in the past few weeks - as evidenced by both trading volumes, and the fact that total margin balances outstanding have begun to dip as well. For the S&P, it’s a similar story, with the index rejecting the 200dma today, and also showing weakness. This weakness is notable, and the blatant manipulation of WTI through crude oil futures was largely ignored by the end of the day, with oil prices closing flat on the day. As we discuss below, given the magnitude of this supply shock, there is still a fair chance that WTI prices move considerably higher than their Sunday overnight high from two weeks ago. Even if that doesn’t materialize, this $90/bbl environment provides huge tailwinds for the sector - and the names in our portfolio strategy basket.
Five days below the 200dma for the Nasdaq:
On the geopolitical front - until we have actual confirmation from both sides of a meeting, I would take a lot of the latest *developments* as noise. There’s a lot of manipulation going on right now in markets - and people are paying for certain stories to get attention to benefit their own positions. On the energy shortage front, we’re starting to see problems in East Asia and Australia, with about 10% of petrol stations in Australia now facing supply issues. Over the next week, that figure could get in the 30-50% range, since it will take months to get the energy supply chain stabilized after this shock. Bids for tankers still need to go a lot higher in my opinion, and WTI is still underpriced given the entire risk profile of where things stand in this conflict. $100/bbl WTI is clearly a panic threshold for the time being, but the setup without immediate resolution by the end of the week is going to be one where we see WTI begin (again) to reprice into a higher price floor than this $85+ level we’re now seeing it settle into. With all of that being said, let’s take a look at the latest data below, and we’ll have more on Friday evening as the week progresses.
In addition to the price pressures, war, and oil trends, we’re going to take a brief look at the latest update for homebuilders, which have faced great equity selling pressure from the beginning of the war.
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Latest Oil Shock Data
With major Ukrainian strikes on Russian oil output, and Iraq oil exports now being shut-in to the tune of 3.5mbpd, this oil shock continues to make records versus previous shocks.
In Iraq, production outages now total 3.5mbpd:
(continued below: oil shock data continued, the latest WTI look, oil & gas portfolio strategy, homebuilder situation, & much more, all below):
