Strange Bedfellows

DOW – 268 = 17,533
SPX – 33 = 2026
NAS – 82 = 4684
10 YR YLD – .05 = 2.17%
OIL – 2.64 = 61.18
GOLD – 6.30 = 1227.10
SILV – -.05 = 17.16

Well, that was ugly. This is why we enjoy milk and cookies while we can. We’ve seen a lot of record highs in the major indices this year, but they remain rare birds. When we fall from record highs the drop can be fast, as it was today. The worst day since the start of October; wiping out gains from the past month.

The month of December has brought positive returns to the Dow every single year for the last five consecutive years. As you might imagine, there’s a lot of pressure to make it six. And it might still happen, despite the past couple of days. Still it’s a good reminder to stay awake through the holidays, keep your stop loss in place, however you employ your stop loss; and if you don’t have a stop loss it is time to wake up and smell the coffee.

Beyond that, it was just an ugly day, with decliners beating advancing issues 4 to 1. All 10 S&P industry sectors were down, with the energy sector down 3.3% as oil prices continue their slide. Brent crude dropped to $63.56, a 5 year low; and West Texas Intermediate dropping down to a critical area of support just above $60. If prices drop below $60 a barrel, the next level of support is around $50, and then further support at $33 from back in January 2009, at the depths of the financial crisis. Oil is cratering; it hasn’t done the full belly flop to $33 but this has been a wild drop.

The latest drop in oil comes as the US Energy Information Administration issued its weekly status report, showing weekly crude stocks were up 1.45 million barrels, against expectations for stocks to drop by 2.2 million barrels. In short, there was an increase in stockpiled crude inventory last week. This morning, Reuters reported that the falling oil prices have started to affect US domestic production, with the US Energy Information Administration (EIA) cutting its forecasted growth by 100,000 barrels per day, a move linked to generally weaker oil demand.

Also, in a report released today, OPEC also reduced its global demand forecast to 28.9 million barrels per day for 2015, the lowest since 2002, and about 1 million barrels a day less than current production. Increased US production and decreased demand have been cited as the culprits for crude’s rapid decline over the last several months. Now there are a couple of reasons for decreased demand; first, the technology has improved and we now have more fuel efficiency; conservation works (and a side note: Bishops from every continent have called upon the 1.2 billion Catholics worldwide to support renewable energy at a climate change conference in Lima, Peru. “As the church, we see and feel an obligation for us to protect creation and to challenge the misuse of nature.” The other reason demand is down is that the global economy is slowing and there is just less activity.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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