OPEC Cuts and Earnings Season

OPEC made the biggest cut in production, but it did not have any real impact on prices. The loss in demand is more than double the cut in production. It may probably help in stabilizing the market from plunging falls but think oil is still headed lower.

Earnings seasons will start with the big four US banks reporting this week. Expectations are really low. And don’t think major companies will be realistic to make any future guidance. Right now, the major analysts’ consensus makes a 9% decline in corporate earnings for the whole of 2020 according to FactSet. That’s a major shift from prior forecasts of 9.2% growth for the year. Think it will only get worse.

The one company that I am interested in seeing the earnings is Amazon. Amazon has stopped accepting new grocery customers. Bezos claims that it had boosted its capacity to fulfill orders by 60% but with the country in full lockdown that is not enough. Grocery orders are up 79%. Amazon Prime, it’s guaranteed two-day delivery service is indicating the order may be delivered by July.

In US, the pressure is so much on to reopen the economy and you can read conflicting reports everywhere. There is no clear leadership on anything, and governors of different states are doing their own things to protect their states and challenging orders from Washington.

Neel Kashkari, the Fed Governor from Minneapolis, gave a less than optimistic outlook of the economy in a CBS interview. Barring some health care miracle, Kashkari says the US will have to employ a strategy of rolling shutdowns for an 18- month period.

Kashkari is always a non-consensus person and he is mostly right. Remember when the Fed was all on sugar high to raise rates, he argued the Fed should cut rates.

On the health front as we discussed last week, intubations and hospitalization are on the decline. The ratio of intubations to hospitalization is falling rapidly in NY hospitals but there is a lack of reporting on the effectiveness of treatments. But something surely is working. With that let’s look at the markets.

EQUITIES

The move up so far has retraced 51% of the major down move in Dow reaching 24,009 and 52% in the S&P 500 reaching 2819 yesterday. It has taken the shape of what you call a zigzag pattern (5-3-5) and could be interpreted that the corrective up move is complete. The lack of breadth and volume in this final thrust is also typical of an upward zigzag correction.

The primary wave down took 27 days in the Dow and the corrective up move has so far taken 13 days. So, we have equality in time and price of 50% so far.

Should the Dow and S&P 500 break above yesterday’s highs prices could extend to levels as outlined in earlier reports but we are still in a bear market rally.

BONDS

As outlined before it could be that bonds made a top. But the structure is still hesitating to move down. So, looks like there are more subdivisions. Immediate supports are in the range of 176^20 to 177^20.

EURO

As mentioned before Euro has many options. So, waiting for a structure when many options can be eliminated to zero in on a high confidence trade.

GOLD

Gold made new highs and it could be that more sub waves has to play out before it makes a terminal top.

Be safe. Be small. Be home.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.