The continuing collapse in oil prices has finally spilled over into the real world, at its worst knocking 290 points off of the Dow Average yesterday.
Traders who grew accustomed to a market that went up like clockwork every day were in for a rude awakening. Is the positive case for equities coming to an end?
Is the bull dead?
Not yet. All we are seeing is a normal 5%-7% correction in a long-term uptrend. It?s really all about the numbers, as it always is.
American companies are still on tract to increase earnings by 10% in 2015, and S&P 500 earnings are set to reach $130. Technology and innovation are hyper accelerating. Our energy costs have been cut in half, creating a giant tax cut. The world still wants to send its money here.
Goldilocks is still alive and well, just momentarily hiding under the bed.
Yes, it?s another buying opportunity.
This time, however, it?s different.
Oil has gone down so fast, some $46, or 43% in a scant six months that it has set the cat among the pigeons within the producing countries. The decline has been so precipitous that the budgets of oil producing countries from Saudi Arabia, to Russia, to Norway, have taken a real walloping. What else would you expect when your principal revenue source suddenly halves?
The plunge caught the producers totally by surprise. So to meet budget shortfalls, they are having to raise cash from their sovereign wealth funds. Some 15 of the world?s 20 largest sovereign wealth funds are run by oil producing countries.
To raise money, they are having to sell off investments, primarily stocks, and especially energy stocks. That is one of the few industries they actually understand.
This all means that the selling should dry up going into yearend, once budgetary requirements are met. If the price of oil stabilizes here at $61, or heaven forbid, starts to rise, then their selling of stocks completely ceases.
The bull market returns.
After suffering through a Trade Alert drought that has lasted more than a month, there are finally some nice trades setting up. I?m thinking specifically about the S&P 500 (SPY), energy (OXY), (XOM) and Solar stocks (SCTY), (FSLR), (VSLR), and even a chance to get back into the front-runners, technology (XLK) and biotech (BBH). Europe is also finally starting to look enticing.
Watch this space.
