Oil Rallies Despite Iraq Shutdown

December 1, 2000
Marc Dupee

Iraqi confirmed that it halted oil exports in protest of United Nations
sanctions, but traders were skeptical about what they viewed as a temporary glitch
in global oil supply, bidding oil to one of its worse two-day losses in the current contract. Iraq supplies the world with approximately 3% of the
world’s oil. Saudi Arabia helped to assuage any fears the oil market had Friday,
saying that it would make up any global shortfall by increasing its exports
along "with other (OPEC) producers."

Natural gas
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high on a strong gap-up opening, up .086 at 6.675.

The economy was again in the forefront of traders’ minds
in financial futures trading. Part of yesterday’s strong down day in certain
commodities (and corresponding rally in gold, the euro, and bonds) was due to
the Chicago Purchasing Managers index, a leading indicator to today’s
National Association of Purchasing Manager’s (NAPM) report. Thursday’s Chicago
index fell to historically recession-causing levels, below 42.00, instilling
fear that today’s NAPM could signal excessive economic slowing. Today’s National
Association of Purchasing Managers (NAPM) report fell more than expected, but
not so much so as to indicate we are headed into recession and even lower
corporate earnings. The NAPM came in slightly below expectations at 47.7 versus
a consensus 48.0.

Yesterday’s
slowing Chicago Purchasing Managers Index underscored how the Fed’s six interest
rate hikes have severely blunted economic growth. The regional Chicago index,
which often predicts the NAPM, hit 41.0 Thursday, a nine-year low that
correlates with and suggested we could be heading into a recession. Since the
NAPM was not a huge downside surprise, but came in lower, it maintains the view
that a slowing economy could make the Fed loosen monetary policy before
corporate profits are unduly harmed by a slowing economy.

T-bonds sold off 17/32 to 102 2/32. A Turtle Soup Plus One
Sell signal suggested bonds could head lower as traders readjusted their
view of the Fed’s likely next action in light of the less (bond) bullish NAPM.

Three up signals from the
Market
Bias Indicators Page as well as Turtle Soup Plus One Buy
signals from
December S&P
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neon-bright signs that stock index futures could reverse. The Nasdaq 100 cash
index came within 30 points of a 50% decline from its March low as well
yesterday, indicating an oversold market. Additionally, the Nasdaq 100 futures
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showed an unusual unwinding from the cash index Thursday, remaining much higher
in relation to the cash, with an average 77.00-point difference above the cash
throughout yesterday’s session, an unusual occurrence that we will watch for as
a leading indicator going forward. (Today’s Nasdaq 100 cash and the Dec. futures
maintained approximately a 15-point difference throughout the session). NCZ0
closed 42.50 higher at 2572.50.nearly equally Friday, up 43.20 and 42.50,
respectively.

December dollar index futures
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along with stocks as the buck is still reeling negatively to the prospect of
slower economic growth vis-a-vis the euro and made good on its Implosion-5 List,
falling .36 to 114.74. A European manufacturing report similar to the NAPM came
in above 50 today, implying that the continent’s economy is stronger than in the
US. Euro FX futures
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New 10-Day Highs List,
closing .00630 higher at .87900, in the euro’s best week since its inception in
January 1999.
Swiss francs
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List reading.

Going the other way, the
Japanese yen
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setup, but rallied throughout Friday’s session to fill the gap from yesterday’s
low before closing .0075 lower at .9010. A decline in household spending
and near-record unemployment levels in Japan continue to forward the view that
the current "recovery" may not be materializing amid structural
inefficiencies that hamper meaningful economic reform.

Soymeal
(
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PowerRating), the leader on the Momentum-5
List, and a commodity with one of the potentially hottest fundamental
stories underpinning it, closed the week on a contract high, demonstrating that
traders preferred to take long positions home over the weekend. The New York
Times carried a lead story on the "mad cow" scare in Europe. The
European union is still deciding whether to impose legislation that would ban
bone meal and other animal products as a feed for livestock. Beef consumption is
down over 50% recently on the continent. Soymeal serves as a substitute animal
protein feed source. The US is the world’s largest supplier of soybeans and the
second largest producer, Brazil, is only now sowing its spring crop of beans.
Soymeal closed .5 higher at 191.4.

Wheat
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signal, closing 4 cents higher at 277 3/4.

March cotton
(
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PowerRating), from the Pullback From Highs List,
ended the week lower after hitting a contract high on Monday, but price is still
tracing a handle in a high-level cup-and-handle, implying a potential re-test of Monday’s record.

Oil Rallies Despite Iraq Shutdown

BUY THE FEAR, SELL THE GREED

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