Happy Monday! Happy December!
We at Sea Change hope everyone had a great long weekend with family and friends! On our end, it was lots of food, fun and football - culminating with tonight's Monday Nighter between the Fins and the Jets.
As for the markets, the plunge in crude oil has appropriately captured all of the headlines since the OPEC follies on Thanksgiving Day. With their decision and announcement to not cut supplies, they basically "threw in the towel" and admitted to the world that they no longer control oil prices. They are now more concerned with making enough money to sustain their palace budgets,etc. and cannot afford to cut back on supplies.
We now believe crude is going through a counter-trend bounce that may terminate at around 72.83 - 73.84 (at the very least). Any continuation higher past 73.84 would lead to a test of 78 or so. Honestly, though, we don't believe crude will make it past the 73.84 level. We're long of crude futures right now and plan on taking profits at around 72.74 and then watching to see where signs of a reversal appear. The next move lower after crude's bounce runs its course will be $54 - $55.
We are short-term bullish on stocks and will be looking to buy into the indices on today's dip in anticipation of the S&P making it up to around 2200 - 2250 (from 2058 currently). We are obviously long of several crude oil names (XOM, CVX and SLB - as well as USO) for the bounce in crude.
We believe that US Treasury yields and the US Dollar are likely headed a bit higher in the short-term - today's weakness not withstanding. That would seem to correspond well with the idea of higher equity prices.
Overall, look for some seasonal strength to boost equities and give crude oil a bounce. Once the season is over, however, depending where equity indices and crude oil are, we should see weakness in both for a spell. That may be when we see crude fall to the mid-$50s and the S&P correct down to 1950 or 1800.
For now, use dips to buy equities in general and look for constructive chart patterns.