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“I’m not in this world to live up to your expectations and you’re not in this world to live up to mine.” – Bruce Lee
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Equity futures have had a quiet session overnight on little news flow. The only major news of note was a surprise 25 bps rate hike in Australia. Investors are still digesting the virtual headset that Apple unveiled at WWDC yesterday, and while a charitable description is that it is a work in progress, hopes are that future versions will show improvement in form, function, and price. After trading lower after the headset was unveiled, shares of AAPL are trading down over 2.5% this morning. In case you missed it yesterday, we published a BIG Tips report on how AAPL stock historically performs before, during, and after the annual WWDC conference.
There’s no economic data to speak of in the US, but in Europe this morning, Retail Sales for the EU were unchanged, which was weaker than 0.2% m/m growth that was expected. Factory Orders in Germany declined 0.4% which was much worse than expectations for 2.8% growth. In Spain, Industrial Production also declined by 0.9% compared to consensus forecasts of 1.7%, so a weak showing overall. Maybe the lack of economic news in the US today is a good thing!
We discussed oil’s lack of ability to rally on what should be considered good news for prices last Wednesday, but considering the commodity’s action in reaction to the weekend news that Saudi Arabia would cut supply, it’s worth updating again. First, OPEC+ announced a surprise production cut in early April which caused prices to immediately spike by over 8% and a total ultimate gain of just over 10%. The gains didn’t last long, though. The rally stalled out just shy of the 200-day moving average, and by the end of the month, the gains had all been erased.
In late May, a Saudi minister warned speculators who were short oil to ‘watch out’. Those comments were good for a rally of less than 4% lasting less than two days, and after stalling out at the 50-day moving average (DMA) the gains were erased within a day. That brings us to the past weekend when Saudi Arabia announced it would cut production by 1 million barrels per day in July. That production cut was good for a 4%+ rally in crude oil when futures markets opened for trading Sunday evening, but by the end of the trading day Monday, crude oil was already below its Friday close, and this morning crude oil is down another 2%.
A key factor behind all three rallies and their ultimate bearish reversals is that they all ended abruptly at a key moving average. During bull markets, moving averages tend to act as support in any pullback, during bear markets, they act to squash any rally right in its tracks.
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