THE WHITES OF THEIR EYES

If one takes a look at much of the recent stock market's performance one can draw a simple line down the middle of the sectors and look at the ones lagging and those which have done a bit better and perhaps see the symbolism and how it relates to the economy in general.

Concerns about global economic weakness from China to Europe dominate MSM. Even the U.S. is not on solid economic terra firma in the eyes of many.

The world turns, for example, on energy, one of the poorest performing sectors so far in recent weeks. From fears about supply interruptions to growing fears about declining demand presently hold sway among many investors.

But a funny thing in going on, according to today's Financial Tmes, something traders are familiar with, "a so-called 'contango' structure in Brent crude--market jargon for when prices for future delivery exceed spot prices--by keeping oil in storage and banking on an almost risk-free profit when they sell it forward or in time ahead." 

Near term prices for Brent recently hit $98 a barrel for the first time since early 2013. Part of the reason over supply coupled with increasing weak demand. It costs money to store stuff, but it's one way to effect supply. this might turn out to be nothing more than a short-term trading opportunity for traders. But it's also a barometer to test how strong demand weakness might be.

Some investors think global supplies will take a hit in the next couple of  years pushing prices back up. It's a bet on the current meme and the oil glut that all-that-is-well-doesn't stay well. Contrary to what many believe, signs precede not follow.

Joining energy on the down slope are things like discretionary consumer stuff and basic materials, again two sectors at the bottom line that have to do with demand and its prospects for drying up. It's an albatross hanging for now around these sectors. 

The Fed recently as we noted jumped in the parlor game chastising consumers for not spending more. As we said at the time everyone needs a villain or two. The point here is these sectors are proxies for the general economy. Toss in the reaction of so-called safer haven equities like health care and consumer staples as many investors play more defense.

For now when they go back on offense is the question. But one things remains certain, when they do no one will ring a bell beforehand because many investors will be waiting to see the whites of their eyes first.
t. man hatter