The markets erupted higher this morning on a surprise interest rate cut from China. For those who like to keep track of the madness, this brings the total number of interest rate cuts by Central Banks since the 2008 crisis to well north of 520.
US stocks as denoted by the S&P 500 have been in a large megaphone pattern since September. The megaphone, like most technical patterns, is in fact a consolidation pattern that can breakout either way. We’ve now broken out to the upside.
Stocks are extremely overbought in the short-term. In the medium-term, forecasting just where this move will lead is a fool’s errand as it entails attempting to predict just what the dozens of Central Bankers of the world will say or do in the next week or so.
In simple terms, stocks need to correct. Whether the Central Bankers will let this happen or not remains to be seen.
Elsewhere in the markets, Oil has broken out of a massive multi-year triangle pattern and is now back at levels not seen since 2010.
It’s been a brutal bloodbath and has brought many of the Oil majors down to levels at which they are looking attractive from a valuation perspective. Some, such as BP, are approaching Price to Cash Flow multiples not seen since 2008. Others, such as Exxon and Conoco Phillips still have a ways to go.
Company
Symbol
2008 P/CF
Current P/CF
Exxon
XOM
6.9
8.6
Conoco
COP
3.5
5.1
BP
3.9
4.2
Chevron
CVX
6.3
Remember, Oil is closely linked to the global economy. What does it say about the true state of affairs that oil is back at levels last seen in 2009-2010… while stocks are at new all time highs?
Take note and prepare.
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