RR: Revisiting The Oil Counter Narrative...

The manufacturing sector has been flashing red about the economy heading into 2024. It appears that its supply chain - and critical inputs - are also parroting those worries.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [RR: Revisiting The Oil Counter Narrative…]( The manufacturing sector has been flashing red about the economy heading into 2024. It appears that its supply chain - and critical inputs - are also parroting those worries. [Garrett {NAME}]( Nov 8 ∙ Preview   [READ IN APP](   Equity Index Strength Is YELLOW on the S&P 500 and YELLOW on the Russell 2000 Each morning, we assess the full flows of the market by measuring statistical metrics on a very specific number of stocks to determine broader sentiment and the momentum trend. When these readings turn red, we focus on cash, build trades around positive sectors, or take inverse positions against indices. The story across the markets is the ongoing slide in oil prices, aided by a significant decline in demand expectation for lubes in industrial manufacturing. This could get ugly in the next few days heading into expiration next Friday. But a buying opportunity will emerge in the coming weeks.  Meanwhile, we need to be cautious in this environment. It has a similar feel to a period of consolidation that went the wrong direction in June 2022. While the 10-year is now down to 4.58%, the “narrative,” as I’ve explained, is shifting toward an economic slowdown. --------------------------------------------------------------- Key Takeaways: - WTI Crude is back at three-month lows as near-term concerns about demand mount. Please don’t panic; we should start seeing prices find a bottom and bring us higher into the December and January delivery periods. That said - comes directly in line with the oil counter-narrative I discussed in Septembe]( - The Walt Disney Company (DIS) headlines today’s earnings reports. If Nelson Peltz of Trian Management doesn’t like what he hears about the company's direction, we could see a proxy fight for board seats as the hedge fund manager spars with CEO Bob Iger.  - FedEx (FDX) has suggested its pilots take jobs as passenger carriers for the holidays as shipping demand wanes.  - Over half of S&P 500 companies are missing revenue estimates, the most in four years.  - U.S. credit card debt hit another ominous milestone: $1.8 trillion. Total credit card debt in the U.S. increased by nearly $150 billion in a year. Delinquency rates are rising among millennials who have student and auto loans. --------------------------------------------------------------- Dear Fellow Expat: In September, I penned a column called “[The Oil Counternarrative.]( As I explained, there was significant optimism around oil prices over the next few months. Various media outlets had suggested that oil prices were returning to $100… even $125 per barrel.  I get suspicious when Wall Street banks start crowing around higher oil prices. The reason is the subject of my Postcards later today. [Upgrade to paid]( I noted that prices were elevated, technicals were overbought, and optimism was too high. So, we started to look in the other direction. Oil started to slump with a negative reading on our signals below at the start of October.  There was a strong decline in oil prices right after that switch.  But a week later, Hamas attacked Israel, fueling a 12% increase in crude oil (and significant short-covering) in just a week. Since then, oil has been back in a freefall. Our signal was negative for a few days last week and returned negative again on Monday afternoon. This could continue to sell into the expiration of futures contracts next Friday.  The news this morning is bearish for crude. Bloomberg reported that the global economy’s demand for petroleum-based lubricants is starting to collapse due to an international drop in manufacturing. This is VERY important. Remember, I showed you a huge drop in manufacturing levels a week ago? We have to consider all of the inputs to the manufacturing systems.  Oil-based lubricants are - as Bloomberg calls them, oil-based lubricants are the “lube that greases the global economy.” A friend in Switzerland shared[the article with me]( as I woke up this morning… then he did a back-of-the-envelope calculation on the expected impact on global oil demand.  It helps when your friends traded oil in Moscow and London for about a decade. He noted: “Add to lubes as well: bitumen, petchem feedstock, aromatics (benzene/toluene/xylene), olefins (ethylene/propylene), and fuel for long haul shipping. That’s 20% of oil demand. If that is off 20%, that’s a 4 million barrel per day reduction in oil demand.” And that right there… is [the real oil counternarrative]( While most investors will panic at the sight of these numbers, I remind you not to panic. We are still at the onset of a massive opportunity for energy - but we have to use the signals below. Capital has been flowing out of the energy sector - largely since the onset of October. And we’ll be looking for an opportunity to tap into some great names at much lower prices.  Remember - we pay very close attention to the Relative Strength Index (RSI) and the Money Flow Index (MFI) of the MicroSectors U.S. Big Oil Index 3X Leveraged ETNs (NRGU). Here’s why…... Keep reading with a 7-day free trial Subscribe to Postcards from the Florida Republic to keep reading this post and get 7 days of free access to the full post archives. [Start trial]( A subscription gets you: The Republic Risk Letter - (Morning) Weekend Postcards (The Week Ahead) and Access to Full Archive An Update When SPY and IWM Readings Turn Positive/Negative   [Like]( [Comment]( [Restack](   © 2023 Garrett {NAME} 548 Market Street PMB 72296, San Francisco, CA 94104 [Unsubscribe]() [Get the app]( writing]()