Equities largely skidded sideways on Wednesday as traders apparently succumbed to the soothing, monotone voice of Federal Reserve chairman Janet Yellen, who said many words but didn’t express anything new in her final day of regular testimony to Congress. It’s enough to make you sleepy.
In the end, the Dow Jones Industrial Average and the Russell 2000 gained 0.1%., the S&P 500 lost 0.1% and the Nasdaq Composite lost a fraction.
Mergers and acquisitions and corporate action resulted in some excitement in select stocks, with Aruba Networks (NASDAQ:ARUN) surging 21% on reports it’s in talks to be acquired by Hewlett-Packard Company (NYSE:HPQ), which fell nearly 10% after issuing disappointing guidance.
Yahoo! Inc. (NASDAQ:YHOO) gained 2.4% on reports it’s preparing to spin off its Yahoo Japan stake — anything to distract investor from tepid growth in its core business, now that the Alibaba Group Holding Ltd (NYSE:BABA) situation is behind it, I guess.
And the never-say-die action in Apple Inc (NASDAQ:AAPL) died as the stock dropped 2.6% for its worst drop since late January, after China dropped the company from the list of suppliers for state purchases.
Instead, the action was over in commodities as crude oil surged despite another big build in crude oil inventories with West Texas Intermediate adding 3.7% to close just shy of $51 a barrel and move back over its 50-day moving average. The Department of Energy reported that crude stockpiles rose 8.4 million barrels (versus the 7.7 million build last week) to new record highs. With onshore storage rapidly filling up, offshore storage is coming into play.
Moreover, a recent influx of crude into China (ostensibly for storage) has recently slowed, suggesting that inventory growth could further accelerate from here with the ongoing oil refinery labor strike still in play.
Yet prices bounded higher after early session weakness. Why? Some of this looks like mechanical, computer trading shenanigans as, for the second week in a row, prices moved higher on a big inventory build as the official Energy Department report was less huge than the private API estimate on inventories the night before.
Last week, the bounce was short-lived as folks realized bigger inventories means bigger inventories.
Another dynamic that’s been in play has been enthusiasm over sizeable cuts in U.S. drilling rig counts; but that’s fading now as production continues to rise. More production means more supply, which means lower prices are needed to encourage U.S. shale producers to turn down the taps.
Instead, the rise seems to be connected to an offhand comment from Saudi Arabia’s oil minister that global energy demand seems to be picking up and that the market has stabilized. The data though January doesn’t support that observation, however.
In response, I continue to look for a new bout of weakness for energy going forward, with the Proshares UltraShort Crude Oil (NYSEARCA:SCO) up nearly 9% for Edge subscribers since Feb. 18.
Precious metals perked up a little as the U.S. dollar looks vulnerable to a consolidation of its near 20% rise from last summer. Any delay in Yellen’s rate hike schedule could seem profit-taking, which would boost gold and silver. Keep this on your radar.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
