Is the Plunge in Oil Prices Imminent?

George Brooks |

Is the Plunge in Oil Prices Imminent?Investor’s first read      - Brooksie’s edge before the open

Thursday, May 3, 2012        9:09 a.m. ET

DJIA: 13,268.57

S&P 500:   1402.31

Nasdaq Comp.: 3059.85

Russell 2000: 818.60

Jobless Claims for the week ending April 28 dropped sharply  by 27,000 to 365,000, bringing the 4-week moving average to 383,500.  Of course, this is good news, but the biggie is the report that comes at 8:30 tomorrow – the Employment Situation Report.  A month ago it came in at 120,000 new hires – a big disappointment and enough to pummel stock prices, dropping the DJIA to 12,690 (S&P 500:1357).

Weeks ago, the doomsters were barking  that $4 gasoline deflate consumers’ appetite to spend and  jeopardize the U.S. economic recovery.

That said, headlines on Bloomberg.com’s energy page suggest otherwise.

  • “Crude Oil Extends Biggest Decline in Two Weeks on Jobs….”
  • “Oil Falls 0.5% in New York to Trade at $104.75 Per Barrel”
  • “Oil Drops From Five-Week High on U.S., European Jobs”
  • “Oil Extends Drop as Supply Rises to Highest Level in 21 Years”
  • “Wein Bearish on Oil for First Time as Production Swells”

For the first time in his career, 79 year-old Byron Wein, chairman of Blackstone Gp, is forecasting a drop in oil prices based on swelling inventories. Q2’s swell will be even greater, he adds.

Investors were quick get the jitters about $4 gasoline, let’s see what they think of lower prices.

TODAY: the stock-index futures did not react to the  good Jobless Claims report, so it looks like the Street is waiting for tomorrow’s Employment Situation report.

This indicates a mixed open with an upside limit of DJIA 13,324 (S&P 500: 1409).

The ISM Non-Manufacturing report comes at 10 o’clock. This reflects the huge service industry and should have an impact one way or the other.

The bulls need to muster more volume to give credibility to its position. So far they have been able to move the market without heavy volume.

Industrial Production bookings declined in 1.5% in March vs a revised 1.1% gain in February, however the drop was slightly less than projected. April’s ISM report showed an increase suggesting the possibility the March Industrial Production report may not reflect  a rebound in business.

A Reuters survey projects nonfarm employment will approximate 17,000 newhires for April up a bit from March’s very disappointing 120,000 and no change in the 8.2% unemployment rate. The private sector is expected to have accounted for all the gain, as public payrolls declined for the seventh straight month.

MONDAY

Personal Income (8:30a.m.)  - Rose 0.4% in March vs a  revised increase of  0.3% in February following a 0.2% . Personal Spending rose 0.3% in March vs. a gain of 0.9% in February. Personal Consumption Expenditures (PCE) increased 0.2% vs. February’s plus 0.1%.

Chicago PMI (8:30a.m.) – declined sharply to 56.2 in April  from March’s  62.2 and February’s 64.0. Projections  ran between 58 and 62.9. The survey reflects manufacturing and non-manufacturing business in the Chicago area.

TUESDAY

ISM Manufacturing Index (10 a.m.) – That short for Institute for Supply Management Index which says little in itself, but its is a survey of a wide spectrum of business including employment, production, new orders, supplier deliveries, and inventories. Big surprise here.  The Index for April was up to 54.8 from 53.6. Economists forecast 52.9.

Construction Spending (10 a.m.) – grew less than forecast in March  with a 0.1% gain vs. a projected gain of  0.5%. Retrenchment by state and local governments was blamed for the shortfall.      February’s decline was revised to  1.4% .Construction of single-family homes paced the increase in private residential construction, multifamily construction slowed but is still up 24% YOY, outpacing an 8.4% gain in houses.

WEDNESDAY

ADP Employment Report (8:15 a.m.)– Private payroll employment  in April was 119,000 vs. a  revised  201,000 in March.  Investors will be watching this in hope of getting an early read on Friday’s critical Employment Situation Report which disappointed the Street and hammered the stock market in late March.

Factory Orders ( 10 a.m.) – declined 1.5% in March from a revised gain of  1.1% in February vs. a 1.1% decline in January.

THURSDAY

Jobless Claims (8:30) – Decline a ho-hum 1,000 claims for the week ended Apr. 21 to 388,000 from a upwardly revised 389,000 the week before bringoing the 4-week moving average up to 381,750.

Productivity and Costs (8:30 a.m.) – final estimate for Q4 was up to an annualized rate of 0.9%. Unit labor costs were up 2.8% vs.  a Q3 rate of3.9%.

ISM Non-Manufacturing Survey of 375 + firms (10 a.m.) fell 1.3 points to 56 reflecting a slowdown in new orders to 58.8 from 61.2.  The Index encompasses agriculture, mining, construction, transportation, communications, wholesale and retail trade.

FRIDAY

Employment Situation (8:30 a.m.) – new hires increased a very disappointing 120,000 in March vs. a rise of 240,000 in February and 275,000 in January. Included is the Unemployment Report which dropped in March to 8.2% from 8.3% in February.

George  Brooks

*Stock Trader’s Almanac

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The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BWFCL Wells Fargo Capital XII 7.875% Enhanced TruPS n/a n/a n/a 0

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