Good morning. Well it happened again. For the 7th time in 8 sessions the S&P 500 set a record high gaining 2 points closing at 1,951. The records haven’t been set in leaps but by a very slow grind as it scales the Wall of Worry. Not to be left behind the Dow also closed at a record high at 16,943, up 19 and only 57 points from 17,000. So why do stocks continue to climb? Stepping back and looking at it at the macro level, here’s why. First, an improving economy here in the U.S. as well as globally. Example of the latter, yields on 10 year Spanish notes and Italian 5 year notes are lower than their U.S. equivalent. This would not be the case if those countries were in fear of default. Second, QE. Although the Fed is reducing its bond buying program it still is buying and its balance sheet is huge and when those notes expire they will be rolled over. Also, the ECB, as evidenced by its actions last week, continues to move toward an accommodating policy. And thirdly, there’s a ton of money in circulation and with extremely low bond yields investors are being driven to equities and this is enhanced by actions like what the ECB did last week lowering its overnight rate to a negative interest rate. And record stock price levels are not just happening in the U.S. Asian stocks yesterday hit their highest level in three years and Germany’s DAX just crossed 10,000, a record. Now if the central bankers ever withdraw, not just roll over, funds, we’ll have a completely different situation. Is there an equity bubble caused by the global QE actions? Possibly, but for five years short sellers have been getting hammered. Is it frothy out there? You bet. Per Investors’ Intelligence, bullish consensus has reached its 2nd highest level in history, 62%, only behind December 2004, 63%. This sentiment index got to 61% in August ’87 and 62% in October ’07 and we know what happened around that time. However, there’s a saying in trading, “Don’t fight the tape.” If you’re concerned about your positions and want to protect profits put in some trailing stops. Short sellers will eventually be proven right just as a broken clock is right twice a day.

The People’s Bank of China cut its reserve requirement ratio by 50 basis points for banks that lend to farmers increasing liquidity but it didn’t boost the markets overnight with shares globally trading mixed and futures of the three major indexes here in the U.S. are all “red” with Dow futures down 37.

Oil skyrocketed yesterday with WTI leaping $1.75 to $104.41, its highest level since March 3rd. Brent adding $1.38 settling a penny below an even $110. Traders are looking at the improving economies in Japan (better than expected GDP, 6.7%), China (over the weekend announcement of a trade surplus) and monetary stimulation by the ECB concluding energy demand will increase. We’re getting really close to that $105 resistance level and the pennant formation I’ve been talking about. Technically, when a pennant formation is finally penetrated the price action moves in the direction of the previous price movement which in this case means WTI prices will trade higher. The spring is being wound tighter.

OPEC is meeting tomorrow for the first time this year and traders will be looking for direction there. This morning WTI is up 31¢.

After rising 3.7% last week natural gas retreated yesterday falling 6.5¢ to $4.645. Basically natty is chopping around here with traders long waiting for a hot forecast or a bullish EIA storage report with the cash market pushing around daily prices. The forecast continues to not help the bulls with pretty much normal temperatures over the major gas consuming (CDD’s) regions of the country. But just like November in the winter with the coldest weather to come, the bulls are biding their time waiting/hoping for a heat wave. The 6-10 day forecast moved warmer but it’s not helping the bulls with natty down 5.3¢ as I write.

Does Warren Buffet likes solar and wind power? Yes, to the tune of $15 billion. And that’s incremental. Describing his company’s increasing investment in renewable energy at the Edison Electric Institute’s annual convention in Las Vegas, he noted his fund has $15 billion currently invested in renewable energy adding “There’s another $15 billion ready to go as far as I’m concerned.” It was noted that investments in renewable energy will be needed as the U.S. seeks to reduce its reliance on fossil fuel generation but the increase in investment is not solely based on benevolence. Per Greg Abel, Berkshire Hathaway Energy CEO, Berkshire has been able to plow so much into renewable energy because it can use the tax credits to offset profit at its other businesses. It’s still business amigos.

On a logistical note, this will be the last Energy Morning Market report until June 23rd. Beginning tomorrow and until then I will have flown to two states and driven through five. Have a good day and I look forward to giving you a multi-day analysis upon my return. Have a good day.

Related articles

• Warren Buffett Is Betting Big on Renewable Energy & So Should You