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Oil Inventory Faces Largest Drawdown in Nearly Three Years

Posted: 27 Jun 2019 03:00 AM PDT

Inventories drop 10 million barrels more than expected.

On Wednesday, oil prices surged nearly three percent after new EIA data. The data shows that domestic stockpiles plunged 12.8 million barrels for the week ending June 21. This is the largest drawdown since the 14.5 million barrel decline in September 2016.

Analyst consensus was for a drawdown of about 2.8 million barrels, or about one-fifth as much. The move sent oil higher by about 3 percent to nearly $60 per barrel.

This supply and demand data for oil comes as prices have been already rising in the past week as geopolitical tensions continue to mount. From U.S. and Iranian threats to tankers under attack in the Gulf of Oman, traders see danger ahead, and with it the potential for higher prices.

Meanwhile, in the United States, the largest gasoline refinery on the East Coast closed last week, which limits the quantity of oil that can be converted into gasoline. The refinery is likely to permanently close.

Action to take: Investors should treat the geopolitical portion of oil's move as temporary at best. However, with declining inventories and a refinery shutdown, supply looks more constrained. Oil prices are likely to continue their rise, so investors should look for a chance to add to any existing energy holdings while crude oil is at or under $60 per barrel.

Stocks Bounce on Mnuchin Comments, but Close Unchanged

Posted: 27 Jun 2019 03:00 AM PDT

Early bullishness wanes and stocks close flat.

The stock market recovered partially from its Tuesday decline on Wednesday, although trading volume was a bit slow ahead of the G20 meeting later this week.

However, a comment by Treasury Secretary Steve Mnuchin gave markets an early boost. Mnuchin stated that a trade deal with China was about 90 percent complete. While this could imply that the deal is now less than 90 percent complete, traders took the interpretation that it was nearly done.

While some traders may want to wait until a deal is 100 percent done—and the ink is dry—it was enough to give markets an opportunity to make up for losses on Tuesday. However, stocks gave up gains throughout the day to close the day unchanged.

Typically, the markets have been quick to rally on any favorable-sounding news on trade, even if such comments have no real weight behind them, so today's move was in line with that past performance. The real test will be later this week during the Trump/Xi meeting at the G20 summit.

In the meantime, corporate earnings continue to show strength in a variety of sectors. Micron (MU) had strong quarterly earnings that helped a rally in tech. And FedEx (FDX), a bellwether company for international shipping and trade, beat earnings expectations, but warned on guidance given the trade uncertainties.

U.S. Treasury prices, a measure of investor fear in stocks, dropped slightly as well, with the 10-year yield just over 2 percent.

Unusual Options Activity: Micron Technology (MU)

Posted: 27 Jun 2019 03:00 AM PDT

Traders bet on drop following big earnings beat.

Shares of Micron Technology (MU) surged over 14 percent on Wednesday thanks to a massive earnings beat.

But some traders think the stock has rallied too much. On Wednesday, a large number of contracts with unusual options activity centered around put options on Micron, with many expiring on Friday, just two trading days away.

One further out, the August 2nd $32 put options, has over a month to play out.

This option had over 1,600 contracts on Wednesday. With shares of Micron hitting $37.50, the $32 puts imply a 15 percent pullback, essentially taking shares slightly lower than where they traded relative to earnings.

Given that the option was priced around $0.50, it could also just be a cheap bet that the share price will go down soon, and the trader likely won't wait until expiration to take profits.

Micron's earnings beat suggests that technology companies are faring well in a slowing economy. And that technology firms with exposure to China aren't being as badly impacted by tariffs as headlines would suggest.

Action to take: Micron shares have struggled in the past year, and the huge earnings beat came after the company stepped back on production and lowered its capex spending. Nevertheless, with shares still incredibly attractive on an earnings basis, investors may want to look at buying shares at or under $35—and hang on for a volatile ride.

Insider Activity: MGM Resorts International (MGM)

Posted: 27 Jun 2019 03:00 AM PDT

Fund manager makes big buy after merger announcement in the sector.

Money manager Keith Meister continues to be bullish at MGM Resorts International (MGM), the casino firm where he already owns 20 million shares and has a board seat as a director.

On Tuesday, Meister picked up 380,651 additional shares, at a cost of about $10.59 million. This news comes after a big announced merger in the gaming space between Eldorado Resorts and Casears Entertainment.

Typically, casinos can be a bit volatile, as many folks scale back plans to gamble during times of economic stress. And while gaming revenue has been off in recent quarters, there remains a core group of gamblers that ensures the casinos stay profitable.

However, casinos can also get into trouble due to their leverage. Caesars has nearly $3 in debt for every $1 in equity. MGM has about $1 in debt for every $1 in equity. Even with Eldorado acquiring both Caesars and its debt, MGM will be in a far better financial situation should gaming revenues slow further.

Action to take: We still like the casino space for its attractive value, and MGM Resorts has a good ratio of debt to equity, particularly compared to Caesars Entertainment. Trading at just 17 times forward earnings, MGM looks like one of the better buys in the space here, even if the company is less likely to get a buyout offer than other players in the space. Consider picking up shares under $30.

Bitcoin Drops 16.7%

Posted: 27 Jun 2019 03:00 AM PDT

Cryptocurrency tanks after big rally.

Since hitting a low of $3,200 per coin earlier this year, bitcoin prices have been accelerating higher in recent days. Last Friday, bitcoin cracked $10,000—and went as high as $13,500 before a big drop on Thursday.

Despite the large drop, the cryptocurrency is still on track to have its best performing month since 2017, the last time shares started to go parabolic.

These kinds of wild swings can be pretty normal for cryptocurrencies, although Bitcoin has taken some time to gradually head higher in the last few months before taking off in the last few days. Bitcoin still remains well below its peak near $19,000 per token set in late 2017 before a brutal bear market.

Since that last bear market, data has continued to show increased investor interest in the new asset class, as well as increased functionality towards the goal of creating a usable global currency alternative to one created by central banks.

Action to take: While volatile, cryptocurrencies and the blockchain technologies behind them have a myriad of uses for securely storing data that goes far beyond transferring money globally quickly and inexpensively. Investors should consider a small allocation of their overall wealth to this new asset class—starting with 1-2 percent— so that they can benefit from the big upswings.
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