Week 24 and the DOW is nearing all time highs again. And that’s without a firm China Trade deal signed…. yet. The market is certainly getting excitable again. After several rinse and repeats from 26500 down to 24000 levels, the 10% DOW swing is becoming the new monthly bet. Go back a decade or two and you’ll find a 10% gain on the DOW would normally take or be expected to take, about 2 to 3 years. In this casino, it can happen in just a few days. The main contributor to the markets new verve has more to do with rate cuts and stimulus than China Trade solutions. A few weeks ago, the FED Reserve moved to a more dovish/rate cut friendly position and whilst that is by no means nailed on, the recent poor US job data combined with a global trend to cut rates, has now significantly raised the odds on a US rate cut happening possibly as early as October 2019. Super Mario has always said he will do whatever it takes to keep a solid base under EU financials. Repeating this message should not come as a surprise yet this market seems to react to old news like it was new news. Someone needs to recalibrate those algo bots!
The summer is almost upon us. You wouldn’t know it looking at the UK weather which resembles something like the African wet season. Some summer blockbuster drills are not far away from spudding now. PetroMatad, I3 Energy, Amerisur, SOLG and many more all have significant drill plans over the next 3 to 4 months. An exciting period for investors awaits. That said, very few exploration wells/drills are successful as proven by Amerisur of late. The last 2 wells drilled on CPO-5 licence block have been disappointing. However, AMER did have success on Plat-26 on their Platanillo licence, delivering an extra 700bopd and boosting full production towards the 7000bopd level. The next well on CPO-5 is expected to be an appraisal around the Indico-1 discovery. Chances of success should be much higher here but there is still no guarantee that they will be successful so risks still remain.
SOLG has been hit hard by local opposition to mining and a hearing to decide on a referendum is expected to be held tomorrow (June 20th). Ecuador needs mining and is prolific as a region when it comes to resources. But the locals and communities want a fair say on how their villages get moved or cleared out and rightfully so. Some do not want any mining at all and fear pollution. On the other side of the argument, the large mining companies bring jobs, roads, infrastructure, schools… the list goes on. One would expect common sense to prevail and a referendum to be avoided.
Finally, stocks like Petra Diamonds and Premier Oil look heavily oversold against a recovering market backdrop. These kind of valuation gaps tend to get filled swiftly once risk reduces. Rate cuts tend to stimulate global growth which in turn can bolster interest for Diamonds. And with OPEC due to meet on July 1st (although they can’t seem to agree on a firm date yet) Oil should be heading back to the $70’s (brent). Concerns over MiddleEast stability are also a major factor for Oil prices and after recent tanker attacks things are certainly not cooling down. Quite the opposite. Yet looking at oil prices, you really wouldn’t guess that there is any risk there at all. A complacent market is a very dangerous market. If things worsen, Oil prices could be trading at $100pb again. That’s clearly bullish for many oil companies out there.
Week 24: Independent picks continue to top the chart without any real challenge from the Guardian or ShareHUB picks. A few good summer drilling results for the ShareHUB folio and things can change fast.