US markets open down and stay down, ASX 200 relatively resilient, quick look at CTX, futures down 5 points

US markets opened and closed between 1% and 1.5% lower last night. Unlike the ASX 200, the S&P 500 has broken down through its December lows and you can see it on today's second chart (in black) sitting at the same levels seen in August and September, after it made attempts to recover from the Chinese currency moves that spooked traders back then. In today's first chart you can see the relative performance of the S&P 500 (black) and the ASX 200 (orange) since their December lows. The ASX 200 remains well above its December low of 4,909--closing yesterday at 5,123--but all three major US indices are trading below their December bottoms. US S&P 500 volatility hasn't surpassed December highs; however, the elevated level of VIX (second chart, orange line) tells us that expectations of higher volatility in the US remain.

Crude oil markets peeled back between 5%-6% last night, and while this is not a bad thing for a company like Caltex (CTX) that seeks to buy low and sell high, it is certainly bad for producers in the US and given the size of ExxonMobil (XOM) and Chevron (CVX) as well as the large number of explorers, producers and energy infrastructure companies listed on the S&P 500, the continued blows to the oil price will weight more heavily on the US than Australia. WTI and Brent crude oil prices are down 21% and 18% over the past month respectively, so this is not a sector that represents a low-risk proposition for any investor or trader. The lack of earnings stability from any company involved in exploring, producing, storing or servicing the oil sector makes it one to avoid for the conservative investor.

As mentioned, the exceptions are those companies that can benefit from a lower oil price and a willingness of consumers to pay higher margins at the pump. You can see on today's last chart that CTX has had a great run over the past two months as the market anticipates earnings growth from its ability to enjoy higher operating margins at a time like this; and as the shut-down of its Kurnell refineries become more of a distant memory, CTX's growing sales and marketing know-how could also be assisting the re-rating of this stock. It is also taking advantage of the number of European and high-performance cars in Australia that see their drivers filling up with premium fuels, where CTX's margins are highest. So while this stock looks expensive going by its trailing earnings per share (PE of over 40x), my guess is that it will remain well bid if oil prices remain low and oil volatility remains high - if the oil price is jumping 5% from day to day, it will be easier for those selling fuel to smooth out those bumps at the higher end of what is palatable to motorists. For those contemplating buying CTX, however, it is not a 'set-and-forget', the stock has a patchy track record of earnings growth.

My last note is to reiterate to those who are contemplating taking up a Rivkin Blue Chip portfolio but haven't done so yet, the January release is still available and you can get it by emailing - we'll point you in the right direction. It could be a very good year for big stocks, a sentiment echoed by Geoff Wilson of Wilson Asset Management in this morning's AFR, where he tells of his plans to launch a big-cap fund. We'll get more info for members on this shortly.

Source: Rivkin, Saxo Bank

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

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This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
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