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Be Careful In Trading Oil | HSBC In Need Of Surgery

Oil Net Long Positions Increased

Oil is trading lower after posting its biggest weekly gains in nearly 4 weeks. The WTI is up more than 15.58& year-to-date. Traders are optimistic about the trade deal between the US and China which pushed the demand equation sharply lower and adversely impacted the price.

The trade deal has been dragging for months, but finally, we are getting more positive statements on both sides. Chinese officials have said that the parts of the text of the agreement between the US and China are agreed. The Trump administration has touted that they are close in finalizing the first phase of the deal.

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As for smart money, we are also seeing a higher number of long positions. For the first time since mid-September, money managers have increased their net long positions. However, it is important to keep in mind that the recent CFTC data also confirms that short positions have increased by three-fold and this means skepticism is still strong among the players.

In terms of price action, the price of WTI has moved above the 50-day moving average on a daily time frame—this is positive. The next biggest challenge for the price action is to cross above the 200-day moving average which is trading at 57.35.

HSBC Needs Surgery

HSBC is the name among banking stocks which you may want to avoid today. The company reported its third-quarter earnings and the numbers were dismal. HSBC missed its profit forecast and it blamed its poor performance on the worsening global outlook including the events which are unfolding in Hong Kong. For us, the most disappointing fact is that the company has abandoned its target for return on tangible equity. Remember, the target was above 11% for 2020.

The only way out of this misery is to initiate some serious restructuring. This means cost-cutting, and the fact that we have not heard much from the CEO, Noel Quinn is another disappointing factor. In times like this, the bank’s CEO needs to step up the game and assure the shareholders that the bank is fully committed in achieving the maximum return on its assets and this equates to cutting the underperformance businesses.

Basically, HSBC needs serious surgery and without that investors should not jumping into this stock. We are expecting the stock to underperform in the coming week. Speculators may consider this as an opportunity to buy cheap call options, but sensible money should not be rushing yet because we believe the turn around for the stock isn’t going to happen overnight.

France Supports Three Month Brexit Extension

On the Brexit front, we have the second strongest country in the eurozone, France, agreed to extend the Brexit deadline to Jan 31. We are expecting the other EU countries to concur with this decision as well.

In terms of Pound’s price action, there was hardly any movement in the price because investors have already priced this option. So the extension of the Brexit deadline is really not relative in terms of price action. The important fact is that Brexit is happening—this is what it looks like (for now), especially given the fact that the Brexit awareness advertisement is taking place pretty much on all refueling stations along the motorways—something which I experienced over the weekend myself.

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