Oil Continued Higher, But Will Stocks (SPX Hits a Low)
The market had its first bearish day in a long
time yesterday. Volume spiked across the board and every sector was
crushed by almost 2% - only the energy sector and utilities posted any
gains. Additionally, the dollar rallied and bond yields declined, which
means historical correlations may begin to come back.
But before you continue reading, understand that I am not calling a top.
I do believe yesterday's activity, which was potent selling, will be a
short term rally high. But the bears need to do a lot more than that to
convince me they are prepared for more ominous declines.
Either way, I recognize a distribution day when I see it, and yesterday
was a distribution day. Institutions were leaving the market. Whether or
not they come back today, next week, or next year, is up in the air. But
they sold heavily in yesterday's session.
Over the past seven months, the bulls have not relinquished one support
level. As mentioned in yesterday's
commentary, most support levels were roughly 4% below last week's
high. In the SPX for instance, the high was 1344 and the nearest proven
support zone is 1301. SPX hit a low of 1312 yesterday, and if the bulls
are as strong now as they have been over the past seven months, SPX will
not decline much further.
I think SPX will see a break down of 1301 and eventually target a
stronger area of support near 1280. But I don't want to take anything
away from the bears here. Yesterday was a strong bearish session, even if
it's the first one from them in months. But sellers need to take out 1301
and protect 1330 this week in order to have any shot at lower lows
towards 1280.
The indices in Europe and Asia were mostly lower today, although the
declines were very minor. The dollar is trading much lower as well. Odds
favor the bulls will defend support today. But the bears have two more
days, one of which GDP is announced, to take the market lower.
Additionally, it will be interesting to see how long the gains in oil can
last. Will oil get to $100 per barrel. The pop in oil is
due to the violence in Libya, Africa's third largest producer. Libya
produces about 1.7 million barrels of oil a day. For perspective, the
world consumes 88 million a day, and the U.S. and Russia each produce
around 10 million each day. Although production from Libya is not high,
the nation boasts 44 billion in oil reserves that have not been
developed.
There will be a webinar coming up next week that is free to all
Market Forecast readers. While the topics will be diverse, I will discuss
the recent movement of both oil and gold. If you would like to sign up
for your free pass to the webinar CLICK.
Watch List
The TradeMaster Daily Stock Alerts watch list is bullish again - but only
very selectively. For a full list of our trades and video of our current
stock watch list CLICK.
Jason Cimpl, Editor, TradeMaster Market Forecast
