Oil Plummets: Buying Opportunity?
The market, and the bulls, lost a sizable amount of ground yesterday. On high volume the indices were devastated and no particular sector held up well. Energy and financials were crushed, and both groups ended down two percent.
The decline intensified when oil, which was holding strong at yesterday's opening bell, collapsed 5% mid-morning to $94. I'd say that's a pretty clear breakdown from its range, and I would expect $90 to be its next price target.
The selling yesterday emphasized the strength of the bears and the disappearance of buyers. No one wants to buy stocks anymore, and the bears are beginning to pick up momentum despite a 7% six week decline.
The target to watch is 1250 - and the bulls need to hold it. The market (investors) can forgive the bulls for their departure if buyers can return to protect 1250. And everybody has that price as "the price support" to watch.
Based on the action we have seen over the past six weeks, and the strong selling pressure this week (amid a huge up-day Tuesday), I think we break 1250. But I do not think it will result in a strong move lower (yet). Instead I think that we go slightly below support for a half a week and then rally higher to at least 1301. The indices are too oversold at the moment to expect a 5% or more decline, and I do not see a fundamental reason (other than stocks should have never risen this far this fast) for a large magnitude sell-off.
The indices have fallen through a number of support levels on this six week decline. The bulls need to stabilize the market within the next few days and start to take out areas of resistance over the next two weeks - 1301 being most paramount. The weekend video "Market Review" goes over areas of support and resistance to watch in greater detail.
The euro is being decimated again today, which will act as a headwind for the bulls. But, sadly, that is not the only, or worst, bearish headline. Indices in Asia were also obliterated last night. I think some of that was a result of action back home, but that bearish momentum in Asia will impact the U.S. market open. Retail sales in the UK came in lower than expected and showed a 1.4% decline. And finally, India raised rates again to fend off 9% inflation - that is the 10th interest rate hike in 15 months.
