down-arrowLet’s continue with the story line from last night… crude oil falls 5.3% and back below the $30 mark. That would be 12% in two trading days for crude and the market responded today without a late day bounce. Why? From my view they know the move was not accurate without validation of cuts in supplies. That leaves us with the infamous… ‘what now?’ Good question, looking at the chart for crude oil, $29.55 level would be the next support or else it will test the previous low on January 20th at $27.56. That coincidentally is where the current bounce started for stocks as well… thus, the correlation remains between oil prices and stock prices for direction. We will see how tomorrow unfolds as it relates to the price of crude and stocks for that matter. This also keeps the downtrend for crude in place.
In direct response to oil prices declining the energy sector (XLE) fell 3.3% and moving back below the $56.21 support. Needless to say the rally is in question for the sector and a short trade may well be in line. $55 level is on my radar and we will see how this unfolds tomorrow.
The financial sector (XLF) fell 2.7% on the day as well and back below the $21.25 support levels. Banks were the downside leader for the sector with the regional banks (KRE) dumping 3.1% and large banks (KBE) down 3%. Thus, the troubled sector remains a weak point for the broad index.
Looking through the scans and charts for today’s activity the damage was significant to the upside move off the January 20th low. The VIX index jumped back to 22.1 on the selling today. The S&P 500 index pulled back to the 1900 support level. The NASDAQ 100 is at the 4200 support level. The Russell 2000 index is back to the 1008 support and the ten-year treasury bond fell to 1.86% on the yield hitting a new low. Flight to quality is back, selling risk reappeared and rotation out of stocks may well be on the horizon again after the brief bounce. I am not attempting to be a Debbie Downer, but we do have to look at the activity today as key to where we head short term. Break of these support levels and we put the seller back in control the direction. If the buyers are going to materialize now is the deadline or a least holding these levels tomorrow is key to how it unfold for now.
As we discussed last week… downtrends are still in effect short term and any bounce is just that until they confirm the upside move with a break of the trendline and preferably higher volume will accompany the move. For today it is back to the downside drawing boards and taking what the market gives… plain and simple. The bounce off the January 20th low was first attempt to put a reversal in play… now we watch to see if it holds or resumes the downside. The analyst and headlines are leaning towards the lower story… watch and see how this unfolds tomorrow. Confirmation on the downside puts the sellers back in control  near term.
Last night I posted ten things to watch today…
  1. VIX index – reversed and moved to 22+ — not the move I was looking for if the upside was to continue. Move above 23.4 tomorrow and the sellers are winning on the break lower.
  2. IWM… Small caps didn’t hold up and show the lack of willingness for the risk trade. Downside? Watching $100 downside break as negative and possible short trade setup.
  3. Dividend stocks (DVY) – Not pretty, but held up well on the day all things considered… watch as this unfolds.
  4. Energy Commodities (USO & UNG) both fell another 5% on the day validating the weakness again.
  5. China (FXP) downside did play out well and moved higher today on the selling in China. Cleared $56.40 and watching.
  6. Europe (IEV) downside back on the global worries… upside didn’t pan out.
  7. NASDAQ 100 (QQQ) failed at $104 and testing $102.
  8. Apple (AAPL) – 93.30 remains the game —- hold okay, break downside could get ugly.
  9. Emerging Markets (EEM) – Oops! $29.30 level to hold or short side gets interesting.
  10. Semiconductors (SOXX) – easy come, easy go. Breaks $81.15… $79.40 watching.
Not the best of days for the market… bottoming game still being played. Watch, protect and act with a strategy.