Crude falls 6.6% and investors sell early. Natural gas (UNG) fell 7.1% on speculation that demand from winter weather is not enough to offset the production levels. This equation is simple…. supply/demand sets the price and the pendulum will swings are greater in the direction that weighs more. Commodities continue to be a roll of the dice. As I stated in my weekend notes the jump in oil prices were purely based on speculation that OPEC and others would start to cut production and supply would start to fall more in line with demand. That  is future talk… not the here and now. Natural gas is no different as weather speculation had prices move higher short term… when it isn’t true… the price corrects to reality. The here and now talk is supply far exceeds demand on both commodities. Until the news is founded on data that can be a reality looking forward the price is going to jump up and down. The supply numbers on Wednesday will shed more light on this argument and the near term price of crude and natural gas.
The pressure from concerns in the energy commodities put downside pressure on stocks early. As the day progressed the buyers did return to push the indexes into positive territory for the most part, but there are still plenty of concerns hanging over the markets. Looking at the sectors the upside was in utilities (XLU), consumer discretionary (XLY) and technology (XLK). The downside was energy (XLE), Financials (XLF) and industrials (XLI). The volatility index (VIX) is still hanging at the 20 level and the anxiety is still present as investors remain uncertain looking forward.
Technology has been struggling to recover from selling in December and January, but bounce in semiconductors (SOXX) and social media (SOCL) has helped solidify the reversal off the low January 20th. This is one sector to watch moving forward as the leadership is a must if the bounce and recovery are to have a serious chance of moving higher. More help for the NASDAQ after the close was Alphabet/Google beats earnings after-hours and jumping 8%. On Monday the deal speculation for Twitter to go private with the help of private investors sends the stock up 6.5%. Rumors are not good investment decision makers and thus we will see how this all unfolds going forward.
It is report time again as the month of January closes and February begins. ISM manufacturing rose to 48.2% ahead of the 48% expected, but remains below the 50% level deemed expansion for the economy. Construction spending was up 0.1% and well below expectations. Market PMI was 52.4 and down slightly from the last report. Core inflation was flat, consumer spending was flat and personal income was up 0.3% showing a modest gain. Overall the data points were nothing to write home about, but as has been the case for some time now… slow growth is better than no growth. The challenges facing the economic picture is clarity going forward… too many questions and not enough answers.
Some things to watch for tomorrow…
  1. VIX index – a clear move below the 20 level would be positive for the broad market index. SVXY is the short side VIX ETF.
  2. Small Caps (IWM) – tested $101.15 support level and held today… upside continuation is positive for the broad markets.
  3. Dividend Stocks (DVY) – Last three trading days has been a leader for the broad market indexes. Some stocks of interest are LVS, PFE, JPM, F, T, HP, MDP and EXC. Scan the ETF to find the leaders off the pivot point of January 20th.
  4. Energy Commodities (USO, UNG) – both traded lower on the day… watching how they follow through near term. Short side is option if they both continue to erode in price again.
  5. China (FXI) – basing pattern looks more bearish that bullish… watching how FXP plays if the short side renews the downside move. Upside would need to clear the $31.60 mark.
  6. Europe (IEV) – attempting to follow through off the pivot point higher. $38 key level on the upside to clear.
  7. NASDAQ 100 index (QQQ) – previous leader… struggling to clear the $104 mark… closed above it today and GOOG may help the follow through tomorrow.
  8. Apple (AAPL) – drag on the NASDAQ, Technology (XLK) and S&P 500 index. $93.30 is the level to hold… doji candle on the close tonight worth watching tomorrow.
  9. Emerging markets (EEM) – solid move higher on Friday and gave up some gains today… but, looking for this to follow through and take out the downtrend line from the October highs.
  10. Semiconductors (SOXX) – another of the previous leaders needed to resume the upside. The break above $81.15 Friday was a start and nice follow through today on a negative sentiment day. M&A activity in the sector is helping.
More data, more earnings, more speculation and more fun tomorrow… see you then.