To start the day markets were nervous until the EIA showed a reduction of 4.9 million barrels of crude oil versus the expected rise of 2.9 million barrels. A minor difference of 7.8 million barrels for the week. Needless to say the reaction was for crude to jump higher and start the next round of speculation as it gained 5% on the day. Refineries are running at 91.4% of capacity showing an increase in production and fueling the speculation further on the demand side? The reality is an end of the maintenance process and gearing up for the summer driving season. Gasoline rose 1.3% on that news. Natural gas (UNG) on the other hand did not fare so well on the inventory side and fell 2.6%. And thus, the story line of the day was energy sparking a rally in the commodities, energy stocks (up 1.8%) and the broader markets erasing the losses from Tuesday. All said, the speculators are alive and well, but there is plenty to ponder moving forward… this tug-o-war is far from over.
The other “news” of the day was the minutes from the FOMC meeting… The discussion or disagreement among the Fed Presidents about raising rates or not was apparent. Those opposed are worried about how fragile the economy is as it relates to the markets both domestically and globally. Those for the hike are worried about inflation and the pressure on prices looking forward. As for me… I am just worried. All the speculation around this topic erased part of the gains, but the last forty-five minutes rallied to the highs of the day.
NASDAQ 100 index (QQQ) posted solid gains erasing the losses from Tuesday and closed above the previous high. Leadership from the index came from biotech (IBB) up 5% on the day. INCY, REGN, VRTX and ALXN all posted solid gains as the breakup of the Phizer deal provided a spark. This also confirms the comments in the weekend update that the sector was in position to break higher from the bottoming pattern clearing $268  on the upside. $287.50 is the next resistance hurdle and we will see how that unfolds near term. The large cap index is reasserting itself as a leader currently.
Volatility index (VIX) had started out near the 16 mark on the day showing the continuation of anxiety from Tuesday, but that quickly faded and closed at 14.2 on the day reflecting the willingness of the buyers to step in on the news about crude supplies. Move back below 13.7 erases all this anxiety talk of late.
Transportation (IYT) tested the $137.50 support level on the day and remained in negative territory into the close with a bounce of this support mark. The sector continues to struggle on profit taking? Not sure how this will unfold currently, but worth our attention from the previous leadership.
Ten- Year Treasury bond (IEF) fell as yield rose to 1.75% to stop the recent rally in bonds. Still positive and the outlook for bonds are directly tied to how the equity side unfolds. If the upside follows through in stocks the downside in bonds may become a reality. For now it is worthy of our attention.
Healthcare was the leading sector on the day gaining 2.7% on the back of the biotech sector. I like what we have seen in this sector the last week and the follow through upside on the breakout is a positive going forward.
The buyers are back? The question is if so, for how long, and what is the sustainable driver for the current bump on the upside. Oil is not a stable catalyst as we have seen previously, but we will watch to see how it unfolds in the coming days.