US Stocks turn lower as crude tumbles
Fawad Razaqzada July 7, 2016 5:10 PM
US equity markets opened firmer following yesterday’s rebound on Wall Street and in oil prices. However that didn’t last long as crude prices skidded in reaction to the latest oil inventories data. Nevertheless, the major indices remain in close proximity to their previous multi-year or record highs. This is primarily due to falling government bond yields to repeated all-time lows, which continue to boost the appeal of higher-yield equity markets. In addition, Brexit hasn’t severally dented the appetite for global stocks, which is important to note. But the equity markets will probably need the slumping oil prices to turn back higher and climb above $50 again at some stage before we potentially see new highs for the likes of the S&P 500. I think it is just a matter of time before that happens. That being said, traders will need to proceed with extra care for now as the S&P 500 and Dow Jones test or approach the top of their two-year ranges.
Crude tumbles on lower-than-expected oil inventory draw
Last night, the American Petroleum Institute (API) has reported a sharp draw of 6.7 million barrels in US crude oil inventories, which was the seventh consecutive decline. In addition, the API estimated that stocks of oil products fell sharply too with gasoline inventories dropping by a good 3.6 million and distillates by 2.3 million barrels. This had raised expectations that the official crude oil inventories data from the Energy Information Administration (EIA) today would show a significantly larger decline than the 2.1 million draw expected. Well as it turned out, the EIA reported numbers that were basically below expectations on nearly all fronts, except production which showed a weekly decline of 2.25 per cent, the biggest since September 2013. The rest of the figures were poor relative to expectations: total US crude stocks fell by 2.2 million and Cushing stocks declined by 0.82 million, while gasoline inventories edged lower by 0.1 and distillates by 1.5 million.
Technical outlook: S&P 500
As crude oil tumbled, US stock indices struggled to regain their earlier momentum. Still, the technicals paint a bullish picture. Take the S&P 500 as an example. As can be seen in the inset, the index formed a large bullish engulfing-like candle on the weekly time frame as traders shrugged off the Brexit vote last week. This looks like a v-shaped recovery on the main daily chart, which also shows a bullish engulfing candle off of the 50-day moving average. Together, these indications suggest that the index may soon climb outside of the bull flag, which is a continuation pattern. If confirmed by a decisive break above the pivotal 2100 level then it could be a matter of time before we see at least a test of the prior record high at the 2134/5 area.
At this stage, only a closing break below 2074 support, or the low from yesterday, would invalidate this short-term bullish outlook. The slightly longer term outlook would turn bearish upon a break below the 200-day average and support at 2025/6 area.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.