S&P and Crude Oil Reversals?
The stock market has been in the dumps so far this year, but saw signs of life on Wednesday with a late-day rally. Meanwhile, crude oil has had trouble eclipsing $100 a barrel and headed down Wednesday and again this morning, now below $95 a barrel. Are we seeing reversals in these markets? Let's take a look at what the charts say.
S&P 500
The March S&P 500 futures closed higher Wednesday, showing signs of a reversal in the January downtrend. After hitting a contract low at 1385, the March E-mini S&P rallied to close up 14.60 at 1411.60. However, this market has broken down over 100 points in just a few short weeks, and we need a confirmation of that reversal to gain more confidence in this market. While the S&P saw a strong, 30-point rally Wednesday in last two hours of trade, I believe it was mainly tied to short-covering, and not new bullish positions. We need one more day of gains to help clarify whether this market is ready for a more extended bounce, and a close above the 20-day moving average. Wednesday's rally could just mark a pause, or consolidating within the still-bearish trend. Momentum indicators, the relative strength index (RSI) and stochastics, remain bearish, so if you are a day-trader, I'd exercise caution. You could play both sides of the trend today, look for places to buy dips and sell rallies.
Crude Oil
NYMEX February crude closed lower Wednesday, down 66 cents a barrel to $95.67. In early trade, it's down below $94. Crude oil futures reached an all-time intraday high of $100.09 a barrel hit January 3, 2008. Technically, the slide below the 10-day moving average at $96.83 is a sell signal. While there has been talk of crude oil skyrocketing to $200 this year, in the short-term, worries about a U.S. recession are dampening enthusiasm, and I'm bearish at this point in time. If crude oil moves lower still, look for support near $94.37 and $92.58. This market needs to close above $95.53 to nullify the bearish reversal pattern and have me thinking about bullish strategies.
Federal Reserve Chairman Ben Bernanke is expected to give his latest assessment of the economic outlook in remarks around the lunch hour today, so stay tuned. Both the stock market and energy market will be listening for signs the Fed is poised to cut short-term rates again at the January 30 policy meeting, and whether inflation is a big enough threat to give the Fed reason for pause.
Good luck and good trading!
Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com.
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