Commodities, alias crude, jump on speculation

For me, the intraday reversal off the early lows was important. The futures were pointing to the downside, as we discussed in the morning update, but they failed to hold the move lower as the buyers stepped in at support to put some money to work. Is this the end of the selling? Only time will tell, but the key part of the work was to reverse the downside move… and that it did accomplish. Now we head to tomorrow’s trading day with the bias of a reversal in play micro term. It is important to understand the time horizon we are discussing to maintain perspective relative to the market and the cycle we are in currently. The trendline off the October lows was the focus today and we did close below it on several indexes. The reversal helped, but there is still work to do if it is going to correct itself going forward. The NASDAQ 100 index, DJI index and the S&P 500 index sitting on the trendline or just below it… makes Friday a key day for the broad markets.

Crude jumps to $51.29 gaining 4.2% on Thursday. The issues in Yemen have expanded to Saudi Arabia and six other countries responding to protect the current government. You can read all about it on just about any news feed you like and get any twist, flavor or version you would favor, so I won’t bore you with all the details. We will say this is an event acting on the price of crude and events are temporary in nature. How much it impacts oil is based on all the variables surrounding the event. In the early stages you get the biggest bang for the noise. When events happen without expectation it creates greater speculation, which in turn creates more volatility. The bigger question is how it impacted the stock prices. SPDR Energy ETF, XLE started higher clearing the $77.70 resistance on Thursday, but failed to hold the move and closed slightly lower on the day. Services and exploration sectors (XOP & IEZ) both closed flat on the day. Oil moves up 4% and stocks close flat… response believes price won’t last on the upside… my opinion. However, we have to watch to see how it unfolds one day at a time and take what the market gives without our prejudice or opinion keeping us from benefiting if the opinion is wrong.

Gold has reversed the micro trend over the last seven trading days moving from $1148 to $1197 on the close Thursday. $1200 ish level presents some resistance for the metal, but it is the one to watch going forward. I would look for some consolidation at this mark, baring an event to send it higher currently, and then a resumption of the upside move. Why? Inflation concerns are in play as a result of the CPI numbers and a Fed that is unwilling to commit to hiking interest rates near term. Throw in the weakening dollar of late and you have the making of the reversal. If the move can break through resistance use the $1256 mark as the target. Silver has joined in on the move higher, but also faces resistance at the current levels. Be patient if you don’t already have a position in either and let the next entry point develop. If you have taken positions in either or both manage your risk and adjust your stops to account for the resistance.

The dollar bounced slightly today and as we stated last week the test lower was likely just that, a test. The stimulus in place and the belief the Fed will ultimately raise rates will keep the dollar in play going forward. That said, I am watching the downside risk to the euro. The stimulus is in full play in Europe and the worst for the euro is over, but there is still downside erosion to the currency to come… my view.

Biotech tested the 50 DMA and bounced… some support at this level? I am a believer if the buyers come back and play. The short and intermediate term trendline is still in place. The acceleration from the trendline tends to find its way back to safer ground. We are there now. Two factors to consider moving forward… first, if the inflation story holds validity or belief investors will run from growth to safety. Second, talk in Washington of revisions to the Affordable Care Act… if it gains a footing or belief investors will sell healthcare and that includes biotech. Both issues are speculation… if they gain believability they have an impact. Let it unfold and then take actions accordingly.

Just another day at the office! Plenty to watch tomorrow and beyond… do you homework, plan your strategy, and execute according to your risk and time horizon.