Modest Selling in Reaction to Oils 8% Decline

Down 8.3% following the supply report this morning… crude oil fell gradually throughout the day and accelerated lat in the afternoon. It would suffice to say the commodity remains challenged. That said, the market never responded to the decline… Why? If rising oil prices were the catalyst on the upside and the data doesn’t support that thinking process, where is the downside response today? Exactly! The response instead comes verbally… That is old data and it will take time for the supply to move in line with less production from shuttered rigs. I see, we massage the data to fit our belief and all will be well… Right? As much as we all want this market to define a direction…  up or down, the reality is the believers and non-believers will have to fight it out until the data validates one as the winner. Until then expect the disconnect between the buyers and the sellers to remain. Don’t beat your head against the wall, just let it unfold and the direction present some clarity before you put your money at risk.

Crude closed at $48.63… back below the $50 threshold and in the trading range that is developing on the charts. XLE fell 1.7%? The correlation here is the same as with the market not equal in response… no rational reason except the one I love to hear… we are looking longer term and believe based on our analysis the price of crude will rise and justify the current prices we are assigning to stocks today. Man, that sounds awesome. In technical analysis the phrase is buy what the chart is telling you and ignore what the news, media, analyst or anyone else has to say. Crude bottomed, bounce for four days off the low, and technically is testing the move back to support. If it holds that would equal an opportunity to trade the upside continuation. If you are a technician and understand that trading opportunity… by all means trade it. If you aren’t a technician and don’t understand it, go to the next paragraph. Expect oil to remain volatile, but for now stocks don’t care… the story is oil prices will move higher in time and thus, buy, buy, buy!

Healthcare is being challenged on the downside and traded down 1.3% today versus the broad market index declining only 0.4%. This sector remains one of the laggards of late and if XLV breaks support near the $67 level it could revert to the loser category short term. Biotech stocks have been the weak link for the sector and they were under more pressure today. The test of the $304.80 support (IBB) today held, but earnings are weighing on the outcome short term. Like virtually everything currently the news and events are driving the reactions, but earnings weakness is something which could sustain a downside move. This is a sector to watch as it was one of the primary leaders coming into the new year… if this changes it will be another negative for the markets to work through if the upside is going to be the direction of choice.

I use the term often in my office and when speaking, ‘Money Psycho”. You don’t want to become a money psycho and this market is one of those cycles that will turn you into one. Tuesday as the indexes bounced for the second day and our very well planned short positions went against us, those very words were uttered more than once. The stops on positions we held were hit, losses booked, and many words spewed, but in the end I know one thing… this market is in the hands of the psychos trying to catch every swing, every news driven move, until they have lost enough money they will quit and cry foul. The markets are best served by a defined strategy and a discipline to implement the strategy for better or worse, but the worse is defined by losing 1% not forfeiting 40% of my principle. Let the money psychos do their thing… you and I have to stick to what we know and follow our disciplined strategies one day at a time, or else we face the danger of becoming one of the ‘Money Psychos’.