Rally to start… fades into the close

Markets jump higher to start the day and then give up most of the early gains. The positive open came from the retail sales data posting stronger than expected results for November up 0.7% versus the 0.4% expected. Auto sales were up 1.7% and the overall numbers were plain better. This pushed the retail sector up more than 2% in early trading, but close with just a 1.2% gain. XRT managed to hold above the $90 support and continues to look positive for now. Overall data was positive on the day and investors were generally upbeat… then why the give back of gains in the afternoon? Simply put, oil fell below $60 per barrel for the first time in five years. The commodity declined another 2.6% on the day and continued the downside move. After modest gain to start the day the sellers continued to push the price lower for crude putting pressure on the energy sector and the broad markets. Some credit has to go to the comment from Saudi Oil Minister who was quoted a saying, “why should we cut production?” The assumed emphasis now seems to be on market share gains more than price. This is not helping the outlook or confidence for traders or investors going forward about the price of crude.

The energy ETF (XLE) gave up all the gains from early in the day to close flat on the day. We have discussed the stress being put on stock prices within the sector and I would expect more to come if the comments made today are truly the sentiment relative to OPEC. Adding in the inventory data from Wednesday and it is a one-two punch for crude currently. Time will tell, but the downside remains in play short term.

The yield on the 10-year bond remains under pressure as investors look for alternatives closing at 2.16% and IEF was up 0.8% in response this week. The movement to bonds is an indication that investors are looking for safety or a hedge to their portfolios going forward. The thirty-year bond TLT hit $124.61 (up 1.6% for the week and the yield is at 2.8% with rotation in play.

The NASDAQ closed down 82 points on Wednesday, but rallied 74 points early on Thursday and closed up just 24 point on the day. Now I am going to say that is intraday volatility at work. We have discussed the potential test to the 4611 level near term we are making a run at it currently. Closed with the second inside day and that sets up a trade opportunity short term. Still watching to see how the near term unfolds.

The S&P 500 index pushed back to 2055 and closed at 2035 establishing an inside day and looking for a decision in trading Friday. 2018 key support ant the level to watch as we move forward.

The Russell 2000 index is stuck in the 1153 to 1190 trading range and finished with a second inside day at 1166 on Thursday. The intraday volatility has been noteworthy with big swing up and down. The growth sector has been in position to help the upside, but has been unable to complete the move higher. We will watch patiently for this give us the direction signal before making any moves.

The Volatility index made it’s way below 12 and tested the 11.55 support level last week. The bounce back to 14.6 on Monday has only continued higher with a move to 20.07 on Thursday. Small test at the open, but it then reversed and closed at the high of the day. The uncertainty from oil prices is taking a toll on investor psyche and this could cause further disruption if the move continues on the upside.

Dollar closed at new high Friday, but has tested lower this week, but holding the $23.35 support. Stronger dollar is a positive, but more than enough analyst, politicians and economist want it to drop again. Not so fast… you cannot devalue your way to a strong economy! It has never worked in history and it isn’t likely to begin now.

Friday ends the trading week and thus far it has been a negative for the market indexes. The S&P 500 index is down 2% and could test support if the pressure from oil and worries continues. One day at a time as we watch to see if support holds or if the sellers take control of direction short term. Patience is the goal.