Oil and Stocks Reverse off Trigger Point Lows

Oil and Stocks ReverseFirst Oil and then Equity markets were brought back from the abyss Monday, after both traded at reaction lows that finally peaked buyers interest rather than set off a fresh wave of selling after breaking near term support levels.

Oil started the day down 3% and spent a couple hours below $35 for the first time since early 2009. As a point of reference the December 2008 closing low at the depths of the Global Financial Crisis was $32.40.  Oil ended the day with just moderate gains, but merely the fact that early weakness didn’t set off waves of liquidation selling is encouraging in the near term.

Remember the $34.60 level as the intraday lows that held on Monday.  

I’ll go out on a limb and say the $34.60 level will hold through the end of the month/year.

The S&P 500 +0.5% at 2021.94 bounced right off the 1994 level that marks the mid month closing high from the month of September as well as the mid month closing low from October 16.

Oil and Stocks Reverse

Ironically, The September mid month closing high was logged on the eve of the FOMC decision not to raise rates two meetings ago.  With that same level acting as a trigger point for Mondays reversal 90 days later, it sets up an interesting test of market reaction tomorrow afternoon.

The DJ Transports, -0.5% at 7489.64 spent over half the day below the August closing low of 7467, before a relief rally late in the day.   The Transports have lost 8.7% since their December 1 close just above 8200 and are clearly the worst acting market average this month.

With the DJ Transports 7.3% and 13.5% below their 50 and 200 day moving averages, they are due for a sharp Year End Trading Rally!!!

The High Yield metric ETFs HYG and JNK held their intraday lows from Friday on multiple occasions Monday before finally catching a bid in the last hour of trading. Volumes were considerably lighter, giving more credence to Friday being a capitulation day at the end of a major liquidation week for the High Yield ETFs.

Where do we go from here:

Oil and Stocks ReverseToday begins the 2 day FOMC meeting.  It’s widely expected they will announce the will announce the first hike in the Fed Funds rate since 2006 with their policy statement at 2:00 PM tomorrow. On Friday we will have the Quarterly and Year End rebalancing of all S&P indices, as well as a major options expiration.

There will be extraordinarily high volumes Friday, both on the opening, and in the last 10 minutes of the day including the closing trades.  It feels like the S&P reweighting will potentially mark a “final flush” of liquidation in the secondary and tertiary Oil and Gas names, after which we will be set up very well for the potential of a nice yearend rally.

If that sounds too easy, it might even start a few days early.

Oil and Stocks Reverse off Trigger Point Lows

The Early Line: Stock index futures are decidedly higher in pre opening trading, following through on the strong move from the last 45 minutes of yesterday.  If early levels hold we’ll be looking at the S&P 500 starting the day 15 handles higher, and an early triple digit gain for the DJIA.

Oil has been bouncing around on either side of unchanged since the middle on the night.  Compared to the action in Oil the last 4 to 6 week, That is a Win!!   

No doubt we’ll banter on the FED decision all day, with maybe slightly less emphasis on oil and high yield, unless the volatility in either returns to the levels of last week.

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