The Stock Market Needs January to be Over

The stock market really needs more than one day of frantic short covering in “beaten to a pulp” energy names like what we had last Friday and the previous Thursday. Each of those sharp rallies had zero follow through, in fact both days had gains totally wiped out the following day.

We’ve got a full plate of high profile earnings the remainder of the week, in addition to macro data points on the US Economy and of course the FED tomorrow afternoon.  We remain very oversold in the near term and anything other than really bad news might actually help.

Monday Recap: US Equity Markets had just about as disappointing a day as possible and once again the Big Bad Wolf was Oil, which started the day -3% and by late afternoon had easily doubled those losses to close just above the Mendoza Line of $30 on the NYMEX contract.

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Stocks followed a similar course, with moderate losses into the early afternoon. When an early afternoon rally failed to take the averages back to even on the day, sellers became more aggressive and really turned up the heat during the last hour of the day.

By 4:00 pm gains from last week had been mostly reversed, and Friday’s Feel Good Rally was a distant memory, buried under 3 feet of snow.

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The DJIA, -1.3% at 15,885 is less than 1% above the close from last Wednesday, and also well within reach of the closing low from last August 25 of 15,666.  There’s those evil triple 6s again.

The S&P 500, -1.6% at 1877.08 is also uncomfortably close to the 1859 close from last week as well as the 1862 double close from mid October 2014.

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NASDAQ, -1.6% at 4518.49 had closed below the 4500 benchmark four straight days Jan 15 to 21 and might try to draw some separation from the other indices if technology and biotech can show any signs of life.

The Russell 2000, -2.3% at 997.37  closed below the 1000 level for the 4th time in the last 5 trading days.  If you’ve never seen a Bear Market up close and personal, take a look at 2 to 3 year chart of the Russell 2000.  The Russell is down 23% from its all time high 7 months ago, trading at its lowest level since June 2013.

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The decline in Oil and Oil shares have received well deserved attention  to start the year.  While frequently there are winners and losers within a sector, the Oil and Gas space is filled with losers and really big losers.

Just yesterday DVN, -11%;  COP,  -9.2%;  HES, -10.3%,  MRO, -9.8% (I’m sure there’s more)  all had declines near or exceeding 10%.  I didn’t take a close look at volumes in the sector, but one can only hope we’re getting close to some capitulation here.

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Why The Stock Market Needs January to be Over

Yes, there have been significant short positions in oil shares and oil futures.  A couple of reports earlier in the month showed NYMEX oil future contracts with record short open interest.  No doubt this contributes to sharp surges of buying like what we saw at the end of last week when oil futures rallied 20%+ off the recent lows and oil stocks followed.

The downside is that after a majority of the shorts cover, that buying is no longer there to cushion days of steep declines. Maybe that that’s some of what we saw in the Oil sector yesterday.

The Early Line:   This morning, futures have erased sharp declines from the middle of the night after Chinese markets declining 6% to their lowest level since November 2014.  That is a positive start, if it can hold.

The US stock market really needs some separation from Oil and China for more than a day or two, to find its own direction.

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