Stocks Stalling at Resistance | Trading Update

Two weeks ago, stocks felt on the precipice of breaking all support levels from the last 2 years, below which there would be little meaningful support until the 1650 -1675 breakout from mid 2013. Instead, we rallied straight up to the 1950 resistance level on the S&P 500 from February 1.

An hour into the Tuesday’s Trading Day stocks have been turned back from pre opening gains, with Major Market Averages lower by half to three-quarter percent.  The S&P 500 was rejected at the 1950 resistance level during the first 30 minutes of trading, as it was yesterday mid afternoon. 

$SPY Chart

It should surprise no one that stocks are following Oil which has already traded between flat and -2% a couple times this morning.

Stocks Stalling at Resistance | Trading Update 11:30 am

It’s early in the day and a lot can happen before 4:00 pm.

Crude Oil is still the near term driver on equity prices, and with market averages less than 1% from resistance after a 6%+ move the last 2 weeks, it’s hard to see stocks following through to the upside without Oil prices leading the way.

crude oil chart

Let’s also keep the following 3 big issues in perspective:=

Technicals:   US Equity markets have now posted 1%+ gains 4 of the last 6 days.  It’s been a stunning turnaround from where we were two weeks ago, that feels like 2 months ago.

On February 11 the S&P 500 closed at 1829.08, the lowest close in 22 months.  We’ve now rallied +6.4% in 6 trading days and are pressed right against resistance marked by the intraday high on February 1 of 1947.20.

Commodity Rally:  Certainly Oil holding the $30 level has helped turn investor sentiment in the near term.  Industrial commodities rallying off multi year lows has helped to mute fears of recession around the Globe and given a much needed lift to currencies and stock prices in emerging markets.

What are Industrial Commodities?

Industrial commodities are bulk goods that can be traded within an industrial market, often through regulated trading commissions or exchanges. Some common types of industrial commodities include metal ore, fossil fuels, textiles, and foodstuffs.

In some cases, manufactured goods, rather than raw materials, can also be considered commodities. The trading and exchange of these types of commodities is a central factor in both regional and global economies, and may be the primary focus for some investors.

In most markets, the trading of industrial commodities is central to the the manufacture and availability of goods. Creating central exchanges for certain types of commodities allows all potential buyers and sellers in the market access to a pool of goods, and may also help create standards for quality.

Most of these commodities are goods that are similar or identical regardless of the source; for instance, copper ore that is considered a commodity will have identical chemical and metallurgic properties, regardless of the source and method of extraction.

The homogeneity of these types of commodities allows a market-wide price to be set for single types of raw goods, which can fluctuate freely based on supply and demand levels rather than qualitative differences in the good.

China back from Holiday:   China has not been an “above the fold” topic since before their well timed week long holiday for the lunar New Year.   It was clear from the sharp selloff late last summer resulting in the August/September lows followed by the rally into year end, that equity markets do much better when the news cycle is not dominates by Chinese Financial Markets

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