What to Do in an Abnormally Inactive Market

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Stocks fell in step with a decline in crude oil prices. The energy sector lost 0.4%. Two Dow components — Exxon Mobil Corporation (NYSE:XOM), off 1%, and Chevron Corporation (NYSE:CVX), down 0.7% — accounted for much of the modest pullback in the senior index. Boeing Co (NYSE:BA), off 2.3% on an analyst downgrade, was largely responsible for the rest.

The S&P 500 also saw a mild decline, but the Nasdaq rose 0.1%, advancing for the ninth consecutive session to its highest level in almost 15 years. However, volume was very light ahead of Janet Yellen’s appearance before the Senate Banking Committee today and before the House Committee on Financial Services on Wednesday. Yellen is expected to support an interest rate hike in the second half of this year.

The sole major economic report was existing home sales, which showed a slight decline in January.

Gold futures fell 0.3% to $1,200.30 an ounce. The price of the benchmark U.S. 10-year note rose, with the yield dropping to 2.06% from 2.11% on Friday.

At Monday’s close, the Dow Jones Industrial Average fell 24 points to 18,117, the S&P 500 was unchanged at 2,107, the Nasdaq rose 5 points to 4,961, and the Russell 2000 was flat at 1,232.

The NYSE’s primary market traded just 720 million shares with total volume of 3.1 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, decliners and advancers broke even, and on the Nasdaq, decliners outpaced advancers by 1.3-to-1.

USO Chart
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Chart Key

Stocks used to follow the price of oil on a day-to-day basis, but that was when oil was at a much lower price. The economic benefits of $50 oil versus $110 a barrel are obvious.

The chart of United States Oil Fund LP (ETF) (NYSEARCA:USO), which tracks West Texas Intermediate (WTI) light, sweet crude oil futures contracts, indicates that despite a recent advance, oil has not yet bottomed.

USO has major resistance at $19.20, and breaking this could reflect a change in the overall trend from bearish to bullish. However, a break below $18 would set up a challenge to the prior low at $16.30.

UNG Chart
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Despite the harsh winter weather and increased demand for natural gas, the overall trend in United States Natural Gas Fund, LP (NYSEARCA:UNG) is still down. However, the intermediate downtrend line was broken at about $14, which sets up a genuine challenge to the 50-day moving average at $15.34.

MACD is now bullish. But further advances will probably depend on the weather, and believe it or not, spring is just around the corner. In other words, time may be running out for higher nat gas prices.

Conclusion

When faced with an abnormally inactive stock market, it is occasionally worthwhile to study other markets and their possible impact on stock prices.

USO indicates that even though oil and its refined product, gasoline, are increasing in price, there is major overhead before it turns the corner. Resistance at $19.20 is approximately equal to $50 a barrel for oil.

Selling appeared again Monday at exactly the 50-day moving average, so there doesn’t look to be a serious challenge to the economy from higher oil prices.

The economy, and thus stocks, should see little in the way of a negative earnings impact in the next quarter from higher fuel prices. One brick can be removed from the “wall of worry.”

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/daily-market-outlook-abnormally-inactive-market/.

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