Crude oil prices fell 3.4% Wednesday, triggering a decline in energy stocks, as well as currencies of countries that are major producers of natural resources. The Brazilian real fell 2.4% against the U.S. dollar, Norway’s kroner lost 0.8%, and the Russian ruble dropped 1.7% to the weakest level against the greenback in over a year.
The decline in crude was the result of Saudi Arabia’s insistence on keeping oil production high and a report showing U.S. stockpiles increased by 2.9 million barrels versus a decrease of 3.6 million barrels last week.
The energy sector led the way down, off 1.4%, followed by materials, off 0.9%. Gold lost 0.8% at $1,060.10 an ounce.
Puerto Rico’s governor said the island nation will default on a $35.9 million payment due to one U.S. authority but will pay $328.7 million to settle its general obligation bonds.
At Wednesday’s close, the Dow Jones Industrial Average fell 117 points to 17,604, the S&P 500 lost 15 points at 2,063, the Nasdaq fell 42 points to 5,066, and the Russell 2000 was down 11 points at 1,150.
The NYSE Composite’s primary exchange traded 561 million shares with total volume of 2.3 billion. The Nasdaq crossed 1.2 billion shares. On the Big Board and Nasdaq, decliners outpaced advancers by about 2.4-to-1. Block trades declined to 3,802 from 3,919 on Tuesday.
The Dow Jones Industrial Average is stubbornly holding above the support line at 17,590, but the trendline at 17,800 represents a major overhead line of possible sellers. Until it is breached, new highs will elude the major index.
Like the comparison of the S&P 500 and Nasdaq in the previous Daily Market Outlook, the quality index, i.e., the Dow, is getting almost all of the bullish attention. The iShares Russell 2000 Index (ETF) (IWM) has failed to overcome the first line of resistance, the 50-day moving average at $115.79. The Dow, on the other hand, has overcome the 200-day but is still slightly below the 50-day at 17,618.
Conclusion
Despite Wednesday’s surprising decline in natural resource stocks, they may be the key to the lock that has so far kept the major indices from breaking to new highs.
Raymond James analyst Andrew Adams published an interesting study of emerging market currency and hard asset lows, as well as insider buying versus “average investor” sales and energy lows made at this time of the year.
If Adams is correct, and he admits that markets rarely do what we expect them to do, purchases of quality hard assets stocks could be a money maker in 2016. And our largest trading partner, Canada, would be a major winner with the country’s currency now below 75 cents versus the U. S. dollar.
We will focus on this area next week. However, note that the Trade of the Day, Freeport-McMoRan Inc (FCX), is a high-quality hard asset buy now.
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.
