On Tuesday, two items determined the market’s direction — the price of crude oil and the impact of an expected rise in near-term rates by the Federal Reserve. Traditionally, the results of the FOMC meeting will be presented today, at 2 p.m. EDT.
OPEC’s latest Monthly Oil Market Report (MOMR) showed an increase in production out of Saudi Arabia in February. The Saudis said that none of the increase was destined for world markets. But the announcement appeared to indicate that Middle East crude oil production could offset U.S. efforts to reduce an overage in production of refined gasoline. As a result, the energy sector of the S&P 500 fell 1.1%. Crude oil (April) fell 1.4% to $47.72 per barrel, its fourth straight low of the year, and Marathon Oil Corporation (NYSE:MRO) led the energy issues lower as it fell 4%.
As a result of the fall in crude and the Fed’s pending rate increase, the Dow Jones Industrial Average fell 0.2%, the S&P 500 and the Nasdaq each lost 0.3%, and the Russell 2000 fell 0.6%.
CNBC noted that floor traders were 99% sure of a rate hike today. Further, many were of the opinion that the Fed would raise rate four times this year rather than three times, which had been widely accepted.
At the close, the Dow Jones Industrial Average fell 44 points at 20,837, the S&P 500 lost 8 points, closing at 2,365, the Nasdaq fell 19 to close at 5,857, and the Russell 2000 closed at 1,362 for a loss of 8. The NYSE’s primary exchange traded 749 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 2-to-1, and on the Nasdaq, decliners led by 2.1-to-1. Blocks on the NYSE increased slightly to 6,296 from 5,852 on Monday.
The highly leveraged United States Oil Fund LP (ETF) (NYSEARCA:USO) is a commodity ETF that often reflects what occurs in the commodity pits. Note that although the fund has not technically broken support, it appears headed in that direction.
This chart is a one-minute bar chart of the afternoon’s trading in the USO. Note the very heavy accumulation following the Saudis’ clarification that their production was for domestic use only and would not be “dumped” on world markets.
Conclusion: I wouldn’t sell energy stocks based on these charts. Since April 2016, USO has made three lows at the $9.50-$9.75 area. And, based on heavy buying in the afternoon, it may be forming a quadruple bottom. However, a break under $9.50 would be cause for action in both the oil markets and stocks as well.
Small-cap stocks have been performing worse than the higher quality-big caps. This may be a temporary result of the major investment firms heading to quality in a period of uncertainty. Thus, when the Fed makes its intentions known, stocks may resume their upward course.
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.
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