Stocks fell on a broad front Monday as crude oil prices plummeted. The decline was triggered by OPEC’s refusal to cut production in spite of storage facilities that are close to maximum capacity. Oil declined 5.8% to $37.65 a barrel.
Energy stocks posted the sharpest losses of the major sectors of the S&P 500, falling 3.8%. Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) lost 2.6% and 2.7%, respectively.
The airline sector was buoyed by lower energy prices. Delta Air Lines, Inc. (DAL) rose 4% on anticipated savings from the drop in crude.
Monday’s sell-off was in sharp contrast to Friday’s advance, which was attributed to the Federal Reserve’s stated objective of “slow normalization” and the European Central Bank’s assurance that it would step up its stimulus program if needed.
Keurig Green Mountain Inc (GMCR) surged almost 72% Monday following its acquisition by European conglomerate JAB Holding for $92 a share.
The euro fell 0.4% against the U.S. dollar at $1.0838. Gold was down 0.7% to $1,076.40 an ounce.
At Monday’s close, the Dow Jones Industrial Average fell 117 points to 17,731, the S&P 500 lost 15 points at 2,078, the Nasdaq dropped 41 points to 5,102, and the Russell 2000 was down 19 points at 1,164.
Following a minor jump in investor fear in mid-November, the Volatility S&P 500 (VIX) settled down to a flat line, indicating a lack of emotion. This is a measure of low put versus call buying, and thus an indication that few traders are hedging their holdings against an end-of-year sell-off.
Despite a double-top with two sell signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), the Consumer Staples Select Sect. SPDR (ETF) (XLP) is challenging its resistance line at $51.
Conclusion
Low levels of fear, as illustrated by the VIX, can be a prelude to a nasty surprise since, like many indicators, VIX can flash a sell signal after stocks have plummeted. And another sentiment indicator, the AAII Sentiment Survey, is showing the highest “neutral” reading since April.
However, when combined with XLP, which is a partial retail sales indicator, it is still possible a year-end rally could occur. Among its top holdings, XLP contains CVS Health Corp (CVS), Costco Wholesale Corporation (COST) and Wal-Mart Stores, Inc. (WMT), which all rose Monday. But retailers Macy’s, Inc. (M), J C Penney Company Inc (JCP) and Target Corporation (TGT) all continued lower within bear trends.
Talk among analysts persists that the brick-and-mortar retail business is dead and that online sales is the future. I’ll continue to monitor this developing investment sector.
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.
