U.S. equities recovered from deep intraday losses Wednesday after the Iranian press reported an agreement between Venezuela, Russia, Iran and three other oil producing countries. The agreement involves the possibility of an emergency meeting to discuss production cuts needed to alleviate the severe and persistent global oversupply situation in the energy markets.
That lifted oil prices off of a test of the unchanged line in early trading, pushing the U.S. Oil Fund LP ETF (NYSEARCA:USO) to an impressive gain of nearly 9%. The U.S. dollar weakened in response, pushing the U.S. Dollar Bullish Index Fund (NYSEARCA:UUP) down to levels not seen since early November.
In the end, the Dow Jones Industrial Average gained 1.1%, the S&P 500 added 0.5%, the Nasdaq Composite shed 0.3% and the Russell 2000 gained 0.1%.
Treasury bonds were mixed while gold gained 1.3% on the dollar’s weakness. That boosted the gold and silver stocks recommended to Edge subscribers nicely, with Barrick Gold Corporation USA (NYSE:ABX) rising another 8.8% to bring its total return since recommended in November to nearly 43%. The Feb $105 call options in the Gold Trust ETF (NYSE:GLD) recommended to Edge Pro subscribers are up more than 144% since Jan 15.
In addition to the pressure from the rise in oil prices (commodities and the dollar tend to have an inverse relationship), dovish comments from New York Federal Reserve Bank President William Dudley weighed on the greenback as well. He said financial conditions were tighter now than they were back in December (when the Fed raised rates for the first time since 2006).
This casts further doubt on the Fed’s four quarter-point forecast for rate hikes in 2016. Especially when, on the economic front, the ISM non-manufacturing index fell to its lowest level since February 2014.
Moving forward, unless OPEC and non-OPEC producers can actually hammer out a deal, the oversupply situation is reaching critical levels. The Department of Energy reported that crude stockpiles rose 7.8 million barrels to the highest level on record. Gasoline stocks also rose in a big way.
For now, however, the bargain hunters are coming in helping energy stocks rise nearly 4% as a sector.
Technology stocks were the laggards after Yahoo! Inc (NASDAQ:YHOO) fell 4.8% in response to weak 2016 revenue and operating earning guidance. After the close, GoPro Inc (NASDAQ:GPRO) was slammed as much as 20% after reporting a surprise quarterly loss and earnings miss for the fourth quarter and guided Q1 revenues well below estimates.
Technically, the path of least resistance continues to be a retest of the 17,000 level on the Dow, as the bulls continue to work off the severe oversold condition of mid-January helped by oil production cut headlines, dovish central bank commentary and fresh weakness in the dollar (which has been a drag on both corporate earnings growth and commodity prices).
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
