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Oil Narrowly Averts a Death Cross

On Monday, a 3.7% drop in oil prices put the commodity back into a bear market, and losses in the energy sector dragged the broader market down.

Energy stocks fell 3.3%, their worst day since the end of June. Exxon Mobil Corporation (NYSE:XOM) lost 3.4% and Chevron Corporation (NYSE:CVX) was down 3.3%. Diamond Offshore Drilling Inc (NYSE:DO) was hit with a 7.7% loss and Devon Energy Corp (NYSE:DVN) declined 6.2%.

Nevertheless, the S&P 500 showed resilience, closing just 0.1% lower, helped by gains in technology and health care. Notable advancers included Biogen Inc (NASDAQ:BIIB), which rose 4.1%, and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), up 3.8%.

Tesla Motors Inc (NASDAQ:TSLA) announced an agreement to buy SolarCity Corp (NASDAQ:SCTY) for $2.6 billion. TSLA fell 2% on the news while SCTY lost more than 7%.

At Monday’s close, the Dow Jones Industrial Average fell 28 points to 18,405, the S&P 500 lost 3 points at 2,171, the Nasdaq gained 22 points at 5,184, and the Russell 2000 was down a point at 1,219.

The NYSE Composite’s primary exchange traded 855 million shares with total volume of 3.5 billion shares. The Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.4-to-1, and on the Nasdaq, decliners had a slight edge. Block trades on the NYSE declined to 4,830 from 5,999 on Friday.

S&P 500 Chart
Click to Enlarge


The flag on the chart of the S&P 500 still waves despite Monday’s big losses in the energy sector. Resistance is at the July high at 2,175, and support is at the 2,159 July 27 low, reinforced by the 20-day moving average at 2,152. Flags usually break in the direction the pattern was entered — up in this case.

OIL Chart
Click to Enlarge

The iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) has been tracking oil lower since its June high. While the 50-day moving average has not crossed the 200-day moving average, which would issue a death cross — a long-term sell signal — it closed just 1 point from it on Monday.

OIL is approaching support at the April low at $4.79. The next major support is the February closing low at $4.48.


One more day, one more challenge. Despite a slippery wall of worry and a decline in crude oil, the S&P 500 held up with only a minor loss. The close at 2,171 is 12 points above support, and it seems there is little to dislodge the index downward from the flag pattern.

I remain bullish with an eye on crude oil finding support somewhere near Monday’s close. The high volume of oil’s decline looked very much like a selling climax.

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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