[MM_Member_Data name=’firstName’],
U.S. stock indexes were mixed Thursday after the price of oil stabilized, at least for now.
This week has been dominated by oil’s tumbling price, which dropped on Wednesday to its lowest level since last summer, and how much it will affect the broader market.
Global Economy – European stocks are down as this week’s sell-off in crude oil prices to a 7-1/4 month low weighs on energy stocks.
Brexit concerns are brought back to the forefront as EU leaders start a 2-day summit in Brussels. Stock losses were contained as mining stocks strengthened after Jul COMEX copper to a 1-week high.
China’s Shanghai Composite rallied to a 2-month high after Wednesday’s decision by MSCI to include 222 Chinese companies in its global benchmark indexes next year lifted stock prices.
However, a report that Chinese regulators had asked some banks to provide information on overseas loans to companies prompted profit-taking and Chinese stocks shed their gains and closed lower.
UK Jun CBI trends total orders unexpectedly rose +7 to 16, stronger than expectations of -2 to 7 and the highest since Aug of 1988. Jun CBI trends selling prices was unch at 23, stronger than expectations of -3 to 20.
U.S. Economy – Jobless claims in the week ended June 17 increased 3,000 to 241,000 when 240,000 were expected.
Consistent with strong demand for labor demand, jobless claims are little changed in the latest report. Initial claims came in at 241,000 in the June 17 week which is right at consensus for 240,000.
The June 17 week was also the sample week for the coming June employment report and a comparison with the sample week of the May employment report shows only a slight increase of 8,000. The 4-week average is up very slightly to a 244,750 level that is only marginally above the 4-week average at mid-May of 241,000.
Continuing claims, where data lag by a week, are likewise little changed, at 1.944 million for an increase of 8,000. This 4-week average is up 5,000 to 1.932 million. The unemployment rate for insured workers (which excludes job leavers and re-entrants) is unchanged at a very low 1.4 percent.
Market Sentiment – The probability that the Federal Open Market Committee will increase its fed funds rate at the December 13 meeting is 50%, which compares to 47% yesterday.
Technically, weakness in oil and vulnerability in blue chips is causing investors to rotate out of stocks and into the long bond. I’m not expecting the current upside momentum to continue and the odds are strong that we will see a sharp pullback towards the 50 day line in the short term time period.
There’s less FED data during summer months and that usually causes bonds to lose directional bias. Furthermore, bonds are not known historically to be a very strong trending market, which tells me the odds of seeing upside continuation is not likely at this time.
Stock Market Analysis – The biggest influence on the overall market last few sessions has been the energy sector, which has been trading substantially lower in recent days. Keep in mind, energy stocks hold massive market share and can easily influence the NYSE and SP 500, since both have strong concentration in energy stocks.
At the present time, I’m seeing oversold price level in the energy sector, which tells me that we can expect potential upside over the near term, since there’s a strong probability that price will trade higher in the near term.
Don’t expect major upside, since the long term trend is lower and the odds of seeing further weakness over the medium time frame is highly probable.
Furthermore, broad based blue chip indexes such as the Dow Jones are stagnating, after reaching overbought territory over the past few sessions.
Expect more downside or mild weakness from the broad market, since there’s no catalyst at this time to cause upside for stock market.
Semiconductors were causing tech to rise last few months, which created distortion and imbalance between tech and blue chips, but since that time, we’ve seen corrective pressure in the tech that brought price back down to balanced levels.
With tech and chips seeing the biggest corrective pressure less than 2 weeks ago, the sector is now consolidating and building balance, which is expected after seeing the strongest selling pressure in several months.
Expect more consolidation in the near term and price to trade higher in the medium term time frame, since the trend remains bullish at this time and RSI is now in neutral territory.
Volatility remains low and energy stocks are due for a rise, which will give the overall market a bit of a boost and cause some degree of accumulation by larger funds.
I will update you on Sunday as usual.
Roger Scott