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Wednesday, March 4, 2015

Daily update 3/4 Oil inventory.

SPX closed below the psychologically important 2100 level.  Here is the SPX chart.

SPX broke down through the 2100 level early this morning sparking some selling.  It ran down to the real important 2090 area and found support.  In the afternoon it tried multiple times to get back above 2100, but failed to do so.  Breadth was -76% early on in the day, but ended at -59%.  Dip buyers picked up some bargains.  New highs dropped down to 105 so a sizable loss of momentum there.  So here we sit between two important levels without a lot of room in between.  I would expect one will give way before long.  Lets have a look at the futures chart.

The futures confirmed the break of the 18 SMA this morning.  They are trying to find support at the 50 SMA.  Notice the -DI line got slightly above the key 35 level.  That opens the door for a bigger sell off.  We have had three of those just this year.  There were three more starting in Sept. last year making it six just for this contract. That is a big change in behavior from before.  Many contracts had no 35 readings at all.  Most of the ones that did only had one instance.  While we have continued to climb higher there is some selling pressure that has not been present in this bull market before.  Here is a look at the 60 minute futures chart of just intraday data.

The first hour this morning had the most volume since we made the early Feb. low.  Notice there are a lot more big red volume bars then green since 2/18.  There has been some distribution going on for a few weeks. 

This rally has had no real oomph since we made it to new highs.  I believe the bears have done enough damage to have taken control back.  If the bulls muster a rally back above 2100 I would expect it to fail on a retest of the 2120 area.  Below 2090 there is no real price structural support above the Feb. low.  A break of 2090 seems likely to run down to the 100 DMA (2033) again.  Since it took three attempts at the 100 to make the low that led to this rally odds are probably elevated it would fail to hold.  Will the bears pounce or will the bulls strike back tomorrow?

The latest oil inventory was rather interesting.  Here is a chart and some comments from Bespoke.

As mentioned above, crude oil stockpiles have been rising in recent weeks, but in order to appreciate the magnitude of the build, check out the chart below which shows the rolling eight-week change in inventories going back to 1983.  At a current level of 62 million barrels, the last eight weeks have seen a record build in stockpiles, exceeding the prior record of 41 million barrels in 2001.  In other words, the current eight-week increase exceeded the prior record by more than 50%!

That is quite a stat and really shows the extent of oversupply is extremely high at the moment.  That big build in 2001 was associated with a recession.  While supply has been rising lately there is obviously a huge collapse in demand.  Is it really possible to be all cold weather related?  I have to wonder if the economy isn't weakening much quicker then what the economic data is currently showing.  The lower prices theoretically should increase demand before too long and slow the inventory build.  Warmer weather might help also.

Today turned the short term trends in R2000 and SPX to neutral.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.