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Thursday, June 22, 2017

Daily update 6/22 People giving up on $60-70 oil?

Mixed day.

SPX went totally sideways until the senate released their version of the healthcare plan.  That sparked some buying.  Late in the day the market sold off when news came out that several GOP senators would not support the plan.  Healthcare stocks especially biotech have been rallying lately.  I suppose that was in anticipation of the senate plan.  Now that it is out and might not pass there might be a sell the news reaction.  Breadth was +54%.  New highs came in under 100 again at 93.  New lows dropped to 67 as oil rallied a bit.  Still elevated though.  

The futures held the 50 SMA overnight.  They rallied above the 20 SMA intraday, but failed to stay there.  In limbo here.

The red count increased a bit today, but remains below 50.  The bears still have not quite taken control.

QQQ gapped up this morning then sold off to close the gap.  It rallied midday, but rolled over going into the close.  It ended the day well below the open.  Not exactly a sign of strength.  Volume declined considerably as well.  This could still roll over.

The last two little dips saw the VIX get over 11.5 before they ended.  The rallies ended with VIX near 10.  On this pullback the VIX has not gotten to 11.5 yet.  There may be more downside needed here.  SPX has had two narrow range days and little movement on the close.  It could expand the range in either direction from here at any time. Tomorrow is a re-balance of R2000 which will cause an increase in volume.  I don't know if that will have much effect on the broad market or not.

Ever since oil crashed I have heard analysts, people from energy companies, and traders all proclaiming oil getting back above $60 was just around the corner.  Over the last few weeks that seems to have mostly come to an end.  More and more people are now saying oil could stay in the 30s and 40s for a prolonged period.  The banks kept pouring money into cash flow negative energy companies right and left because oil was going to rebound.  That money flow might start to be reduced going forward.  That could leave some companies vulnerable.  That is likely to hurt the energy high yield market which is very large.  That could keep the damper on energy stocks.  The real question is whether this will negatively impact SPX.  It would certainly impact earnings.  The rebound in oil since early 2016 greatly helped SPX earnings.  The oil price had been fairly stable in the 50s since last June, but has now broken down.  If oil stays mostly down here or below it will negatively affect Q3 and Q4 this year.  Oil has been dropping with a stable dollar.  That indicates it is likely a supply and demand issue which is likely to persist.  Oil was weak in the second half of both 2014 and 2015.  Last year it was stable, but did not rally above the June high.  It seems to me the odds of oil staying in the 40s and below is pretty high.


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