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Market Update

Market Flash: S&P 500 Breaks 2K, Support Tested

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January 6, 2015

Red screens are glowing midday Tuesday despite what looked like the bull’s efforts to ignore oil’s latest drop. Then came a morning batch of soft service-sector economic data that proved too much on the heels of a brutal sell-off to start the week and the S&P 500 (SPX) bobbed below 2,000 (not quite the chart point that matters but a line that can mess with your mind). That’s the first breach of 2K in a good three weeks. Volatility means this is a tradable market. It also means that smart trading decisions are required to navigate forces on several fronts: oil, currencies, so-so economic data, global uncertainties, and earnings—including some biggie financial names—waiting just around the corner. The key has been the cadence of this pullback. It’s fairly measured. That’s a good thing.

SPX Support. The broad-market S&P 500 nibbled at key support at 2002. What matters is the close. Can it hold? We could see plenty of back-and-forth around this line. No surprise then that the CBOE Volatility Index (VIX) is stirred alive again this week, posting a meaty 12% jump intraday.

FIGURE 1:

The S&P 500 (SPX), as charted on TD Ameritrade thinkorswim® platform suffered its biggest one-day loss in three months on Monday and broke below 2,000 intraday on Tuesday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Oil Slides. Crude is the primary story. I don’t care if you’ve never touched a futures contract. Pricing action there is touching most markets. U.S.-traded crude futures dropped below $48 a barrel intraday. That’s clobbering energy stocks and many other sectors are along for the ride. The energy sector is down 22% since late June, while the S&P Small Cap 600 energy sector has lost nearly half of its value in that time, according to research from S&P Dow Jones Indices.

Fact or Fiction? Market lore, maybe, but more than one trader has been known to say that the tone for the whole year can be set in the first five days. If true, it could be a rough year. Or maybe a true test. Is the economy strong enough to justify stocks teetering at repeat records? Will Fed timing be spot on? More than a few questions in these first five days.

Good trading,
JJ
@TDAJJKinahan

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