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Market Update

Could Stock Market's Wake-Up Call Come From Afar?

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March 26, 2015

Stock indicators are flashing warning signs for a second day as investors appear to be cashing in on recent technology and bio-tech stock gains, in a move strong enough to help yank the broader market lower. You can also toss in broader-market concern for upcoming earnings quarters due to a strong dollar and tempered U.S. economic growth, although still the global bright spot. But the biggest headline overnight may be renewed tensions in the Middle East that pushed up oil prices and sent some participants to the relative shelter of gold—enough to drive the shiny stuff up through a psychologically important $1,200 an ounce. European stock averages set the tone with deep losses in their session.

FIGURE 1: MIDDLE EAST TENSIONS DRIVE UP OIL PRICE.

U.S.-traded crude oil futures (shown here) and London-traded Brent crude are both on the rise as fresh Middle East tensions raises short-term concern for global oil supply disruptions. Traders drove up prices despite data showing another inventory build to U.S. crude-oil supplies. Data source: NYMEX. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Airstrikes Raise Shipping Concerns. Oil prices jumped as much as 6% Thursday, with reports of Saudi Arabian airstrikes in Yemen raising fresh concerns of supply disruptions at Yemen’s main ports. On NYMEX, crude futures for delivery in May climbed $1.93, or 3.9%, to $51.12 a barrel, in the Globex electronic session. May Brent crude on London’s ICE Futures exchange rose $2.30, or 4%, to $58.75. Saudi Arabia and other Gulf nations launched airstrikes against rebel forces in Yemen’s capital and across the country. The strikes began Thursday morning, hours after Yemen’s president, Abed Rabbo Mansour Hadi, fled the southern port city of Aden by boat when Iranian-backed Houthi militants closed in, according to news reports. Yemen, although not a very big producer of crude oil, is adjacent to the Bab el-Mandeb Strait, one of the world’s main transit points. Oil prices have been rising for about a week, boosted as a strong dollar cooled. Crude prices are higher despite a larger-than-expected increase in U.S. oil inventories. The Energy Information Administration on Wednesday said crude supplies rose for an 11th straight week—up 8.2 million barrels for the week ended March 20.

Think Inter-Market Analysis. The red-hot dollar had cooled in recent days amid bull fatigue and signs of life in the European economy. Overnight, demand lifted for the Japanese yen and Swiss franc, relative “safe haven” currencies when oil market risk is on the rise. The dollar index actually tipped higher overnight which may have seemed out of line with the pullback for dollar forex crosses. A closer look at the dollar index, which measures the buck against a basket of global currencies, reveals the move was based almost entirely on gains (possibly a short squeeze) for the Norwegian krone, a currency closely tied to oil moves given this country’s crude exports.

SPX Support. Both the S&P 500 (SPX) and the Dow Jones Industrial Average (DJIA) logged their sharpest losses in two weeks with Wednesday’s descent. And the tech- and bio tech-heavy NASDAQ Composite shed 2.4% to lead the decliners. What could Thursday have in store? On the downside, SPX 2051 comes into play as a significant line to hold.

Good trading,
JJ
@TDAJJKinahan

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