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Oil Price Bounce Could Grease Stock Market’s Next Move

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October 7, 2015

U.S. stocks joined a global equity advance early Wednesday, as traders tracked the some 2% gain in crude oil prices and ignored spotty earnings news—for now. Gold prices and the dollar both edged higher.

Japan’s leading stock average ended in the green absent extra juice from the Bank of Japan; the central bank left its monetary policy unchanged after some speculation for more stimulus emerged in recent weeks. Europe’s broad equity indexes are higher—eyeing the longest winning streak since August—with, no surprise, energy shares leading the way.

A mixed finish for U.S. stocks on Tuesday snapped the S&P 500’s (SPX) win streak at five sessions (figure 1). The Dow Jones Industrial Average ($DJY) ended just in positive territory, pushed by constituent DuPont (DD). In fact, DD’s biggest single-day advance accounted for about half of the DJIA’s advance. The SPX, still down 3.8% for 2015, is within flirting distance of the psychologically significant 2,000 line. Chart technicians anticipate more tests before this line can be convincingly challenged but secure footing above the 2K line could open the door to more gains, some argue.

FIGURE 1: SIX OUT OF SEVEN?

A one-year view of the S&P 500 (SPX) charted on the new-look thinkorswim® platform shows the broad average snapped a five-day winning streak, closing lower Tuesday after nearing resistance at 1,993. Stocks tipped higher in early action Wednesday. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Oil: $50 in Sight. Crude oil prices climbed on Wednesday amid fresh signs of reduced U.S. production and increasing willingness among the major oil producers to collectively jump-start the market or risk continued price weakness. NYMEX-traded crude futures were trading up 1.9%, near $49.47 a barrel early Wednesday and briefly touched $50 in overnight action. London-traded Brent rose 1.4%, to $53.16 a barrel. On Tuesday, the Energy Information Administration said in its monthly outlook that U.S. crude production fell 120,000 barrels a day in September from a month earlier. At 9 million barrels a day, it marks the lowest level since September 2014, according to the report. Crude oil production is forecast to decrease through mid-next year before resuming near year-end, the report said. Separately, the American Petroleum Institute reported that U.S. crude-oil inventories are likely to have contracted by 1.2 million barrels in the latest week.

YUM: The China Effect. Traders may still be unwilling to stick out their necks as another earnings season heats up. That’s because several companies are showing some impact from China’s economic slowdown. Count restaurant parent Yum Brands (YUM) among them. YUM reduced its earnings outlook for the year. CEO Greg Creed said the company is "experiencing unexpected headwinds" in China, making the second half of the year more challenging than anticipated. As a result, YUM said its per-share earnings for 2015 are likely to grow below its previous target of at least 10%. Analysts surveyed by Thomson Reuters, on average, were expecting per-share earnings growth of 14% before YUM’s warning. The stock tumbled after hours and early Wednesday; it had logged a nearly 15% year-to-date gain through Tuesday.

Can New-Look Microsoft Compete? Microsoft (MSFT) is among today’s financial news headliners after its big New York show on Tuesday. According to a report on MarketWatch and elsewhere, MSFT is cutting its reliance on original equipment manufacturers like Hewlett-Packard (HPQ) and Dell that have long built PCs for its Windows software. Instead, MSFT announced plans to build its own $1,499 laptop in an effort to attract more customers to its cloud ecosystem. The product show also introduced two new smartphones, a new Surface tablet, and an updated wearable device. News story analysis points to stepped-up MSFT efforts to compete with Apple (AAPL) and Google (GOOGL, GOOG); the latter recently unveiled higher-tier mobile devices designed to compete in the workplace.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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