Get The Ticker Tape delivered right to your inbox.

X

Stocks Try For Three in a Row As Oil Strength Continues To Build

Share Print
February 26, 2016

Stocks took a stab at a third-straight session of rallies Friday, having pushed above what many analysts saw as key psychological resistance and gaining further support early from rallying overseas markets and strong oil.

Many investors had been watching the 1950 level in the S&P 500 (SPX) index, and on Thursday, the index closed above that mark. The strong move upward from lows below 1900 earlier in the week was triggered partly by a rally in oil prices, which continued to move higher Friday morning, likely underpinned by hopes that major producers might meet next month and agree to a production freeze. Strong U.S. gasoline demand also supported oil. If U.S. oil futures again close higher today, it would be the fifth day in a row of gains. Trading at $33.59 early Friday, the front-month U.S. oil contract was up nearly 30% from the 12-year lows posted earlier this month.

The energy rally helped European stocks post gains overnight, and even the battered Chinese stock market managed a small rally Friday. Analysts have indicated investors overseas are likely hoping policymakers from the Group of 20 (G-20) major economies, who are meeting this weekend, might come up with ways to stabilize the global economy. 

In the U.S., investors mulled over new data Friday morning, including a new read on fourth-quarter gross domestic product (GDP). The GDP increased at a 1% annual rate instead of the previously reported 0.7% pace, the Commerce Department said on Friday in its second GDP estimate. Analysts had expected a downward revision to 0.4%.

As stocks rallied, volatility eased. The CBOE Volatility Index (VIX) fell more than 7% on Thursday to below 20.

FIGURE 1: REVERSAL RALLY TO CONTINUE?

The S&P 500 (SPX), plotted here through Thursday on TD Ameritrade’s thinkorswim platform, closed above key psychological resistance at 1950, one day after plunging below 1900 support. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

From Two-Year Low to Seven-Week High: Just two weeks ago, the SPX hovered at a two-year low, down around 1810, burdened by the lowest oil prices in over a decade. Since then, the index has roared back to Thursday’s close just above 1950, which represented a seven-week high. Oil’s strength helped on Thursday, as did a rally in financial stocks. But so did January’s 4.9% rise in durable goods orders reported by the U.S. Commerce Department. That represented the largest increase since last March, and some analysts said the data could mean the economy may be recovering after a weak fourth quarter.

Talking Technicals: Thursday’s strong gains helped the SPX close above what had been key psychological resistance at 1950, just a day after the index sank briefly below psychological support at 1900. Bulls had been hoping going into Thursday for a close above 1930, but the 1% rally in the index took it far higher than that. Some analysts have said the market’s ability to quickly roar back from Wednesday’s lows to Thursday’s closing highs could indicate a bullish technical signal for the market.

Natural Gas Posts 17-Year Low: Even as equities rallied Thursday, front-month natural gas futures fell 5% early in the day at the New York Mercantile Exchange (NYMEX) to a new 17-year low of $1.68 per 1 million British thermal units. Futures ended the day down nearly 3% despite a rally in oil. Prices have crashed to levels last seen in early 1999 due in part to surging U.S. production and stocks, as well as warm winter weather that’s reduced demand. This week, a tanker left Louisiana with liquid natural gas (LNG) for export, the first time LNG has been exported from the contiguous United States.

Good Trading,

JJ

@TDAJJKinahan

 

Daily Swim Lessons, Dive In

Join rotational Swim Lessons on the thinkorswim® platform. Friday: Portfolio Greeks essential in managing an overall portfolio

JJ Kinahan

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

Read full bio »
Recent Posts
March 22, 2017

Taking Perspective: One Bad Day Isn’t Entire Story, But Market Remains Nervous

More selling pressure could stalk the market early today following Tuesday’s plunge, but it’s important to take a big-picture look at the situation.

March 21, 2017

Lack of News on Trump Tax Policy Could Be Keeping Market In Snooze Mode

With little economic data on the horizon and the Fed meeting well behind, the market appears to be looking for new catalysts.