JUMP IN OIL PUSHES STOCKS DOWN ON HIGHER VOLUME -- ORACLE AND VIACOM FALL ON HEAVY VOLUME -- COMMODITIES BOUNCE ON FALLING DOLLAR
CRUDE JUMPS 1.3% ON SURPRISE OPEC CUT... OPEC surprised everyone today by announcing a 3.5% production cut to take effect on November 1. That set a positive tone for energy stocks, but contributed to a down day in the rest of the stock market. Combined with the plunge in the dollar on Monday, today's jump in energy prices added to short-term stock market concerns. Rising energy prices are a potential restraint on economic growth. Upside leadership by energy stocks is usually a negative for the rest of the market. Chartwise, today's jump in oil is still within the context of an overall downtrend. Oil prices have been weak of late. The current rebound should run into heavy selling in the $29-$30 region if it even gets that high. In other words, this looks more like an oversold rebound in oil -- and not the start of a major advance.
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ENERGY SECTOR GAINS GROUND... The energy sector was the only one in the black today. But not by much. The daily chart of the Energy Select Sector SPDR jumped sharply in the morning, but faded late in the day. Oil service stocks were the strongest part of the oil patch. The late-day fade in energy stocks may be a sign that traders aren't all that impressed with the propects for oil. But with the overbought state of the stock market, it looks like stock traders were looking for another excuse to do some selling. Most of the selling was in technology.
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NASDAQ 100 LEADS MARKET LOWER... Just as it led the market higher, the Nasdaq 100 (QQQ) is now leading the market lower. The QQQ was the weakest of the major stock averages today. It was also the most actively-traded unit in the stock market. The downside correction that started on Monday (with the plunge in dollar) turned even worse today. The QQQ closed beneath its 20-day average for the first time in six weeks. Its next test of support will be a the early September low at 33.01. The S&P 500 SPDRS (SPY) actually suffered more technical damage. The SPY looks even weaker. The SPY closed right at its September low at 101.35. A close beneath that level would signal even more weakness.
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ORACLE AND VIACOM ARE BIG VOLUME LOSERS... Speaking of volume, Oracle and Viacom were the day's most actively-traded stocks on the Nasdaq and the NYSE respectively. Unfortunately, they also fell sharply. Oracle fell under its 200-day moving average for the first time since early August. Some other active losers on the Nasdaq were Cisco, Intel, and Microsoft. On the big board, Viacom plunged to a six-month low on massive volume. While the number of market decliners outpaced advancers by a better than two-to-one margin, downside volume on the Nasdaq and the big board exceeded upside volume by a four-to-one margin. Not only was the volume heavier; it was decidely negative.
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FALLING DOLLAR BOOSTS CRB INDEX... Crude oil wasn't the only commodity to bounce today. The CRB Index, which recently bounced off moving average support, gained 2.26 points today to close over 242. Thirteen of the seventeen commodities gained. The two biggest winners were crude and heating oil. Natural oil also bounced. Gold rose $1.40 to over $388. One of the side effects of a falling dollar is rising commodity prices. The dollar fell again today against the Euro and the yen. Some of the bounce in the CRB Index can be attributed to the weaker greenback. My Monday update suggested that the falling dollar increased the risk level for U.S. bonds and stocks. Today's bounce in crude oil does the same.
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