ATTACK ON SAUDI OIL FACILITIES PUSHES CRUDE OIL AND ENERGY SHARES SHARPLY HIGHER -- CAUSING MINOR PROFIT-TAKING IN STOCKS -- FUEL-SENSITIVE AIRLINES DROP -- SMALL CAPS GAIN MORE GROUND -- BONDS AND GOLD REBOUND -- THE DJ US DEFENSE INDEX HITS A NEW RECORD
CRUDE OIL AND ENERGY SHARES JUMP...As expected, the weekend attack on Saudi Arabia's oil facilities pushed the price of oil sharply higher today and in very heavy trading. Chart 1 shows the United States Oil Fund (USO) surging 12% to the highest level in four months. Energy shares jumped with the commodity. Chart 2 shows the Energy SPDR (XLE) climbing more than 3%; and clearing a falling trendline in the process, as well as its 200-day moving average (red line). Not surprisingly, energy stocks were the strongest part of the stock market which underwent some profit-taking on the news. Some money flowed back into defensive havens like real estate and utilities as bond prices rebounded. So did precious metals.
On the downside, fuel-sensitive airlines fell as oil prices surged. General Motors (GM) weighed on cyclical stocks on news of a worker strike. Small cap stocks, however, rose enough to continue their rebound from last week. On the currency front, the U.S. dollar rebounded along with the Canadian dollar. Canadian markets got a lift from higher energy prices. Most global stocks lost ground however. But no serious chart damage was done. Not surprisingly, stocks tied to defense had a strong day.
DEFENSE STOCKS GAIN...With Mideast tensions on the rise after the weekend attack in Saudi Arabia, it's not a surprise to see U.S. defense stocks have a strong day (while most other stocks sold off). The weekly bars in Chart 3 shows the Dow Jones US Defense Index closing above its early 2018 high to establish a new record. Raytheon (RTN) was the biggest percentage gainer in the group. Chart 4 shows Raytheon rising to the highest level in a year. Chart 5 shows Lockheed Martin (LMT) already well into record territory. Northrop Grumman (ROC) is close to doing the same. Defense stocks helped support the Industrial SPDR (XLI) which hit a new record itself last week and closed modestly lower today.
STOCKS SUFFER MINOR LOSSES...Large cap stocks suffered minor losses today (while small caps rebounded). Chart 6 shows the S&P 500 losing -9.44 points (-0.31%) but didn't suffer any chart damage. A pullback from its July peak isn't that surprising. And no support levels were threatened. Energy was the day's biggest gainer, while real estate and utilities got a safe haven bid. Eight sectors lost ground but losses were relatively modest. The two biggest losers were materials (-1.6%) and consumer discretionary (-1.2%). Stocks appear to have handled the weekend news reasonably well. And retain their generally bullish bias.
