Park the Prius and pull the SUV out of the garage.
Oil prices posted their biggest one-day drop in nearly two years Tuesday as a U.S.-led wave of crude has crashed into weak global demand, threatening the stability of some countries and providing an economic lifeline to others.
Tuesday's slide of 4.5% by U.S. crude oil to $81.84 a barrel on the New York Mercantile Exchange left the price down 20% since the start of June. That was the lowest closing price since June 2012, and some analysts predict the price will fall as much as $10 a barrel lower.
So what does this mean for the tumbling stock market and today's trade? From Zero Hedge:
For the fourth consecutive night, futures attempted to storm higher, and were halted in their tracks when the USDJPY failed to rebound from the recalibrated 107 tractor beam, following a statement by the BOJ's former chief economist and executive director (until March 2013) who said that now is the time for the Bank of Japan to begin tapering. Needless to say, there could be no worse news to bailout and liquidity-addicted equities as the last thing a global rigged market can sustain now that QE is about to end in two weeks, is the BOJ also reducing its liquidity injections in the fungible world. This promptly took away spring in the ES' overnight bounce.
But the nail in the coffin of the latest attempt by algos to bounce back was the news which hit two hours ago that a second Ebola case has been confirmed in Texas, and just as fears that the worst is over, had started to dissipate. Expect transports to continue their bipolar moves, and following yesterday's jump - the best in one week - today will be profit taking day ahead of what is increasingly shaping up to be a big "one-time, non-recurring" fourth quarter EPS crash for airlines due to the great Ebola scare of Q4.
Looking at the day ahead, we have the Beige Book, Retail Sales, Empire state survey, and the monthly budget from the US. Other than Germany's inflation data it should be a quiet day for European data flow. Draghi's speech in Frankfurt this morning will also grab some attention. In terms of earnings Bank of America, American Express and eBay are probably the highlights.
Whatever happens, it will be a bumpy ride. Good thing the gas is cheap.
With another volatile session in the books, the markets struggled to maintain gains. While the COMP and SPX finished in positive territory, the DJI dropped hard in the last 2 minutes of the session to close in negative territory. This showcases that sellers remain in firm control. The short covering rally was met with eager sellers, and more sellers joined in at every opportunity. Look for a possible gap down, and I would be inclined to sell the rally instead of buying the dip. We are in correction territory. Being a buyer in the markets right now means the odds are stacked against you. I would rather be a seller and play with odds in my favor.
If you watch financial television, have access to the internet or have technical capabilities on par with indoor plumbing you have heard that the S&P Index broke and stayed under its 200-day moving average yesterday. Some technical analysts consider breaking below the 200-day moving average to be the official end of a bull market. So, at least according to this definition, we're now in a bear market. Is this really a place to start shorting the market? Not so fast. It's true that over a long time period, this 200 DMA has been a good indicator of the changing of the guard but if you look since 1990, it's a bit different picture. "Sell" signals were those days on which the S&P 500 dropped below its 200-day moving average after the previous day being above it; there have been 85 such occurrences since the beginning of 1990. We see that over the following for weeks when the 200MA is breached the broad index was up 2.5% compared with 0.9% on other days. Over the 13 weeks following this trigger the market was up 5.4% compared to 2.7% on other days. It's also true that over the next year it slightly underperforms, 9.7% vs. 11.7% but I would hardly call this technical trigger a "sell" signal that is worth our notice.
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