It Is Not Simply Higher Oil Prices Driving Equities Higher

Oil headed down early in the day in Europe but then reversed course and started throttling upward.

That reversal came on the wings of a rumor that, since talks in Doha failed this past Sunday, OPEC and non-OPEC producers would try again in May – in Moscow – to arrive at an agreement to freeze production. Iraq was the source of the rumor. Russia said there was no agreement to meet.

Traders also said that oil's gains were due to volatility around the scheduled post-settlement contract rollover as well as to the Energy Information Agency’s report that showed a lower-than-expected crude inventory build of 2.1 million barrels and a decline in U.S. production. We should keep in mind, though, that it was indeed a build and not a draw down.

Nevertheless, West Texas Intermediate and Brent North Sea have both risen around 4.00% in mid-afternoon trading.

The Dow Jones industrial average has pushed well above 18,000 today, hitting 18,158 in early afternoon trade. As yesterday, UnitedHealth and Goldman Sachs contributed most to the gains. In spite of their good numbers, Boeing and Coca-Cola contributed the most to declines.

"We're digesting first-quarter earnings (mostly beating) relatively lowered expectations and the market is telling us we're in an environment where there's no panic about the first quarter and beyond," said Tom Wright, director of equities at JMP Securities.

This might be a good time to make an observation regarding the VIX, the CBOE gauge of fear in the markets. It is trading lower – near 12.7, rebounding a bit from 12.5. In fact, it is at its lowest since August 10, 2015.

Possibly more important, as recently as February 11, 2016, the VIX was trading above 28, the fear factor being great, obviously. That was the exact same date that the S&P 500 hit its recent lows. Since then, that index has climbed steadily.

The S&P 500 is over 2110.00 at 3PM in New York.

We will have to keep an eye on crude to see how its volatility affects equities. Some analysts believe there is a disconnect between stock prices and oil as long as WTI stays above $40 per barrel.

Gold struggled for gains in the teeth of a higher dollar. Dollar strength, which depresses prices, essentially offset gains made in regular trading.

Silver, however, continued its healthy rise by bumping up more than 1.00%. Platinum was up over 1.00% as well, while palladium is up around 2.25%.

The regular trading up-move in gold is odd because otherwise we saw a risk-on day. The usual haven plays were soft and squishy. But gold is being tugged along by silver, so on that level, it all makes sense.

The U.S. 10-year bond yield was higher and face price lower so as to entice buyers into the bond market. The dollar was up against a basket of currencies. It was particularly strong against the yen.

Fundamentally speaking, we have to be alert to profit taking that will be unleashed soon in the equities markets. Right now crude seems to have a mind of its own.

Wishing you as always, good trading,