Oil Rebounds From Lows Dragging Markets Like Ragdolls As We Await The Fed Tomorrow

At one point today oil was down over 3.25% and was dragging equities down again. In early afternoon, West Texas Intermediate and Brent North Sea started to recover.

But traders should have known that oil was overbought in the $40.00 range and its rise has gone too far, too fast.

There are generous, even abundant stockpiles. Production has been cut by almost 1/3^rd, mostly in North America, so that stream is waiting for higher prices like the sword of Damocles over the market’s head. Finally, Iran has been allowed back into the party with its enormous resources and Iraq has yet to achieve full operating capacity.

On the consumption side, demand simply is not all that brisk. Short of an enormously disruptive external event, what would push prices up in the first place and keep them up once they got there?

The oil tumble did not have enough time to work its full mischief on Asian equities, but once markets opened in Europe the mojo was revved up and slashing at stock prices. Shanghai alone in Asia nudged higher. All three major indexes were down more than ½ a percent in Europe.

In New York, the information available was fully digested by early afternoon, and conditions in the crude oil markets had changed. (At 3:30 PM WTI and Brent are down 1.85% and 1.65% respectively.)

The Dow flirted with positive numbers for the day before closing up 22 points, while the S&P 500 and NASDAQ are well above their session lows, failing to shoulder into plus territory.

The risk-on, risk-off scenarios are muddled today.

Gold is off about 0.20% but U.S. bond yields are up – if only slightly – indicating less demand for the 10-year paper. On the other hand, the yen is stronger against the U.S. dollar quite substantially.

As the hours tick away, regardless of the quotidian fundamental influences out there, we approach the close of this period’s Federal Open Market Committee meeting.

Tomorrow around this time, we will be slicing and dicing what Chairwoman Janet Yellen reports out, presuming there is not another rate hike.

Certainly the FOMC would surprise the world if they ratcheted up interest rates right now.

February retail sales fell in the U.S. about 0.1%, much less than forecast. But…

Meanwhile, positive growth for January was revised away. Retail sales for that month dropped 0.4%, versus the initially reported 0.2% increase. The downward revision overturns what had appeared to be a more upbeat start to 2016. The revision made January’s drop the steepest in a year.

“Consumers remain cautious and hesitant to spend, despite an improving jobs picture and evidence of accelerating wage increases,” said Alan MacEachin, corporate economist at Navy Federal Credit Union.

Also, energy prices were at their lowest. Everything those low fuel prices touched staid stagnant or went down in price. Couple that with the mildest winter ever in the Northern Hemisphere and you have less spending almost on that influence alone.

Wishing you as always, good trading,