It’s About Oil… for Now

posted Dec 15, 2014, 3:13 PM by Katie Shook
Last week was certainly a sharp drop.  The popular theory is that it’s about oil.  For now, that’s pretty much the case.

Here’s the deal.  Cheap oil, in theory, is a good thing.  So we’d expect this to be good for the stock market.  However, system shocks are not a good thing.  And oil fell fast — like really fast — the downdraft caught a lot of stocks in the wake.  Some of what we saw was probably panic selling.  However, things have been destabilized somewhat.

I received a number of calls about this asking what I thought would happen.  Technically speaking, we’re already at a key level.  2000 on the SPX is a psychological level for this market, but the technical support is down as far as 1946 or so (the 200-dma).  We already camped on the 50/100-dma’s.  It’s possible we’ll see low 1980′s while the market sorts this out.  That’s about half way between the 100 and 200-dma’s.

Over the weekend futures recovered somewhat.  Still, there’s been plenty of volatility.  I expect the bias will be to the up-side this week given how rapidly the markets fell.  The general thesis that the US is still the market of choice right now remains intact.  We’re just dealing with a system shock and spike in uncertainty.

The speed the market declined last week — typically — would be a sign that things were unraveling.  Given how this market has behaved for the past couple of years though — the fact that central banks continue to manipulate currencies — and the fact that lower oil prices, after initial pain, are a good thing — it won’t surprise me if this is a buying opportunity for stocks (especially those not directly associated with oil production or distribution).  It also will not surprise me if volatility this week — which is realistically the last trading week of the year — will be pretty high.

Hang in there.  And remember:  one day (or week) does not a market make!

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