Lift does not materialize

Well, my suspicion that we may receive some lift in equity prices as a result of an encouraging EIA report did actually materialize, until it didn’t. The EIA report reflected a tightening of crude inventories (3.6 million barrels) over the previous week but upon further review the report also indicated that distillates grew (5 million barrels) in the same period – significantly more than what energy analysts were expecting. As a result, sellers stepped back in the market and brought an abrupt end to the early morning rally in both crude and equities. WTI settled on the NYMEX at $37.16.bbl. Brent settled at $40.11.bbl.

The massively negative intraday reversal that was triggered by the two tiered crude inventory results from the EIA Petroleum Status Report was jarring. All three majors lost ground for a fourth session out of five. The losses were accompanied by expanding volume to make matters worse. The NYSE saw volume grow by 4.15% and the NASDAQ’s volume also expanded by 5.11%. Another distribution day was registered in the process. To say our uptrend is under pressure would be an understatement. The S&P 500 (-0.77%) and Dow Industrials (-0.42%) performed significantly better than the NASDAQ (-1.48%).

In part, the relative under-performance by the NASDAQ was due to M&A news in the Materials sector. DuPont and Dow Chemical are far along in merger talks, apparently, as their surging prices indicate, but this may signal bad new for commodity prices – more on CNBC PRO. As a result, the Materials sectors of the Dow Industrials and S&P 500 provided lift to those broader indices. The NASDAQ, without the aid of that news, was left to its own demise.

My expectation that a mild Santa Claus rally would emerge in the waning days of 2015 appears increasingly less likely. The market has repeatedly disappointed in recent sessions as a result primarily of the crude oil narrative – a narrative that clearly few were expecting – including many inside of OPEC apparently. Crude narrative aside, the recent turmoil in markets has left the major indices in a rather precarious position. Though the NASDAQ for example closed above both its 50 and 200 DMAs yesterday, it did so with little room for error. Early this week the 200 DMA crossed the 50 DMA – normally a very bullish technical indicator. Despite that, markets have lost their momentum. The NASDAQ is actually in danger of crossing both the 50 and 200 DMA in one fell swoop lower as they are nearly identical. An event of that nature is not certain, but is also not out of the cards given the volatility that has gripped markets. In that event markets could well signal a reordering – lower. It is premature to call, but must be mentioned. The fact is the NASDAQ is less than 5% off its high and given the meteoric rise that took place in October, our recent volatility is not entirely unexpected.