For much of the new year, the focus has been squarely on the price of oil. However, with expectations running high that the ECB is ready to launch a large-scale, sovereign debt QE program, the market’s focus appears to be shifting a bit this morning.
On the oil front, the good news is that crude prices are once again trying to stabilize. From a chart perspective, it looks like prices have been trading in a sideways range for the past 8 sessions. The bad news is that oil futures are falling again this morning and are currently trading down -3.08%.
In addition to oil, there are three primary stories to be aware of on this Tuesday morning. First, there is the downgrade of global growth expectations from the IMF (in which the forecast for U.S. GDP actually was upgraded). Second, there is the economic data out of China. And finally, there is the economic sentiment data out of Germany and the Eurozone.
Although China’s full year GDP came in at the lowest level in 24 years, the data on retail sales, fixed investment (real estate), and industrial production for the month were encouraging. As such, traders appear to be focused more on the expectations for additional stimulus and sent Chinese equities higher.
In Europe, both the German and Eurozone ZEW Confidence indices surprised to the upside. This, when coupled with the expectations for the ECB to actually start a new money printing program has put a bid under European equity markets today.
In sum, despite falling oil prices, it would appear that the markets are currently focused more on QE/stimulus plans than on the potential spillover from crude’s rude move. At least for now…
Current Market Environment
The current market has been acting like what is called a “news-driven market.” In short, the moves in both direction have been quite volatile and stocks display little memory from one day to the next. The key is that the vast majority of the recent movement has been tied to the price of oil. The thinking has been that since there are potential negatives from oil’s big dive, traders can simply follow the situation by tying stock prices to crude. However, the focus could very easily shift back the QE game in the near term as the ECB is on deck this week and traders are beginning to believe that the Fed could delay the “liftoff” in rates if conditions worsen. However, putting all of the subjective analysis aside, our disciplined market models tell us that this remains an uncertain market environment and that some caution should be exercised for a while longer.
Looking At The Charts
While stocks have been bouncing around a fair amount recently, the bottom line is that nothing has really changed from a technical perspective. The bulls contend that stocks are now oversold and that the six successful tests of the 150-day moving average is a positive sign while our furry friends in the bear camp point to the downtrend that has been intact since the end of 2014. The bottom line is that the indices will need to make a decisive move in one direction or the other before a real trend can emerge.
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