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Energy Gearing Up for a Move

Wednesday,August 8, 2018, 10:46 AM, EST

  • NASDAQ Composite -0.12% Dow -0.26% S&P 500 -0.12% Russell 2000 -0.59%
  • NASDAQ Advancers: 759 Decliners: 1394
  • Today's Volume (First Hour) -6.9%

After inching toward record highs yesterday the markets opened fractionally lower this morning and that followed mixed to lower conditions in Europe and Asia. Earnings continue as the primary focus for investors while most other news is at the macro level. Most sectors are slightly lower with Energy is off 0.7%, giving back some of yesterday's advance, and Consumer Discretionary leads with a paltry 0.1% gain. Later today the US will sell $26 billion worth of debt, the largest auction of 10-year treasury notes ever. Despite that, treasuries are little changed while the dollar index gains 0.1% and gold is unchanged.

  • China announced it will impose 25% tariffs on $16 billion worth of imports from the US beginning August 23rd , matching Trump's most recent move. The situation is "not yet past the point of no return, but edging closer," says Wang Tao, head research at UBS in Hong Kong. In the meantime China's July exports surpassed expectations and grew 12.2% YoY, and it's even more dramatic with imports that spiked to 27.3% YoY. The numbers likely reflect positioning ahead of the next round of tariffs, and should the trade war worsen Wang Tao says "Chinese policy easing would also be ramped up even more to provide a bigger offset, keeping China's real GDP growth above 6 percent in 2019."
  • The Department of Energy reported crude oil inventories fell 1.35m barrels last week, less than expected, whole gasoline and distillates saw increased. Crude prices moved lower following the data release, with WTI down nearly 2%. WTI Crude oil has been in a tight $3 range since July 17, the longest such stretch since 2003 according to Bloomberg.
  • Back-to-schoolshopping marks the second-biggest shopping season of the year, according to the National Retail Federation (NRF). Coresight Research expects to see U.S. back-to-school sales grow 3%-4% year over year for 2018. Coresight Research thinks consumers' shopping habits for back-to-school products is changing, particularly on digital trends stating "Social media is losing its influence over back-to-school shoppers. Fewer consumers plan to use it in their shopping for this season. Retailers continue to push their campaigns, incorporating more content from unpaid customers who seem authentic and reach a market beyond the stores' follower bases. Well over half of back-to-school shoppers will buy online this year, with survey data suggesting that we will see a big year-over-year leap in online shopper numbers. We expect m-commerce to drive growth in online retail sales as consumers seek out convenient ways to shop. Voice assistants are likely to be used more for research than for purchase and will complement shoppers' use of other channels this back-to-school season."

Technical Take: Energy Gearing Up for a Move

The S&P 500 energy index is the only primary GICS sector in the red so far in Q3 with a QTD decline of (0.8%). YTD the index is up a modest 4.5% which follows 2017's decline of (3.8%). However this overall lackluster performance masks the robust 12.7% gain made in Q2, and it doesn't do justice to what can be seen in the below weekly period chart. The Q2 high stalled right at a clearly defined resistance line, 575, which has been in place since December 2016. For proper context as crude oil declined 75% from mid-2014 to Q1'16, the SPX energy index declined 49% to its low in January 16. The energy index then rallied more than 50% to its December '16 high, before then retracing making a nearly exact 61.8% retracement. It took until January 2018 before the energy index rebounded back to the 575 resistance where it consolidated for four weeks before then retracing again. This retracement found support at the rising trend line connecting the lows of 2016 and 2017 before revisiting the 575 for a third time in May where it has spent nearly three months to date consolidating in a narrowing range. Thus while energy stocks have underperformed the broader market over the last 18 months, the setup is there for a powerful breakout. A move above 575 could be a powerful trigger that could see a resumption of the sharp uptrend that we saw briefly in Q2.

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Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.