Market Overview

The Yo-Yo Market: Dollars And Oil And Feds, Oh My!

The Yo-Yo Market: Dollars And Oil And Feds, Oh My!
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Since December 16, the S&P 500 Index futures have been in a wicked trading range. The index has found major support from 1963.00 to 1980.00. After the sprint to new, all-time highs at year-end (2088.75), the contract has hit a brick wall at the 2060.00 level.

A few different factors have contributed to the chaotic trading, and it appears that they will continue to persist for quite some time. Below is a more in-depth look at possible factors.

Decline In Crude

The decline in crude oil prices is weighing heavily on the market. The diminutive positive effect it is having on consumers disposable income is far overshadowed by the crimp it is putting on earnings in the entire sector.

Keep in mind, a disproportionately large percentage of oil stocks comprise the S&P 500 Index. In fact, two of the 10 largest companies in the index are in this sector: Exxon Mobil Corporation (NYSE: XOM) and Chevron Corporation (NYSE: CVX). With these two key components on the decline, it will take more than blowout earnings from Apple Inc. (NASDAQ: AAPL) to send the market back to all-time highs.

Related Link: Oppenheimer's Top 2 Crude Oil Plays


Strong Dollar

While crude oil is wreaking havoc on the oil sector, the strong dollar is villainous toward other key components in the index. Any company with significant international exposure is already experiencing the negative effect on earnings. For example, another top 10 S&P 500 index component, Procter & Gamble Co (NYSE: PG) reported weaker-than-expected earnings (Q2 core EPS $1.06 vs $1.13) on lower revenues ($20.16 billion vs. $20.62 billion) and cited the strong dollar as a contributing factor. Since the rally in the dollar is showing signs of continuing, it is hard to determine the negative effects in upcoming quarters. Also, Some companies that have been able to maintain earnings expectations this quarter may be susceptible in upcoming quarters.

Related Link: How A Strong Dollar Boosts Foreign Auto Sales

Will The Fed Finally Raise Rates?

The biggest elephant in the room weighing in on the bull market is the Federal Reserve Bank. By maintaining its stance of raising rates at some point this year, it has made some of the big money hesitant toward making new commitments to the market until Federal Reserve does indeed act. Making matters more confusing is the conflicting economic data that does not wholeheartedly confirm an expanding economy.

To the contrary, some of the data indicates not only a economy not expanding, but one that may creeping into a recession. What could be worse for the markets than the Federal Reserve Bank raising rates at some point this year only to reverse course if the economy creeps into recession.

Since much of this bull market has been predicated on cheap money, what could happen if the spigot is turned off?

Related Link: 3 Key Takeaways From The Federal Reserve Statement

Looking Forward

So what is the best thing for traders and investors to do in this volatile environment? A seasoned veteran of the markets and co-host of Benzinga's #PreMarket Prep Dennis Dick stated, "There's a lot technical trading going on, when the fundamentals are confusing and the macro is confusing, you have to lean on the technicals."

For now, the trading range and major levels of support and resistance are well defined. Once the index decides to violate its major support or resistance, investors may be shown the way to the next major move in the markets.

Posted-In: #PreMarket Prep S&P 500Futures Technicals Commodities Federal Reserve Markets Trading Ideas Best of Benzinga


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