Market Will Run When Oil Finds A Floor – Investors Ready For Rate Hike

March 9, 2017
Author: Peter Stolcers, Founder of OneOption

Posted 9:00 AM ET - The market wants to head higher and the price action yesterday was very revealing. ADP reported that 298,000 new jobs were created in the private sector during the month of February. This was a "hot" number and it all but guarantees a rate hike next week. If investors were worried about tightening the market would have tanked. Stocks opened higher after the report and they tried to grind higher. The tech sector was particularly strong. During the course of the day oil inventories were released and the build was bigger than expected. Energy stocks were crushed and oil fell 6%. We are seeing another wave of selling this morning and that is keeping pressure on the market. It's important to remember that low oil prices have consequences and benefits. Energy stocks will have lower profitability and there could be some credit issues related to leveraged expiration/production companies. Furthermore, low oil will impact economic conditions in certain areas of the country (Texas). Energy production in the US is one of the big growth areas and these high-paying jobs will decline. On the positive side, low oil prices provide consumers with more discretionary income because pump prices decline. Transportation costs are lower and oil is a major input expense for many industries. In aggregate, the market impact is neutral. Once this wave of selling runs its course I believe the market will rebound. Investors are prepared for the rate hike and recent economic releases (China's PMI, China's trade balance, ISM manufacturing, ISM services and ADP) have been positive. Tomorrow's jobs number could be well above 250,000. LinkedIn said that employment the first two months of the year has been at its highest level since 2015. We've suffered through a few years of meager economic growth and depressed yields. The market has been stuck in a range and we are finally breaking out. Higher interest rates are healthy and we need to get back to a normal level. As long as economic growth is robust the market will shoulder this round of tightening. There will be nervous jitters along the way. Continued economic growth will calm those nerves. Over the course of the next few months we also need to see progress in DC. Swing traders need to be ready to buy. The market will probe for support this morning. Major support is at SPY $235 and I don't think we will get that low. If the SPY rallies above $237 start scaling in. Use that level as your stop on a closing basis. If the market continues to grind higher, add to positions. If the market closes above SPY $238, add to positions and use that as your stop on a closing basis. Day traders need to let the dust settle early this morning. Once oil finds a floor stocks will start to nudge higher. I will favor the long side today. I believe a rate hike next week is priced in. This is quadruple witching so you can expect some volatility. If the market can maintain this price level through the FOMC meeting next week we will have an excellent buying opportunity. . . image

Daily Bulletin Continues...

Want Full Access?

Become a Member

Start Free Trial

No credit card required.


Previous Bulletin

March 8, 2017

Next Bulletin

March 10, 2017