It's Ground Hog day. Again. Stocks look green but they are almost certainly going to be covered in the viscus, nasty, brutish ooze that is oil and the now utterly uncontrolled drop in all things related to Texas Tea. I've said so often that I'm entirely sick of hearing my own voice on this point: stocks won't bottom until crude stabilizes. Oil has been down as much as 4% overnight. WTI dropped 4.7% yesterday. Does that seem stable to you?
Related: Stocks slide as oil prices fall further; GM challenges Tesla
You can have one-off stocks performing well, but in terms of the broader market drops in crude are going to trump any and all rally efforts. Take yesterday, please.
If you squint you can see our higher open, right up into that resistance at 2,050 on the the S&P 500. That wave of optimism lasted less than five minutes. That's not an exaggeration. By 9:35am stocks were negative and they never got green again.
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This is a problem. It's a change of character from what we've seen over the last two years in terms of the the whole super-obvious V-bottom narrative that has served dip buyers so well. Maybe that's for the better. It's neither normal nor healthy market action to have everyone on the same trade. "Buy the dip NOW" had become too obvious. That trade may be falling apart here. Big picture, that's good. In the now it's tracing out an ominous pattern technicians call a Head and Shoulders.
I've drawn a quite lovely picture to illustrate the point. You can see the left shoulder formed by the October to early December rally. Then the dip and December 29th high formed the head. Now we've got the right shoulder being formed by a failure to make new highs on the oil-laden failure of this rally. Silly? Maybe. Childish? Well there's a reason I used a little kid song for labels. Scary? Damn straight. Below 2,000 suggests a possible revisit of those October lows about 10% below where we are now.
Related: Bob Doll's market predictions for 2015
Oil is drinking stock's milkshake. Until crude stops breaking not all the earnings in the world will fix this market for more than 3 minutes at a time.
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