Oil has been ripping higher for the last three days, up about $8 a barrel since Thursday (Jan. 29), the biggest three-day surge in six years. And for the last two days, it has been dragging the stock market with it.
The SPX, the large-cap cash index, closed at 2050.03 on Tuesday (Feb. 3) after gaining 55 points in the past two days. The wailing you hear is from the shorts who, sucked in once again to believe the Big Reversal is finally starting, were forced to cover their positions yesterday – driving the market higher in the process.
The S&P500 mini-futures (ESH5) began rallying in the overnight trading in Europe and gapped up strong at the U.S. open. The market moved a little lower in the morning trying to close that overnight gap, but the afternoon went in only one direction – 22 points up from noon to the close. Bullish.
The futures, which traded below 1975 overnight Sunday, closed at 2042, down a little from the high of the day and below the cash index (SPX) but still pretty impressive.
What To Expect Today
For today (Feb. 4), we have the ADP employment report being released in the pre-market Globex session. The report is likely to affect trading for the morning, and, perhaps, for the rest of the day.
ESH5 is also facing overhead resistance around 2050, which has to be overcome for the market to move higher. The moving average lines have not given a buy signal and are still flat and overlapping. That probably indicates more choppiness for today.
Depending on the content of the employment report, we may see ESH5 run up to the 2050-54 zone and then retrace from that level. If it moves beyond 2056.50, the futures are likely to continue further toward 2062.50-64.00. If this happens, we want to look for short side entries.
But if the employment report is not as good as the Street expects, we may see ESH5 go down first and then try to retest yesterday’s low, or fill yesterday’s gap at 2018.50-17.00. In that case, 2010 will be the first major support line. As long as this line holds up, we should expect ESH5 will go back up later today or tomorrow.
Support: 2007-09.50, 1988-86, 1975-74, 1968-66.50, 1953-55
Resistance: 2046-43.50,2056.50-57.50,2062.50-64.50
Oil futures, hourly, to Feb. 3, 2015
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