D&D Note (4.21.2020) ~ Collapse of Oil Drags Market Down ~
Today is the final day of the May contract for WTI Oil and while we’ve see the May contract rally 126% from yesterdays collapse it is still only at $10. The June contract has lost 36% of its value to around $13 and that contract begins tomorrow. The July contract is down 24% to around $19.93.
Equity markets fall in response to the huge contango in WTI prices. Brent crude also got pulled down along with many other commodities.
Various measures the US administration has been announcing last night and today have also put further downward pressure on the markets.
US Covid-19 cases rise 5.7% which is the biggest increase since April 10th.
DOW down -2.67%
S&P 500 down -3.07%
NASDAQ down -3.48%
VIX up 3.60% to 45.41
Investors have begun taking profits in the Mega Cap Tech names which is dragging the Indices down along with Energy stocks getting slammed.
MSFT down -4%~
AAPL down -3%~
AMZN down -2%~
GOOG down -4%~
FB down -4%~
The Mega Cap stocks make up 20% of the S&P 500 which is similar to 1999. When these few stocks go up or down they take the overall Indices with them. Just 10 stocks make up nearly 28% of the S&P 500:
Where the Mega Cap stocks go so too will the market especially considering the interlinking of all the various ETFs which are also heavily weighted in these few companies.
Markets have broken through the near term 50 week moving average support and now are likely to try and retest lows. While it’s unlikely markets fully retest the March 23 low they are likely to retest in the 2500 is level of the S&P 500 in the coming weeks. Reason markets don’t fully retest March 23 lows? Because of the dramatic action the FED has taken creating a “FED PUT“. Lesson #1 in trading is “Don’t fight the FED“.
~ Dave James / Principal Trader and Market Strategist