US Stocks Rocked By Oil Price Shock
Sell-Off Tests Key Support Level
The sell off in US stocks has stalled for now with the ES bouncing off a key support level. Prices are down heavily from Friday’s close though the sell off was reversed as buyers stepped in at the 6,587.50 level. Bulls need to defend this level to prevent a much deeper drop lower. The decline in risk assets comes amidst growing fears over the economic impact of surging oil prices in response to the Iran war. Additionally, a hawkish shift in traders’ Fed expectations as a result of higher energy prices is also adding to negative sentiment.
G7 Leaders to Discuss Emergency Response
Looking ahead today, traders are waiting to hear the outcome of a scheduled meeting between G7 leaders to discuss a response to the oil-price crisis. With crude hitting highs of $120 p/b today, leaders are reportedly drawing up plans for a big release of emergency reserves, similar to what was seen in response to the Russia/Ukraine oil spike in 2022. If such a move is announced this should help temper oil prices (crude has already fallen sharply form highs in response to news of the plan). In this scenario, USD should cool too and stocks should find support for a recovery move higher. The scale of the release will be important, however, with traders likely needing to see a large figure to help improve sentiment near-term.
US CPI Wednesday
Beyond that, traders will be watching the latest US inflation data due on Wednesday. If a fresh rise in CPI is confirmed, this should feed into that the Fed is unlikely to ease near-term, keeping stocks pressured. However, the Iran war and the situation around oil prices remain the key issues to monitor this week with data taking a backseat accordingly.
Technical Views
ES (S&P E-Mini Futures)
The breakdown below the bull trend line has stalled for now into the 5,587.50 level. This is a key support level and bulls need to defend this to maintain the broader upside bias and prevent a deeper drop lower. Near-term, bulls need to get back above 6,811.25 to alleviate bearish risks.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.