Stocks up, Crude down ... what's going on here???
What we witnessed today was a massive short covering rally in the equity markets. You've heard us say this before, bears make the best bulls, and that's exactly what happend in the equity markets today.
The scramble to cover short positions in financial equities signaled an unwinding of the oil/equity spread.
Traders covered short equities and in turn liquidate long positions in crude exiting what had been a dream trade.
It is very seldom you see the market participants so heavily stacked one way for so long. Long crude - short financials. What's causing all this volatility? I am going to point to the SEC's removal of the "Up Tick Rule". To get a better understanding of the importance of this rule watch this short video.
However, one day does not make a market, or a trend.
Also fueling the equity fire, was Donald Kohn of the Fed, hinting that the FED may cut interest rates again. Do you remember what happened last time the Fed cut rates? The market rallied for a couple of days and then promptly tanked.
The message here is be careful what you wish for.
Here's how I see it.
Equity Indexes = wide trading range
DOW: resistance 14,000 support 12,750
Crude Oil = wide trading range
Crude resistance 99.00 support 90.00
Thursday and Friday should make for interesting trading. Look for continued volatility and markets that are skittish at best.
As always remain diversified and disciplined.