Energy Sector Turns Sideways

Economic data helps push the markets higher. ISM Manufacturing rose to 44.8% for June inching closer to the 50% mark which shows economic expansion. Pending home sales were up for the fourth consecutive month helping investors feel better about the outlook near term. This is what I discussed this morning in my comments concerning news driving the trading day. Tomorrow is the jobs report and we will see if that takes the markets higher.  

Nice move to the upside thus far on the day. The leaders have been consumer durables, transportation, semiconductors and networking. Technology continues to provide the needed leadership for the broad markets as we discussed in yesterday's post. The move in consumer durables puts the index back near the 240 high from early June and transportation moved back above the 50 day moving average and the 3300 mark. Overall nice day building into the final day of the shortened trading week tomorrow.

Financials are the biggest disappointment to me today with the index unable to move through the 213 resistance on the index. I want to see some leadership from this sector if we are to move out of the trading range and continue the uptrend on the S&P 500 index. Insurance is the only component gaining more than 1% for the sector. 

Oil was lower by nearly 1% as the supply data showed an increase and for the third straight week gasoline supplies increased. United States Gasoline ETF (NYSE: UGA) was down 3%. The energy sector was up 0.9% holding support above the 412 mark. Energy is the sector I wanted to highlight today based on the recent pullback. Taking a look at the chart below you can see the retracement to support at the 412 mark. The bounce off support has been positive short term, but I am looking for the sector to settle into a trading range near term.

The commodities are a drag on the sector overall as oil , coal and natural gas are all leading the sector lower short term. These are the components which need to reverse course if the sector is to continue the uptrend from this consolidation/trading range. Oil services held support at the 155 level and bounced with the chart looking very similar to the broader sector. The refiners continue to struggle as Sunoco (NYSE: SUN) did well to hold support at $22.60. My outlook is for more consolidation unless the commodities reverse momentum. Therefore, set your stops according to the risk you are willing to accept near term.

 |  |