Stock Market Early Morning Insights – February 25th, 2016

Stock Market Early Morning Insights – Yesterday sharp intraday reversal was attributed to rising oil prices after the inventory report was released. That could have been a partial reason for stocks reversing from a very weak session to a moderately strong session, but in reality it was just another case of emotional traders being shaken out of their positions before the buy programs came in.

The public and inexperienced traders always want to look for a reason for a market reversal, but we have to remember that all financial instruments move because of two emotions, fear and greed. If oil was the catalyst for the move, why weren’t all oil related stocks up for the day, and other non-related stocks flat to down? It’s because when the futures start rising sharply, the cash market or individual stocks have to be purchased, and money flows into stocks that are beaten-down for the session. Money flows into the highly liquid, heavily followed stocks which are traded by the large firms and hedge funds.

For example, what is Amazon have to do with rising oil prices? Absolutely nothing, but when the market turned higher, Amazon went from a low of $533.15 to close at $555.04. That’s a change of $22 approximately six hours. Did Amazons value really change $22 in six hours? No, but money had to flow somewhere when the futures or charging higher, and money has to flow into the heavily traded, highly liquid stocks.

Stocks in the NASDAQ 100, the S&P 100, the S&P 500 attract money which must go somewhere in the cash market. The S&P 100 was nearly all negative at the open, but by the end of the day 63 stocks had advanced, 33 had declined and one remained unchanged. That is a huge intraday turnaround. It’s all about money flow; money has to go somewhere.

A lot of that money flowed, once again, into Airline and Semiconductor stocks. Airline stocks have had an amazing run over the past few weeks, and so have the Semiconductors. Restaurants once again had a strong day, and surprisingly, at least to me, some Utility stocks were some of the strongest stocks in the database when I looked at the Leaders SmartGroup. Solar stocks were up with First Solar leading the way.

When stocks reversed to the upside yesterday, the gold futures backed off of their high on heavy volume. My daily candle shows that gold is up again from yesterday’s close, and it looks like it wants to make another run at the old high. E-mini futures for the S&P 500 are flat after having been up earlier this morning. Around 6 AM it looked like there was going to be a follow-through to yesterday’s reversal, but that is currently in doubt with Bonds turning positive.

Earnings season is not over. In fact, this is one of the biggest earnings announcement day of earnings announcement season. I am showing the 259 securities are going to announce earnings, and many of them, 14 67%, are in the Biotech and Specialty Pharma stocks.

The jobless claims and durable goods orders were just announced and had a temporary positive effect on the futures. Overhead resistance at 1950 still hangs above the SPX, and if stocks break through that level on heavy volume, I expect them to go much higher.

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