It felt to me as though Wednesday was the day everyone turned bullish on oil. I'm not sure why. Oh I suppose the news from Saudi Arabia might have done it but it surely can't be price action. And it cannot be price action in the stocks.
All day long I heard how the oil stocks have been one of the best performing groups since the lows. I won't argue with that but if you have owned (OIH) , an ETF to be long oil services stocks the last four weeks it has earned you nothing since there has not been a higher high since mid-January.
(XLE) , the Energy Select ETF, has done better but it has not made a higher high in two weeks and at that it was $64 in mid January and is now just shy of $65. That's a lot of sitting around for a buck especially since then the S&P is up about 3% in that same time.
Then there is oil itself. It is the same price it was in mid-January, about $54. In fact, if oil should fall from here, it will appear as though it has formed a (very) small head and shoulders top. I point this out because the Daily Sentiment Index (DSI) got to 80 for oil on Wednesday so even if it doesn't fall from here it is hard to imagine there is a whole lot of upside in crude right now.
Then there is the Dollar which snapped right back after being down yesterday. If that continues, should oil do well? Ahhh, but then all those old correlations seem to go up in smoke these days, don't they?
That having been said the DSI for the Euro went to 9 so we have to be getting close to a rally in the Euro. There was something else regarding Europe though. All the negativity from China has transferred to Europe now. At least that is my impression. All we hear about now is how low German Bund yields are and the European slowdown. Oh and let's not forget Brexit.
And yet everyone loves Emerging Markets. No one loves Europe. So why is (EFA) , an ETF to be long Europe, doing so well vs. Emerging markets (EEM) since late January? It's had a couple of attempts at outperformance since the October highs and each one has fallen short but I am intrigued by this one because the news from Europe has become the chatter now. It's surely something to keep our eyes on.
As for the U.S. stock market, breadth was great once again. The number of stocks making new highs continues to contract and sentiment is elevated with the DSI at 79 for the S&P. I still think we should see a rise in volatility in the coming week.