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Market Lab Report - Premarket Pulse 2/25/16

Major averages finished higher yesterday on higher but below average volume, staging upside reversals. Volatility remains elevated.

Oil rallied sending the major averages higher after it was reported that U.S. crude inventories were smaller than an earlier industry report suggested. Production numbers also fell. That said, given OPEC's stance on not curtailing production, the current bounce in oil may be short-lived. Its overall downtrend on a technical basis remains intact. Oil futures are currently trading somewhat lower as of this writing.

The correlation between oil and stocks has been high since the start of the year as the price of oil has been approaching levels that may cause institutions such as J.P. Morgan (JPM) into forced liquidation of stocks. Indeed, JPM may increase its loan-loss reserves by $1.5 billion if the price of oil drops to $25 a barrel.

Leadership remains scant consisting mostly of defensive stocks such as food and utilities. A number of groups have shown strength with the current bounce but these stocks have mostly staged bounces off lows. Further, finance-related stocks continue to lag.

Futures are currently slightly higher at the time of this writing shrugging off the steep overnight drop of -6.4% in China's Shanghai Composite on liquidity concerns.

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