Major averages finished roughly flat yesterday on higher volume. Volume was above average on the NASDAQ Composite and the highest volume day in over a month so could be considered a churning day of distribution. Leading stocks continue to lag though oil and other commodities continue higher.
The rise in oil was due to the Department of Energy's weekly stockpile report showing that crude inventories rose by 2.08 million barrels compared to the 2.40 million barrel consensus, plus speculation that OPEC producers would meet again to discuss possible production caps.
Since QE started in earnest in early 2009, QE continues to manipulate markets higher overall while ultra-low to negative interest rates continue to distort markets. Nevertheless, the number of headwinds continues to mount as the markets have undergone two sharp corrections since last August.
The current uptrend has yet to undergo even a minor >3% correction, and is the longest, sharpest rally without a minor correction since late 2011/early 2012 when a new QE program took hold. Currently, the Fed has taken a dovish stance thus rate hikes should be postponed as long as the global economy remains in a rut. Other central banks continue their QE programs wherein the capital finds its way into equities, especially in the US market which is the tallest standing midget.
But signs of exhaustion in this trend are quite clear. The S&P 500 and Dow are up against old highs which can serve as resistance as they did a number of times in 2015. And FANG-type big cap leaders have not been putting in leadership performance. Smaller cap and lower quality names have rallied sharply off lows but this has been more of an oversold, short covering reaction rather than a representation of true leadership.
The European Central Bank said this morning it would leave rates unchanged. ECB President Draghi said rates would stay at current levels or go lower for the extended period. That said, yesterday's commentary out of China cast some doubts on future easing measures from the People's Bank of China which caused the selloff late in the day.