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As the FINVIZ graph below shows, crude oil prices are on a significant support level. In technical analysis, the more a price bounces off a line, the more critical that trend line becomes. Furthermore, the blue trend line, which has supported crude oil prices since 2021, was a resistance line in 2019. The bottom line is that those long crude oil will have their work cut out for them defending the $65 price per barrel.
Fundamentally, crude oil longs will have a tough time defending the price. First, consider that Donald Trump’s “drill baby drill” policy approach will allow for more drilling and, thus, greater supply. Further, a probable peace treaty between Russia and Ukraine will likely make it easier for Russian oil to hit the free market. Also, on Monday, OPEC members and OPEC allies (OPEC+) agreed to increase output gradually.
In addition to what could be an increased supply of oil from several sources, oil demand appears to be weakening. Most of Europe is experiencing slow growth, and some countries, like Germany, are in a recession. China’s economy is slowing rapidly and well off the growth pace of only a few years ago. Lastly, slowing growth in the US is becoming a real possibility. It’s also worth adding that lower oil prices are part of Trump’s plan to fight inflation.
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Market Trading Update
Yesterday, we touched on the volatility induced by tariffs. This week, we also discussed investors’ more extreme bearishness, given only the relatively mild correction from all-time highs. The market is down roughly 6% year-to-date, well within the historical norms of intra-year market corrections.
Currently, the market is very oversold on a relative strength and momentum basis, providing a reasonable entry point to add to some existing positions. It is worth remembering that the recent market decline is factoring in the expected impact of tariffs on earnings and valuations. As such, while some “mega-cap” stocks have certainly been impacted after their significant gains last year, the recent decline has reduced valuations on expectations of slower earnings growth. As shown in the heat map below from Finviz.com, the current valuations of companies like NVDA, GOOG, and MSFT currently trade at lower P/E ratios than the market as a whole. Notably, those stocks also trade more cheaply than companies like WMT, COST, V, and others that are considered more “safe” bets in portfolio allocations.
While there is never a guarantee of anything in the markets, there are times when the market gets oversold and bearish enough to elicit at least a short-term tradeable rally. As shown in the chart below, the vertical blue lines show previous periods of similar conditions which generally aligned with near-term market lows.
We are using this current setup to rebalance risk in our portfolios and add to the growth side of our portfolio mix for an opportunistic trade.
ADP Hints At A Weak BLS Report This Friday
ADP reported that the economy only added 77k jobs in February. That is down from 186k last month and expectations of 145k. The graph below shows that the monthly gain was among the weakest in years. Furthermore, the table below the graph breaks down the data by industry. As shown, goods-producing industries saw their most vigorous job growth since at least 2023. However, the services sector only grew by 36k jobs, the weakest since April 2023. Trade and transportation, information, and education and health saw job losses. On a regional basis, the south and west lost jobs while the northeast and midwest gained jobs. Moreover, the number of employees at small businesses fell, while it rose slightly for medium and large companies.
The ADP report only covers private employment. Thus, any government job losses are not factored into this data.
Never Let A Crisis Go To Waste
Many believe Winston Churchill coined the phrase: “Never let a good crisis go to waste.” Others think it was President Obama’s Chief of Staff, Rahm Emanuel, who said, “You never want to let a serious crisis go to waste” during the financial crisis. Regardless of who first spoke those words and whether the crisis is “good” or “serious,” the Fed may be planning on heeding their crisis advice.
On February 19, 2025, the Fed made a confounding statement about QT, aka balance sheet reduction. Per its latest FOMC minutes: “several participants suggest halting or slowing balance sheet reduction pending debt ceiling resolution.”
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Related: Crisis as Opportunity: Is the Fed Taking This Advice to Heart?