S&P 500 Index rebounded from its 10-day moving average on Thursday, but, following 71 sessions without a test of the 50-day moving average, it must be expected that a bigger pullback is in store, at some point.

Stock Market Outlook for January 24, 2020

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The Markets

Stocks closed mixed on Thursday following a reversal of intraday losses that was attributed to ongoing fears pertaining to the spread of the coronavirus. The S&P 500 Index closed higher by just over a tenth of one percent, finding support at the 10-day moving average at the low of the session. Daily momentum indicators remain overbought and early signs of rolling over have become apparent as investors speculate on whether the fears surrounding the coronavirus will be the catalyst to fuel a pullback. The benchmark has gone 71 sessions without intersecting with its 50-day moving average, a logical level to test to maintain the intermediate path of higher-highs and higher-lows. The 50-day moving average currently hovers around 3191, or some 4% below present levels, hardly a blip in the grand scheme of things.

The rebound in equity prices throughout the session saw some fairly impressive reversals in cyclical sectors. The Materials ETF (XLB) rebounded from a loss of around 1.5% at the lows of the day to end the session down a mere tenth of one percent. The Energy ETF showed a loss of 1.7% in the first half hour of trade, but trimmed the loss to close down by less than fourth-tenths of one percent. Industrials were lower by four-tenths of one percent in early morning trade, but buying pressures fuelled an over one percent return by the closing bell. While the moves suggest that market participants are willing to support equity prices on every dip, the weakness is also indicative of how far investors are willing to let these sectors slip should concerns mount. Updates pertaining to the coronavirus continue to be released with the current tally of those infected at 800. Should risks fade, cyclical bets could be in store for strong gains as investors take advantage of the pullback. The situation remains fluid and warrant further monitoring, but nothing, as of present, suggests an sustainable negative impact on broader economic fundamentals. The Materials sector ETF is currently showing a short-term head a shoulders topping pattern, a negative setup that would have negative implications towards the 200-day moving average upon a break of the neckline just below $59.50.

Turning to the latest release from the Energy Information Administration (EIA), crude oil inventories are reported to have fallen by 405,000 barrels last week, while gasoline stockpiles continued to build, this time rising by 1.7 million barrels. The result saw the days of supply of oil remain unchanged at 25.2, while gasoline days of supplied swelled to 30.3 from 29.6 previous. The average for each at this time of year is 22.1 and 26.4, respectively. Suddenly, over the last couple of months, the focus has shifted to product inventories, which have become bloated amidst elevated production into year-end. The change on the oil side, other than the days of supply, are trending inline with seasonal norms. We’ll continue to monitor the supply status and update subscribers as appropriate as we enter the period of seasonal strength for the energy sector. Want to be included on our distribution? Subscribe via the following link: https://charts.equityclock.com/subscribe