The decoupling between equities and energy is becoming more pronounced. Today, WTI Crude Oil fell nearly 3% as Iran refused to concede any production cuts until returning to its pre-sanction level of 4 million barrels per day. In lieu of this, equities barely budged as they await cues from Tuesday’s monetary policy announcement by the Bank of Japan and, more so, from this Wednesday’s release of the FOMC’s minutes, which should shed more insight on its monetary policy bias going forward.
In commodities, Gold violated the support of its bullish channel and its 22-day moving average to initiate a new short-term downtrend. However, today’s pullback could be attributed to its overbought condition as momentum in the precious metal began decelerating towards the end of last week. At best, gold may consolidate but appears to be headed for a test of 1200-1190 levels. In addition to this, the U.S. Dollar Index is firming on the prospect of an interest rate increase in June as economic data, upon which the Federal Reserve is dependent, continues to show solid strength and stability in lieu of weakness out of Europe and China.
Our sector analysis indicated resiliency in the Consumer Discretionary ETF (XLY) while weakness was clearly noted in Energy (XLE) and Basic Materials (XLB) exchange traded funds. Volume dollars in all sectors traded below 5-day averages with the exception of the Telecom Sector (IYZ) which surged 127%. (See performance table below)
Drilling down even further, some individual stocks which saw significantly higher than average volume were:
- Starwood Hotels and Resorts Worldwide (HOT) @ 75.93 (+7.82% on 384% volume surge): China’s insurance giant, Anbang Insurance Group, submitted a bid of $13bn for Starwood Hotels & Resorts in direct competition to Marriott Int’l’s pending acquisition of it. Under terms of Marriott’s proposed transaction, Starwood is permitted to engage other rivals until March 17th.
- Marriott Int’l (MAR) @ 70.93 (+2.96% on 173% volume surge): Trading in Marriott Int’l’s stock was heavily influenced by the above unsolicited offer for Starwood Hotels and Resorts.
- Amongst technology stocks, TripAdvisor (TRIP) distinguished itself closing @ 66.54 (+4.46% on 128% volume surge): Rumors are circulating that TripAdvisor could be an acquisition target or be possibly pursuing a strategic partnership to enhance shareholder value as it moves forward. None of the above have been confirmed.
- Diamond Offshore Drilling (DO) @ 22.13 (-2.90% on 38% volume surge): Despite an analyst upgrade rating by Seaport Global Securities to accumulate, shares in the offshore drilling company declined in sympathy with lower energy prices.
- Baker Hughes Inc (BHI) @ 43.88 (-4.17% on 37% volume surge): Making the top ten list of energy companies with the lowest “long-term debt-to-equity” ratio or even trading 30% below analysts’ consensus price target @ $57.20 was not enough to keep shares of Baker Hughes afloat as it also succumbed to selling pressure.
Signing off at Hillbent for the Market Direction…
*Trends: ST = short-term; MT = Intermediate-term; LT = long-term
*Vol$ % = Volume dollar percent change vs. average volume dollars
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