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Stock Rally Fizzles Due to Lack of Details in OPEC’s Plan to Reduce Production

By:
James Hyerczyk

U.S. equity markets were trending lower on Thursday after investors faded the news about the OPEC output reduction agreement that triggered a late session

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U.S. equity markets were trending lower on Thursday after investors faded the news about the OPEC output reduction agreement that triggered a late session rally on Wednesday. Investors also showed a negative reaction to fresh U.S. economic data.

The Dow was trading about 5 points lower at the mid-session, followed by the benchmark S&P 500 which posted a 0.06 percent loss. The NASDAQ Composite was also under pressure, dropping 0.36 percent.

The reasons for the weakness were mixed. Some investors felt the OPEC agreement lacked substance and wanted more details. Other felt that this news would probably drive up inflation and into the Fed’s target. This event combined with strong economic data would likely mean a December rate hike.

Others felt that it was too early to pay attention to the OPEC deal because it was not going to be finalized until late November. Timeline analysis puts the November U.S. presidential election ahead of the next OPEC meeting so that is still the major concern driving the price action. Additionally, we have a U.S. Non-Farm Payrolls report next week that if bullish, should give the Fed the green light to lift rates in December.

ECONOMY GREW SLIGHTLY FASTER DURING SECOND QUARTER

Following the U.S. economic news, Final GDP data for the second quarter showed the economy grew slightly faster than previously estimated. According to the Commerce Department, GDP rose at an annualized rate of 1.4 percent in the second quarter versus an estimate of 1.3 percent.

Weekly jobless claims came in better than expected, rising 3,000 to 254,000. Traders were looking for a read of 260,000. This figure pushed the four-week moving average to 256,000, a drop of 2,250.

In other news, the U.S. government reported that after-tax corporate profits fell at a 0.6 percent rate in the second quarter. This was a smaller decline that estimated. The drop in corporate profits pushed Gross Domestic income down 0.2 percent in the second quarter.

Finally, pending home sales fell 2.4 percent in August, marking the third straight monthly decline, according to the National Association of Realtors.

OIL TRADERS WANT CLARITY

Crude oil prices were slightly higher, but traded in volatile fashion, highlighted by a two-sided trade. The catalyst behind the unstable price action was skepticism that OPEC would be able to initiate its plans to curb production, given its long history of failures. One major concern raised by traders was the lack of detail in the initial proposal. Traders felt they couldn’t act on the news any longer without clarity as to how the plan was expected to work and how it would be implemented.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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