Dow Jones and S&P500: US Stocks Turn Cautious as Crude Oil Volatility

Oil Spike Rattles Stock Futures as Middle East Tensions Escalate

June WTI crude oil is above $100 and Spot Brent is above $110 and the stock market is feeling it after the opening bell. The Dow is down about 150 points. The S&P 500 is modestly lower. The Nasdaq is holding. Record highs were on the board Friday. Monday morning looks different.

Stocks in the News

APA Corporation, Occidental Petroleum and Diamondback Energy are all higher as crude surges. Norwegian Cruise Line is down sharply on weak guidance tied to fuel costs. eBay is surging after GameStop made a takeover offer valued at over $55 billion. GameStop is lower, telling you the market is not sold on the deal. Lumentum and Coherent are both higher on analyst coverage tied to artificial intelligence data center demand. Advanced Micro Devices is slightly lower after a downgrade on semiconductor supply concerns. Axsome Therapeutics is falling after a larger-than-expected loss. Coinbase and crypto-related names are higher after progress on U.S. legislation.

Main Driver: Middle East and Oil

Iran claimed it hit a U.S. warship near the Strait of Hormuz before the open. Washington denied it. By the time the denial landed, June WTI crude was already above $100 and the damage to sentiment was done. That is the market we are trading right now. You don’t get to wait for confirmation. The headline moves first and the facts show up later.

I want to talk about what June WTI crude oil above $100 does to this market because it’s not just an energy story. Norwegian Cruise Line told you this morning. Fuel costs run this hot and guidance gets cut. That same math is sitting on every airline, every shipper, every company with a fuel line on the income statement. The Fed is not cutting rates with crude oil above $100. Last week this market hit record highs. The assumptions that built those highs are not the ones traders are working with right now.

Economic Data

The April jobs report is coming later this week and I went straight to the number that matters. Forecasts are sitting around 53,000 new jobs. That is a sharp drop from the prior month. A number that soft gives the Fed something to work with on rates. A stronger reading piles on top of what oil is already doing to the inflation picture. I’ve seen one report shift the entire week’s trading. This one drops into a market sitting near all-time highs with a geopolitical flare already in progress. The timing is what makes it dangerous.

Technical Outlook

June E-mini S&P 500 Index futures are lower shortly before the cash market opening. The index is currently working within two minor ranges, 7131.25 to 7300.75 and 7079.25 to 7300.75. Based on these ranges, the key pivot I am focusing on is 7190.00. Trader reaction to this level could set the tone for today.

The futures contract is also straddling a trendline at 7253.50. Additional trendline support comes in at 7128.00.

The trend is up based on three different metrics, trendlines, swings and moving averages. As mentioned earlier, the E-mini is either straddling or holding well above an uptrending line.

The swing chart indicator is also bullish. A trade through 7300.75 will signal a resumption of the uptrend. Moves through swing bottoms at 7131.25 and 7079.25 will weaken the uptrend and shift momentum to the downside.

The moving average support zone has the 50-day MA at 6868.38 and the 200-day MA at 6848.43. The setup is bullish, which is keeping us in buy the dip mode.

The buying has been aggressive for over a month with traders willing to take out offers. There hasn’t really been a lot of opportunity for passive bidding. Pay attention to this because it often signals a pullback is coming. The two most recent downswings have been 92.00 and 53.75. This gives us an indicator of how big the selloffs have to be to turn momentum.

Today, I’ll be watching to see if traders are still buying offers by taking out 7300.75. Or if they are being passive and buying pullbacks into 7190.00, for instance. Be prepared if the swing bottom at 7131.25 fails because this will shift momentum.

What to Watch

I’m watching 7190.00 on June E-mini S&P 500 futures first thing this morning. That pivot tells me whether buyers are still in control or stepping back. Hold above it and the aggressive traders are still running this market. Lose it and 7131.25 is the next stop and that is where the momentum question gets answered.

Iran headlines are going to create intraday whipsaws and the April jobs report later this week adds another layer on top of that. This market came in at record highs. Geopolitical risk and a potentially soft jobs number in the same week is not a setup that rewards chasing.

More Information in our Economic Calendar.