S&P500 and Nasdaq Index: US Stocks Rise as Oil Falls, Micron Earnings Loom

Crude Crashed Below $70 and Stocks Caught the Bid

Oil did the heavy lifting for equities Wednesday. Brent dropped 4% to around $73 a barrel, the lowest since before U.S. and Israeli strikes on Iran started in late February. WTI fell 4% near $70 and touched $69.84 intraday, the first trade below $70 since early March. Yields followed crude lower and stocks rallied straight into the bid.

At 17:00 GMT, the S&P 500 is up 0.6%. The Nasdaq Composite gained 0.65%. The Dow Jones Industrial Average climbed 457 points or 0.88%.

Strait of Hormuz Opened and Crude Paid for It

The Strait of Hormuz is opening for real this time. More than 11,000 seafarers stuck in the Persian Gulf got safety guarantees to exit through the waterway and the International Maritime Organization signed off on navigation conditions. Trump said Iran committed to no tolls, no insurance costs, and no extra charges on ships. Crude read all of that and dropped 4% before the afternoon was over.

WTI below $70 for the first time since March takes the energy cost story completely off the table for the inflation debate heading into Thursday’s PCE report. Crude at pre-conflict levels means the war premium that has been inflating headline inflation readings for four months is gone.

Yields Dropped With Crude and Bonds Confirmed the Move

The 10-year Treasury yield fell more than 8 basis points to 4.41%. The 2-year dropped 5 basis points to 4.15%. The 30-year declined more than 8 basis points to 4.858%.

When crude collapses to pre-conflict levels and yields drop across the entire curve on the same afternoon, the bond market is telling you inflation expectations just shifted. That combination gave equity buyers the confidence to step back in after two sessions of tech selling.

Tech Stabilized After Tuesday’s 7% Chip Rout

Tuesday’s semiconductor selloff hit hard with the chip ETF dropping 7% in a single session. Wednesday the bleeding stopped. The recovery is not aggressive but the fact that the selling exhausted itself in one session tells you Tuesday was a positioning unwind, not the start of a fundamental repricing.

Micron is down more than 1% Wednesday ahead of earnings after the close, adding to Tuesday’s 13% drop. The stock hit an all-time high Monday and closed Tuesday at $1,051.77. Analysts expect $20.83 per share on revenue of $35.75 billion. The earnings report lands on a stock that has gone from record highs to a 14% two-day decline. Wednesday night’s numbers determine whether the dip buyers step in or the sellers get another session.

Alphabet gained nearly 1% after news that it will replace Verizon in the Dow Jones Industrial Average.

Energy Stocks Took the Other Side

Exxon Mobil, Chevron, and ConocoPhillips each dropped more than 2%. SLB fell more than 3%. The energy sector absorbed the damage from crude’s collapse while the rest of the market rallied off it. That is the cleanest rotation trade of the week. Oil down, energy stocks down, everything else up.

Stocks in the News

Wendy’s surged more than 30% and briefly jumped over 42% to $8.89 before a volatility halt. A CFO hire was the headline but Reddit’s WallStreetBets is running the trade. The stock has lost half its value over the past year and 23% of the float is sold short. Those shorts are getting squeezed and the volume says it is not over yet.

Daily S&P 500 Index (SPX) Technical Analysis

The S&P 500 Index is higher at the mid-session and holding above the 50-day moving average at 7350.09. This indicator has been important since April 8 when the index crossed to the strong side at 6782.82. It was nearly tested on June 9 when the index bottomed at 7237.85 and again on Tuesday when the SPX hit a low of 7347.60.

The short-term range is 7620.90 to 7237.85. Its retracement zone at 7429.38 to 7474.57 is the key area capping gains.

The way I see it, the market has compressed to an area where it’s asking the investor to buy strength over 7474.57 or sell weakness under the 50-day MA.

Buying a breakout over 7474.57 will put the market in a position to challenge the main top at 7577.92 and the all-time high at 7620.90.

Selling weakness under the 50-day MA, currently at 7350.09, will open the door for a collapse into the main bottom at 7237.85. Taking out this level will reaffirm the downtrend on the daily swing chart. This could trigger an acceleration into the long-term retracement zone at 6968.90 to 6815.03. Inside this zone is the 200-day moving average at 6916.17. This support cluster is a value zone and likely to attract buyers if tested.

What to Watch

Crude below $70, yields falling across the curve, and Thursday’s PCE report is next. Micron’s earnings land tonight and the stock has dropped 14% in two sessions from an all-time high. If the numbers are strong, the chip selloff reverses fast and the buy side gets aggressive heading into Thursday’s data. The PCE is the report the Federal Reserve sets policy on and it arrives with oil at the lowest price since before the Iran strikes started. That is a different inflation picture than what the committee was looking at a week ago.

The S&P is compressed between the 50-day moving average and the retracement zone. Tuesday tested the 50-day and it held. The upper boundary at 7,474.57 is the level that opens the path to the record high. Micron tonight and PCE Thursday morning are the two catalysts that decide which side of the range breaks first.

More Information in our Economic Calendar.