Energy seeks traction

A little more than a month ago, “Slippery oil picture” noted that oil was likely in the same boat as the stock market, in that “it could face continued volatility until more clarity in the tariff picture translates to increased confidence in the economic outlook.”

Crude oil, in fact, has been more volatile than the stock market over the past several weeks. While the S&P 500 (SPX) erased its tariff-announcement losses and climbed back into positive year-to-date territory this week, July WTI crude oil futures (CLN5) have had a harder time escaping their April lows:

Oil’s initial rebound off its tariff sell-off low stalled in mid-April as prices tested their former breakdown level at the March lows (roughly $64). In less than two weeks, prices bounced again after testing their April low—no doubt fueling speculation among some observers that the market could be forming a potential “double bottom” (the opposite of the double-top pattern mentioned in “Mixed signals at resistance level”).

But as the chart shows, prices retreated again this week after reaching the breakdown level. That in no way precludes the market from pushing above this level, but this week’s failure, so far, may suggest prices could continue to struggle to find sustained upside momentum.

Low oil prices can reduce inflationary pressures, but they can also signal reduced expectations for economic growth (less economic activity, less demand for oil). And while the US-China tariff pause prompted some market watchers to lower their odds of a possible recession, economic uncertainty remains elevated. Also, the market is also facing higher OPEC oil output, as well as a potential supply increase in the event of a Iran nuclear deal.

Of course, weak oil also weighs on the energy sector, which on Thursday was the third-weakest S&P 500 sector so far this year, and one of only four that were still in negative territory. Until the oil picture changes, the energy sector may find outperformance elusive.

Market Mover Update: JFrog (FROG) didn’t appear inclined to follow through on its potential double top pattern yesterday, rallying for a seventh-straight day.

Today’s numbers include (all times ET): housing starts and building permits (8:30 a.m.), import and export prices (8:30 a.m.), consumer sentiment (10 a.m.).

Today’s earnings include: Flowers Foods (FLO).

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