Energy gets a test

  • Crude oil bounce approached key level
  • Best day for small cap index in a year
  • Inflation gauge registers 26-month low

Crude oil has gone on quite a ride in recent weeks, hitting a 13-month high in September before falling to a three-and-a-half month low last week. December WTI oil futures (CLZ3) broke down below their October lows on November 7 and traded as low as $74.91 on November 8—their lowest price since July 21—before bouncing over the past few days:

Chart 1: December WTI crude oil (CLZ3), 6/7/23–11/14/23. Crude oil futures price chart. Approached breakdown level.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Many traders will be watching to see how the market behaves as it tests the breakdown level, to determine whether former support will transform into resistance. Yesterday the market rallied as high as $79.77 intraday, just a little below its October lows around $80.10-$80.20, before pulling back into the bottom half of the day’s range.

Interestingly, an oil stock was one of the most notable tickers on different LiveAction scans for unusual options activity on Tuesday. Patterson-UTI Energy’s (PTEN) put volume was nearly 300 times average, with 25,000 of the January $10 puts changing hands:

Chart 2: Patterson-UTI Energy (PTEN), January put options, 11/14/23. PTEN options chain. Heavy volume in OTM puts.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

The fact that open interest (OI) was 71 on Tuesday suggests contracts that traded represented traders getting into the market. PTEN also had OI of more than 56,000 contracts in the $11 puts expiring this Friday.

The stock, which is up more than 25% since May 31 but down roughly 22% for the year, has consolidated in recent days since closing at a 19-week low of $11.76 on November 7 (one day before releasing earnings).

Market Mover Update: The Consumer Price Index’s (CPI) 4% year-over-year increase reported yesterday was the inflation gauge’s lowest annualized increase since September 2021.

Small caps were the among the biggest gainers on Tuesday. The Russell 2000’s 5%-plus rally was its biggest intraday gain since November 10, 2022, and its third-biggest closing gain since May 2020.

Just 12 days since falling to a one-year low, SS&C Technologies (SSNC) closed at its highest level since September 20 (see “Traders adjusting to pivot?”). On Tuesday HubSpot (HUBS) logged its third-straight up day since its supposedly “bearish” outside day last Thursday (see “Short term, long term”).

Today’s numbers include (all times ET): Mortgage applications (7 a.m.), PPI (8:30 a.m.), Retail Sales (8:30 a.m.), Empire State Manufacturing Index (8:30 a.m.), Business Inventories (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Advance Auto Parts (AAP), Target (TGT), TJX (TJX), Cisco (CSCO), Maxeon Solar (MAXN), Palo Alto Networks (PANW).


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