Oil Crash Resumes, Leads U.S. Stocks South

Posted Tuesday, April 21, 2020 by
Shain Vernier • 2 min read

It’s been another challenging day on Wall Street with oil resuming a historic two-day crash. At the halfway point of the American session, the DJIA DOW (-615), S&P 500 SPX (-84), and NASDAQ (-300) are all deep into the red. The primary cause of the slump is being attributed to a record sell-off in WTI crude oil.

Over the past 36 hours, we have witnessed epic weakness in WTI crude oil pricing. Following the May WTI contract turning negative, June WTI futures also began experiencing major bearish pressure. June prices have crashed from north of $20.00 to the neighborhood of $13.00 per barrel; the result has been concerted selling of the U.S. indices, extending Monday’s pullback in stocks.

On the economic news front, another set of brutal reports hit newswires during this morning’s pre-market hours. Retail and real estate were featured, each struggling mightily:

Event                                                                       Actual       Projected       Previous

Redbook (MoM, April 17)                                      -10.6%             NA                -8.3%

Existing Home Sales Change (MoM, March)       -8.5%            -8.1%               6.3%

Until we see the American economy return to business-as-usual, the vast majority of metrics will continue to lag. However, if the U.S. reopen comes off as scheduled on 1 May, a rebound is likely to come sooner rather than later. Unfortunately for energy bulls, the damage of April’s oil crash will likely take much longer to repair.

Stocks Show Weakness Amid Unprecedented Oil Crash

At press time (12:15 PM EST), June E-mini S&P 500 futures are testing a key level of daily downside support. Is this the beginning of the much anticipated “second-leg-down?”

oil crash
June E-mini S&P 500 (ES), Daily Chart

While U.S. stocks remain in daily bullish territory, the past two sessions have brought some angst to the markets. Here are a few levels to watch for the near future:

  • Support(1): Bollinger MP, 2713.25 
  • Support(2): Daily SMA, 2516.75

Overview: Given the extent of this week’s oil crash, one has to wonder if the worst is over. Both the API and EIA inventories reports are due out in the next 24 hours. Supplies are almost certain to grow over last week; if so, June WTI may be in a position to test the $10.00 handle very shortly.

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