Stock markets are pulling back from their recent highs as Wednesday’s economic data came in worse than market expectations.  Declines were led by the energy and financial sector, with Morgan Stanley and Bank of America seeing losses of more than 2.5%.  Energy stocks were also lower as oil prices saw the biggest drop in six weeks.  From a technical perspective, oil is at a major short term inflection point, as prices are attempting to bounce from the 61.8% Fibonacci retracement of the rally from 91.80 (which comes in at 94.10).  This is also where the 200 period EMA comes in on the 4-hour charts, so a downside break here would be significant and continue to weigh on the prospects for energy companies.

In economic data, the most significant events came with the monthly ADP report and the ISM non-manufacturing survey.  Both came in below analyst expectations, with the ADP figures showing a rise in private employment of 158,000 (where 200,000 was expected).  The number is significant because it signals a downside surprise in this week’s Non Farm Payrolls main event.  Expectations for the NFP report are currently showing a rise of 199,000 jobs, after the strong 236,000 seen during the previous month.  The ISM survey came in at 54.4 (where 55.5 was expected).  Numbers above 50 signal expansion for this survey but the downside surprise was enough to put pressure on stock prices during the session.

Market volatility is likely to slow into Friday, as traders are less likely to commit to positions before the all-important payrolls numbers.  With stock prices already seeing downside momentum, indices like the Dow and S&P 500 are vulnerable to further losses if we see weakness in the labor market into the end of the week.  Markets are unlikely to match the strong print seen last month and early indicators in the ADP now suggest a negative close will be seen.

Chart Perspective

Oil:

Oil price are seeing a major reversal from the highs at 97.70 and are now coming into Fib support at 94.10.  Prices are attempting a bounce here but any downside failures will put the target at 91.80, which would be expected sometime next week.  Moves here would be important for energy stocks as a whole, so for traders looking to short XOM, the first signals can be found in how prices behave at 94.10.  A daily close below this level in oil suggests that any rallies in XOM should be sold.

XOM:

XOM is still dealing with its medium term symmetrical triangle but the latest failure at 90.95 suggests that we will not see a clear directional break before the end of the week.  First support comes in at 89.90 (which is where prices are currently).  If prices fall below 89.90, we start to target support at 87.90 and this should coincide with the lower end of the longer term symmetrical triangle (suitable for buy entries).