Sam Collins

Was Oil's Big Move Really a Bust?

by Sam Collins   08/20/09

Free Trading Guides

Before yesterday's opening, both Deere (DE) and Hewlett-Packard (HPQ) reported better-than-expected earnings, but investors focused on Deere's pessimistic outlook. As a result stocks opened not with a bang but a bust, falling over 80 points in the first minutes of trading.

HPQ managed to take back most of its early losses, but Deere's poor opening was only partially overcome before another wave of selling engulfed the stock in the late afternoon, driving it to a loss of almost 3% by the closing bell.

The industrial sector closed lower, influenced by Deere's problems, but banks put in a poor showing, too.

The strongest sector was energy, and oil futures prices sprang on news that the U.S. Department of Energy said crude-oil inventories plunged last week by 8.4 million barrels. By the close, energy stocks were up 1.9% and the futures were higher by 4.64%.

In a New York Times article, Warren Buffett opined that the U.S. economy is on a slow path to recovery. But The Oracle also warned that the government must get control of spending or pay the price at some time in the future with high inflation.

The only economic news came from the Mortgage Bankers Association. For the week ending August 14 mortgage applications rose 6.9%, which was a reversal from the 7.2% drop the week before.

At the close the Dow Jones Industrial Average was up 61 points to 9,279, the S&P 500 gained 7, rising to 996, and Nasdaq gained 42 points to 1,969.

Volume on both exchanges was again extremely low. The NYSE traded just 988 million shares, the second time this week it has traded under 1 billion shares, and Nasdaq crossed 593 million shares, also considered very low volume. On both exchanges advancers led decliners by about 5-to-3.

But the big movers yesterday were oil and gas and the associated stocks. The September Crude Oil contract rose $3.23 to $72.42 a barrel on the above-mentioned fall in inventories, but weak demand kept prices from rising even higher and many traders think that the move yesterday is not sustainable. The Amex Energy SPDR (XLE) closed at $50.48, up 92 cents. December Gold rose $5.60 to $944.80 due to stronger oil prices, a weak dollar, and speculative buying. The PHLX Gold/Silver Index (XAU) gained $1.66, closing at $142.88.