Oil inventory data could be as much a factor for stocks as energy markets Wednesday, if the seesaw trade between the two markets continues.
Oil's 2 percent decline Tuesday helped fire up a more than 2 percent rally in the stock market. The winners were the financials, leaping 7.4 percent as the market took the Merrill Lynch $8.5 billion stock issue and balance sheet adjustments in stride. Merrill was up 8 percent. The dollar, which has also moved counter to crude, gained a full percent against the euro and was at $1.5587 per euro.
Oil and gas inventory data is due at 10:35 a.m. Wednesday and certainly could be a major factor for oil prices. Platts expects a decline of 1.3 million barrels in crude supplies and a build in distillate inventories of 1.8 million barrels. Gasoline supplies are expected to have risen by 400,000 barrels in the latest week, according to Platts.
The ADP employment report for July is reported at 8:15 a.m., two days ahead of the government's Friday jobs data for July. Traders view the ADP employment report as an early look at what might be in the government's report though it does not always correlate. A loss of 60,000 jobs is expected in the ADP report.
The Dow jumped 2.4 percent, or 266.48, to 11,397.56 Tuesday, and the S&P rose 2.3 percent to 1263.
"Basically as of right now, the S and P and Dow both put in higher lows ...," said Scott Redler, chief strategic officer of T3Live.com. "The market came out and bought Merrill Lynch on what could have been bad news for the company and the rest of the financials. Instead the street turned it into something positive, which shows the market wants to go higher short term."
"The next obstacle to overcome will be the previous resistance level we put in last week, which is 1285 on the S and P and between 11,600 and 11,700 on the Dow," he said. "The trend needs to change. We need to make a higher high and start a new uptrend... Technically, the market put in a very constructive day."
Head Fake or Windfall?
One of the biggest debates in the market is whether oil will stay at the current level and even fall further, a welcome relief for the economy and stock market. Traders have been watching to see if oil can go below $121 a barrel and stay there, a level they say could fuel further declines.
Oil fell $2.54 per barrel to $122.19 Tuesday, its lowest close since May 6. Bill Strazzullo, Bell CurveTrading partner/chief strategist, sent us a note on his recent oil call. "As far as Oil is concerned, last night we recommended clients try to sell Sept. Crude in front of $128.00 looking for $125.00, $120.00, $118.00, and onto $114.00/$113.00. If $114.00/$113.00 does not hold look for a move to the area around $100.00. We like the commodities big picture but they are under pressure with the Dollar strengthening against the Euro. That probably continues as well to 1.5200/ 1.5100," he wrote.
Dennis Gartman, of the Gartman Letter, told "Fast Money" he sees oil continuing to be under pressure. "It looks rather bad. Those who are long are throwing up all over their shoes, and those who are short are feeling like the kings of commodities. Is there any reason for that to change right now? I think not," said Gartman. He also said he thinks there's been a top formed in the euro and a bottom is forming in the dollar.
Stocks to Watch
MetLife fell in the after hours after it cut its earnings expectations. Electronic Arts was also lower in the after hours on disappointing earnings news.