Forget the rally. Stocks set to plunge as oil drops 6 percent

After Thursday's exhilarating and quite-surprising rally, stocks are set to resume their sickening January plunge Friday morning. Big time.

Wile E. Coyote must have added oil stocks to his portfolio at the wrong time. (Warner Bros. cartoon image mod. by the author)

WASHINGTON, Jan 15, 2016 — After Thursday’s exhilarating and quite-surprising rally, stocks are set to resume their sickening January plunge Friday morning. Big time. West Texas Intermediate (WTI) futures are down nearly 6 percent as of 8:30 a.m. EST, and Brent crude—the international benchmark—is down over 4 percent.

Add another bearish day from China, and bam! Wall Street stock futures are off roughly 300 Dow points with the other major averages suffering similarly. UPDATE: Just before the 9 a.m. hour, Dow futures are down 362 points—over 2 percent—with the S&P 500 and the NASDAQ following suit.

What moved markets yesterday were surprisingly dovish comments from the New York Fed and relatively calm Chinese markets. The Fed’s comments gave Wall Street some hope that the central bank might be ready to support plunging January stock prices and might even somehow engineer a halt to oil’s decline. This resulted in oil’s best one-day rally in quite some time, encouraging everything to catch a very big bid.

After a weak, negative opening, the good news hit the tape and stocks were off to the races, with the Dow up nearly 350 points by mid-afternoon, before giving about a third of the rally back by the close.

That late day, party-pooping drop might have given us a hint. Peace-loving Iran is apparently set to open the spigots of its considerable oilfields next week, getting away scot-free from its earlier provocation when it illegally detained, and paraded before the cameras, 10 U.S. sailors and their antiquated Navy vessels before releasing them, forcing one female sailor to don the hijab while she was a “guest.”

But no matter. Fear of those opening Iranian taps, added to the enigma wrapped in a mystery that is the current Chinese economic policy is set to obliterate yesterday’s positive market move. Adding to the oomph of Friday’s negativity: It’s options expiration day today, and those HFTs and traders that hadn’t expected yesterday’s explosive up-move will be getting their revenge today by picking off options as the machines maneuver the market way back down.

Then there’s the icing on the cake: Markets will be closed Monday for the MLK holiday, meaning that if panicked traders don’t get out today, they’ll be powerless to do anything with their portfolios if things turn even more negative over the long weekend. Look out below!

We’ll be back later in the day with augmented comments on the current mess. In the meantime, our only trading tip today is “Stay away.” As we’ve noted before, poet T.S. Eliot observed that April is the cruellest month. (British spelling, of course.) We think January 2016 is making a strong bid to dethrone April for the top spot.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17