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The SPY ETF Stumbled Due to the Rout of Oil Prices

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SPY fell 0.7%

The SPDR S&P 500 ETF (SPY) and the Direxion Daily S&P500 Bull 3X ETF (SPXL) stalled their rally on Wednesday, December 30, 2015, with falls of 0.7% and 2.1%, respectively. Tuesday’s rally was triggered by the rebound in oil prices. Likewise, the plunge in oil prices on December 30 caused SPY to cease its rally as it approached the year’s end. The following graph presents the market overview on Wednesday, December 30.

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Here, the US dollar is represented by the PowerShares DB US Dollar Bullish ETF (UUP), oil is represented by the United States Oil Fund (USO), and gold is represented by the SPDR Gold Trust (GLD). The Treasury bond market is represented by the iShares 20+ Year Treasury Bond (TLT) while volatility is represented by the Volatility S&P 500 index.

The plunge in oil prices resulted in the US equities’ trail in the downward direction. WTI (West Texas Intermediate) crude fell 2.5% to settle at $36.9 per barrel while Brent crude slipped 2.4% and ended at $36.9. Whereas, the US dollar ended with no gains and losses. Hence, the energy-related stocks of Marathon Oil (MRO), Chesapeake Energy (CHK), Devon Energy (DVN), and Kinder Morgan (KMI) fell 5.0%, 3.9%, 3.9%, and 3.7%, respectively, on December 30. The yields on Treasury bonds rose. Note that bond prices and yields move in opposite direction. Gold lost its appeal on the day due to the availability of high-yielding government treasury notes that were safe and secured.

Economic data

The PHS (Pending Home Sales Index) is a leading indicator of housing activity that was developed by the National Association of Realtors. The PHS came in at 106.9 for November 2015. The index was at 107.7 in the prior month, and the fall in the reading was attributed to rising home prices. Buyers refrained from the purchases given the limited inventory of homes available for sale, as well as the high prices.

Let’s look at the performances of the component sectors of SPY on Wednesday, December 30.

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