Market Snapshot: U.S. stocks erase gains as oil plunges

NEW YORK (MarketWatch) — The U.S. stock market struggled to sustain early morning gains, as a continued sell-off in energy stocks due to falling oil prices weighed on the S&P 500.

The S&P 500 SPX, +0.02%  and the Dow Jones Industrial Average DJIA, +0.23%  hit intraday record highs in early trade, but erased gains by later in the morning. Heavy declines among major oil companies dragged the S&P 500 down.

The Nasdaq Composite COMP, +0.12%  was trading slightly higher to flat.

Beyond oil concerns, some industry watchers have been fretting about the markets rapid runup in stocks so soon after turbulence in October, which sent U.S. stocks sliding.

Record levels on the S&P 500, however, is sparking a debate among strategists, who have been consistently talking about the index’s fast recovery from the pullback last month. In just 12 sessions, the index, which fell nearly 10% on an intraday basis, has bounced back from the bottom it hit on October 15. Low volatility and bullish investor sentiment are among five red flags that the stock market’s record run is raising for some.

Nour Al-Hammoury, chief market strategist at ADS Securities, said the U.S. market is “heavily overbought” and he expects another short-term pullback in the next few days, especially without big economic data. Support levels to watch on the S&P 500 include 2,024, then 2,019, with a break of both leading to the 1key psychological barrier of 2,000, he said.

For the Dow industrials, Al-Hammoury is watching support at 17,408 and then 17,350. “We still believe that the current high could well be the last ‘false’ rally before the major correction, similar to what happened after the end of QE1 and QE2. Therefore, selling rallies remains our short term preferred strategy,” he said in a note. Read: Don’t get suckered by stock market’s winning streak

Meanwhile, Michael Arone, chief investment strategist at SSGA’s US Intermediary Business Group, said that the underlying trends, such as solid earnings and improving economy, have been driving the market higher in the past few weeks.

“In this environment, PE ratios are likely to expand and drive markets higher in the short-term. Falling oil prices along with stronger dollar, low mortgage rates and solid job gains will result in increased consumer spending. We will be watching Friday’s retail sales very closely to see if that is the case,” Arone said.

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Weekly jobless claims and retailers: The number of people who applied for unemployment benefits last week posted the biggest increase in two months, but initial claims are still exceedingly low amid an uptick in hiring and relatively few layoffs.

Labor market data watched closely by the Federal Reserve – JOLTS showed an increase in quit rates and hiring. Job openings fell in September, but only because hiring hit its highest level in over six years. Next on the data calendar is the October Federal budget at 2 p.m. Eastern.

Retailers are going to be in the spotlight, with Wal-Mart shares rose WMT, +3.68% after third-quarter earnings and sales beat forecasts.

Kohl’s Corp. fell KSS, -4.24% after sales and earnings missed forecasts for the third quarter. Nordstrom Inc. JWN, -0.14%  will also report. Read Movers & Shakers

Shares of J.C. Penney slid JCP, -9.15%  after third-quarter sales missed already reduced expectations, though its loss was smaller than expected.

Warren Buffett agreed to acquire the Duracell battery business from Procter & Gamble Co. in a deal valued at $ 4.7 billion. Shares of Procter & Gamble were little changed.

Cisco Systems Inc. CSCO, +2.35%  rose after the network-technology company posted quarterly results that topped forecasts.

Viacom Inc. VIA, +5.15%  rose after reporting fiscal fourth-quarter net profit of $ 732 million, or $ 1.72 a share, compared with earnings of $ 804 million, or $ 1.68 a share, in the year-earlier period.

Deal talk was driving a 16% gain for shares of DreamWorks DWA, +16.41%  after The Wall Street Journal said toy maker Hasbro Inc. HAS, -5.10%  is in early talks to buy the animation studio, citing persons familiar with the matter. Hasbro shares fell.

No letup for oil prices: Crude CLZ4, -2.51%  continued to fall, down nearly 3%, in the wake of comments by Saudi Arabia’s oil minister on Wednesday. Gold GCZ4, +0.53%  made marginal gains, but was kept in check by the dollar USDJPY, +0.18% which stayed well above ¥115. The yen also fell as Japanese stocks extended a three-day winning streak, with the Nikkei 225 NIK, +1.14%  hitting a seven-year high.

European stocks SXXP, +0.23%  tracked global stocks higher, with the FTSE 100 UKX, +0.37%  also advancing. Read: European stocks could be gearing up for a big rally.

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