Tuesday, February 19, 2008

Oil Reaches $100, Rally In Stocks Fades

Now you know why I continually say that I don't like strong market opens. I can't even count how many times in the last few months we have seen the market open on a very strong note, sucking in more enthusiastic buyers, only to run out of steam and fade into the close.

This is very disheartening action for the bulls. What you want to see is markets that start out slow, or even lower, and then build strength into the close. That is the type of action bull markets are made of.

Oil continued to climb throughout the day, eventually closing right at the $100 level. This made the energy stocks rally, along with materials, mining, and commodity-related stocks. But it came at the expense of most other groups.

When financials were down at the start, that might have been an early sign the rally didn't have real conviction behind it. And as the session wore on, tech and other growth stocks began to fade. The action in GOOG was terrible all day.

This market needs to prove itself with a change in character. On a technical basis, the market is oversold. Sentiment is bearish, and at levels often associated with market rallies. And valuations seem cheap relative to interest rates.

But the themes that were working today all had one thing in common - they benefit from inflation. And that hurts the rest of the market. The last thing we want is the Fed to start worrying out loud about resurging inflation. That will make them less likely to cut rates further, which we have said is something that this market needs desperately.

Let's hope we get some good inflation readings in the upcoming data.

long GOOG


Post a Comment

<< Home