Thursday, February 24, 2011

Oil Prices, Mideast Turmoil Still Weighing On Sentiment

The market tried to rally in early trading, but the lift has been somewhat muted and lacking real buying power.

Ongoing social unrest in the Middle East has kept oil prices high, and is weighing on investor sentiment. If high oil prices lead to higher prices at the pump, that could crimp consumer spending and be a headwind for the economy. And many emerging markets are less resilient to higher energy prices than the U.S.

Brent crude oil hit $113.75 this morning, while WTI prices are hovering near $99.25. So far, that $100 level has acted as a bit of resistance for WTI prices, but we will have to see if it holds.

Other commodity prices are mixed. Gold prices are not rallying again today, falling slightly to $1413. And cotton futures are limit down for the fourth consecutive daily loss.

In earnings news, Priceline (PCLN) reported a strong quarter, and the stock surged +10% in early trading. A reader asked me last week my thoughts going into earnings, and I replied that I felt the recent pullback lessened the risk, and a strong report should lead the stock to rally. Glad I held on. VRX, TGT, and KSS are also seeing their stocks higher after earnings.

In economic news, new home sales fell -12.6% in January, reversing the prior months 15.7% gain. Housing seems to merely be bouncing along the bottom, unable to really mount a rebound that lasts for more than a few months. Weekly jobless claims fell more than expected.

Asian markets were mostly lower overnight. China bounced slightly, but India was very weak; the 10-year yield is lower again to 3.42%; and the VIX is down 4% today to 21.20, despite the ongoing heightened geopolitical concern.

Trading comment: Volume rose on the Nasdaq during yesterday's decline, making for another distribution day. That brings the count to roughly 5 distribution days in the last several weeks, which is another red flag. I think as long as Libya stays in the headlines, and oil prices flirt with $100, we are going to be in sell mode and stocks will be unable to mount sustainable rallies. As such, I want to space out any dip buying I do. I put a little cash to work yesterday, and now I'll take a step back to assess the price/volume action. The 50-day average on the SPX is at 1287 currently, a level that should come into play at some point.

long PCLN, VRX


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