Thursday, June 23, 2011

Lots of Crosscurrents Hitting Stocks

The market is sharply lower in early trading on a host of concerns coming together simultaneously. Yesterday's comments from Bernanke did little to inspire confidence, as the Fed cuts its forecast for economic growth and slightly raised its forecast for unemployment. That led to a selloff in the market in the final hour of trading yesterday.

Overnight, Asian markets were mostly lower, and this morning European markets were lower on some disappointing PMI manufacturing surveys, and continued concern about the situation in Greece.

So our futures were lower before the market opened. The jobless claims report this morning was weaker than expected, which added to the selling pressure.

But the big news is that the IEA has said it will release 60 million barrels of oil into the market to help lower prices and ease disruptions from the Libya situation. I applaud the timing of this release, as it has helped push oil prices down near $91.

You have to realize that in the short-term, this hurts the market as oil and materials stocks selloff, and those two groups are a big part of the market. But longer-term, it is a big positive as it will help consumer spending, it will help inflation pressures, and it will help profit margins, all of which should provide a boost to GDP economic growth over time.

The dollar is rallying, which is weighing on commodities across the board. Gold prices have fallen back to $1518, and grains are sharply lower as well.

Another factor weighing on the market is the news that the talks on the debt ceiling in the US have hit an impasse over taxes. Markets don't like uncertainty, and the issues with the debt ceiling and the Greek bailout need to get resolved to calm the markets.

The 10-year yield has fallen back to 2.90%; and the VIX is spiking +14% back above 21.

Trading comment: The S&P 500 is testing its 200-day average support near 1262. This is an important level to watch. As I said, lower oil hurts the markets (energy and materials sectors) in the short-term but is a long-term positive. Bearish sentiment is spiking again this morning, with the VIX up 14% and the put/call ratio hitting a very high 1.29. As I have said, bearish sentiment can be a precursor to a market bottom, but you then need a catalyst to spark a rally. Let's hope the govt. can get its act together and pass this debt ceiling issue soon.


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