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It’s not Saudi
Arabia the market is worried about.
Saudi Arabia is
quite wealthy. And while you can’t say that the people of
Saudi Arabiahave
American-like freedom, at least the ruling family spends money on
education, infrastructure and technology.
Just today, the Saudi king announced $35 billion
in pay raises, unemployment benefits and housing subsidies. Make no
mistake, this is bribe money. But that fact remains, most revolutions
have an economic impetus.
No, the fear is that protests will spread
to Iraq, Iran and Kuwait. Those countries represent close to 10 million barrels of
daily oil production. They are not politically stable. Disruptions to oil
production in these countries would have a huge effect on oil prices. I’m
talking about a return to $140+ a barrel. The speed with which such a
move would happen would likely send the U.S. economy reeling back into
recession.
Of course, we can’t make any concrete predictions
that this will happen. Iran
is the one that scares me. Those leaders are just
as crazy as Qadafi, maybe even more so.
*****Yesterday’s stock market action was
unequivocally bearish. For the first time in months, there was actually
heavy selling. We can’t say this was actually a surprise — the stock
market has been due for a correction. And the situation in
Libya and the
Middle East was a
perfect catalyst.
Stocks look poised for a rebound today. But let’s
not kid ourselves that yesterday was a one-day event. Trends always take
a while to play out. And I wouldn’t expect the S&P 500 to run right
back to recent highs above 1,340 in the near future.
In fact, we may have a situation where stock
valuations will come down to a point where first quarter earnings offer
some surprises and upside. 1Q earnings start on April 11, about 5 weeks
from now.
*****For a little more color on yesterday’s
declines, here’s our old friend Jason Cimpl, of
TradeMaster
Daily Stock Alerts:
The market had its first bearish day in a long
time yesterday. Volume spiked across the board and every sector was
crushed by almost 2% – only the energy sector and utilities posted any
gains. Additionally, the dollar rallied and bond yields declined, which
means historical correlations may begin to come back.
But before you continue reading, understand
that I am not calling a top. I do believe yesterday’s activity, which was
potent selling, will be a short term rally high…
I recognize a distribution day when I see it,
and yesterday was a distribution day. Institutions were leaving the
market. Whether or not they come back today, next week, or next year, is
up in the air. But they sold heavily in yesterday’s session.
Over the past seven months, the bulls have not
relinquished one support level. As mentioned in yesterday’s commentary,
most support levels were roughly 4% below last week’s high. In the SPX
[S&P 500] for instance, the high was 1344 and the nearest proven
support zone is 1301. SPX hit a low of 1312 yesterday, and if the bulls
are as strong now as they have been over the past seven months, SPX will
not decline much further.
I think SPX will see a break down of 1301 and
eventually target a stronger area of support near 1280. But I don’t want
to take anything away from the bears here. Yesterday was a strong bearish
session, even if it’s the first one from them in months. But sellers need
to take out 1301 and protect 1330 this week in order to have any shot at
lower lows towards 1280.
The indices in Europe and
Asia were mostly lower today, although the declines were very
minor. The dollar is trading much lower as well. Odds favor the bulls
will defend support today. But the bears have two more days, one of
which GDP
is announced, to take the market
lower.
I hope Jason will forgive me for stealing so much
of his morning advisory to his TradeMaster
Daily Stock Alerts members, but this is
important stuff, and Jason can be counted on for his “spot on” market
analysis.
*****Hartford Financial Services Group CIO Gregory
McGreevey is calling bottom for the commercial real estate market. The
Moody