After a 30-minute rally that appeared to be a continuation of Friday’s late short-covering rally, stocks headed south again yesterday. And, once more, the reason for the selling was an increase in the price of crude oil. Rumors that demonstrations against the Saudi regime are scheduled for late this week, and renewed concern over Greece’s economic situation, added an additional measure of fear.
Daily Stock Market News
Dow: -80 points at 12,090
S&P 500: -11 points at 1,310
Nasdaq: -39 points at 2,746
Volume and Breadth
NYSE: 1 billion shares traded; decliners ahead by 3-to-1
Nasdaq: 519 million shares traded; decliners ahead by 3.4-to-1
Futures & Related ETFs
April Crude Oil: +$1.02 at $105.44 per barrel; Energy Select Sector SPDR (NYSE: XLE) -50 cents at $78.34
March Gold: +$5.90 at $1,434.10 an ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +80 points at 215.86
What the Markets Are Saying
The last two days of selling have created a range-bound trading channel between the 20-day and 50-day moving averages. And the pressure is on the bulls to hold above the current support. The near-term trend lines that connected the August and November lows to the low on Jan. 31 have been broken for the S&P 500 and Nasdaq. But the Dow and the NYSE Composite are still trading well above them.
And, so far, the major indices have held above their respective 50-day moving averages, even though the Nasdaq had an intraday break of its 50-day on Monday, but managed to recover with a late-session rally. The 50-day moving averages for each index follow:
- Dow: 11,973
- S&P 500: 1,208
- Nasdaq: 2,740
Volatility picked up again yesterday. The CBOE Volatility Index (VIX) rose 1.6 to 20.66 challenging its 200-day moving average at around 22 and the closing high of last week at 22.02. The stock market is sitting on support that is now so fragile that any further bad news could lead to a breakdown.
I’ve been a consistent critic of the Federal Reserve’s inability to honestly address the growing threat of inflation. A summary of some of the more perplexing comments by Fed Chairman Ben Bernanke has been given in Choice Asset Management’s Weekly Market Recap:
- “Speaking of the Fed, Chairman Ben Bernanke was on Capitol Hill, giving his semi-annual testimony to legislators. To characterize it as more dovish than Mr. Trichet’s comments would be the understatement of the week.
- “The economy’s recovery is not firmly established and we think monetary policy needs to be supportive. Oil prices alone would probably not be enough to make us respond.”
- Yet he then went on to discuss price increases in agricultural commodities. So with all due respect, Mr. Bernanke, it is not “oil prices alone.”
- Particularly head-scratching was Bernanke’s remark that, “The increases in gas prices are very troubling, but they are not inflation per se.”
- He suggested that broader gauges of consumer-level inflation have been benign, but that he would be concerned if “costs were being regularly passed on by producers.” Perhaps Mr. Bernanke is unaware of the pricing actions being taken by branded food manufacturers, apparel makers, the airline industry, freight carriers, or appliance producers, among many others.
- According to Shadowstats.com, if the Bureau of Labor Statistics (BLS) were reporting consumer-level inflation data using the same methodology it did in 1980-1990, CPI would be running closer to 9%, rather than the officially reported 1% figure Mr. Bernanke relies upon. (And, for its part, the euro CPI index has risen above 2%.)
Is it any wonder that gold, silver and other inflation hedges went through the roof again last week? Investors should continue to hedge themselves against the threat of inflation.
For one inflation hedge, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
