The market takes off like a rocket, and it happened on good economic news while crude oil is gaining momentum.
Crude oil closed right on a big resistance point so a further upside would be monumental, possibly lifting the commodity to $37.00 – a clear breakout. I am not sure how the rally continues through that point of $40.00 without major concessions from Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC).
Fed’s Wild Guess
There is also the notion that oil moving higher is a proxy for the global economy, at the very least moving away from recession. It might be a stretch, but it remains a narrative. Ironically, the Atlanta Fed lowered its 1Q16 GDP forecast again yesterday. Since February 25, the estimate has dropped from 2.5% to 1.9%- it will be revised after Friday’s jobs report, but it’s not the stuff of rate hikes.
Date |
Major Releases |
GDP |
1-Feb |
Initial now cast |
1.2 |
3-Feb |
ISM Nonmanuf. Index, Auto sales |
1.4 |
4-Feb |
Manufacturing report (M3) |
1.5 |
5-Feb |
Employment situation, Foreign trade |
2.2 |
9-Feb |
Wholesale trade |
2.5 |
10-Feb |
Monthly Treasury Statement |
2.5 |
12-Feb |
Retail trade, Import/export prices |
2.7 |
17-Feb |
Housing starts, Industrial production |
2.6 |
19-Feb |
Consumer Price Index |
2.4 |
23-Feb |
Existing home sales |
2.4 |
24-Feb |
New home sales/construction costs |
2.4 |
25-Feb |
Advance durable manufacturing |
2.5 |
26-Feb |
GDP, Person Inc./PCE, Adv. intl. trade |
2.1 |
1-Mar |
ISM Manuf., Constr. Spend. |
1.9 |
All of a sudden, shorts are scrambling in addition to hedge funds (often one and the same), which had an awful year in 2015, and cannot afford another poor showing. One thing bears should be concerned about is the composition of leadership in the current rebound.
Blue-chip names with single-digit price-to-earnings ratios and other ultra-low valuation metrics are leading the way. On the NYSE; once again, there were two times as many stocks reaching new 52-week highs than lows while NASD was just the opposite and had fewer overall advancing stocks.
Breadth |
NYSE |
NASD |
New Highs |
53 |
37 |
New lows |
26 |
68 |
Advancers |
81% |
73% |
Decliners |
18% |
24% |
Technical View
The Dow has broken through key resistance and it looks to be on its way to 17,100, which is the number I suggested. If this rally falters now, it would be a dagger in the heart of bulls; reluctant investors have been holding on for dear life.
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