The market continues to spin its wheels, but there is something going on here that bodes well for all the major indices. It’s called consolidation of gains. Fast money has sloshed around, rotating from one sector to another, particularly into financials and out of technology. However, the tech rally isn’t over as the financial underpinnings are only going to become stronger.
Before talking fundamentals, let’s point to the technical development that hints at a near-term breakout. These sideways consolidation patterns can last for several weeks, but a breakout will result in a move of no less than 1,000 Dow points. The next breakout comes with a close above 21,600. Riding the momentum of another strong jobs report could make this possible early in the week; although it’s more than likely that better-than-expected results from an array of banks on last Friday might be needed:
- JP Morgan Chase (JPM)
- Wells Fargo (WFC)
- CitiGroup (C)
I also like that Friday saw technology, banks, and consumer discretionary names all higher. Consumer discretionary was led by homebuilders. We are working on an industry paper that should be ready tomorrow morning.
Meanwhile, another wild card could come from the oil patch after reports that Kuwait’s Oil Minister has requested both Libya (one million b/d) and Nigeria (500,000 b/d), to lower production. For the latter, it comes as production is at its highest level in four years. I was surprised to see West Texas Intermediate (WTI) not hold above $45.00 last week on those massive drawdown numbers, but a sharp increase in rigs derailed its momentum.
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I’m not concerned with natural gas rigs, but seven more oil rigs put the count to 763 from 351 a year earlier. This time, it wasn’t Permian Basin (PBT) driving oil rigs higher; in fact, the hottest crude patch in the country has been flat for five weeks. Still, there is a delicate balance between allowing prices to edge higher and taking advantage of OPEC’s waning influence.
If crude begins to rally in the second half of the year, it’s going to help the Dow move to a significant leg higher.
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