The S&P is down about 15pts from my last post, from 1211 to 1196. What has happened is that oil reached the tipping point of $60. Oil had been advancing smartly the weeks before by about 8% without any adverse impact on stocks. But a $60 oil price was enough to cause a couple of triple digit down days for the Dow. The market then got back 50% of its losses, recovering to 1204 when oil broke back below $57. There was also some hope that the Fed might signal an end to their rate increases. Those hopes were dashed yesterday and the market sold off. Economic wise, we get a nice bounce in the purchasing managers index and the consumer sentiment numbers are supportive. The economic news has not been a big mover lately.
It is all about the Fed, oil and soon earnings. The euro fell below 1.20 today, not good for multinational earnings. The Fed is not done, also not good for the market. There is no sign of economic weakness in housing and autos. If you squint you might see the consumer slowing down a little. To me it all adds up to oil and earnings being the swing factors over the next couple of weeks. I'm skeptical of this fall in oil being little more than profit taking after hitting a big round number as the oil stocks gave up very little. On profits I fear higher commodity cost and a stronger dollar hurting margins. I'm shorting the market on rallies with a stop at 1206.
I'm short term bearish on the bonds now. I think the curve will have trouble flattening further until we see some sign of economic weakness, so I've gone short for a trade. Prices have approached the old highs and they are technically overbought.
The euro looks like it can fall to 117-118. Like Bill Gross I believe economic weakness is enevitable down the road and that is what I think will turn the buck lower again. For now the interest rate theme provides the lift.
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