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Asian markets mixed, caution ahead of NFP, China tighteninghttp://bit.ly/i504Z1
The first sign of weakness that we are seeing is in copper today. The iPath Dow Jones-UBS Copper Subindex Total Return ETN(NYSE:JJC) is trading lower by $1.11 to $56.68 a share. Copper is viewed by many investors and traders as an economic barometer. When this industrial metal does not participate in a stock market rally traders will pay attention to this action. Weaker copper has often lead many big declines in the past. This time around the JJC still has a lot of daily chart support around the $55.00 area.
The next sign of weakness for the market is the action in the railroad stocks. This morning CSX Corp.(NYSE:CSX) made a new 52 week high for the year at the open. Since the high print of $80.42 at the open the stock has reversed sharply lower creating a possible outside day on the charts. When market leaders reverse it is a time to take note. CSX stock is trading lower by $1.66 to $78.37 a share. The big daily chart support level for CSX is around the $73.00 level. Norfolk Southern Corp.(NYSE:NSC) is also trading lower after making a new 52 week high at the open trading lower by 0.28 cents to $69.27 a share. When the railroad stocks decline it is often a sign that the transport index make need to pullback.
Apple Inc.(NASDAQ:AAPL) is also failing to trade higher with the market today. This stock is the market darling and is owned by most institutions and retail investors. When this market leading stock fails to participate in the rally it definitely raises some red flags and must be watched closely.
Traders and investors are certainly enjoying the stock market rally over the past ten trading sessions. However, when markets get euphoric traders must watch for clues that a pullback could be around the corner. Today, the market is signaling weakness in copper, railroad stocks, and Apple Inc. It may just be a non-event and these leaders could just be taking the day off, however, it is worth noting.
The euro held steady against the U.S. dollar ahead of Ireland’s stress test results. Tomorrow, the Irish Central Bank will publish the third round of its stress test results at 4:30pm local time.
http://www.fx360.com/commentary/kathy/5197/eur-what-to-expect-from-ireland-stress-tests.aspx
The reasons are simple and easy to understand. The spike in oil from $90.00 to $107.00 was quick and painful. The markets are never good with sudden change. The markets like calm, slow and steady. Surprises and shocks keep investors on the sidelines or cause them to panic and sell. This was the initial run up in oil. In addition, this move higher was coupled with a dramatic, sudden destabilizing force in the Middle East. This again strikes at fear. Oil shooting higher caused traders to fear the oil shock would cause the economy to slow and a possible double dip could occur.
Emotion rules the markets in the short term. On one side there is greed, on the other fear. Oil stalled out after reaching $107 per barrel and fell back to $100.00. This allowed cooler heads to prevail. Fear over the Middle East began to subside and oil has now stabilized between $100.00 and $105.00. The panic and fear is now gone and Wall Street thinks oil at this level will not cause any major disruption in growth.
In addition, not only is the fear gone but profits may actually benefit from higher oil at some companies. Assuming oil demand does not falter much, companies like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) make more money from higher energy prices. While this may not seem like a big deal, these two stocks, along with many others are key components of the Dow Jones Industrial Average and S&P 500. If they have a major weighting in those indexes and their profits are soaring, those indexes will also get a solid boost.
While the market enjoys the calm in the eye of the storm, Wall Street and all traders must remain cautious. Ultimately, higher oil is coming whether because of a weak Dollar or global demand on shrinking supplies. Yes, the markets seem OK with oil between $100.00 and $105.00 per barrel but it is unlikely to remain there long. Any sharp spike higher may send another shock through the markets causing a quick decline. To gain more hardcore analysis, guidance, swing trades and education, join the Research Center. Take the one week free trial today.
Gareth Soloway
Chief Market Strategist
www.InTheMoneyStocks.com
