Oil and Recovery
Stocks are lower Friday as investors seemed unmoved by Fed Chairman Ben Bernanke’s call today for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions.
At 3:00 pm ET, the Russell 2000 (NYSE:IWM) is down 2.68% at 402.20, while the Dow is down 1.48% at 7,291.36, and the S&P 500 is down 1.82% at 769.77.
Small caps on the move today include Books-A-Million, Inc. (Nasdaq:BAMM), up 25% after declaring a dividend and reporting fourth-quarter and year-end results. Home retailer Kirkland’s, Inc. (Nasdaq:KIRK) is up 12% after providing revenue guidance and reporting Q4 results, and VIVUS, Inc. (Nasdaq:VVUS) is up over 11% following new data on its obesity drug.
*****Oil prices have moved over $50 a barrel. There are a few factors at work here. OPEC’s cut production. Of course, that’s been ongoing, and OPEC’s moves have done little to prop up prices as demand around the globe falls.
Crude started moving higher after the recent stock market rally began. Bernanke was out, attempting to soothe investors with his “Recovery in 09” campaign. And if there is to be an economic recovery, oil demand will rise. That’s as direct a relationship as there is in the financial markets.
Oil rallied again after Bernanke announced that the Fed would buy over $1 trillion in various kinds of debt. The market thinks the Fed’s move will help. We know, because oil moved higher.
Could it also be that investors think the increase in the money supply and consequent weaker dollar will cause prices to rise? Absolutely. And in fact, that’s part of Bernanke’s plan. The Fed is still concerned that deflation as a threat to the US economy.
*****Yesterday, I said it might be a good time to get back into Graham Corp. (AMEX:GHM). Graham is one of my favorite small-cap stocks. It’s in the oil and industrial services sector. Among other things, Graham retrofits refineries so they can handle sour crude.
Graham is profitable, has a large backlog of work orders, a solid cash position and reasonable valuation.
The stock has been very volatile as investors try to determine appropriate valuations for oil services stocks. Graham is hitting its 50-day moving average right now. A breakout will take it beyond $10 a share.
*****Two days ago, Jason Cimpl, technical analyst at TradeMaster Daily Stock Alerts, saw a perfect set up for a downside trade on one of Wall Street’s biggest banks. This bank right at the center of the secret AIG payment scandal. The stock is down 10% since Jason recommended this trade, but he thinks it’s going to fall much further. For more, click HERE.
