The Real Risk to Oil In the Middle East
It's not Saudi Arabia the market is worried about. Saudi Arabia is quite wealthy. And while you can't say that the people of Saudi Arabiahave American-like freedom, at least the ruling family spends money on education, infrastructure and technology.
Just today, the Saudi king announced $35 billion in pay raises, unemployment benefits and housing subsidies. Make no mistake, this is bribe money. But that fact remains, most revolutions have an economic impetus.
No, the fear is that protests will spread to Iraq, Iran and Kuwait. Those countries represent close to 10 million barrels of daily oil production. They are not politically stable. Disruptions to oil production in these countries would have a huge effect on oil prices. I'm talking about a return to $140+ a barrel. The speed with which such a move would happen would likely send the U.S. economy reeling back into recession.
Of course, we can't make any concrete predictions that this will happen. Iran is the one that scares me. Those leaders are just as crazy as Qadafi, maybe even more so.
*****Yesterday's stock market action was unequivocally bearish. For the first time in months, there was actually heavy selling. We can't say this was actually a surprise -- the stock market has been due for a correction. And the situation in Libya and the Middle East was a perfect catalyst.
Stocks look poised for a rebound today. But let's not kid ourselves that yesterday was a one-day event. Trends always take a while to play out. And I wouldn't expect the S&P 500 to run right back to recent highs above 1,340 in the near future.
In fact, we may have a situation where stock valuations will come down to a point where first quarter earnings offer some surprises and upside. 1Q earnings start on April 11, about 5 weeks from now.
*****For a little more color on yesterday's declines, here's our old friend Jason Cimpl, of TradeMaster Daily Stock Alerts:
The market had its first bearish day in a long time yesterday. Volume spiked across the board and every sector was crushed by almost 2% - only the energy sector and utilities posted any gains. Additionally, the dollar rallied and bond yields declined, which means historical correlations may begin to come back.
But before you continue reading, understand that I am not calling a top. I do believe yesterday's activity, which was potent selling, will be a short term rally high...
I recognize a distribution day when I see it, and yesterday was a distribution day. Institutions were leaving the market. Whether or not they come back today, next week, or next year, is up in the air. But they sold heavily in yesterday's session.
Over the past seven months, the bulls have not relinquished one support level. As mentioned in yesterday's commentary, most support levels were roughly 4% below last week's high. In the SPX [S&P 500] for instance, the high was 1344 and the nearest proven support zone is 1301. SPX hit a low of 1312 yesterday, and if the bulls are as strong now as they have been over the past seven months, SPX will not decline much further.
I think SPX will see a break down of 1301 and eventually target a stronger area of support near 1280. But I don't want to take anything away from the bears here. Yesterday was a strong bearish session, even if it's the first one from them in months. But sellers need to take out 1301 and protect 1330 this week in order to have any shot at lower lows towards 1280.
The indices in Europe and Asia were mostly lower today, although the declines were very minor. The dollar is trading much lower as well. Odds favor the bulls will defend support today. But the bears have two more days, one of which GDP is announced, to take the market lower.
I hope Jason will forgive me for stealing so much of his morning advisory to his TradeMaster Daily Stock Alerts members, but this is important stuff, and Jason can be counted on for his "spot on" market analysis.
*****Hartford Financial Services Group CIO Gregory McGreevey is calling bottom for the commercial real estate market. The Moody’s/REALCommercial Property Price Index fell 2.1% in 2010, by far the smallest loss in 3 years.
Commercial real estate is one of the last beaten down sectors to recover. There are still some speculative buys that could lead to big gains there. Daily Profit readers know my favorite is MPG Office Trust (NYSE:MPG). I've mentioned it to readers since it was around $1.50 a share in September of 2009.
There's risk for the stock, for sure. But there's also potentially a lot of upside. Look for shares to bottom around $3.50 in the next couple of weeks.
