Monday Mop-Up

Well that went pretty much as expected.

Record high oil prices ($119.94) took the wind out of the market's sails and YHOO was already hurting the tech sector with a 15% drop on the day to $24.37, a far cry from the $33 offer they walked away from this weekend (Yahoo wanted $37) but still better than the $19.18 they were trading at the day before Microsoft's offer.  Overall the Nasdaq dropped half a point and tomorrow we get a market-moving report from CSCO so hold onto your SOX (which were down .75%).

The Dow did not hold 13,000 and barely held 12,950 and it won't take much to send us back down to 12,800 if we can't get back over 13K tomorrow.  We already had our commodity rally but XOM and CVX were weak and didn't help the Dow any but, overall, it's just the pullback we expected last week as the Dow is our first index to bump into the 200 dma at 13,044 so things are actually right on track as long as we hold 12,800 (as nicely illustrated here by Trader Mike).

It's been a whole month since we did a Big Chart review and back on April 9th we were concerned that oil was topping $112 for the first time but we were still bullish as the market was holding the levels we set.  Now we are drifting in the very wide range between our comfort zone and the breakouts we're looking for to confirm a recovery.

The SOX are still in the dog house and we'll be very concerned with Cisco's earnings tomorrow but, so far, they just seem to be suffering from normal resistance at 400 (it took 5 days of consolidation to break 390 and 3 weeks to break 370!).  On the whole, our chart is much improved but we need oil to pull back below $110 to make that last section green   The Russell has the greatest danger of turning red on us so we'll watch them very closely as a leading indicator (the RUT made a nice effort to hold up yesterday, dipping just 1 point on the day)

 We got a much better than expected ISM number today at 52 vs. 49 expected, which indicates expansion and gave the energy bulls all the excuse they needed to drive oil up 3.3%.  We took the opportunity to take out some oil puts we sold but not many as the May puts remained very high, almost as if they were anticipating a sharp correction.  I'm not so sure that will happen as May contracts closed on the NYMEX with just 23M barrels scheduled for delivery after as many as 400M orders were open during April trading.  By canceling 95% of the contracts into the April close, NYMEX traders have virtually assured a 17Mb shortfall in inventories this month.

Perhaps that's why the FTC will be investigating the oil industry and is preparing to write rules banning market manipulation (yes, it's true, there are currently no rules banning it!).  Acting under authority granted in a 2007 energy law, the FTC's powers may be great enough to reach into the oil-trading markets, competing with the Commodity Futures Trading Commission, the traditional overseer of energy-trading markets.  "It can be as big as the FTC wants to make it," said I. Michael Greenberger, who was once the director of the division of trading and markets at the CFTC. "They have the power to do something that would create major transparency in these markets."

We have very little data this week.  Wednesday we get Productivity numbers and pending home sales, both of which are more likely to be negative than positive along with Consumer Credit (or lack thereof) and Thursday we get the usual jobless claims along with Wholesale Inventories and the Trade Imbalance, which is somehow expected to be lower than February's -$62.3Bn even though oil averaged $10 more per barrel and we import 11Mb a day and there were 31 days in March so that's $3.4Bn of additional money sent out of the country to fund terrorism right there.  I'm not an "expert" economist and they predict a $1Bn improvement even though the dollar slipped 4% as well in March, which one would think would bump our import costs up a bit more.

Earnings continue to come in much better than expected and after a rough morning with several misses, this evening's reports were actually pretty good with a big beat from APC, a big miss from CLF, a HUGE report from DIVX (good for GOOG and other web media – VZ and T too!), a nice beat for FST, a very good report from KND and raised guidance that got little reaction and makes a good play on the Aug $25s, especially if it looks like a good spread in the morning.  LF had encouraging results, NLS (very discretionary consumer) had a miss, PWAV was up huge, SMG is a concern as people are spending less on lawns (maybe foreclosures?), VM did better than expected but expected was awful and VMC missed by a mile but I predicted way back in November they would retest the 200 dma and now we can look at them as an LTP play. 

Tomorrow we have a lot of potential beats ahead of the open and, if the market stops going down, I'll have plenty of plays for the evening reporters during comments but there's nothing very market moving ahead of CSCO and DIS after the bell.  ABX, LNG, GAP, LM, Q, SIRI, SE, THC and VNO will give us lots of good insight, it's going to be a fun day!