9:05am (EST)
The market made some wild swings last week as volatility picked up along with geopolitical concerns. The bulls started the week off with a victory but the bears floored them on Tuesday as the indexes fell 1.5% on average. The bulls made most of those losses back on Wednesday and Thursday which all led to Friday’s unemployment numbers which were fantastic.
Although there was a slight disappointment for a higher print for additional jobs, the market held up well and was basically flat until oil became a concern. Oil popped to a high of $105, up $3, which worried the heck out or a lot of investors who ran for cover before the weekend. Wall Street seemed nervous on how much higher oil prices would affect the economic recovery but we were more interested in watching support which held like a champ.
In fact, we said the final hour of trading was going to be interesting and the bulls made a nice comeback to score a weekly win, believe it or not.
The Dow was down 178 points at one point but staged a furious comeback as time ran down to the closing bell. We liked the effort going into the weekend. The index hit a low of 12,079 before rebounding and finishing at 12,170, down 88 points. For the week, the blue-chips gained 39 points, 0.3%, and we loved the close above 12,100 which we were hoping for on Friday. Resistance is at 12,200 and 12,350 this week.
The S&P 500 fell 10 points and settled at 1,321 after trading to a low of 1,312. We were looking for 1,325 to hold and then 1,300 but the bulls got half of the losses back before the close. For the week, the index added a point, or 0.1%, and needs to clear 1,325 before it can make an assault on 1,350.
The Nasdaq finished Friday at 2,784 (down 14 points) but had the smallest losses of the Big 3 indexes. Tech traded to a low of 2,768 and had trouble with the 2,800 level last week but 2,750 held. There is additional support at 2,700 but we have targeted Nasdaq 3,000 on a break above 2,850. For the week, the Nasdaq advanced 3 points, or 0.1%.
It is important that we talk about the downside though a little further. The turmoil and unrest in the Middle East got a little more serious as those loyal to Libyan leader Moammar Qadhafi battled rebels throughout the weekend. Some of the battles are taking place in the oil-rich eastern region of the country and the rebels have vowed victory or death. It’s that simple, and it comes down to Qaddafi and how far he is willing to push the envelope against his own people and how long those loyal to him remain that way. It also comes down to money, which is being choked, but Qaddafi still has enough to pay renegades and order air strikes on the rebels.
We also have to worry about the upcoming demonstrations and chaos which could rock Saudi Arabia this week. A “day of rage” is scheduled to take place there on Friday. These geopolitical events could weigh on the market and if oil continues to push higher we may have seen the market highs for the first half of the year as this could play out for a few months. If it weren’t for higher oil and a possible civil war in Libya, we would be 100% confident the bulls could rally the Dow to 13,000 by the end of April. But that is not the case.
The economic news had been pouring in at an incredibly good pace and there is a chance that higher oil prices can be absorbed by consumers who have paid off debt and saved for the last two years. However, right now there is an inverse relationship going on between the market and oil and it doesn’t appear like this is going to change anytime soon unless Qaddafi steps down.
The bottom line is watch Dow 12,000 and S&P 1,300. If these levels crack and the indexes close below these levels, then the bull market could be turning into a bear market. The good news is we love playing the downside and you will too. Remember, you can make just as much money on put options (bearish) as you can call options (bullish) so be prepared because it will be an easy read.
Despite the chaos, futures are slightly higher this morning despite oil adding another $2. Dow futures are higher by 14 points to 12,168 while the S&P 500 futures are up a half-point to 1,320. The Nasdaq 100 futures are showing a 7 point pop and are at 2,367.
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