Oil Stocks See Slick Gains
Oil stocks gushed higher on Monday, giving the market a slippery foothold on which it could add to Friday's gains. I say slippery since the only real reason behind the renewed interest in oil stocks was today's impromptu Iraqi move to halt all oil exports. Not surprisingly, this move served to boost oil to over $28 per barrel. While the Iraqis succeeded in temporarily shaking up the oil market (they supply over 2 million barrels per day to the worldwide market), OPEC has vowed to offset any shortfalls in supply due to the Iraqi protest of a shorter extension to their U.N humanitarian program.
In addition to the goose from oil stocks, the market was encouraged by some Monday Greenspan rhetoric out of Singapore that echoed previous views that inflation is essentially dead. While addressing an international monetary conference, the Fed chief said that the strong dollar and the inability of businesses to pass along higher prices are keeping inflation in check.
The largest beneficiaries of the "inflation: where are you?" remarks were the treasury investors. With inflation worries largely out of the picture, the long end of the curve put on more points. The benchmark 10-year note added 9/32 and the 30-year bond gained 10/32 to yield 5.34% and 5.685% respectively. If treasurys can keep this up, mortgage rates might follow, spurring another wave of refinancing.
Other than the excitement out of the oil patch and the Greenspan comments via satellite, the market once again did its best impression of drying paint. Volume was once again light and volatility was the name of the game.
Chartists rejoice! The Dow (INDU) is once again over 11,000 and is looking good. In fact, the old-economy index landed at 11,061.52 after rising 71.11 during Monday's tame session. Granted, we are far from the Dow being out of the woods (61 points is not much of a buffer) but the simple fact that resistance gave way during such a light volume day is encouraging. Speaking of volume, only 840 million shares changed hands on the NYSE.
The NASDAQ (COMPX) on the other hand never wandered too far from breakeven. The tech heavy index meandered aimlessly throughout the day to finish up 6.49 at 2,155.93. Trading was also slow on the NASDAQ, with volume coming in at 1.3 billion.
The broader market, as measured by the S&P 500 (SPX.X) also posted slight gains on the day, finishing up 6.44 to 1,267.11. According to Brian Belski of US Piper Jaffray, the large cap stocks that make up this index have stabilized as far as downward earnings revisions are concerned.
Stocks and Sectors on the Move
The single largest drag on the NASDAQ today was, in fact, the semiconductor stocks. Word out of the Semiconductor Industry Association today was that chip sales for April totaled $13.72 billion, down 10.2% from last April's reading. This combined with negative calls out of Bear Sterns and Goldman Sachs on the state of the chip industry was enough to put a 1.7% dent in the PHLX Semi Index (SOX.X).
Upside movers today included the computer hardware stocks and the oil service stocks. In the hardware arena, Compaq (NYSE:CPQ) added $0.03 to $15.93, even as JP Morgan Chase cut their second quarter outlook on the company. Dell Computer (NASDAQ:DELL) rose $0.25 to $24.61 and Apple (NASDAQ:AAPL) put on $0.94 to $20.89.
In the oil service sector, many stocks had already fallen through support levels before today's renaissance. So even though they are moving again, most will encounter resistance levels soon. Some movers included Schumberger, affectionately called Slob, (NYSE:SLB)up $2.28 to $64.92, Halliburton (NYSE:HAL) up $1.52 to $47.51 and Baker Hughes (NYSE:BHI) up $0.40 to $39.60.
Looking Forward, Always Forward
Here we go round the mulberry bush (you can tell I just wrapped up a marathon session of reading children's books with my two- year-old). However, folksy as this top 40 children's rhyme is, it captures the essence of what this market is doing and will probably continue to do well into the summer. By this I mean chasing its own tail in circles, with little conviction in either direction.
Heck, even if the Fed cuts another 25-basis points like it is expected to do, the odds of further rate cuts after the mid June meeting diminish drastically. This fact alone will no doubt be dwelled upon throughout the summer, as earnings continue to disappoint (as expected) and market moving news takes a backburner to the beaches and bratwursts.
What does this mean for swing traders like us? It means keep buying strong volume breakouts as long as they keep working and keep your profits on a short leash. This means take the 5% gain if the stock starts acting weak. You can always get back in at support levels should you miss the next leg up.