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Wednesday, August 18, 2004
Good evening friends,
Market Recap
Today was another triple digit gain for the Dow with a close above the 10,000 level. However, volume was on the light side once again. This tells me it is the small investors coming into market and not the big institutions. People who believe that the small investors are better than the institutions may fall pray to this fake rally. I tend to believe in watching the big money, and right now, they are not the ones buying and the volume stats are proof. The NASDAQ is up +36 points with average volume. That is much better volume than what we have been seeing so that is a positive sign. The S&P 500 is up +13 points and all three of the big indexes closed at their highs of the day.
A closer look at the S&P 500 chart tonight indicates the 50 SMA has crossed below the 200 SMA. This is a negative sign, so we are getting mixed signals on this market behavior. This bearish crossover now appears on these three major indices and that is never good. This will change if there is market strength and these average lines turn upward. If this is the start of the next rally, I suggest entering new positions only as they breakout from well formed bases. Stocks that have held up in these long bases during the down turn will be the leaders going forward.
Oil To A Boil?
The price of oil is at another record high again. It is having a big impact on stocks and the economy. What we should remember is that if you adjust the cost of oil to inflation, the price per barrel is not nearly as high as it was back in the 70's when it was at its record highs then. Oil prices are still high, but to match the highs from the 70's, oil prices will need to reach $70 a barrel. I do not think it will get there but there is the possibility for that to happen in these unstable times.
Speculation about oil prices continue. People are buying future options on oil because of a number of factors. With all the turmoil in the world, they are betting on a restricted flow of oil, more problems, and increasing prices to continue. The worldwide demand for oil is still very high, so the chances of seeing a huge drop in the price of oil will not happen anytime soon. As long as oil prices stay high, the stock market will remain low.
Saudi Arabia has recently stated that they are doing what they can to bring prices down to around $25 to $30 a barrel. They are the world's top producer, but that feat will not happen without help from the rest of OPEC. If the help does begin to materialize, that may help drop oil prices significantly.
High oil prices have been hurting more than just the consumer's pocketbook. The airline sector depends on fuel for their planes to get off the ground. Delivery companies such as FDX, UPS, and EAGL rely on fuel for their operations. Any company that has a large, mobile workforce is affected by fluctuating fuel costs. If oil prices do come down, some of these stocks should start to go up, but for now, oil has these stocks over a barrel.
OTC BB Watch List
- AVCA (shown here 3 days ago at 3.00 closed today at 3.40)
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