Despite more chaos in the Middle East and tightening by China's central bank, on Friday, stocks made new two-and-a-half year highs for the third consecutive week. And even with more oil-rich nations forcing changes in their governments, which could reduce the flow of oil from the Middle East, the market took the news in stride and continued to add to its gains.
Dow: +73 points at 12,391.25
S&P 500: +3 points at 1,343
Nasdaq: +2 points at 2,834
Futures and Related ETFs
March Crude Oil: +78 cents at $87.14 per barrel; Energy Select Sector SPDR (NYSE: XLE ) +32 cents at 77.02
April Gold: +60 cents at $1,385.70 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU ) -11 cents at 212.45
What the Markets Are Saying
So far, U.S. markets have all but ignored the rush to overthrow the governments of Egypt, Bahrain, Yemen and Tunisia. Not one of these countries produces enough oil to have significant impact on the energy requirements of North America and Europe. But over the weekend, Libya, which produces 10% of Middle East oil, exploded in crisis and Syria sent two warships through the Suez Canal.
On Monday, oil futures rose almost 4% and European stocks fell sharply. So far, U.S. stocks have been immune to the upheaval. But with some of the prime oil-producing states under siege, and the charts showing spikes, it is time again to review our markets to see where the major support zones lie.
For the Dow, the first line of support is at the psychological number of 12,200, and for the S&P 500, there is a similar number at 1,300. But there are other more subtle areas of support that might be of special interest to traders. For the Dow, it is the 20-day moving average at 12,126, which also happens to be very close to the intermediate bullish support line, and the 50-day moving average at 11,831. The S&P 500 has a similar pattern with its 20-day moving average at 1,313 and the 50-day at 1,284. The Nasdaq's first support is at 2,800 with the 20-day moving average at 2,771, and the 50-day at 2,716.
I've noticed that the U.S. dollar and gold have reverted to the normal reverse correlation. In late January and early February, it looked for a time that gold and the buck would head in the same direction, and that direction was down. But last week, they diverged with the dollar heading down and gold up. Now the dollar, as measured by the PowerShares DB US Dollar Index Bullish Fund (NYSE: UUP ), is having problems making real headway and is stalled at the resistance at around $22.60. Gold, however, broke above its 50-day moving average and is plodding into the triple-top resistance that begins at just over $136 for the SPDR Gold Shares (NYSE: GLD ).
What I find curious is that in a clear crisis where the world's oil supply may be at risk, neither gold nor the U.S. dollar is operating in a normal way - as the objects of a flight to safety. Instead, the stock market heads higher.
Conclusion: The Fed is still buying and those who follow their direction are ignoring the normal defensive reactions that would normally drive gold, the dollar, and other defensive stocks and commodities higher. The lone exception to this thesis is silver, and you could also throw in the other industrial metals, as well - they are running on a new world inflationary cycle that for now is focused on usable materials and consumable commodities.
For one stock that traders should take profits in, see the Trade of the Day .
Today's Trading Landscape
To see a list of the companies reporting earnings today, click here .
For a list of this week's economic reports due out, click here .
If you have questions or comments for Sam Collins, please e-mail him at firstname.lastname@example.org .