Tuesday, January 23, 2007

SOTU--Oil is Higher

Market Action:
As the market opened on Tuesday, the zigzag upward correction of Monday’s decline continued.  The Dow managed to retrace most of Monday’s decline but then spent the last couple of hours falling away.  The Dow did manage a decent 50+ point rally but prices failed to achieve a full reversal of Monday’s loss.  The NDX, NASDAQ100, actually closed down on the day.

Jumping to the after hours market, there were a number of earnings reports that moved trading after the closing bell.  YHOO (Yahoo, after initially dropping 3% on the news, rallied after the conference call tacking on 6%), AMD (Advanced Micro Devices, dropped about 4% after poor earnings), SUNW (Sun Microsystems, up 8% on good earnings news) are some of the companies involved.  The net effect has been to push the overall NASDAQ 100 futures up in overnight trading.

Then, later this evening, the President gave the country the State of the Union (SOTU) address.  We’re pretty sure the Democrats will be busy trying to stop some of the initiatives that the President mentioned this evening and that is the way things go here in the United States.  There certainly is a different feel on the political landscape tonight and we need to be cognizant for how this may affect the markets—which is the only reason we raised the subject at all this evening.  As we write this, the stock futures have not changed much over the past few hours.

On the other hand, the oil market rallied in anticipation of tonight’s SOTU.  There were several items from the SOTU that surfaced over the course of the last few days.  One of those items was the doubling of the SPR (Strategic Petroleum Reserve) which the oil market took seriously by rallying about 4.5%.  You may ask why this item is mentioned under the Gold heading and our answer is that Gold rallied right along with oil as it has done this past few years.

The HUI, our current favorite gold index, rallied hard today up nearly 15 points or nearly 5%.  Gold was up about $12 so the HUI seems to be leading on the upside.  This upside move is a little premature in our opinion but we must be aware that there may be something going on here.  We need to keep a very close eye on this move to see if there is something for us to participate in.

The move in the stock market on Tuesday was disappointing both in the regular hours and in the after hours.  We continue to believe that the best prices have been seen in the indexes but it takes time to roll the market over.  That’s why we have remained patient for so long.  Wednesday may bring a pretty strong opening based on the overnight futures this evening so this may be a good time to sell some stocks.  At this point, any rally is a good time to sell.  

Dow Industrials:  12,533.80  +56.64
VIX: 10.34
HUI:  329.82 (big move up)
QQQQ:  43.58
RYVNX:   16.98
RYAIX:  21.43
RYCWX:  35.18
TLT:  87.62
BEGBX:  13.60

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