Stock Market Analysis

Tuesday, February 22, 2011

Oil Prices Up, World Market Down

The Dow dropped a huge 178 points as higher expected oil price due to the Libyan crisis hit the world.

Fundamentals
Negativity swept over global markets today due to the Libyan crisis, moving along with the sun starting from Asian markets to European markets and then finally the US market. The stronger than expected consumer confidence release today didn't help either as the market opened and remained red throughout the day. The Libyan crisis is expected to affect oil supply from the region and a resulting higher oil price. In fact, USO (ETF for oil price) gained 5.8% today with a total gain of 8.75% since 15 Feb. Yes, higher oil price always hurts stock markets, as such, we shall view today's ditch with a slightly different light from the similar 166 points drop back in 28 Jan. Investors also jumped back into the safety of bonds depressing bond yields across the board strongly. In fact, a little too strongly, suggesting a little bit of overreaction to the news.

Technicals
Even though today's drop is strong and supported by strong fundamental reasons, there is still not enough technical evidence to suggest that this is anything more than a single day bear trap. In fact, the Dow is overdue a strong pullback such as this one in order for it to continue upwards healthily. This was what I have been talking about all week long last week. This is the time to tighten up your stops a little in case it turns out to be more than just a bear trap as the fundamentals could be a real concern.

For now, the Dow remains in a short term bull trend, intermediate bull trend within a primary bull trend.
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