The market seems to be in a no man’s land at the moment. The tight range observed since Friday is indicating that traders do not feel very strongly about either direction at this moment. We have recovered from the downtrend which started due to the Japanese Tsunami and the Middle East unrest. Brent crude has stabilized around the $115 level.
I am observing the following catalysts which I think will determine the direction of the market in the coming weeks. Till I see a change in these catalysts I expect the s&p 500 to to remain range bound between 1290 – 1330 for this week. I am listing the catalysts in the order of importance.
1. Oil – At this stage oil is probably the biggest threat to the recovery. A move above $125 in Brent would significantly increase the chances of a recession. So any spike in oil would be negative for the market. Calm in the middle east with a drop in prices below $105 in brent would be very bullish. Looking at the gains made by the rebels in Libya and the announcement by Qatar to buy oil from the Libyan rebels makes me believe that chances of a large spike in oil are lower.
2. Earnings warnings – The market is already aware that there is some softness in semiconductors. If the earnings softness remains confined to tech, it will not be a problem, If we get a reasonable amount of warnings from non-tech companies that is what needs to be watched and would be the first indication of the recovery weakening. I am not so concerned about tech, because tech goes through cycles even in an expanding economy and right now it is well known. Considering that we are already late into march I am optimistic that earnings warnings are going to be limited.
3. Jobs – So far the unemployment claims data is looking pretty good and pointing to a slowly improving job market which should reach 200K/month in 1-2 months. A multi-week increase in claims to above 400K/week or another jobs report which shows less than 125K/month jobs will be negative. A number above 200K will be pretty bullish and could propel us above this years high. My expectation is that the number will come in around 175K based on the slowly improving unemployment claims data.
Objective Speculation 