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Oil’s well that ends well, at least for one week! Finishing relatively unchanged for the week, the markets were alternately supported by better economic data and busted by higher oil prices. In the end, little mattered as stocks managed to finish about where they started the week, while pump prices rose roughly 4.5% higher across the country. Even oil stocks didn’t do that well, although rising very modestly with the broader market. The much awaited employment number, depending upon who you use for estimates, came in pretty much in line with estimates as the prior two months were also revised a bit higher. The manufacturing and service sectors continue to bound forward according to the supply manager’s data series. Finally, Fed chair Bernanke was on Capitol Hill telling everyone what a great job he has done so far (just look at equity prices!). Worries, oh there are plenty, but a few include inflation figures, as the supply manager’s reported prices paid at their highest levels since the oil spike in ’08. What is not yet clear is how oil prices will work their way through the economy as well as earnings numbers, but for now the markets are hollering oil clear!

As mentioned above, the market went dramatically nowhere last week. Interesting was the market internals and how the “inside” part of the market behaved during the week, hopefully this will provide some insight into the direction of the market in the weeks ahead. First off, two thirds as many stocks traded higher on the week than lower, a positive sign. Volume has been the key, and here it is mixed. When combining the daily net up to down volume, the two were nearly equal. However, when the markets advanced (Mon & Thu) volume expanded, while contracting when the markets declined. My reading of the tea leaves indicates investors are still interested in buying the dips and supported by the net number of rising to falling stocks that remains positive, showing the market remains strong and selling bouts are still likely to be short/dramatic and shallow. As long as investors believe the recovery is at hand and things will continue to improve, they will continue to buy stocks. One thought though, with some of the economic data buried at multi-year highs, how much better can things get before they begin to unravel? Should be getting those answers over the next few months.

The bond model remained in bullish territory just long enough to see the lights before being turned off! Back in negative territory as bonds generally declined on the week in the face of higher oil prices, inflationary pressures and a Fed that won’t quit providing liquidity that eventually will have to be removed. Commodity prices as measured by the CRB index are up over 40% vs. a year ago for four of the past five weeks, a week shy of matching the summer of ’08 time over 40%. The $100 oil question is how much speculation is in the current price vs. real demand rising.

Ho-hum, another week and more of the same in the equity markets: oil prices move higher along with metals prices and industrial/material stocks remain strong, while the more defensive parts of the markets stay weak. I highlighted coal last week as they broke into the top groups and they tacked on over 5% last week. One interesting change last week, and it may be only for a week, was the improving picture in healthcare stocks where each group showed relative strength. One of the higher ranked groups within the sector is the healthcare providers. Companies in the group that have done well include Coventry (CVH), DaVita (NYSE:DVA) and United Healthcare (NYSE:UNH). The medical supply group has pushed into the top half and looking through many of those stocks, a few look interesting at this point: Covidien (COV) just surpassed its ’10 peak and did so on strong volume and now looks to the all-time high about 10% away. Stryker (NYSE:SYK) too has passed the early ’10 highs and has begun beating the S&P500 this year after trailing the index for much of the second half of 2010.

The wild ride of last week did little to shake the markets up and force any changes to allocations at this point. While the markets may continued to be buffeted by the turmoil in the Middle East, the stronger parts of the markets continue to be small/mid cap stocks and energy, metals and industrial stocks. Healthcare is worth watching, but we’ll need to see additional strength before I’m willing to make any adjustment to the group. Bond investors should be keeping maturities relatively short at this time, as bond yields are likely to rise under pressure from commodity prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Market Notes for the Week of March 7, 2011: Healthcare Is Worth Watching