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Panic Early Or Not At All

Mar. 02, 2011 8:55 AM ET
David Moenning profile picture
David Moenning's Blog
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Daily State of the Markets 
Wednesday Morning - March 2, 2011

Good morning. Traders returned to panic mode on Tuesday in response to the rising price of oil and the growing uncertainty in what is now being referred to as MENA (Middle East, North Africa). I know what you're thinking. Why on earth are we worried about oil again? Haven't we done this already and didn't the Saudi's solve the problem by opening up the spigot a bit wider last week?

With OPEC seemingly committed to keeping oil flowing smoothly and U.S. government officials going out of their way to tell anyone that will listen that the U.S. has an abundant supply of oil (at last count the U.S. had 800 billion barrels stored up in case of an emergency) and that there is no risk of a shortage, it is a little confusing to see oil spiking and stocks tanking again.

Perhaps it was word that the Saudi's were sending tanks to Bahrain that convinced oil traders to tack on some additional "risk premium" to the price of crude. Maybe it was the escalation of what appears to be a civil war in Libya. Perhaps it was the report that Iran was firing teargas into crowds of young people. And maybe the announcement that the U.S. was sending warships to the coast of Libya for "humanitarian purposes" (but, the White House did make it clear they were keeping their military options open) got people's attention.

And then there is the potential for unrest in Saudi Arabia. With the unemployment rate among young people hovering above 40% and the average age of the ruling monarchy somewhere north of 80, analysts contend that the potential for civil unrest in Saudi Arabia should not be ignored.

So, with oil futures once again flirting with the $100 level and Brent trading above $116, it didn't take much for the fast-money crowd to decide it was time to move back to "risk off" mode in relation to the stock market. Never mind that Ben Bernanke had just finished telling the Senate Banking Committee that rising oil prices were not a threat to the economy in the near-term. The bottom line is that the boys on Wall Street had tied their computer toys (i.e. the buy and sell algorithms) to the price of crude. As such, each tick higher in oil sent stock prices lower.

So with the price of oil rising and the hot money sending stocks lower each and every time the price of crude ticks higher, what is the mainstream investor to do? Is it time to throw in the towel and head for the hills? Is it time to head back into the bitter barn and assume that the global economy is doomed because oil prices are going to double - and then double again? In short, is it time to panic?

In these types of situations it is important to draw on one of my favorite investment rules. During times when the markets are driven by news, you have two choices. You can either panic early, or not at all. So, if you think that MENA will become the root cause behind the demise of the global economy, by all means, sell everything and jump into some 3X inverse funds. And as long as oil continues to rise, you'll be in good company.

However, if you think there might be even a sliver of hope that crude's rude rise might be a solvable problem, it might be best to sit back and let the boys play with their toys for a while. Then when the price of oil stops going up every minute, some sanity is likely to return. And as long as the spike in oil doesn't get out of hand and actually have an impact on the economies of the world, stock prices just might resume their uptrend after the current corrective phase ends.

Turning to this morning... It looks like it is more of the same in the early going as oil futures have recently moved above $101 and stock futures have moved correspondingly lower.

On the Economic front... Challenger, Gray & Christmas reported that planned job cuts rose in February. However ADP reported that the private sector job market expanded during the month of February. The report shows that private sector jobs rose by 217K jobs during the month, which was above the consensus expectations for a gain of about 167K.

Thought for the day: Remember that happiness is a choice. What will you choose today?

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...


  • Major Foreign Markets:
    • Australia: -0.45%
    • Shanghai: -0.16%
    • Hong Kong: -1.49%
    • Japan: -2.43%
    • France: -0.94%
    • Germany: -0.98%
    • London: -0.72%


  • Crude Oil Futures: +$1.49 to $101.12
  • Gold: +$3.40 to $1434.60
  • Dollar: lower against the Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading at 3.429


  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -5.63
    • Dow Jones Industrial Average: -35
    • NASDAQ Composite: -5.76


Wall Street Research Summary


  • A123 Systems (AONE) - BofA/Merrill
  • Salesforce.com (CRM) - Canaccord Genuity
  • Weatherford Intl (WFT) - Mentioned positively at Credit Suisse
  • Yahoo! (YHOO) - Evercore Partners
  • Peet's Coffee (PEET) - Janney
  • OfficeMax (OMX) - Nomura Securities
  • ONEOK Partners (OKS) - Oppenheimer
  • Rowan Companies (RDC) - Target increased at RBC
  • Juniper Networks (JNPR) - Target and estimates increased at RBC
  • BE Aerospace (BEAV) - Target increased at RBC
  • Sanofi-Aventis (SNY) - UBS



  • Southwestern Energy (SWN) - BofA/Merrill
  • TiVo (TIVO) - Caris & Co
  • Salix Pharmacuticals (SLXP) - Target reduced at Credit Suisse
  • eBay (EBAY) - Evercore Partners
  • Hudson City Bancorp (HCBK) - Evercore Partners
  • Family Dollar (FDO) - JPMorgan
  • Central Euorpean Distrubution (CEDC) - Nomura Securities
  • AstraZeneca (AZN) - UBS


Long positions in stocks mentioned: none

For more "top stock" portfolios and research, visit TopStockPortfolios.com


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of TopStockPortfolios and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. Stocks should always consult an investment professional before making any investment.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

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