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Three Things to Watch This Week

May 10, 2011 8:39 AM ET
Jim Farrish profile picture
Jim Farrish's Blog
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Following a week of commodities heading lower, in the case of silver and oil, significantly lower, what is in store for the broad markets? Simply put – more data. There is plenty of economic data in store for investors along with more earnings. It promises to be an interesting week across the board, but there are three specific reference points to pay attention to short term.

First, economic data has taken a front row seat and there is plenty to watch. The import price data on Tuesday will show how inflation is impacting the US relative to foreign goods. Then there is the trade deficit and the impact of crude oil on trade. Let’s not forget the jobless claims on Thursday which will be watch closely following last weeks spike higher. Improvement in the jobs data has been one of the sparks for the move higher the last six weeks and if there is a reversal brewing, look for the broad markets to react short term. Inflation update will come with the CPI and PPI out on Thursday and Friday. Plenty for all, and each will take on new significance as investors look for signs of improvement versus further erosion.

Second, energy commodities will be watched for a bounce off support. The price of crude fell below $100 per barrel and the question is will it stay? Our previous outlook was for a test of support near the $96 level which it touched briefly last week. Now the question is the infamous $100 mark. Natural gas, coal and gasoline all fell in conjunction with oil. First, look for energy stocks to hold support. A break of these levels would be negative for the sector overall. Second, expect the refiners to benefit from the lower oil prices and gasoline could drop as much as 50 cents per gallon in the coming month. Third, alternative energy stocks are likely to suffer if oil prices move lower. Overall the sector is in transition and any money put to work short or long should be focused on the short term.

Third, the dollar bounced off the recent lows as the uncertainty sent money heading to the green back. I don’t expect a longer term rally in the dollar, but a solid bounce off the lows would be beneficial to the the US markets longer term. The yield on the US Treasury bond has slowed its rate of decent. The rotations to safety is what we need to watch short term. Look for the yield to rise if confidence returns to the broad markets. That would help with the dollar and the price of crude to stay below the $100 level. If the dollar strengthens, rates rise, the price of precious metals could see more downside in store, especially gold.

This promises to be a busy week for both data and speculation. Keep your stops in place, manage the risk and accept what the market gives one day at a time.

 

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