Sunday, February 27, 2011

Itz Week End Review 2-27-11

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The equity markets finished Friday on a high note, snapping a week-long losing streak, as stabilizing oil prices eased concerns that the economic recovery could be derailed. Concerns that unrest in Libya would spread to other oil producing nations sent oil prices to over $100 a barrel mid-week, leading the stock market to drop for three straight days before reversing direction on Friday. Which was a surprised, since most expected the longs to hold off until Monday pending further unrest over the weekend. Moving the rally Friday was a strong read on consumer sentiment and Saudi Arabia stepped in and said they would produce any quality and quantity of oil that Europe needed to replace Libyan supply.The Michigan Consumer Sentiment Index rose to 77.5 in February, its highest level in over three years. Economists were expecting the reading to remain unchanged at 75.1.
For the week ahead, the markets face continued geopolitical risks as well as some key economic reports, expect more volatility. The contagion factor is our worst worry, new demonstration in Tunisia indicate that unrest can reappear just as quickly as it faded. There were also new demonstrations in Egypt and Bahrain over the weekend. Saudi seems to have dodged a bullet so far with the $35 billion giveaway to the people but nobody knows how long it will last. Hopefully, positive U.S. economic reports can offset the negative reports out of the Middle East. The Fed Beige Book should show a ramping economy and the payroll report should show the biggest job gains since November 2005.
So that is what we face this week, but looking ahead about a month from now....investors will begin to worry over the Fed ending QE2 starts to impact the institutional sentiment. The March 15th FOMC meeting could be the turning point. If Bernanke keeps talking about the possibility of QE3 we could see that bearish decline postponed. The offset to the end of QE2 is of course a much stronger economy.
Was Friday's rally a bear market bounce or the start of a lasting rebound? This week will be pivotal, should Gaddafi fall and economic reports come in positive, the bull market continues. However, if the contagion spreads and the jobs reports disappoints, watch those 50 day moving averages on the major indexes give way.
Markets should be positive on Monday, Warren Buffett letter to Berkshire shareholders on Saturday said America's best days lie ahead. He believes a housing recovery will begin soon, He said "the prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted and the American system for unleashing that potential, a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War, remains alive and effective."

ITZ PIX Portfolio Updates: we had 3 positions exit the portfolio this past week, PDE, VLO & UCO. Pride International  PDE was entered back on Nov. 9, 2009 @ $31 and exits with a 29% gain. Pride has a buyout bid from Ensco Drilling ESV. Valero was entered back on July 1 2009 @ $15.82 exits with a 71% gain. ProShares Ultra Crude Oil UCO was entered last Friday February 18th @ $10.75, it exits with a +16.3% gain. All 3 positions were in the oil sector, PDE is moving partially on ESV's price action, but partially since $16 is a cash buyout. VLO was exited on WTI West Texas Intermediate crude's move higher and UCO on it's technical chart move. Now does exiting UCO indicate ITZ is ready to short crude oil via SCO? Not necessarily, Oil could consolidate and trend higher in coming weeks, similar to December 2010. The bias for oil is on the upside, but we'll stick to what the charts signal, expect some volatility. But for now as far as the ProShares trades go, remain on the sidelines. On the ITZ Radar, just to give reader's the heads up is a tech play, Broadcom BRCM. The chart looks interesting there, almost gave a buy on this stock but hesitated on the possibility we could see further downside on the markets this week. 

 WTI Crude Oil has finally broken out, ITZ had forecasted the move last October >>READ

In a live interview on CNBC's Fast Money Dennis Gartman says anything much higher than ”$100 isn’t sustainable over any period of time...the market still has an awful lot of new crude available and investors need to understand that. I have a hard time believing that WTI can sustain itself above $100."

The escalating unrest in Libya could lead to a major impact on oil prices. Insight with CNBC's Brian Shactman; Daniel Dicker, independent oil trader; John Kilduff, Again Capital.

A look at where oil is headed and how high prices will have to go to impact the markets, with Joe LaVorgna, Deutsche Bank chief U.S. economist.

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