The tone of the market is bullish but gains for the major averages are pretty small. The Dow Industrials are fractionally lower. The S&P 500 is struggling with resistance near 1150 as expected. Meanwhile the NASDAQ composite and the Russell 2000 are trading at new 52-week highs. The U.S. dollar is drifting sideways. The early morning strength in crude oil has reversed. Gold futures are lower by $15 and the GLD gold ETF is now trading under its 50-dma.
It was another relatively quiet day for Asian markets again. A jump in Chinese exports briefly sent commodities higher overnight but the gains didn't last. The Chinese Shanghai index lost 0.66%. The Hong Kong Hang Seng closed virtually unchanged on the session. The Japanese NIKKEI index barely eked out a gain of +0.04%.
It was a different story in Europe. The rally continues after yesterday's intraday rebound. Most of the region closed at seven-week highs. The English FTSE closed at levels not seen since June 2008. The Wall Street Journal ran a story suggesting British bank Barclays was looking to make an acquisition in the U.S. The FTSE gained 0.68%, its third gain for the week. The French CAC-40 and German DAX both rose +0.8%.
The big story in the U.S. is the wholesale inventory numbers. You may recall last year we had a string of 13 monthly declines in inventory. The expectation was that eventually inventories would get so low that businesses would have to restock their shelves and the economy would see this huge jump and help kick the economy out of the recession. Well we did see a pick up in inventories back in October and November but that's it. The Commerce Department revised December's decline in inventories from -0.8% to -1.0%. This morning January's wholesale inventories were reported at -0.2% while economists were expecting a gain of +0.2%.
This inventory report is telling you that businesses are very cautious and reluctant to order inventory for fear they won't move it in this environment. There was some good news in the inventory report. The ratio of inventories fell to 1.10. That's the lowest on record and hypothetically it means we only have 1.1 months of inventory left at the current January sales pace. Businesses might have to finally give in and order more inventory, which should give the economy a boost.
In other news the Senate was making headlines as they get closer to passing a new bill that would extend unemployment benefits up to 99 weeks and provided a handful of tax breaks for businesses. Opponents are concerned this bill would add more than $130 billion to the budget deficit.
This morning was the weekly oil inventory numbers. The Energy Information Administration said oil inventories in the U.S. rose 1.4 million barrels. Industry experts were expecting a rise of 2.1 million barrels. At the same time OPEC said they expect oil demand to increase by 900,000 barrels a day this year. Combined the two headlines sent crude oil spiking higher this morning. Unfortunately for the oil bulls the rally quickly reversed and oil is trading slightly lower around $81.28 a barrel.
Currently the market remains in a widespread rally although gains appear to be slowing down. Mining stocks, railroads and oil services are trading lower. The best performers are airlines (+2.5%), casino stocks (+1.2%), semiconductors (+1.8%) and the banking stocks (+2.0%). The BKX banking index appears to be breaking out over resistance near the 50 level. This could be a very bullish development for the markets since the financials have been languishing sideways for months.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index: