This sounds familiar: Rising oil prices and heightened concerns about the European sovereign debt crisis combine to weigh on stocks. That was the scenario on Thursday as the Dow Jones Industrial Average and the S&P 500 both closed slightly lower on the day while the Nasdaq fought its way to a small gain. Even the with the less-than-inspiring trade on Thursday, this was the best first quarter for U.S. stocks in over a decade.
In economic news, weekly jobless claims fell for the third consecutive week to 388,000 last week from the upwardly revised 394,000 new claims the previous week. While the four-week moving averaged ticked higher, it remains below the all-important 400,000 level at 394,250. Heading into the March jobs report tomorrow, it appears the labor market is at least improving, but upside surprises will be just that: Surprises. Most analysts forecast that the economy added 185,000 nonfarm jobs, down from 192,000 in February, and that the unemployment rate held unchanged at 8.9%, according to Reuters.
Jobless Claims Chart
Speaking of things that weigh on the economy, oil ended the first quarter at a 30-month high as the market continues to be concerned about lost supply due to the Libyan imbroglio. Headlines crossed the wires today that forces loyal to embattled dictator Muammar Qaddafi regained control of Ras Lanuf, a critical Libyan oil port, and were aiming to do the same at Brega, another important Libyan oil outpost.
Libya, home to Africa's largest oil reserves and the continent's third-largest producer behind fellow OPEC members Angola and Nigeria, has seen its daily output slashed in dramatic fashion since the onset of violence in the country. How bad is the production decline in Libya? Libyan oil production tumbled by 995,000 barrels in March to 390,000 barrels a day, according to a Bloomberg News survey.
As was seen in today's trading, oil now faces pretty stiff resistance at $107, the high touched earlier this month. Oil's move to the upside did not carry over to the major U.S. integrateds as CVX and XOM both closed lower to weigh on the Dow and COP was down 1%. On the other hand, both Chevron and ConocoPhillips touched new 52-week highs today. For more news and commentary on the energy sector, register for the OilSlick daily newsletter (HERE).
One of the day's big winners was Tesla Motors (TSLA), a stock that I admit to having poked some fun at in the past. The still-not-profitable company sells sporty electric cars that are by no means inexpensive and I have openly wondered what car lover would drop six figures on a Tesla car when there a plenty of gas-powered, prestigious European models available at similar and lower price-points.
Morgan Stanley disagrees with me and the bank's 50-page novel/report on Tesla sent the stock soaring 17% on volume that more than nine times the daily average. The stock closed at $27.75 but Morgan Stanley placed a $70 price target on the stock, representing potential upside of more than 200%.
A 50-page analyst report is not an everyday event, but they are published from time to time and when a report is that long, it certainly leaves plenty of room for bold proclamations and Morgan Stanley does not disappoint on that front saying Tesla has the potential to become the fourth major U.S. car producer behind Chrysler, Ford (F) and General Motors (GM).
Morgan Stanley notes that the biggest risk facing Tesla is the company's ability to execute its own business plan and that the company's long-term independence hinges on its ability to make its pricey vehicles more accessible to more buyers.
Perhaps Tesla could legitimize itself among the titans of the U.S. auto industry if it can start profitably producing cars with $30,000 price tags. At least in theory, with the specter of $4 gasoline facing Americans (it is already here in Southern California), Tesla should be in a sweet spot in terms of ramping up sales and profits IF it can produce cheaper cars.
One of the noteworthy losers on the day was Warren Buffett's Berkshire Hathaway (BRK-A, BRK-B) on news of David Sokol's controversial departure from the company that was announced Wednesday after the close of U.S. markets. Sokol was widely believed by Wall Street and Berkshire followers to be one of the leading contenders to replace Buffett at the helm of the legendary company upon Buffett's retirement.
No more. If you were following this story when it broke Wednesday evening, its evolution was pretty interesting. It started off with the usual speculation that Sokol was leaving to devote more time to personal causes and philanthropy. Follow financial markets long enough and you will inevitably hear the same canned excuses for executive departures. Perhaps you find yourself wondering if there is anymore to these departures than meets the eye.
In the case of Sokol, there is and we only need to go back a few weeks to see what it is. Earlier this month, Berkshire announced it is buying specialty chemicals maker Lubrizol for $9 billion, and in the days following the announcement, Sokol was widely heralded as the architect behind the deal. Buffett said as much in a statement issued yesterday, confirming that Sokol brought the idea of Berkshire buying Lubrizol up to him in January.
Now this is where it gets really interesting. Buffett was not initially wowed by the idea, but Sokol was able to convert him later in January. Of course, all of this happened two weeks after Sokol scooped up 96,000 shares of Lubrizol for himself. Assuming he still owns his Lubrizol shares, Sokol would be up $3 million and that's on top of the almost $60 million in salary he made at Berkshire's MidAmerican Energy unit over the past five years.
I highly recommend watching Sokol's interview with CNBC where he says he did nothing wrong. My soapbox ends here and you can draw your own conclusions about this situation.
Berkshire-Hathaway Class B Chart
Looking at the charts, today's minor losses did little to inflict any real damage on the Dow and the S&P 500 and it is not likely any of the pundits that have been out in force in recent weeks that have been calling for S&P 500 1400 recently are going to change their tune. Before approaching that lofty level, the index will have to contend with some resistance around 1335 and then again in the low 1350 area.
A move to 1400 from where the S&P 500 closed today would be 5.6% upside. Looking further out, there is resistance between 1400 and 1440 and for those willing to dream big, a move to 1440 is almost 9% from Thursday's close.
S&P 500 Chart
How about Dow 13,000? Well, the last time that lofty level was seen was nearly three years ago on May 19, 2008. From here, the Dow needs to conquer resistance at 12,400, then do the same at 12,800 before 13,000 becomes a legitimate topic of conversation. I think earnings seasons pushes the Dow higher, but 13,000 may prove tricky to surpass heading into the Federal Reserve press event on April 27. Support is 12,170.
To the Nasdaq goes the honor of being the only one of the three major U.S. indexes close higher today and it did so just a point below resistance at 2782, so there is some work to be done to get back to the February peak of 2840. If 2840 is broken, another 30-40 points could be tacked on. Near-term support is 2755 and then perhaps the 50-day moving average at 2744.
As Keene noted yesterday, the Russell 2000 was the first of the indexes to set a new high for the year and the index was back at it today with a small gain. The Russell 2000 looks poised to take out old resistance at 852 and that would be significant because as Keene's chart showed last night, that resistance is from October 2007. Support is 820.
Despite the anemic volume, the path of least resistance is up and I suspect that will remain the case as first-quarter earnings start to flow in. A lot of emphasis is placed on the monthly jobs number, but I get the feeling that this is going to be a non-event unless there is a significant upside or downside surprise. We know what the international issues are that the market has to contend with, but on the domestic front, circle April 27 as an upcoming day to watch. That is the first of Ben Bernanke's quarterly press updates on what the Fed is up to, also known as ''The Defense Of Quantitative Easing and Reasons Why QE3 Is A Good Idea.''