On Friday, I mentioned that the Thursday reversal was a little disappointing, but it was a reversal. Now the jury is out as to whether the market is satisfied with Thursday, or will it take another stab at Thursday's lows.
I think the truth will be known tomorrow and Wednesday. Tomorrow, the PPI numbers will be released, and on Wednesday, we will get the CPI numbers.
The jury is out as to whether the Fed will raise rates at its meeting later this month. As it stands right now, market rates have fallen, which suggests Mr. Bernanke can稚 raise rates unless he wants to invert the yield curve. The 10-year Treasury is now under 5%, and a quarter point rate hike would take short term rates to 5.25%.
A softer PPI and CPI number could be just the dose of medicine the market has been looking for. This would give the Fed reason to pause, and provide a spark for the beginning of a summer rally.
As you can see from the morning痴 market action, everyone seems to be on hold until tomorrow and Wednesday as investors wait for some news out of the PPI and CPI. If the numbers are good, and the market suspects a Fed pause, we will be off to the races for a nice summer rally.
One constant that has not changed in over two years has been energy prices. Tropical Storm Alberto will get investors re-focused on the upcoming hurricane season, and oil prices will remain stubbornly high because of demand and geopolitical issues in the Middle East.
I still like the energy stocks at current levels (MRO, CHK, VLO, SUN, XOM, COP, SLB); gold (GG, GLD) looks like a good bet if your patient; and if you want to roll the dice a little, consider buying the July .SPX 1250 call at $28.50 or less SZPGJ.
