A recovery despite further turmoil shows some character but that is about all.

Egypt was still in turmoil Sunday night but come Monday stocks were not that concerned.  Futures were up and earnings from the likes of XOM and others along with solid personal spending and a surging Chicago PMI helped stocks overcome any geopolitical issues, even a 2 year high in Eurozone inflation (2.4%). 

Stocks started modestly higher, tested, then spent the rest of the day adding gains.  Modest gains, but gains nonetheless. They were trumpeted, more or less, on the financial stations as the journalists marveled at the market’s resilience.  I am not knocking the action; it was somewhat surprising to see investors use the Friday selling as something of an entry point on a dip.  I say something because the move was not that powerful.  Volume was lower, breadth was so-so, and the growth indices didn’t do much to wipe away the reversal sessions of late, including the one on Friday. 

NASDAQ gained 0.5%, SP600 0.67%, and SOX 0.34%.  SP500, however, put in a 0.77% move as industrials, commodities, energy, and financials sported gains.  Growth was up but lagging while ‘old economy’ sectors rallied.

Stock indices bounce and other markets retrace the Friday fear moves, except for oil.

The dollar gave ground, bonds sold, and gold gave back the Friday move.  Makes sense given the stock market moves: investors were not as worried and thus those worry or fear trades gave back chunks of what was gained Friday.

All but oil.  Oil surged to 92.19, +2.85/bbl.  The Suez Canal is wide open and in reality it moves only 1M to 1.5M bbl of oil per day.  No pressures there.  Why then the surge in oil when all other markets gave back the fear portions built in Friday.  After all, oil was diving lower before this turmoil hit. 

Here is what we here.  The fear is the unrest will spread, and I am not talking about countries that don’t have a big economic impact.  The talk is the high level of discontent in Saudi Arabia with its ruling class and the talk already in that country about following Egypt’s lead.  THAT would reverberate throughout the world for multiple reasons, but all focusing on the fact that Saudi controls the largest percentage of world oil.  If there is discord then the rise in oil is more than justified.  Indeed, $92/bbl will be looked at longingly if unrest in Saudi Arabia comes to pass.

Another day, another night of watching the unrest in Egypt and whether it bleeds out to other countries.  Additionally, after the strong Chicago PMI the national ISM will be closely watched.  The Midwest is powering ahead; would be nice if the rest of the country would do the same.

Earnings and economics remain important, now with the geopolitical overlay providing a triumvirate of items to monitor.  Oil and the bond market are indices to watch: oil is factoring in some spreading unrest while the bond market is holding in its range.  Both are important, the bond market more so in the longer term. 

We are watching several sectors that can benefit from the current trend as well as the current news.  The problem with the former is some of the trends are under fire with big reversal days even though the trend is intact.  The problem with the latter is that the news driving some sectors could fizzle and leave them high and dry without buyers.

We are nibbling at positions, trying to get the cream moves, up and down, not rushing but being patient, letting the moves set up and letting the plays come to us.  The reversal days, both those prior to the geopolitical events and those after, indicate a transition or at least winds of change blowing for this current leg.  Again, if this leg corrects back, that is not a failure. Stocks have put on a good second run and a pullback/correction is totally normal.  Thus the downside plays we have in addition to the upside plays that are taking advantage of emerging patterns/trends.

We have trimmed positions ahead of and as the market turned choppy.  We won’t turn away from good setups; money is still staying in the market and that means rotation to new sectors.  We want to catch the rotation for both the upside and the downside, hence buying CNQ to the upside and playing CRM to the downside Monday.  We will continue to look for those same kinds of opportunities as the market transitions, or works through the chop and continues onward.  Tuesday is the start of a new month and that means some new money could come in and drive stocks upside.  That effect, however, can be transient, so we don’t want to get sucked in by so-so moves.