Bears had the upper hand today.

Bears:

-- oil prices at highs, not backing down
--dollar rally evaporating
-- inflation trends clearer (core PPI stronger than expected validating pass-through from commodity inflation)
--retail & financials turnaround less certain
--visibility poor
--volume trends poor

But bulls were not silent.

Bulls:

--trend up since March
--oil move discounted (but not $150 oil!)
--government intervention provides backstop
--credit market improving

Elsewhere:

1) Of the 20 or so stocks at new highs on the S&P 500, 80 percent are energy stocks.

2) Many airlines again approached the April multi-year lows as record oil makes it nearly impossible to dig themselves out of the hole they find themselves in. JPMorgan, in a long, 65-page note this morning, estimated that airlines would lose about $7 billion this year, after making nearly $7 billion last year.

There has been talk about cutting capacity in the hope of cost savings and increased fares, and while there have been a move in that direction, we have certainly not seen radical cuts in the amount of planes in the air.

What about all the mergers being discussed? Still a wildcard. The one certain factor is that airlines, like banks and brokers, will certainly be looking to raise capital.

Double Whammy

This was a day with a double whammy: PPI and oil. First, The core producer price index, a measure of inflation at the wholesale level excluding food and energy costs, came in stronger than expected. That is validating fears that commodity increases are indeed being passed on at the wholesale level and, it is feared, at the consumer level as well. As a result, equity traders will be watching commodities even more carefully.

Curiously, bonds strengthened today. Bonds would normally weaken on inflation concerns, but traders noted that many bond traders feel that oil will weaken the economy, which is bullish for bonds.

Oil of course is the other problem: Just look what it did to the airlines, down nearly 4 percent today. Bulls have argued that $120 oil is factored into the market, and that may be true, but when people like Boone Pickens come on our air and say oil could now go to $150....well, that is NOT factored into the market.

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