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Market Insider: Wednesday Look Ahead

Tuesday, 12 Aug 2008 | 10:05 PM ET

Stocks should continue to take most of their cues from oil and the dollar Wednesday, but July retail sales data could also be key.

Investors will be watching July's retail sales, released at 8:30 a.m. as a measure of the consumer's health. Economists are forecasting a weak number, and last week's monthly chain store sales reports also flashed warnings of a slowdown in spending. The consensus is for a 0.1 percent decline.

Weekly oil inventory data is reported at 10:35 a.m. Import prices are due at 8:30 a.m. and business inventories are released at 10 a.m.

Market Mayhem

The financials were at the epicenter of Tuesday's market sell off, just as some investors are hoping the group was finally finding a bottom. To make matters worse, it was not all of the usual suspects causing the sell off.

Two of the street's favorites in the sector were at the heart of the selling. First, J.P. Morgan had announced late Monday that it had losses of $1.5 billion so far this quarter on mortgage related assets. Then, Goldman Sachs saw estimates slashed by three separate analysts in less than 24 hours.

As expected, UBS reported a loss of $300 million. It also said it would split its investment banking unit from its wealth management business. Wachovia too added another $500 milliion in reserves for a regulatory settlement.

"I think it's more people looking for a reason to sell and short this space again," said Patrick Boyle of LaBranche Financial Services. The S&P financial sector was down 5.2 percent.

"I do think there's a floor underneath this sell off," he said. "..I think we needed a little dip in these financials because there's still a little lag in news in the space, waiting to come out. People are waiting for the other shoe to drop."

As has happened in recent sessions, the move in financials was the mirror opposite for some commodities-related names. The S&P materials sector edged up 0.49 percent. Buyers moved into stocks like Potash, Monsanto and Freeport-McMoran.

Dollar Takes a Breather

The dollar moved lower, after five days of gains to finish the New York session with a 0.12 percent loss against the euro. It stood at $1.4922 per euro in afternoon trading. The dollar lost 0.74 per cent against the yen.

The Dow lost 139.99 points, or 1.2 percent to 11,642.47, and the S&P 500 fell 15.73 points, or 1.2 percent, to 1289.59. Treasurys meanwhile gained, with the yield on the 10-year slipping to 3.920 percent, the lowest level since July 15.

"I would expect a rocky opening tomorrow (Wednesday)," said Kevin Ferry of Cronus Futures Management. "This is a growth slowdown story, so the first few unwinds you saw were an "up with America" trade. The dollar was better, oil was trading down and the stock market was doing better ... On a day like today, it hits home," he said after the close Tuesday. "In the interest rate forward market, those rates are coming down hard."

Oil Gets Drilled

Oil fell $1.44 per barrel, or 1.3 percent to settle at $113.01. Heating oil fell 4.14 cents to $3.0781, a 1.3 percent decline and its lowest level since April 4. Gasoline futures fell 2.34 cents, or 0.8 percent to $2.8432 per gallon.

Tom Kloza, chief analyst at Oil Price Information Service, says he thinks the crude will stay under pressure for the time being. "I think you'll continue to see those huge swings. I wouldn't be surprised if we don't swing down below 100 in the purge cycle. I also get the sense we're going to get a few hurricane scares," he said.

Kloza, in a phone interview, said he thinks oil will range from $80 per barrel to $130 in the next nine months, and of course, could overshoot in either direction. He noted the similarity between the market's current behavior to a period in August, 2006 when the market ignored news that normally would be "bullish." In this case, it is ignoring the news in Georgia, even after BP said it was shutting down a pipeline there.

"If that happened a few months ago, it would have justified a move of anywhere from $5 to $20 for crude. There has been a major sentiment shift for oil," he said. But "I'm not in the group that says the commodities boom is over."

In a note earlier today, he explained that investor psyche can be more damaged when a market fails to rally on "bullish news" than it might be by the arrival of bearish news. "...Things get overheated and this indicated, my goodness, we overheated." he said.

Oil and gasoline inventory data is expected at 10:35 a.m. Platts expects crude inventories to show a build of 500,000 barrels with the Energy Information Administration and American Petroleum Institute release weekly data. Platts survey also expects a decline of 2.2 million barrels in gasoline stocks due to poor refining margins and lower run rates, and a build in distillate stocks of 1.9 million barrels.

Stocks To Watch

On the earnings front, Macy's and Deere report earnings before the bell.

Applied Materials shares rose in after hours trading. The chip equipment maker reported sharply lower profitsin line with expectations, but saw its stock move after the ceo said he expects conditions to improve. CVS Caremark late Tuesday said it would buy rival Longs Drugs for $2.9 billion.

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Featured

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • Sharon Epperson is CNBC's senior commodities and personal finance correspondent.

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.

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