Stocks are having a hard time breaking out of the doldrums this week, and Friday is unlikely to be much different, particularly if oil continues to bubble higher.
The Dow finished up 31 at 8770 Thursday, after a triple digit gain took it as high as 8877. The S&P 500 was up just 5 at 944, after making a run to 956, solidly into a zone of technical resistance. The market has had its ups and downs this week but for the most part it has moved in a straight line on light volume. The Dow is up just 17 points from its close last Friday, and the S&P is up just 4 points.
From Fast Money
In early afternoon Thursday, stocks staged a relief rally, moving higher along with bonds, after the much anticipated 30-year auction went well. As bonds rose, yields slipped along the curve, taking pressure off stocks. Investors had been concerned about the 10-year's climb above 4 percent this week. On Thursday, the 10-year yield slipped to 3.862 percent, as buyers stepped in.
The rally in stocks fizzled as the market approached the closing bell. Traders say rising oil is beginning to give stocks new cause for concern.
Crude keeps moving higher as the dollar falls, despite a general view that supplies are sufficient. Oil finished Thursday up 1.9 percent at $72.68, its highest settle since October and a 114 percent gain from its February low. Other commodities, like copper, gold and silver also moved higher.
The dollar, meanwhile, lost 0.8 percent against the euro , finishing at a level of $1.4107 per euro.
Rising oil has been a concern to J.P. Morgan economist Bruce Kasman. "It's not only a concern, we've lowered our consumption forecast for the next quarter as a result. It's not something we think is going to derail the expansion, and I do think we are getting better news on other components of activity," Kasman said in a phone interview. He said he cut his consumption forecast for Q3 to -0.5 percent form 1.0 percent.
Andrew Burkly, who follows the stock market's technical moves at Brown Brothers Harriman, said Thursday's action in stocks represents a failed break out.
"The S&Ps have basically been locked in this range between 950 and 920 going on two weeks now. It looked like we were going to get through it, which we did for about an hour," he said.
"People are just not comfortable pushing through it. It's pretty much price related to oil, at $72, $73 today," he said.
Burkly said there are some signs the market is running out of steam. "I guess we're getting a little more concerned because it does look things are getting a little more selective. Three weeks ago, things were very broad based. Now it's narrowing and narrowing," he said. He noted that the financials, early leaders, peaked May 8, and the market is seeing leadership now in stocks that are commodities-related.
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Thursday's best performers were the S&P utilities sector, up 2 percent; the energy sector, up 1.8 percent and the materials sector, 1.3 percent higher. The consumer discretionary group was the worst performer, down nearly 1 percent.
Burkly said he expects the S&P to peak at 1,000 to 1,050 in the next couple of months. "We're temporary bulls," he said, noting the light volume makes it unlikely the market has entered a new bull market.
Meanwhile, the oil market is watching the stock market and the idea that the world economy is improving drives prices higher. But traders are also watching geopolitical developments, which could be supportive of oil's current price level.
On Friday, Iranian voters head to the polls to decide whether to re-elect hard line President Mahmoud Ahmadinejad. Ahmadinejad's chief competitor Mirhossein Mousavi is a former prime minister and has seen a groundswell of support from thousands who have held public rallies.
M.F. Global's John Kilduff said there are several possible scenarios, which could boost oil. If Ahmadinejad wins, he certainly will pursue Iran's nuclear program and the situation could potentially come to a head with Israel. Should Mousavi win, he could change Iran's tone in dealing with the West and be more willing to negotiate on the nuclear program.
But, there is a risk of instability if Mousavi succeeds. Already, the Revolutionary Guard accuses him of conducting a "velvet revolution." This uncertainty could drive oil higher, Kilduff said.
A senior U.S. official said it's not likely the events in Iran are "pre-revolutionary." But, he did say: "Iran is no longer frozen in time."
Kilduff said regardless of the outcome in Iran, oil broke out technically when it crossed $72 and it may now be on track to reach $85 a barrel.
What to Watch
There is little data to stir things up Friday. Personal income for May is reported at 8:30 a.m., and the Michigan consumer sentiment survey is released at 9:55 a.m.
G-8 financial ministers convene in Italy for a weekend meeting.
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National Economic Council Director Larry Summers speaks at 11:15 a.m. at the Council on Foreign Relation's annual conference for national members. In Washington, auto industry executives head to the Hill for a House Energy hearing on dealership closures and industry restructuring.
It's a big day for the television industry Friday when the U.S. switches to digital TV.
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